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Builders push for CEQA reform

September 21, 2012 | Silicon Valley/San Jose Business Journal

Premium content from Silicon Valley / San Jose Business Journal by Nathan Donato-Weinstein, Real Estate Reporter

Later this year, SummerHill Homes will complete a 110 single-family home project on 17 acres across from the Westfield Valley Fair Shopping Center in Santa Clara.

But the project would have finished long ago if not for challenges made by project opponents under the California Environmental Quality Act, said Robert Freed, SummerHill’s president and CEO.

“It’s now become an unwieldy, out-of-control monster,” Freed said of the legislation, which was passed in 1970.

Freed is not alone in his view. Commercial real estate executives say the law must be reformed to prevent abuses. Increasingly, they say, CEQA is being used as a tactic to scuttle projects by neighborhood opponents or to extract financial concessions.

Now there are some signs lawmakers are listening – and not just among Republicans who have long complained about CEQA stifling business.

An overhaul bill sponsored by Michael Rubio (D-Shafter) died in the State Senate in August, but Senate President Pro-Tem Darrell Steinberg (D-Sacramento) pledged on Sept. 13 he would convene “stakeholder meetings” to examine reform before the Legislature convenes on Jan. 4.

“The idea is to bring everybody to the table to come up with a compromise between folks on both sides of the issue,” said Steinberg spokesman Mark Hedlund.

Gov. Jerry Brown, a Democrat, even called efforts to reform CEQA “the Lord’s work” on Aug. 22, according to news reports.

CEQA conundrum

Passed the same year as a national law called NEPA (National Environmental Policy Act), CEQA requires environmental review of projects by state and local agencies – allowing the public to see how a development could affect land, air, water and other elements of the environment. Significant impacts require a mitigation plan.

The public can challenge a project’s CEQA clearance through litigation. These suits often claim a project’s environmental impact report did not adequately address concerns, or a project that did not require an EIR actually needed one completed.

“CEQA is a very well-intentioned law and was envisioned from the get-go to help protect the environment and disclose the impacts,” said Shiloh Ballard, vice president of housing and community development for the Silicon Valley Leadership Group, which is pushing for changes to the law. “But the scope and reach of CEQA has been expanded in the broadest way possible, and that’s what set us on the path we’re on now.”

Challengers are not limited to environmental groups. Neighbors unhappy with a project in their backyard, unions seeking labor agreements and competing businesses have latched onto CEQA as a catch-all mechanism to stall projects or extract a deal, industry insiders said.

“Virtually anybody can sue under CEQA,” said Jennifer Hernandez, a partner with Holland & Knight in San Francisco and an expert on environmental litigation. “An environmental tool used mostly by environmental applicants can be used for all things by all people.”

David Pettit, an attorney with the National Resources Defense Council, counters that the number of frivolous CEQA lawsuits is fewer than industry groups suggest. He studied 18 months of data from Los Angeles County and found only 18 cases of litigation out of 1,182 approved projects. And he said truly warrantless litigation is easily tossed out by the court.

“There’s this idea that the court system is chock full of frivolous cases, but it’s very good at weeding it out,” he said.

That might be true, but Joe Horwedel, the city’s planning director, said a lot of time is still spent dealing with CEQA challenges. He said the city is currently in litigation with as many as five CEQA lawsuits, holding up projects.

“I spend a lot of time as a planner dealing with the what ifs. That’s what our job is,” he said. “But you can’t be paralyzed by the what ifs.”

Local developers say they have many examples.

“You have a small group of people that can block something,” said Jesse Nickell, vice president for Barry Swenson Builder.

His $30 million La Bahia Hotel project in Santa Cruz faced a CEQA challenge sponsored by a neighborhood group and carpenters’ union.

“It was dragged out so much we missed the boom cycle, and then no one was loaning — (lenders are) just starting to loan on hotels again,” he said.

The Santa Clara SummerHill project nearly faced a similar fate.

A community group filed suit in 2007 claiming that the city of Santa Clara didn’t follow CEQA guidelines on the project, which included 165 senior apartments built by the Santa Clara Methodist Retirement Foundation and Charities Housing.

Neighbors claimed it was the only significant open space land left in the region and should have been protected. Freed, however, said the land was surrounded by dense development. The acreage, adjacent to Valley Fair Shopping Center, is surrounded by retail shops and next to major thoroughfare Stevens Creek Boulevard.

“There were no trees or animals or endangered species or anything,” Freed said. “Neighbors being opposed to development is not an environmental issue.”

SummerHill and the city of Santa Clara won in court and got the go-ahead to build – but SummerHill spent an estimated $4.5 million in extra costs because of the challenges, which delayed the project by several years.

By then, the market had tanked, and the company put the project on ice.

Although construction is now under way – helped along by a resurgent housing market – the affordable senior component is still struggling to get off the ground.

“If you miss a market cycle, it could cost you millions upon millions,” said Michael Van Every, president of Republic Urban Properties - West Coast Division.

He said the specter of CEQA lawsuits is always top of mind. He added that it’s ironic because his company mainly develops higher-density, urban infill products that are more environmentally friendly than sprawling, low-density deals.

It’s unclear what form a potential reform might take. So far, the Legislature has streamlined the CEQA process for specific types of projects, but has not passed wholesale changes.

Hedlund, of Steinberg’s office, said it’s too early to nail down specifics.

Hernandez said one possibility is to allow projects to satisfy CEQA requirements if they comply with existing environmental laws passed after CEQA. Another is to allow environmental impact reports for specific-plan areas to satisfy individual project CEQA requirements.

Whatever the proposed changes include, Freed said the status quo means the public loses out.

“We need certain types of housing,” he said. “And the more risky that housing becomes, the more expensive it’s going to be – or, the less of it you’ll have.”

 

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