Although long overdue, moves to reform the California Environmental Quality Act (CEQA) are finally gaining traction among lawmakers on both sides of the aisle. Most notably is reform bill SB 731, which despite being watered down from its original version, addresses a few key issues. The bill, sponsored by Senate President pro Tem Darrell Steinberg, has unanimously cleared the Senate floor and many observers like the probability of it becoming law.
Why is reform needed? The simple answer is that just about anyone can use CEQA to bring a court challenge against any proposed development project in California. CEQA challenges are used by environmentalists, neighborhood groups, and businesses trying to stop or delay a competitor’s project. The abusive nature of many of these challenges has been documented ad nauseam (see examples in this posting), and has contributed to one of the least affordable housing markets in the nation. This is not to say that developers should be given a “free-for-all” pass – we need thorough environmental impact reviews to protect California’s precious natural resources. But we also must stop the cynical and abusive application of CEQA, something that has led to serious cost overruns and delays in projects across the state.
One of the most important reforms in SB 731 is that it prevents CEQA environmental review appeals from being based on aesthetics. Currently, an appeal can be filed if a local neighborhood group does not like the look of a project. The infamous Los Angeles ‘Carmageddon’, as it was dubbed by the media, was caused by delays in the Mulholland Bridge project after local neighborhood associations played the aesthetics card and forced design changes to the bridge. This led to a closure of a stretch of the 405 freeway, one of the busiest business freeways in the nation, inconveniencing more than 500,000 drivers (on a typical weekend). It also delayed the project by a few months.
Another critical change that will result from SB 731 is the standardization of environmental thresholds. Under the bill, the state would create a set of guidelines that would define the thresholds for traffic and noise impacts for infill projects. Critics have repeatedly pointed out that the lack of CEQA guidelines and defined standards make challenges and lawsuits much easier. The current bill would partly fix this issue. Projects with impacts that fall within the statewide threshold would not be required to meet additional requirements. However, additional thresholds could be required by local governments. Because traffic and noise are local issues, there is the potential for frequent local government challenges.
State Bill 731 would also put a 30-day statute of limitations on bringing actions under CEQA, and limit CEQA challenges on “smart growth” projects. For example, if the City of Los Angeles proposed developments near train stations, once the initial Environmental Impact Report was complete, the project would not be subject to further review or CEQA lawsuits.
Still, assuming the proposed changes become law, there remains a strong ability for NIMBYs and business competitors to create unnecessary delays by abusing CEQA.
The following examples help illustrate the ongoing problems.
USC Housing - To battle a housing shortage, USC proposed a complex for 1,600 students. The project included 83,000 square feet of retail space, all in an impoverished part of Los Angeles. A local competitor and owner of more than a dozen properties that are rented to USC students, used CEQA to halt the university’s project. Even though the initial environmental impact review took two years to complete, the challenge was based on an insufficient number of parking spots. Interestingly, USC’s project had the same parking ratio as did the properties owned by the competitor challenging the development. Four years after starting the environmental impact review, and after numerous appeals, the project broke ground.
Dolores Park - After months of neighborhood meetings and hearings, a CEQA challenge was filed against the refurbishing of Dolores Park in San Francisco. Incredibly, it was based on a local residents’ claim that refurbishing the park could increase child obesity levels because plans for a small dog play area would prevent children from being able to play in that corner of the park, making them fat.
Target - In 2009, Target submitted plans for a new store at Sunset Boulevard and Western Boulevard in Hollywood. In 2010, the City of Los Angeles approved the plans. Target has yet to break ground. There have been numerous CEQA-based challenges to the 200,000 square foot project, proposed for a mostly vacant lot in an economically depressed part of Hollywood. The Los Angeles Business Journal quoted the attorney representing one of the area's most vocal neighborhoods associations as saying, “...on my client’s side, people are unhappy because it means more traffic, less parking, and a less livable community.” By most reasonable estimates, the addition of Target would be a major boost for that community. Hopefully, Target prevails. Smaller developers would not be able to endure years of legal battles.
Sunset Gordon Project – The difficulty in fighting numerous CEQA appeals is evidenced in the Sunset Gordon project, also located in Hollywood. The land was initially purchased in 2006 and entitlements for the property granted in 2008. This unleashed a number of lawsuits by local neighborhood associations, which lasted more than 2 years. All the lawsuits were eventually thrown out. In 2010 the developer defaulted on the loan, which further delayed the project. While the financial crisis very likely played a role in the default, frivolous lawsuits and the delays they caused took their toll as well. Another developer purchased the land in 2011 and the original structure was demolished in 2012. The 22-story, 301-unit project was then hit with additional CEQA lawsuits but finally broke ground in 2013. CEQA lawsuits brought against this project by local neighborhood associations delayed the development by at least 3 years.
There are other illustrations of the problem.
A recent study by one of the state’s most respected law firms, and specialists on CEQA, provides interesting insight into CEQA lawsuits. The authors analyzed 95 published opinions between 1997 and 2012 that challenged the validity of the environmental impact reviews of development projects in the state. According to the study, 56% of all the challenges were filed against infill projects (basically re-development projects). Moreover, 73% of the challenges were filed by local groups (e.g. neighborhood associations) while only 26% were filed by larger policy or environmental organizations such as the Sierra Club. Unincorporated neighborhood associations were behind 46% of the lawsuits. These associations do not have to disclose their members or any economic interests they may have in the project they are challenging. Indeed, the same unincorporated neighborhood association is a challenger to the Target project and many other proposed developments in Hollywood.
Curbed LA, a local real estate blog, recently published a leaked land document that sheds some light on the behind-the-scenes workings of CEQA lawsuits. The La Mirada Neighborhood Association and its attorney Robert Silverman agreed to a settlement with an unnamed developer that allotted $90,000 to Silverman and $250,000 to the neighborhood association (to be spent as the association sees fit). The settlement stated that the group would end their challenge if the developer paid the monetary settlement.
Sadly, CEQA abuse has contributed to California’s housing shortage and lack of affordability.
Frivolous lawsuits increase prices by increasing the cost of development. The $340,000 paid by the developer to the La Mirada group will be passed down to the consumer – business owners leasing the property, renters, and condo owners. While additional costs would be absorbed in an elastic market, that’s not true in most of coastal California where housing is relatively unaffordable (and inelastic) due to limited supply and strong demand.
As of the first quarter of 2013, the median price of a condo in Los Angeles was about $330,000. The annual median household income was $55,000. Accounting for property taxes and mortgage payments, a typical LA condo household would have to spend about 32% of their income on housing. Banks, of course, do not look favorably on buyers with housing costs above 30%.
Indeed, condo and home prices have made quite a comeback over the past year because of the demand. Current housing inventory in the Los Angeles region is at less than 2 months. In other words, at the current rate of transaction volume, the inventory of homes would be exhausted in 2 months – implying a very tight supply.
Still, while approximately 23,000 new households were added to Los Angeles County in 2012, only 9,300 new housing units were built. Not only is the current housing supply weak, but development is not keeping up with population growth.
While the reforms proposed in SB 731 are all valuable steps in the right direction, more needs to be done to eliminate frivolous and meaningless CEQA lawsuits, reduce delays and costs, and ultimately improve housing affordability across the state.