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First District Rules that State Lands Commission’s Approval of a Land Exchange Agreement Not Exempt from CEQA; Exhaustion Requirement Did Not Apply.

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The First District, in Defend Our Waterfront v. California State Lands Commission (Sept. 17, 2015) ___Cal.App.4th___, Case Nos. A1496 & 141697,  upheld the trial court’s grant of a petition for writ of mandate challenging a land exchange between the City and County of San Francisco and the project applicants for the 8 Washington Street Project.

The 8 Washington Street Project is a plan to develop waterfront land near the San Francisco Ferry Building. The project site includes the “Seawall Lot 351” parcel, which is currently owned by the City and County of San Francisco through its Port Commission (the City), subject to the public trust for uses benefiting the people of California. The public trust restriction on the use of the Seawall Lot 351 is inconsistent with the development proposed by the 8 Washington Project. To remove this inconsistency, the applicants and the City proposed to transfer Seawall Lot 351 out of the public trust and replace it with a different parcel of property pursuant to a land exchange agreement with the State Lands Commission (SLC). In August 2012, SLC approved the land exchange agreement, finding, among other things, that the agreement is a statutorily exempt activity under CEQA.

Defend Our Waterfront (DOW), argued that SLC abused its discretion in determining that the land exchange agreement was exempt from CEQA. SLC, the City, and the project applicants argued that DOW had not exhausted its administrative remedies on this issue. The trial court held the exhaustion requirement was inapplicable because there was no effective notice of a public hearing on a CEQA matter prior to the SLC ruling. The Court of Appeal affirmed. The appellate court explained that the only notice provided by the agenda for the SLC meeting was that the SLC was considering a land exchange agreement proposed by the City. The agenda made no reference to CEQA.

The applicants argued that although the agenda itself did not specify that staff considered the project exempt from CEQA, the staff report, which was available online through a link provided in the agenda, set forth this information. The Court of Appeal held, however, that the staff report did not provide legally sufficient public notice of SLC’s CEQA decision for two reasons. First, someone would have to take the additional step of clicking on the agenda’s link to the staff report to learn that a CEQA issue would be decided at the SLC meeting. Second, the hyperlink to the staff report was added after the 10-day notice requirement under Government Code section 11125, subdivision (a), so could not provide adequate notice.

The applicants alternatively argued that DOW had actual notice that the SLC was going to consider the CEQA exemption at the meeting. To support this argument, the applicants pointed to an e-mail from a member of DOW that referred to the staff report. The e-mail, however, did not mention CEQA, so the court refused to assume that the e-mail’s author had read the section of the staff report regarding the CEQA exemption. Furthermore, even if the e-mail’s author had read the entire report, the staff report still did not provide adequate notice because it was not provided until after the 10-day notice period, discussed above.

Moving to the CEQA issue, the Court of Appeal agreed with the trial court that the land exchange agreement was not exempt from CEQA review. SLC had found that land exchange agreement was statutorily exempt under Public Resources Code section 21080.11, which states: “This division shall not apply to settlements of title and boundary problems by the State Lands Commission and to exchanges or leases in connections with those or leases in connection with those settlements.” Applying principles of statutory construction, the Court of Appeal held that the statutory exemption for “settlements and title boundary problems” did not apply as a matter of law because there was neither a title or a boundary dispute nor settlement of any such dispute relating to Seawall Lot 351. Instead, the express purpose of the exchange is to further the 8 Washington Street Project. In reaching this conclusion, the Court of Appeal declined to defer to the public agencies’ interpretation of Public Resources Code section 21080.11.

RMM Attorneys Whit Manley, Chip Wilkins, and Chris Stiles represented Real Parties in Interest in the matter.

Fourth District Finds School District’s Determination that Exemption Applied to School Closures was Not Supported by Substantial Evidence

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Save Our Schools v. Barstow Unified School District Board of Education (Sept. 2, 2015) ___ Cal.App.4th ___, Case No. E060759.

Barstow Unified School District approved closing two of its elementary schools and transferring those students to other “receptor” schools in the District, in order to meet its financial obligations in future school years. The Board estimated the closures would save the District $600,000 annually. The District determined the closures and transfers were exempt from CEQA because they fell within the categorical exemption for “minor additions” to schools, pursuant to Public Resources Code section 21080.18 and CEQA Guidelines section 15314. The court found the District could not have properly determined an exemption applied because it did not have the necessary statistics before it when making that decision.

Under Guidelines section 15314, school closures and student transfers resulting in “minor additions to existing schools” are categorically exempt from CEQA review where the transfer of students does not increase “original student capacity” of a receptor school by (1) more than 25% or (2) ten classrooms, whichever is less. The court noted that the record did not contain figures for the “original student capacity” or total enrollment before transfers at any of the receptor schools. Thus, it was impossible to determine whether the transfers would increase that capacity beyond the levels allowed under the exemption.

At the meeting to address the proposed closures and transfers, the District board members and superintendent assumed there would be more than sufficient enrollment capacity at the receptor schools to absorb the transfers, but the board did not indicate that it would limit the number of transfers in order to keep enrollment below levels allowed by the exemption.

The court directed the District to void its determination that the closures and transfers were exempt, and reconsider the applicability of the minor additions exemption or any other exemption. Though the schools had already been closed, the court found the case was not moot, as the District (should it find the exemption did not apply) could either reopen the schools or take steps to mitigate any adverse impacts of the closures and transfers.

California Supreme Court to Review Banning Ranch Conservancy v. City of Newport Beach

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On August 19, the Supreme Court granted a petition for review in Banning Ranch Conservancy v. Superior Court (2015) 236 Cal.App.4th 1341 (Sup. Ct. Case No. S227473). The high court will consider the following three issues:

  1. Did the City of Newport Beach’s approval of the Banning Ranch project comport with the directives of the City’s General Plan to “coordinate with” and “work with” the California Coastal Commission to identify habitats for preservation, restoration, or development prior to project approval?
  2. What standard of review should apply to a city’s interpretation of its general plan? and
  3. Was the City required to identify environmentally sensitive habitat areas – as defined in the California Coastal Act of 1976 (Pub. Resources Code, § 3000, et seq.) – in the EIR prepared by the City for the project?

A summary of the Court of Appeal’s decision, which is no longer citable precedent, is available here. Whit Manley, of RMM, represents the Respondent City of Newport Beach in the matter.

 

Supreme Court Holds State Agencies Cannot Decline to Make Fair-Share Mitigation Payments Where Legislature Does Not Appropriate Funds for Such Mitigation

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On August 3, 2015, the California Supreme Court issued an opinion for City of San Diego v. Board of Trustees of the California State University, Case No. S199557. The Court addressed the following issue:

Does a state agency that may have an obligation to make “fair-share” payments for the mitigation of off-site impacts of a proposed project satisfy its duty to mitigate under the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq.) by stating that it has sought funding from the Legislature to pay for such mitigation and that, if the requested funds are not appropriated, it may proceed with the project on the ground that mitigation is infeasible?

The Court answered in the negative. It held that a state agency may not condition its contribution to off-site mitigation on earmarked appropriations, to the exclusion of other available sources of funding, and then find mitigation infeasible solely upon denial of Legislative funding.

Facts and Procedural Background

In 2005, the California State University (CSU) Board of Trustees (Board) prepared an EIR for a project to expand the campus of San Diego State University (SDSU) to accommodate over 10,000 additional students over the next several years. The project would contribute significantly to traffic congestion off-campus in the City of San Diego. The EIR identified improvements that would avoid most traffic impacts, and calculated CSU’s “fair share” for the cost of the improvements. But the EIR stated payment of fair-share funding was conditioned on requesting and obtaining funds from the California Legislature. If the Legislature did not appropriate the money, then the funding would not be provided and impacts would be significant and unavoidable. The Board asserted that any contribution of its own funds for off-site mitigation would amount to a prohibited assessment of state property and an unlawful gift of public funds, and thus concluded that the SDSU was not legally responsible for funding or constructing road improvements. The Board received criticism from the City on this approach. In response, the Board committed to ask for the appropriations, but also conditioned its fair-share payment on receiving those funds.

The trial court held the Board had complied with the Supreme Court decision in City of Marina v. Board of Trustees of California State University (2006) 39 Cal.4th 341 (City of Marina), where the Court wrote that “a state agency’s power to mitigate its project’s effects through voluntary mitigation payments is ultimately subject to legislative control; if the Legislature does not appropriate the money, the power does not exist.”

The Fourth District Court of Appeal reversed. It held the Board had violated CEQA by failing to consider alternative approaches to making fair-share payments for off-site traffic impacts, and by assuming an appropriation from the State Legislature was the only means of making such payments. The Court ruled the Board had an obligation to consider other ways of raising the money necessary to pay its fair share for these improvements. The court dismissed the cited City of Marina passage as misconstrued dictum. It noted that no law precluded the Board from using non-legislatively-appropriated funding for making voluntary mitigation payments, and thus held the availability of potential sources of funding other than the Legislature should have been addressed in the EIR before being deemed infeasible.

Meanwhile, the Board requested $10.5 million in funding for the off-site environmental impacts at SDSU in three separate years, but received no legislative appropriations.

Supreme Court Decision

The Supreme Court considered whether the dictum in City of Marina supported the Board’s assumption that CSU may not contribute its fair share to mitigate the off-campus environmental effects of campus expansion unless the Legislature makes an appropriation for that purpose. The Court concluded the cited passage did not justify the Board’s arguments, and that the Board’s other, later-raised contentions under the Education Code and Government Code also lacked merit.

The Court noted that a lead agency may disclaim responsibility for mitigating effects on regional infrastructure only when another agency has exclusive responsibility for such effects. Otherwise, CEQA does not limit a public agency’s obligation to mitigate or avoid significant environmental effects to those effects occurring on the agency’s own property.

In any case, the dictum in City of Marina did not justify the Board’s position that the University may contribute funds for off-campus environmental mitigation only through an appropriation designed for that specific purpose. The Court characterized its prior proclamation that “if the Legislature does not appropriate the money, the power does not exist” as a mere overstatement. In mitigating the effects of its projects, the Court explained, a public agency has access to all of its discretionary powers and not just the power to spend appropriations. Indeed, all but one of the new physical facilities proposed in the EIR were to be financed with nonappropriated funds.

Furthermore, the Board’s interpretation of the City of Marina dictum depended on a legally erroneous distinction between environmental impacts occurring on the project site and those occurring off-site. CEQA does not draw such a distinction with regard to mitigation.

The Court laid out the unreasonable consequences that would ensue under the Board’s proposed rule. For one, it would force the Legislature “to sit as a standing environmental review board to decide on a case-by-case basis whether state agencies’ projects will proceed despite unmitigated off-site environmental effects.” The cost of addressing the project’s cumulative impacts on local infrastructure would fall on local and regional government agencies. Off-site mitigation would likely be found infeasible for many, if not all, state projects that receive non-state funding. And, in any event, the Court could not compel the Legislature to make such appropriations.

In summary, adopting the Board’s proposed rule would substantially impair the fundamental statutory directive that each public agency shall mitigate or avoid the significant effects on the environment of projects it carries out or approves whenever it is feasible to do so. The Court emphasized that while education may be CSU’s core function, avoidance or mitigation of the environmental effects of its projects is also one of its functions—and is “the plain import of CEQA.”

 

The opinion is located here.

Supreme Court Holds State Agencies Cannot Decline to Make Fair-Share Mitigation Payments Where Legislature Does Not Appropriate Funds for Such Mitigation

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On August 3, 2015, the California Supreme Court issued an opinion for City of San Diego v. Board of Trustees of the California State University, Case No. S199557. The Court held that a state agency may not condition its fair-share contribution to off-site mitigation on receipt of Legislative appropriations, to the exclusion of other available sources of funding, and then find mitigation infeasible if the funds are not appropriated. The Court dismissed as dictum its prior statement that “a state agency’s power to mitigate its project’s effects through voluntary mitigation payments is ultimately subject to legislative control; if the Legislature does not appropriate the money, the power does not exist.” (City of Marina v. Board of Trustees of California State University (2006) 39 Cal.4th 341.) The Court found that permitting projects whose mitigation were premised on Legislative appropriations to move forward with no analysis of alternate mitigation funding, should the appropriations never materialize, would lead to absurd practical results. Such a rule would substantially impair the fundamental CEQA directive that each public agency mitigate or avoid the significant effects of its projects.

For a more detailed analysis, please see our blog post here.

Fourth District Court of Appeal Denies Motion for Attorneys’ Fees Finding Petitioner Was Not the Catalyst for City’s Revocation of Land Use Entitlements

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Coalition for a Sustainable Future in Yucaipa v. City of Yucaipa (July 6, 2015) __ Cal.App.4th __, Case No. E57589.

A petitioner group challenged the City of Yucaipa’s certification of an EIR and approval of land use entitlements for a Target shopping center project. The project was to be developed on land owned by Palmer General Corporation. The trial court denied the petition and petitioner appealed. That appeal became moot when both Target and the landowner abandoned the project due to a contract dispute, which caused the city to revoke the entitlements. The Court of Appeal directed that the order below be reversed with directions to dismiss the action with prejudice due to mootness. After the trial court dismissed the action as directed, petitioner brought a motion for attorneys’ fees under Code of Civil Procedure section 1021.5, asserting the petition was the catalyst for the city’s action to revoke the entitlements—the relief petitioner had sought at trial. The trial court denied the motion and petitioner appealed again. The Court of Appeal affirmed, finding petitioner’s action was not the catalyst for the city’s actions.

A party seeking attorneys’ fees under Code of Civil Procedure section 1021.5 must first show it is a “successful party.” It is not necessary to achieve a favorable final judgment so long as the petitioner’s actions were the “catalyst” for the defendant’s actions. More specifically, the catalyst theory permits an award of fees absent judicial resolution if the defendant changes its behavior substantially because of, and in the manner sought by, the litigation. To obtain attorneys’ fees under this theory, a plaintiff must establish that (1) the lawsuit was a catalyst motivating the defendants to provide the primary relief sought; (2) the lawsuit had merit and achieved its catalytic effect by threat of victory, not by dint of nuisance and threat of expense; and (3) the plaintiffs reasonably attempted to settle the litigation prior to filing the lawsuit. To satisfy the first prong, a petitioner need not show that litigation was the only cause of respondent’s acquiescence, only that it was a substantial factor.

Here, the court found that evidence supported the trial court’s finding that petitioner’s action was not a substantial factor contributing to the entitlement revocation.

First, before the land use entitlements were revoked, the trial court had denied the petition, which was a win for the city. Petitioner did not prevail, but instead appealed the judgment. Filing an appeal from the adverse judgment did not convert the unsuccessful action into a meritorious one. And the court’s direction to dismiss the action with prejudice on remand was not a favorable outcome. The court noted that none of the cases applying the catalyst theory involved situations in which an adverse judgment had already been rendered against the party seeking attorneys’ fees. Thus, having lost twice, petitioner could not show that it had prevailed by “threat of victory.”

Second, the city did not change its behavior substantially because of, and in the manner sought by,the litigation. The city had been successful in defending the CEQA action and did not revoke the entitlements for any reason related to the EIR or the CEQA violations alleged by petitioner. Rather, the city revoked the entitlements because the developer and the landowner had both abandoned the project due to a contract dispute. Petitioner could not demonstrate a nexus between the merits of its action and the city’s revocation of the entitlements. Therefore, the action was not the catalyst for the revocation and petitioner was not entitled to attorneys’ fees.

Fourth District Court of Appeal Upholds Supplemental EIR for Jail Facility Upgrade Project

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City of Irvine v. County of Orange (July 6, 2015) __ Cal.App.4th __, Case No. G049527

The court upheld a Supplemental EIR prepared by the County of Orange for a jail upgrade project over a decade after the original EIR had been certified. The court found the project was not substantially different than the project analyzed in the original EIR and that the Supplemental EIR adequately addressed the minor project changes and changed circumstances. And after a hearty dissertation on CEQA’s responses to comments requirement, the court determined that the county’s responses to comments on the Supplemental EIR were adequate.

The county prepared an EIR in the 1990s for the expansion of the James A. Musick Jail Facility. The City of Irvine challenged that EIR and lost; however, project construction was delayed indefinitely by a lack of funding. In 2012, the county decided to move forward with the project and prepared a Supplemental EIR to account for project changes and changed circumstances. Irvine filed a petition challenging the Supplemental EIR on various CEQA grounds. The trial court rejected the challenge and Irvine appealed.

On appeal, Irvine first claimed that the County was required to prepare a “Subsequent EIR” rather than a “Supplemental EIR.” Regarding the Supplemental EIR, Irvine’s contentions focused primarily on traffic impacts during construction and the loss of agricultural land. Irvine’s main argument, however, was that the county’s responses to Irvine’s comments on the Supplemental EIR were inadequate. The court rejected each of these claims in turn.

Irvine’s first claim was that the County was obligated to prepare a Subsequent EIR as opposed to a Supplemental EIR for their analysis of the impacts of the expansion. The court rejected this claim, explaining that courts should look to the substance of the EIR, not its nominal title.

Irvine’s next argument concerned the Supplemental EIR’s analysis of traffic impacts during project construction. Due to delays, there were discrepancies in the county’s construction timeline. Irvine claimed that these discrepancies amounted to an unstable project description that prevented the Supplemental EIR from adequately assessing project impacts. The court disagreed, finding that the project description was distinct from the interim impacts of construction. Specifically, Irvine claimed the county had failed to provide a stable project description because it could not account for the traffic impacts caused by construction in a given year. The court found that CEQA does not require a continuous update of traffic impacts as a result of construction delays and that, regardless of the delay, the impacts would not be substantially different from those disclosed in the Supplemental EIR even if traffic data was updated, and therefore, there was no prejudice.

The third claim concerned mitigation for the loss of agricultural land that would occur as a result of the expansion. The Supplemental EIR discussed seven possible mitigation measures, but none were found to be feasible. Irvine challenged the county’s feasibility findings for three of the measures: (1) the purchase of conservation easements on existing agricultural land to prevent it from being used in the future for nonagricultural purposes, (2) a transfer of development rights program, and (3) a “right to farm” ordinance.

The court held that the county’s findings rejecting these measures as infeasible were supported by substantial evidence. Conservation easements were found infeasible because there was no additional land for agriculture in the county that would be profitable and putting a conservation easement for agricultural use on land that is already used for agriculture would do nothing to mitigate the loss of other agricultural lands. The court also noted that the county’s zoning laws did not support the feasibility of conservation easements. Transfers of development rights were found to be even less feasible because the county did not have land laying fallow for which they could transfer rights in the preservation of agricultural land use. Lastly, the court concluded that a right to farm ordinance was the least viable option of all. The Supplemental EIR recognized that the conversion of current non-agricultural land to agricultural land would itself entail significant environmental effects, including nuisance suits. Beyond that, the court noted, a right-to-farm ordinance is meaningless where no land owner wants to farm. The court held that it is a reasonable inference that no one would want to convert land that is currently non-agricultural and put it to agricultural use even if they have the ostensible legal right to do so.

Lastly, the court addressed Irvine’s claim that the county failed to adequately respond to comments. The court began with a thorough discussion of CEQA’s responses to comment requirement and a detailed assessment of the state of case law on the subject. The court noted several oft-repeated principles by which courts may evaluate the sufficiency of responses, including (1) a general comment can be adequately met with a general response; (2) responses need not be exhaustive; and (3) the sufficiency of responses should be “viewed in light of what is reasonably feasible.” From the cases, the court divined a few more basic standards for the adequacy of responses: (1) when a comment raises a “significant” environmental issue, there must be some genuine confrontation with the issue, it can’t be swept under the rug; (2) responses that leave big gaps in the analysis of environmental impacts are obviously inadequate; (3) comments that bring some new issue to the table need genuine confrontation; and (4) comments that are only objections to the merits of the project itself may be addressed with cursory responses. Based on these guiding principles, the court found that the county had adequately responded to each of Irvine’s comments that merited a response.

Fourth District Court of Appeal Holds Removal of Conservation Overlay on Land Is a Project and Is Not Exempt from CEQA

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Paulek v. Western Riverside County (June 17, 2015) __ Cal.App.4th __, Case No. E059133

In a decision reversing the trial court, Division Two of the Fourth District held that the removal of a conservation overlay constituted a project under CEQA and that the project did not fall within the identified exemptions. The decision involves a Multiple Species Habitat Conservation Plan (HCP) to maintain open spaces in western Riverside County. The HCP identified a “criteria area” broken down into cells, each about 160 acres in size, that were to be evaluated to determine what portions of the criteria area should be included in the conservation area. Part of the criteria area included the Warm Springs Ranch owned by Anheuser-Bush; a conservation overlay had been placed upon the ranch.

In 2005, Anheuser submitted applications to develop the Ranch. The County informed Anheuser that all but 71 acres of the Ranch would be acquired for conservation under the HCP, and in 2011 the parties reached a settlement agreement whereby the Western Riverside County Regional Conservation Authority (the Agency) would purchase the Ranch from Anheuser. The property was to be purchased in 9 phases, and phase 9, which consisted of a 200-acre area, would cost $11 million. One of the purchasing conditions for the phase-9 property was that the conservation overlay would be removed.

Paulek asserted that the Agency should have considered whether removing the conservation overlay would have a significant environmental impact, and contended possible development on that area had the potential to affect wildlife by reducing habitat. The Agency contended that because, as part of the agreement with Anheuser, 1,064 acres would be acquired by the Agency and protected as open space, and because the phase-9 property was highly degraded habitat, the conservation transfer would result in more and better land being protected. Therefore, the Agency reasoned, the action was not a project under CEQA, and if even it was, it was exempt from CEQA.

The court rejected the Agency’s arguments, holding that the removal of the conservation overlay from the phase-9 property constituted a project under CEQA. Among other things, the court reasoned that removing the overlay was analogous to amending a general plan or changing a zoning ordinance, which are projects under CEQA. Removing the conservation overlay embodied a fundamental land use decision that had the potential to cause physical changes in the environment in that the land protected for conservation purposes would no longer be subject to such protections. Therefore, the Agency’s decision to remove the overlay was a project under CEQA.

The court was unpersuaded by the Agency’s arguments concerning the protection of 1,064 acres of more environmentally pristine land in exchange for the 200-acre phase-9 property. The court explained that the decision to remove the overlay was a separate decision from the decision to put 1,064 acres of other land in conservation. But even if the removal of the overlay and addition of overlay elsewhere was considered part of the same project, the fact remained that the 200 acres of the phase-9 property would no longer be protected by the conservation overlay. The court characterized the Agency’s argument as “essentially washing over any negative changes to the phase 9-property by highlighting the positive changes to the [other] properties.” For instance, noted the court, there are two species present on the phase-9 property that are not present on the 1,064 acres, so the land swap would not protect these two species.

The court also rejected the Agency’s argument that the project fell within certain exemptions from CEQA. The court held that a Class 7 exemption, which exempts projects that consist of actions taken by regulatory agencies to assure the maintenance, restoration, or enhancement of a natural resource, did not apply because a fair argument existed that removing the overlay could adversely affect certain species. Although the phase-9 property was not “prime” habitat for those species, there was no indication that it was so superfluous to those species that removing it from conservation would not adversely affect the species.

With respect to the Class 8 exemption, which is nearly identical to a Class 7 exemption except that it applies to the “environment” rather than natural resources, the court held that because there was uncertainty as to whether there would be a significant impact on the environment, the Class 8 exemption did not apply. Evidence in the administrative record demonstrated that the loss of the conservation overlay could affect the neighboring conservation area, and the effects could be significant such that there would need to be an attempt to lessen the effects.

The court also rejected the Agency’s claim that the project fell within the common sense exemption, which applies where it is certain that there is no possibility that an activity will have a significant effect on the environment. The change in designation of the phase-9 property from protected to unprotected had the potential for causing ultimate physical environmental changes, which was sufficient to take the project outside the purview of the exemption.

In addition to rejecting the Agency’s arguments on the merits, the court rejected various procedural arguments made by the Agency, holding that Paulek had standing, that Paulek’s action was timely, and that Paulek did not fail to join an indispensable party.

 

 

Supreme Court Rules in Favor of Inclusionary Housing Zoning

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In a loss for the building industry, the California Supreme Court upheld local jurisdictions’ police power to adopt inclusionary housing ordinances, which are laws that encourage or require developers to set aside a certain percentage of housing units in new projects for low- or moderate-income housing.  The court, in a unanimous decision (with concurring opinions by Justice Werdegar and Justice Chin) rejected the California Building Industry Association’s (CBIA’s) challenge to San Jose’s affordable housing law.

The City of San Jose’s ordinance requires developers creating at least 20 new homes to make 15% of those residences available for purchase by lower-income households, or else pay an in-lieu fee or dedicate land. As an apparent incentive to encourage developers to choose on-site inclusionary units, where the developer chooses one of the off-site options, the required low-income housing percentage rises to 20%. As an additional incentive to encourage developers to comply with the ordinance by providing affordable units on site, the ordinance permits a developer who provides all of the required affordable units on the same site as the market rate units to apply for and obtain a variety of economic benefits, including a density bonus, a reduction in the required-number of parking spaces, a reduction in minimum set-back requirements, and financial subsidies and assistance from the city in the sale of the affordable units.

CBIA filed a lawsuit seeking invalidation of the ordinance. The complaint alleged that the ordinance constituted a facially invalid exaction, in violation of the state or federal constitutions. The trial court agreed with CBIA’s legal position, concluding that the city had failed to show that there was evidence in the record demonstrating the constitutionally required reasonable relationships between the deleterious impacts of new residential development and the new requirements to build and dedicate the affordable housing or pay in-lieu fees.

The Court of Appeal reversed. The appellate court agreed with the City of San Jose that the ordinance’s inclusionary housing requirements must properly be evaluated under the deferential standard ordinarily applicable to general, legislatively imposed land use regulations—i.e., whether the ordinance’s requirements bear a real and substantial relation to the public welfare. CBIA petitioned for review before the California Supreme Court and the court granted the petition.

The Supreme Court affirmed the Court of Appeal’s judgment. The court held that San Jose’s ordinance does not constitute an exaction. Instead, the ordinance only regulates the uses to which property owners may put their lands. Cities and counties have broad authority, under their police powers, to regulate the development and use of real property within their jurisdictions to promote the public welfare and the courts must uphold such regulations provided the bear a reasonable relationship to the public welfare. With regard to the in-lieu fee payment component of the ordinance, the court held that as long as the ordinance provides property owners with at least one alternative means of satisfying the condition, the fee does not constitute an unconstitutional taking.

As noted by the Supreme Court, more than 170 localities in California already have some version of an inclusionary housing ordinance. The decision will make it much more difficult for developers to succeed in challenges to affordable housing requirements in that the decision makes clear that a local agency’s adoption of an inclusionary housing ordinance represents an appropriate exercise of the agency’s police powers, provided that the ordinance bears a reasonable relationship to the public welfare.

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