CEQA exemptions on trial at high court

The California Supreme Court is finally poised to hear and decide a landmark California Environmental Quality Act, or CEQA, case that has been pending for over two and a half years on its docket. The court set oral argument for Dec. 2 in Berkeley Hillside Preservation v. City of Berkeley, S201176, and should issue a written decision within 90 days of arguments.

At stake for the parties is whether an environmental impact report (EIR) will be required for a two-story, 6,478 square foot house and 3,394 square foot garage proposed on a steep, residentially zoned Berkeley hillside parcel - as held by the 1st District Court of Appeal - or whether the city correctly found the project categorically exempt from CEQA review. At stake for lead agencies, project developers and courts statewide is far more.

At issue in Berkeley Hillside Preservation is the fundamental legal nature - and ultimately the practical fate - of CEQA's lengthy list of regulatory exemptions of classes of projects promulgated by the state Natural Resources Agency and commonly known as categorical exemptions. The act expressly directs the secretary of the agency to determine certain classes of projects do not have significant environmental effects and are thus exempt from CEQA's environmental review provisions (unlike CEQA's statutory exemptions, which typically exempt projects for legislative policy reasons unrelated to their environmental impacts).

Essentially, the court must decide whether the specifically described categories of projects determined to be exempt from CEQA review by the agency's regulations - the CEQA guidelines - are valid and authorized regulations that do what they purport to do. As relevant to this case, the guidelines purport to categorically exempt certain classes of projects from CEQA unless an opponent makes a showing of potentially significant environmental effects due to "unusual circumstances."

While lower courts have differed as to just what such a showing entails, most courts have held this exception to the exemption turns on whether a project's unusual characteristics and resulting impacts set it apart from typical projects within the exempt class.

The plaintiffs in Berkeley Hillside Preservation argue that requiring a separate showing of "unusual circumstances" is unauthorized by CEQA and unnecessary to prove an exception to an exemption bringing an otherwise categorically exempt project back within CEQA's ambit - although they hedge their bets by arguing the large single-family home at issue did indeed present "unusual circumstances."

Ultimately, plaintiffs view the guidelines' "unusual circumstances" requirement as tautological and of no independent legal significance; and argue that, by definition, any time a fair argument can be made that a categorically exempt project may have a significant environmental effect this alone constitutes an "unusual circumstance." In their view, a mere "fair argument" that any project - whether listed as categorically exempt or not - may have any significant environmental impact is sufficient to remove it from the agency's exemption and therefore require an EIR, or at least a mitigated negative declaration.

Should plaintiffs' expansive view of CEQA's reach prevail, the usefulness of categorical exemptions will be largely curtailed, if not wholly lost. An easily obtained letter or report expressing the fact-based opinion of a project opponent's hired expert that the project will have a significant impact will invariably subject a categorically exempt project to full-blown CEQA review, with all its attendant delay and expense, even if the agency and other experts disagree. Infill construction of a single-family home may thus require years of delay and hundreds of thousands of dollars in expenditures for environmental review in cases where the lead agency must prepare, finalize and certify an EIR. And even after such review, well-heeled project opponents could still drag the approved project through additional years and hundreds of thousands of dollars in costly CEQA litigation over the EIR's adequacy.

The city of Berkeley and the lot owners argue that the Legislature did not intend for this to be the law. They contend the agency's categorical exemptions of classes of projects are binding and fully authorized regulatory mandates, based on logical and evidence-supported findings deeming the impacts of such minor projects insignificant. They urge that if substantial evidence supports the lead agency's determination that a proposed project fits within a categorically exempt class, the project should enjoy a safe harbor from required CEQA review that withstands contrary expert opinion on potential impacts. According to the city's and real parties' position, unless the lead agency finds based on substantial evidence both that "unusual circumstances" make the project different from typical projects in the exempt class, and that these unusual circumstances may result in significant adverse environmental impacts, the categorical exemption must prevail.

The debate between the parties is more than a legal brain-teaser for CEQA practitioners - it has enormously profound practical consequences for cash-strapped state and local lead agencies, property owners and overburdened courts already required to devote substantial time and resources to the CEQA review and litigation processes. Projects enjoying categorically exempt status under CEQA include: infill construction of a single-family residence; normal operations of existing public facilities for public gatherings; minor alterations to land, water or vegetation not involving removal of mature scenic trees; construction of limited numbers of new, small facilities or structures; continued use of existing facilities with negligible or no expanded use; minor alterations in land use limitations in areas with average slope of less than 20 percent; regulatory agency enforcement actions and actions to maintain, enhance, restore or protect natural resources or the environments; and construction of commercial structures less than 10,000 square feet in urbanized areas. These exemptions largely comport with common sense and make the comprehensive reach of CEQA more manageable. Requiring an EIR in every case where one of these minor projects was opposed with a supporting hired expert opinion could greatly burden already stretched governmental resources.

All such categorical exemptions are inapplicable under a handful of specified exceptions, however, the most important and commonly asserted ones are the "cumulative impact" and "unusual circumstances" exceptions also found in the CEQA guidelines. Courts have viewed a lead agency's determination that a project is categorically exempt to include an implied finding that none of the exceptions to the exemptions exist. One key issue in Berkeley Hillside Preservation is whether this implied finding will stand and serve to uphold the categorical exemption if supported by any substantial evidence, or whether it - along with the exemption - is vanquished if the lead agency is presented with competing substantial evidence by a project opponent.

If the former, then judicial review of challenged categorical exemption decisions will be similar to that conducted on review of EIR decisions - the agency's decision and findings will be granted substantial deference and upheld even in the face of competing substantial evidence, including dueling expert evidence regarding the nature and likelihood of potential environmental impacts.

Conversely, if review of claims of exceptions to categorical exemption decisions must proceed under the low threshold "fair argument" test applicable to the adoption of negative and mitigated negative declarations, it is foreseeable that opponents may easily and routinely be able to overcome the exemption and force preparation of a full EIR - an onerous requirement that can, by itself, "kill" many small development projects. In that event, categorically exempt projects will enjoy no greater protection from CEQA challenge than does any other nonexempt project.

At issue in Berkeley Hillside Preservation is no less than the future practical utility of regulatory exemptions that have been relied on for decades by lead agencies and project proponents to streamline project review for classes of projects that are deemed by the state to be, by and large, environmentally benign. Put another way, the court must decide whether the CEQA guidelines' categorical exemptions and standards for exceptions will serve as authorized and useful "bright line" rules, or whether they will essentially be held to have no effect on application of the "fair argument" standard to the numerous classes of minor projects they embrace. Given the depths of Legislative history it must plumb and the significant practical impact of its decision, it is no wonder the high court has taken so long to ponder the issue. But the court will soon let us know its answer.