Supreme Court Determines City's Agreement To Allow Private Development Conditioned On Future Compliance With The California Environmental Quality Act Amounts To Approval Of The Project And Must Be Preceded By Preparation Of An Environmental Impact Report

November 9, 2008 | Bulletin No. 903488.1

In Save Tara v. City of West Hollywood, (--- Cal.Rptr.3d ---, 2008 WL 4741084, Cal., Oct. 30, 2008), the California Supreme Court considered “whether and under what circumstances an agency’s agreement allowing private development, conditioned on future compliance with [the California Environmental Quality Act] constitutes approval of the project within the meaning of [Public Resources Code] Sections 21100 and 21151.” The Supreme Court concluded “that under some circumstances, such an agreement does amount to approval and must be preceded by preparation of” an environmental impact report (“EIR”).

Note

For a more in-depth look at the Court of Appeal decisions in Save Tara and Concerned McCloud Citizens, please refer to our Legal Alert entitled, “State Courts Confirm Role For Early Project-Related Approvals That Precede CEQA Review,” March 20, 2007.

Under the California Environmental Quality Act (“CEQA”), specifically Public Resources Code Sections 21100 and 21151, a public agency is required to prepare an Environmental Impact Report (“EIR”) “on any project the agency proposes to ‘carry out or approve’ if that project may have significant environmental effects.” The specific issue before the Supreme Court in this case was whether a City should have prepared an EIR before entering into a conditional agreement to sell land for private development and providing financial support and commitment to the project.

This case provides significant guidance to public agencies in determining precisely when CEQA analysis and compliance must be completed. On the one hand, CEQA analysis cannot be done before the project is well enough defined to allow for meaningful environmental review. However, CEQA analysis must be done before the project is approved to serve CEQA’s intended function of informing and guiding the decision makers. In this case, the Supreme Court concluded the City should have completed its CEQA analysis before entering into the conditional agreement for development of the property.

Facts

The owner of land in the City of West Hollywood ("City") donated land to the City with the conditions that the City continue to let her live on the property until her death and allow her tenants to occupy the premises for six months after her death. The owner died in 2000. Two nonprofit community housing developers (collectively, "Laurel Place") proposed to develop the property and create 35 low-income housing units for seniors. The plan called for preserving the main house on the property and building a three-story structure that would wrap around the back and sides of the existing house, and building an underground parking garage. In order to facilitate Laurel Place's HUD grant application, the City Council granted Laurel Place an option to purchase the property so it could show HUD that it had control of the project site. The City sent a letter to HUD stating that it had "approved the sale of the property at negligible cost." In fact, the City planned to contribute $1.5 million in land value and commit an additional funding for development costs in an amount not to exceed $1 million. HUD approved a $4.2 million grant. In late 2003, the tenants still residing on the property received notice that they would soon receive one-year eviction notices.

In early 2004, after citizens expressed concern over the project, the City stated that it and Laurel Place had already been awarded $4.2 million to build the low-income senior housing, and that they must "continue on a path that fulfills that obligation." After the City announced that it would consider an agreement to facilitate the project at its May 3, 2004 meeting, a group of City residents and neighbors who opposed the project and called themselves Save Tara, wrote the City and urged it to conduct a CEQA review and prepare an EIR before it approved a new agreement, made a loan, or renewed a purchase option. However, without taking any such action, the City Council, at its May 3rd meeting, voted to approve a conditional agreement to convey and develop the property, to authorize the City Manager to execute the agreement, and to require the City Commissions to review the plans for the new building and to receive public input on the design of the project's elements. In the first phase of the agreement, Laurel Place was to obtain final approval from HUD, relocate the tenants and take necessary actions to comply with CEQA. After the property was conveyed, the second phase, which included construction, was to begin. The May 3rd draft agreement provided that the City's obligation to convey the property and make the loan were subject to several conditions precedent, including that all applicable requirements of CEQA be satisfied. However, this draft agreement provided that the City Manager could waive these conditions. The agreement also provided that the pre-development portion of the loan was not subject to CEQA compliance.

Save Tara filed a lawsuit alleging that the City had violated CEQA because it failed to prepare an EIR before the May 3rd approval of the draft agreement and loan. The City executed a revised agreement on August 9, 2004, which followed the May 3rd draft agreement in many areas, but also removed the City Manager's authority to waive the requirement that all applicable CEQA requirements be satisfied. Under the August 9th agreement, the City retained "complete discretion over . . . any actions necessary to comply with CEQA" and imposed "no duty on City to approve . . . any documents prepared pursuant to CEQA." This second agreement also provided that the developer had to begin the process of hiring a relocation consultant.

The trial court denied Save Tara's mandate petition. The Court of Appeal reversed the trial court's decision.

Decision

The California Supreme Court concluded that the City must set aside its prior approval of the Laurel Park project because approval of the project should have been preceded by preparation of an EIR. The Court first discussed whether the City’s approval of a final EIR for the project during the pendency of the appeal rendered the appeal moot. Save Tara did not challenge the adequacy of the final EIR. The Court found that the preparation and certification of the final EIR did not render this appeal moot. “No irreversible physical or legal change has occurred during the pendency of the action, and Save Tara can still be awarded the relief it seeks, an order that City set aside its approvals.”

Next, the Court turned its attention to the timing of EIR preparation. Public Resources Code Section 21000, subdivision (a), provides that lead agencies must prepare an EIR “on any project which they propose to carry out or approve that may have a significant effect on the environment.” Section 21151, applies to local governments, and provides that local agencies must prepare an EIR “on any project that they intend to carry out or approve which may have a significant effect on the environment.” Approval is defined by Section 15352 of the CEQA Guidelines as “the decision by a public agency which commits the agency to a definite course of action in regard to a project intended to be carried out by any person.” For private projects, Section 15352 provides that “approval occurs upon the earliest commitment to issue or the issuance by the public agency of a discretionary contract, grant, subsidy, loan, or other form of financial assistance, lease, permit, license, certificate, or other entitlement for use of the project.”

Section 15004 of the Guidelines provides that “choosing the precise time for CEQA compliance involves a balancing of competing factors.” The Court recognized two considerations of legislative policy that are important to the timing of EIR preparation: “(1) that CEQA not be interpreted to require an EIR before the project is well enough defined to allow for meaningful environmental evaluation; and (2) that CEQA not be interpreted as allowing an EIR to be delayed beyond the time when it can, as a practical matter, serve its intended function of informing and guiding decision makers.” The problem in analyzing when approval occurs is determining “when an agency’s favoring of and assistance to a project ripens into a ‘commitment.’” The Court opined that to be consistent with the purposes of the CEQA, “the line must be drawn neither so early that the burden of environmental review impedes the exploration and formulation of potentially meritorious projects, nor so late that such review loses its power to influence key public decisions about those projects.” An agency must adjust its rules to set the exact date of approval, the agency, however, “has no discretion to define approval so as to make its commitment to a project precede the required preparation of an EIR.”

Here, both the draft agreement and the executed agreement conditioned the City’s obligation to convey the property to Laurel Place on satisfaction of all CEQA requirements. The City claims that this condition eliminated the need for preparation of an EIR or other CEQA document before the City approved the agreement. The Court concluded, “A CEQA compliance condition can be a legitimate ingredient in a preliminary public-private agreement . . . but if the agreement, viewed in light of all surrounding circumstances, commits the public agency as a practical matter to the project, the simple insertion of a CEQA compliance condition will not save the agreement from being considered an approval requiring prior environmental review.”

As noted above, the CEQA Guidelines define approval in relation to private projects. On its face, this regulation implies that once a public agency executes a contract for development, the project is approved. The Supreme Court, however, refused to strictly construe the Guidelines on this issue. In Concerned McCloud Citizens v. McCloud Community Services District, (2007) 147 Cal.App.4th 181, a district entered into an agreement with a bottler to sell water from the district’s sources. A California Court of Appeal held that an EIR was not required before the district executed the agreement because the agreement was subject to several “ifs.” The biggest “if” in the agreement was, “if discretionary permits, expressly defined as including CEQA documentation, review and approvals, along with the final adjudication of any legal challenges based on CEQA are secured and all environmental, title, physical, water quality, and economic aspects of the project are assessed.” The Supreme Court found that the agreement in McCloud lacked information about which springs were to be exploited, where the bottling plant would be located, how the water would be transported, and other information that was essential to environmental review. The Court found that the McCloud case does not establish that a conditional agreement never constitutes approval of a development, but instead speaks to “definiteness as to commitment.”

The CEQA Guidelines specifically address situations where there is a need to purchase property in a competitive real estate market by making an exception to the rule that agencies may not make a decision as to a site for facilities, which would require CEQA review, without making such a review. The exception provides that an agency “may designate a preferred site for CEQA review and may enter into land acquisition agreements when the agency has conditioned the agency’s future use of the site on CEQA compliance.” The Court cautioned that “this exception should not be allowed to swallow the general rule”; that a development decision that poses “significant environmental effects must be preceded, not followed by CEQA review.”

A public agency, which, “in theory, retains legal discretion to reject a proposed project may, by executing a detailed and definite agreement with the private developer and by lending its political and financial assistance to the project has, as a practical matter, committed itself to the project.” Also, if an agency states that it is for a project and then increases the political stakes by defending it over public objections and also puts its “official weight behind the project” by “devoting substantial public resources to it, and announcing a detailed agreement to go forward with the project, the agency will not be easily deterred from taking whatever steps remain toward the project’s final approval.”

The Court declined to agree with the Court of Appeal’s suggestion that any conditional or unconditional agreement would amount to an “approval” that required “prior preparation of CEQA documentation if, at the time, it was made the project was sufficiently well defined to provide ‘meaningful information for environmental assessment.’” This approach would result in CEQA review being required as to any public-private agreement where the private project had been described in sufficient detail. Approval under CEQA “cannot be equated with the agency’s mere interest in, or inclination to support, a project, no matter how well-defined.”

The Court stated that it was expressing “no opinion on whether any particular form of agreement, other than those involved in this case, constitutes project approval.” The Court took the League of California Cities’ “point that requiring agencies to engage in the often lengthy and expensive process of EIR preparation before reaching even preliminary agreements with developers could unnecessarily burden public and private planning.” The Court opined that review under CEQA “was not intended to be only an afterthought to project approval, but neither was it intended to place unneeded obstacles in the path of project formulation and development.”

The Court noted that neither of the “bright line rules” proposed by the parties was consistent with CEQA. The Court applied the “general principle that before conducting a CEQA review, agencies must not ‘take any action’ that significantly furthers a project ‘in a manner that forecloses alternatives or mitigation measures that would ordinarily be part of a CEQA review of that public project.’” Courts should not look to the agreement alone, but to the circumstances surrounding the project to determine whether “the agency has committed itself to the project as a whole or to any particular feature, so as to effectively preclude any alternatives or mitigation measures that CEQA would otherwise require to be considered, including the alternative of not going forward with the project.”

In this case, the Court concluded that the contract between the City and Laurel Place does in fact demonstrate the City’s commitment to the project. The draft agreement approved on May 3rd, and the August 9th executed agreement were entered into to “cause the reuse and redevelopment” of the property at issue. The City agreed in both versions of the agreement to lend the developer almost half a million dollars, which was not conditioned on compliance with CEQA. If the City chose not to give the project final approval, it would not be repaid. Both agreements conditioned conveyance of the property and distribution of the remaining loan funds on CEQA compliance. However, the May 3rd draft agreement allowed the City Manager to determine if CEQA requirements had been satisfied and had no provision to appeal the City Manager’s decision on, or waiver of, compliance with CEQA. The August 9th agreement took away the City Manager’s discretion. However, the City only made the changes after Save Tara filed this lawsuit. By then, the City had already indicated its willingness to give up authority in regard to CEQA compliance. The City had also made statements that other options for the property had been ruled out. The City had proceeded with tenant relocation, a step that was likely irreversible. All of these factors show that the City had committed itself to a definite course of action without fully evaluating the environmental effects of the project.

The Court found that the May and August agreements must be declared void and that the City must “reconsider those decisions in light of a legally adequate EIR for the project.” If, after reconsideration, the City chooses to approve the project, it must make appropriate findings to support that decision. However, the Court declined to find that the City must necessarily prepare a new EIR before reconsidering its decision to approve the project. The City may use the EIR prepared in 2006, but to the extent that the EIR’s discussion of mitigation measures and project alternatives are based on the approvals by the City in 2004, the EIR may need revision.

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Mona Ebrahimi, Karina Terakura or Daniel O'Hanlon | 916.321.4500