A Practical Guide to Gov. Newsom's May 2023 Budget-Revised CEQA Trailer Bills

Meaningful reforms to the venerable California Environmental Quality Act (CEQA) have eluded all past governors in the state. What passes as CEQA "reform" in recent years has largely taken the form of "buddy bills" to completely exempt from CEQA's reach politically favored projects for the very wealthy and the very politically powerful. As observed by many, most other statutory CEQA exemptions for urgently needed projects for others, such as housing and infrastructure, are either eviscerated with exceptions that render projects such as exempt "affordable housing" a legal unicorn (much discussed, never seen) or include a Christmas tree of ornaments to the politically powerful that increase construction costs such that they are even more financially unfeasible.

CEQA has been finely tuned to protect the status quo even in the face of California's urgent housing and infrastructure needs. CEQA lawsuits (and lawsuit threats) are the go-to tool for "NIMBYs" (not in my backyard) and anyone with the resources to file a lawsuit who wants to leverage a project approved by elected and appointed officials to further their own special interests. For example, as reported in Part 3 of the "In the Name of the Environment" series authored by Holland & Knight attorneys, examining all CEQA lawsuits filed from 2019 to 2021,¹ local and regional land use plans to allow more than 1 million new homes were targeted by CEQA lawsuits. In just one calendar year (2020), almost 48,000 approved homes (almost half of the new homes built in 2020) were targeted by CEQA lawsuits. The most frequent targets of CEQA litigation over infrastructure projects would add a water supply or improve water quality to address the less-publicized water crisis that the non-partisan Legislative Analyst's Office has estimated means that 1 million Californians cannot safely drink the water from their taps. And almost all of those without safe, reliable drinking water are in disadvantaged communities. Using CEQA to block housing and water projects would thus appear to be antithetical to California's claimed progressive values.

Gov. Gavin Newsom stepped into the CEQA fray on May 19, 2023, with a package of 11 CEQA reform bills he wants the state legislature to approve on a fast track, concurrent with the legislature's duty to adopt a budget by June 15, 2023, or go without pay. The cacophony of objections has begun, but here's a short summary of the practical changes we expect if the governor's CEQA Reform Package is enacted as proposed.

1. CEQA Reforms for All Projects (Including Housing): Lawsuit Administrative Record: None of the governor's proposals includes exemptions or clarifications on how housing and almost all other types of plans and projects are required to comply with CEQA. Once a CEQA lawsuit is filed to block an approved project, however, the governor proposes one change designed to reduce the current two- to five-year litigation schedule by about four to 10 months, which benefits housing and all other projects embroiled in a CEQA lawsuit:

Section 21167.6² is proposed to be amended to reduce the scope of, and schedule for preparing, the "administrative record" of the agency's approval of a project. Internal electronic communications within the lead agency are excluded from the record unless they were shown to "the final decisionmaking body" of the lead agency (e.g., a city council). This should reduce time-consuming searches and privilege reviews of emails. Also, a lead agency may insist on preparing the record and may either absorb or pass the cost of record preparation to an applicant.

Practical Assessment: This should eliminate several months from the record preparation process and avoid petitioner elections to manipulate the process to achieve delay. However, this will add thousands to hundreds of thousands of dollars to applicant CEQA compliance costs while further reducing the cost of filing CEQA lawsuits against approved projects. Petitioners continue to enjoy a strong economic advantage in pursuing meritless CEQA lawsuits with lower upfront costs and minimal to no downside cost risk.

2. CEQA Reforms for Designated Water, Transportation, Clean Energy and Semiconductor or Microelectronic Projects: Most – nine of 11 – of the governor's CEQA reforms apply to designated types of projects, including those that are eligible for significant federal funding under the Inflation Reduction Act (IRA) and/or Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act.³ These reforms emerged from months of work by former Los Angeles Mayor Antonio Villaraigosa and the nonpartisan group California Forward.⁴ The most significant of these reforms requires that CEQA lawsuit challenges be resolved within 270 days of the filing of the certified administrative record with the trial court, consistent with existing laws allowing for expedited judicial review of environmental leadership projects.⁵ The administrative record component of the litigation process is required to be completed and funded by the project sponsor concurrently with the CEQA compliance and project approval process but would, if the prior reform is enacted, now largely exclude internal agency electronic communications. This reform is intended to resolve CEQA lawsuits (including review by the Courts of Appeal and California Supreme Court) in less than one year, instead of the four- to 10-year CEQA lawsuit durations common to complex infrastructure projects such as management of the Bay-Delta, desalination plants, wind farms, transmission lines and manufacturing facilities.

Chapter 7, commencing with Section 21189.80, would add seven new statutes to CEQA. The most critical is the list of eligible projects, defined in 21189.80, all of which include, except as otherwise noted, mandatory compliance with designated state labor standards:

• Energy. "Clean energy" projects include solar and onshore wind electricity generation, energy storage systems, electric transmission lines and projects for the manufacturing, production or assembly of energy storage, wind or solar energy systems, all of which must meet applicable labor standards except for solar/wind generation projects with a 20-megawatt capacity or less and storage projects with a capacity of less than 80 megawatts of energy.
• Water. Several categories of water infrastructure projects are included, among them the Bay-Delta Conveyance Project and water projects funded by the voter-approved Proposition 1, which among other projects includes new surface water storage, water recycling plants, desalination projects and the repair or maintenance of canals and other water conveyance systems.
• Transportation. Includes projects that "are consistent with, and do not conflict with" the state's Climate Action Plan for Transportation Infrastructure. These include expansion of a statewide rail and transit network, bike and pedestrian paths, zero-emission vehicle investments and zero-emission freight transportation projects that reduce public health and economic harms, maximize community benefits, make safety improvements to reduce fatalities and severe injuries, address physical climate risk, protect natural and working lands, do not increase passenger vehicle travel and promote compact infill development while protecting residents and businesses from displacement.
• Semiconductors. Includes semiconductor and microelectronic research and development and manufacturing projects meeting federal funding requirements, and actually awarded funds, under the CHIPS Act.

Practical Assessment: The short shot clock for resolving CEQA lawsuits, while prescribed at 270 days, has in practice taken a bit longer for other litigated environmental leadership projects such as the arena for the Golden State Warriors. This is nevertheless a major improvement from the business-as-usual CEQA lawsuit schedule of four to six years. The environmental attributes of the projects are largely included in the eligibility criteria and are most significant for the always-litigated categories of water infrastructure, such as desalination plants and the Delta tunnel. The eligibility criteria are most elaborate, legally opaque and in some circumstances contradictory, for transportation project eligibility – similar to the competing housing policy land use disputes. This reform should nevertheless help make approved eligible projects "shovel ready" for federal funding more quickly if they are sued, and it places responsibility for the funding success of these projects squarely with the lead CEQA agency and other responsible agencies to far more quickly complete the CEQA compliance process. To date, much faster agency environmental review and permitting processes have allowed majority Republican states to receive an outsize share of federal infrastructure funding. For example, a high-speed rail line connecting Miami to Orlando, Florida, was proposed, reviewed, litigated, constructed and began operations in only 11 years. The California High Speed Rail project has been plagued with multiyear delays in completing its own CEQA documents and typically requires multiple rounds of CEQA compliance documents at various stages for the same segment of the rail line.

3. Streamlined National Environmental Policy Act (NEPA) Compliance for Transportation Projects: NEPA applies to federal agency funding and approval of many highway, transit, roadway and other transportation projects and in most respects largely duplicates the environmental review already required by CEQA. California currently has delegated authorization to complete the NEPA process for eligible state transportation projects, which expires in 2025. Other federal agencies, such as those that fund affordable housing and other types of infrastructure, do not have such delegation agreements. The governor proposes to expand and extend the NEPA delegation for transportation projects.

Section 13979.2 of the Government Code is proposed to be amended to remove the sunset date, and extend indefinitely, this NEPA delegation. The NEPA delegation would also extend to regional, local and special district railroad, public transportation and multimodal projects as long as the local agency agrees to a memorandum of understanding (MOU) on terms that are satisfactory to the state and federal transportation agencies.

Practical Assessment: Joint federal/state agency preparation of joint NEPA-CEQA documents has long proven to be a daunting and slow task, and sequencing NEPA to start only after the CEQA process is completed likewise results in lengthy delays. State transportation projects are already subject to labor standards favored by powerful unions. The new MOU requirement will streamline the NEPA process for local projects but is expected to include labor and other standards that are consistent with the policy priorities of the MOU's state and federal agency signatories.

4. Recategorization of "Fully Protected Species" as "Endangered Species" Regulated Under the California Endangered Species Act: Most often predating enactment of the California Endangered Species Act (CESA),⁶ California had enacted several statutes designed to protect designated rare, threatened or endangered species. While CESA includes a permit process allowing the "incidental take" of CESA species (under appropriate approval and mitigation conditions), these non-CESA statutes did not include an incidental take permit process, and these species came to be referred to as "fully-protected," even from CESA permitting. The different species protection statutory schemes resulted in legal uncertainties in both the CEQA compliance and species permitting process.

Several California Fish and Game Code statutory revisions are proposed. The governor proposes to repeal the four fully protected species statutes and amend CESA to reclassify the 10 fully protected species that are not already covered by CESA to add seven to the list of threatened CESA species and would not re-list three fully protected species that were also previously listed under CESA but subsequently delisted. The governor also proposes to exempt from CEQA future decisions to alter the CESA listing of any of the 37 fully protected species that the bill reclassifies as endangered, threatened or not listed under CESA.

Practical Assessment: California currently has 37 fully protected species (27 already listed in CESA), which collectively span much of the state and affect infrastructure and other projects. Removing the complexity of the fully protected species statutes will simplify the CEQA and species permitting process for these projects. The Fish and Game Commission's procedure to list, or delist, species under CESA has become highly politicized. Creating a new statutory exemption from CEQA for these 37 species creates a powerful new mechanism for unilateral Commission listing decisions without the notice, comment, analysis, mitigation and alternatives assessment requirements of CEQA even where, for example, Commission listing decisions would have the legal and practical effect of blocking new infrastructure or housing. This is another example of CEQA exemptions being doled out to powerful interest groups pursuing their agendas, while being withheld from projects, such as housing and infrastructure, needed by ordinary Californians. This also falls into a frequent pattern in the executive branch, which is to allow regulatory agencies to pursue their objectives in a silo that avoids recognizing or respecting other important policy priorities such as housing and infrastructure.

5. Authorized Participation in Federal Green Bank Financing Fund: The federal IRA created a Greenhouse Gas Reduction Fund (sometimes called the "Green Bank") to be administered by the U.S. Environmental Protection Agency (EPA) to help achieve climate change goals. The Biden Administration has required that 40 percent of these funds be directed to assist disadvantaged communities. These federal funds are awarded competitively in three programs and generally include both direct funding and tax credits. There is no cap on the number of tax credits that can be awarded. The $14 billion National Clean Investment Fund will fund two to three national nonprofits to partner with capital providers to provide financing for climate projects. The $6 billion Clean Communities Investment Accelerator will fund two to seven "hub nonprofits" to build the financing capacity of local nonprofits and other entities to finance climate technology deployment in low-income and disadvantaged communities. The $7 billion Solar for All program will provide 60 grants to states, tribes, municipalities and nonprofits to expand the number of low-income and disadvantaged communities ready to accept solar power.

Section 63048.93(f) of the Government Code, and two sections of the Water Code, are proposed to be amended to allow nine state agencies to work on securing Green Bank funding for the state.

Practical Assessment: Many nonprofits and state agencies have been working for months to qualify for Green Bank funding. California certainly has needs – for example, as the nonpartisan state auditor recently reported, nearly 1 million Californians have tap water that is unsafe or unavailable.⁷

6. Caltrans and DWR Contracting Authority Reforms: The remaining four proposed reforms apply only to the California Department of Transportation (Caltrans) and/or the Department of Water Resources (DWR) and are directly related to expediting the project design, approval, construction and/or mitigation processes of these agencies.

• Caltrans would be authorized to enter into a direct cooperative agreement with a private company, Brightline West, to construct designated wildlife mitigation crossings over Interstate 15. Brightline is proposing to complete a high-speed rail segment between Rancho Cucamonga and Las Vegas, mostly within the median of Interstate 15, and was the successful developer of the high-speed rail line completed in Florida in 11 years (from initial application, through construction and operation of the full 170-mile rail project).
• Caltrans would be authorized to enter into an expedited "Job Order" contracting process for routine maintenance, which the proposal explains would reduce the contract process cost by 8 percent to 16 percent and time by 80 percent.
• Caltrans and DWR would be authorized to enter into "Progressive Design Build" contracts based on contractor qualifications, rather than full engineering designs, for up to eight pilot projects (which are not identified). The proposal explains that involving the "build" contractor earlier in the "design" process allows for more efficient and potentially less-costly project completion, while also allowing the public agency more time to provide input into the design-build process.
• DWR's Delta project is in part governed by the Delta Reform Act, which created the Delta Stewardship Council (Council). The Council is charged with furthering the "co-equal goals" of protecting and enhancing the Delta ecosystem while providing a more reliable water supply for California. The proposal adopts short statutes of limitations for challenging Delta Stewardship Council decisions, clarifies the voting rules for the Council and allows for judicial severance of the Delta Reform Act.

Practical Assessment: The Brightline component creates precedent for private-party completion of mitigation improvements on and over interstate highways, which, if expanded, could expedite completion of mitigation requirements for other projects. The Delta Council reforms will create more certainty as to when decisions by this agency can be challenged in court; the Council is one of myriad agencies with jurisdiction over different components of Delta projects. Both progressive design-build and expedited maintenance contracting have long been recommended as cost-effective agency practice improvements that benefit taxpayers more generally.

Notes

¹ Jennifer Hernandez, In the Name of the Environment, Part III: CEQA, Housing, and the Rule of Law, 26 CHAP. L. Rev. 57 (2022).

² Unless otherwise stated, all code references are to the CEQA statute, California Public Resources Code Sections 21000 et seq.

³ Inflation Reduction Act of 2022, H.R. 5376, 117th Congress (2021-2022); Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, H.R. 4346, 117th Congress (2021-2022) (Public Law 117-167).

⁴ "Building a More Inclusive and Sustainable California: Maximizing the federal infrastructure funding opportunity," May 2023. For disclosure purposes, co-author Jennifer Hernandez is a longtime member of the California Forward Leadership Council.

⁵ Pub. Res. Code sections 21178 through 21189.3 (adopted as SB 7 (2021).

⁶ Fish & Game Code Sections 2050 et seq.

⁷ "State Water Resources Control Board: It Lacks the Urgency Necessary to Ensure That Failing Water Systems Receive Needed Assistance in a Timely Manner," Report 2021-118, Auditor of the State of California (July 2022).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.