CEQA Exemptions’ Winners and Losers

After new legislation passed defanging parts of the California Environmental Quality Act, Holland & Knight partner Daniel Golub received an email from someone proclaiming, “CEQA is dead.”

It’s not. Still, the passage of budget trailer bills Assembly Bill 130 and Senate Bill 131 have been hailed by housing advocates, some builders and Gov. Gavin Newsom himself as industry-shaking reform for a state statute that has long loomed as a wet blanket over California development.

In a nutshell, the changes offer infill housing projects under 85 feet high an exemption from CEQA review, along with no more prevailing wage and affordability requirements. There’s also a minimum density requirement of at least 15 units per acre in urban markets and 10 units per acre in the suburbs.

CEQA, enacted under then-Gov. Ronald Reagan in 1970, was aimed at balancing environmental protection and development. Fast forward to today, it’s an effective tool at slowing or stopping development of all kinds.

As things currently stand, here’s a look at who could gain the most and the least from the changes.

CEQA Winners

Housing developers and supply

Housing advocates and developers come out on top here.

Jimmy Silverwood, president of affordable housing developer Affirmed Housing, called the latest CEQA exemptions “exciting” for the industry in general. Drilling down into the finer details, the new laws boost available options to move projects through and could unlock additional financing, Silverwood said.

“Not all developers are going to be utilizing this right off the bat, but I think this really is a win for housing across the board,” Silverwood said. “I would say for us, in the affordable housing space, it’s helpful. At the same time, we have other legislation that we’re able to utilize.”

That includes Senate Bill 35, which passed in 2017 with aims similar to the most recent CEQA exemptions by expediting multifamily infill development as long as those projects include affordable units and pay prevailing wages. There’s also the Class 32 exemption already baked into CEQA that aims to fast-track reviews on qualifying infill development.

In fact, Affirmed hasn’t gone through a true CEQA entitlement process in at least three years, Silverwood estimated, with roughly 90 percent of its pipeline sheltered in the certainty of by-right zoning that avoids the need to obtain special permits.

The coast and burbs

Some say the biggest beneficiaries of the new exemptions will be development in coastal hubs and certain suburban submarkets that have been prone to NIMBYism in the past.

Silverwood guessed projects around the five- to six-story mark might have the clearest path to bypassing litigious pushback against a project and securing approvals.

“The most challenges [to development] are in areas like some of the more affluent suburbs, where it becomes very difficult to beat off the public opposition. Some of those multifamily development projects may now have an easier time getting approved and surviving,” said law firm Stoel Rives partner Kathryn Oehlschlager.

If one is eyeing the coast, the new legislation doesn’t offer free reign to begin pulling permits. After all, there’s still the California Coastal Commission approval process.

As a result, Silverwood projected areas just outside the Coastal Commission boundary line could be big benefactors.

Lawyers

Legal challenges won’t be wiped from housing development, making land use attorneys’ services still necessary.

“It doesn’t solve every problem and it doesn’t put us completely out of business,” Holland & Knight’s Golub said. “The idea is you shouldn’t have to hire an army of lawyers just to get out of litigation.”

Oehlschlager said she could see some groups looking at how to squash a project’s eligibility from the latest exemptions.

“Nothing can stop someone from filing a lawsuit,” Oehlschlager said. “It’s part of a culture that the doors to the courthouse are always open.”

CEQA Losers

NIMBYs and special interests

It’s more difficult to pinpoint clear losers with the CEQA changes, because they’re not sweeping.

They no doubt chip away at the available tools used by NIMBYs to oppose a project. Labor also lost in terms of provisions tied to prevailing wage requirements. Environmental groups expressed their own displeasure with the changes.

Jakob Evans, California senior policy strategist at the Sierra Club, said in a statement the bills are “half-baked” and will hold “destructive consequences for environmental justice communities and endangered species.”

Commercial et al.

When CEQA rolled out, Clark Hill real estate lawyer Allan Lowy was in favor of it. It provided a checks-and-balance mechanism for development.

His opinion’s changed over the years.

“I thought it was a good idea to have CEQA. We needed some environmental controls, but 20 years [after its enactment], give or take, it’s taken on a life of its own,” Lowy said. “It’s gone too far.”

That’s since caused an unintended chain reaction, including the housing crisis the latest exemptions aim to solve.

What some might describe as the abuse of CEQA to stop development remains unaddressed.

“CEQA was never designed to be a gatekeeper,” Lowy said. “CEQA was designed to be a reference point, but what’s happened is everybody sues after a project has been approved.”

That would make the broader development community, minus housing, perhaps the biggest loser in all of this.

Even then, there are what Golub called the “glimmerings” of hope that perhaps the state is slowly charting a new course.

Signs of that are spelled out in SB-131, which allows for certain commercial uses — such as advanced manufacturing, high-speed rail, childcare centers and community clinics — to be CEQA exempt. It also does not require a full environmental review in housing projects that may have lost out on its CEQA exemption due to only one factor. An example of this would be if a corner of a project sits in a protected wetland.

Some wonder if such allowances can be made for housing, would commercial real estate have a shot at relief?

While Golub sees a possible “chipping away at that,” others, such as Oehlschlager, offered a different view.

“I think there’s less appetite for expediting commercial because we don’t need more commercial in California,” she said. “In fact, we probably have more than we need.”