The Great Uncertainty Facing California Businesses
CEQA, the state’s premier environmental law, allows outsiders to wade into developments. That’s a big part of why it’s one of the biggest headaches for San Diego businesses.
It was the nightmare a Poway body shop owner never saw coming.
After years managing shops elsewhere in the county, Gary Leger emptied his retirement account and put years of savings toward his own company at a Poway business park.
As Leger sought permits in 2011, John Baratta, who owns another body shop nearby, claimed Leger’s company, Chrome Collision, would hurt his business.
“There’s not enough business in Poway,” Baratta said, according to a U-T San Diego story. “I have employees who live in Poway. I’ll have to lay some of them off.”
Baratta later turned to the state’s premier environmental law, claiming the city didn’t perform a required environmental review before it approved Chrome Collision’s permit.
Baratta’s lawsuit instantly disrupted Leger’s business plan. What followed were sleepless nights, a delayed opening and roughly $170,000 in unexpected bills. At one point, Leger said, an employee took money out of her personal bank account to cover Chrome Collision’s payroll.
“There was always that cloud looming,” Leger said. “Are we going to stay in business or not?”
Leger’s experience speaks to one of the California regulations that San Diego businesses fear most: the 45-year-old environmental law known as CEQA.
The California Environmental Quality Act, signed by then-Gov. Ronald Reagan in 1970, cuts at the two elements most crucial to business owners’ plans: when a project will be ready to go and how much it’ll cost.
Those uncertainties trickle down to other businesses in the form of higher rents and capital expenses, and according to some experts, are a major contributor to the lack of affordable housing in the state.
The law is meant to force governments and builders to reveal potential environmental impacts associated with new buildings or renovations.
Local officials weigh in on whether area project will significantly impact its surroundings and what could be done to address those impacts.
But deciding whether a developer has complied with CEQA is highly subjective. Californians, not state officials, enforce the law. Anyone can sue over a project they don’t think is following it – which means anyone could potentially use the law to gain leverage over an opponent.
In cases like Chrome Collision’s – where the allegation is that the city or developer didn’t conduct proper environmental reviews – plaintiffs are simply required to make a fair argument, a far lower standard than the burden of proof required in other civil cases.
That means outside groups can shape, delay or even kill a development.
These are also the very rules that environmental advocates say are most crucial. They’re meant to ensure people have a voice in the process and that an individual project’s impact on the area gets a thorough vetting.
But such lawsuits or even the possibility of them can add costs to an already pricey and extensive environmental review process.
“The mere threat of a lawsuit is enough to make a project unfinanceable,” said Jim Whalen, a Mission Valley-based consultant who assists developers with the environmental review process.
What that all means for the economy is far from settled.
A 2013 University of Utah study funded by a group affiliated with a top state construction labor group found no evidence that the environmental law has slowed the state’s economy or even construction. It also noted that planning and construction of electrical plants is canceled or delayed less often in California than in other states. The report didn’t address other types of projects.
California has embraced sustainable energy projects faster than other states, a sign that CEQA is having positive impacts on a large scale, the study suggests.
Others, like economist Christopher Thornberg, argue the act has exacerbated the state’s housing crisis and stifled business growth.
What is certain is that there aren’t as many environmental lawsuits filed as the long-running push for CEQA reform implies.
A 2012 state attorney general’s office review of projects that faced CEQA review in the city and county of San Francisco from July 2010 through December 2011 found 99.7 percent avoided litigation.
Just 18 projects were hit with lawsuits. The San Diego city attorney’s office reported it’s been involved in about 15 CEQA cases in the past year.
Attorneys, business leaders and environmental experts maintain even the threat of a lawsuit can be chilling and have significant impacts on the economy. Whalen’s consulting firm has studied local CEQA lawsuits and concluded the average one in San Diego County lasts nearly 15 months.
Developers can spend tens of thousands of dollars trying to avoid that prospect, sometimes producing multiple reports backing a single finding about environmental impact.
Not every project is subject to CEQA – but the ones that tend to draw the most attention from neighbors are.
City or county officials must decide whether a project will affect the environment. They can decide a project won’t have any environmental impacts and that no further review is necessary, or that there are some impacts but the developer can make some changes to address them. For example, developers might agree to help pay for an additional traffic lane near their project or incorporate an open space into their plans.
Developers cover the cost for these reviews. Those that find there are impacts that the developers can address tend to cost at least $20,000.
If officials decide there is a significant impact or that the development is controversial, they’ll order an environmental impact report, an extensive document that can number thousands of pages and take a year to complete. Consultants say they generally cost $250,000 to $500,000 in San Diego, though the bills can be much higher for massive projects.
Here’s an example of one particularly large report. These are filled with expert reviews of how a project might affect an area’s air quality or increase traffic.
All these reviews – and the costs associated with them – come after businesses and developers have already sunk significant time and money into project plans.
And despite how much business owners shell out for them, the reviews themselves don’t insulate them in lawsuits.
Thomas Law Group, a Sacramento- based firm, studied dozens of environmental law cases from 1997 through early 2012 and found courts overturned environmental impact reviews in 49 to 58 percent of cases where they were challenged.
That terrifies developers.
“Even when you do a (full environmental review), even when you have the best consultant doing their most in-depth work, it’s impossible to know if you’ve got an adequate (review) because it’s such a gray area,” said San Diego-based attorney Donna Jones, a longtime CEQA specialist who serves on the board of the downtown permitting and land-use authority.
Attorneys who file environmental lawsuits say only cities and developers who try to keep information from the public get hit with lawsuits and lose in court.
“If somebody goes through CEQA and writes an environmental impact report and doesn’t cheat, it’s going to stand up in court,” said David Pettit, a Santa Monica-based attorney with the Natural Resources Defense Council. “We win when a developer cheats and we can get a judge to see that.”
Cases where cities or agencies have decided there aren’t any significant environmental impacts to study are even easier for attorneys like Pettit to argue.
Lawyers frequently allege in such suits that the conclusion a project wouldn’t impact the environment – or that its impacts could be mitigated – were incorrect and that more extensive environmental studies were needed.
Those lawyers don’t have to prove a specific harm, say, that an animal species will be impacted by the project or that there will be pollution associated with it. They just have to make a good argument that more vetting is needed.
When judges side with plaintiff’s attorneys in those situations, cities and developers can spend months working on a costly and more complex environmental document.
And that makes the law a weapon for those who simply may not like a project.
Opponents can sue – or even just threaten to.
Many suits never make it to court. Attorneys seeking environmental improvements may privately approach developers and reach confidential settlements worth tens of thousands of dollars in exchange for the promise not to sue.
Other times, they’ll face off in court.
Back in Poway, Baratta now says another local shop had been forced to conduct an environmental review, and he wanted Chrome Collision to follow the same rules.
“We didn’t just do it to shut him down or stop (Chrome Collision),” Baratta said. “If you’re gonna come to Poway, why shouldn’t you have to do the same thing everybody had to do?”
Nearly a year after Baratta sued, a judge ruled Poway needed to do an environmental study on Leger’s shop. The judge didn’t conclude one way or the other whether Chrome Collision had a significant impact on the environment. The judge also said the shop could keep operating while the review was under way.
Four months later, the City Council unanimously approved a report indicating there were no major environmental impacts associated with the project.
Chrome Collision survived the lawsuit, though Leger said he had to cut his business expenses in half and rely on loans from friends as it dragged on. He paid off his last legal bill on Dec. 1, more than three years after Baratta filed suit.
“We were the little train that could,” Leger said.
Chrome Collision’s experience is hardly the only time the environmental law was used by someone who had motivations beyond environmental protection. Next, we’ll explore the ways in which CEQA is used as a weapon.
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, The Realities of San Diego Business, Straight from the Business Owners, and the next, CEQA Can Be a Convenient Weapon.