Yes, Of Course, CEQA Hampers Development

Basic economics and logic teaches us that if you make something more costly to produce, less of it will be produced. But Democratic legislators in Sacramento seem to think that this simple rule does not apply to housing or other development projects.

The Senate Environmental Quality Committee recently commissioned a study to look at the effects of the California Environmental Quality Act on state projects. The survey of 94 state agencies found that 1.3 percent required the preparation of a detailed environmental impact report, an additional 6.2 percent were determined to not have a significant effect on the environment (though this still required the preparation of an initial study and a period of governmental review and approval), and less than 1 percent of projects faced CEQA lawsuits.

So, case closed, CEQA is not a significant burden and there is nothing to see here, right? Not so fast. The report did not look at private-sector projects, including housing projects, which are the most frequent target of CEQA lawsuits. And it ignores the fact that the Legislature has a habit of streamlining the CEQA process or carving out exemptions for their pet projects, or those of politically-connected developers, such as the $1.3 billion project to renovate or replace the Capitol annex building or arenas for professional sports teams like the Sacramento Kings and Golden State Warriors basketball teams.

Nor does the report address all the developments that were scaled down, delayed or killed off altogether by the mere threat of a CEQA lawsuit, or how many potential projects were never undertaken at all because of the uncertainty and bureaucratic time and cost hurdles that CEQA imposes.

CEQA is notorious for its abusive “greenmail” lawsuits filed by those who oppose development projects for reasons that have nothing to do with the environment. A 2015 study by law firm Holland & Knight noted that only 13 percent of CEQA lawsuits in Southern California were filed by established environmental advocacy organizations.

Businesses sue to keep out competitors; local residents sue to keep others from moving in, or to extract amenities and other concessions from developers; and labor unions sue to require the use of union labor and “prevailing wage” rates, union pay scales that significantly exceed market rates. In 2016, Beacon Economics examined an “affordable housing” ballot initiative with a prevailing wage requirement in Los Angeles and found that “prevailing wages are almost double the market rate wages across job classifications and will drive up total project costs 46 percent.” How is that for making housing more affordable?

A follow-up study by Holland & Knight in 2016 revealed that about 14,000 housing units were targeted by CEQA lawsuits in Southern California from 2013-2015, 98 percent of which were in “infill” areas surrounded by existing development, not in open space or more rural land that is much more likely to be environmentally sensitive.

It is clear that CEQA has far eclipsed its original purpose of providing basic environmental protections since then-Gov. Ronald Reagan signed it into law in 1970. But you needn’t take my word for it. Every governor since—from conservatives George Deukmejian and Pete Wilson to liberals Gray Davis and Jerry Brown to moderate Arnold Schwarzenegger—has decried abuses of the law, yet none has been able to muster the political capital to usher in any significant reforms.

“Today, CEQA is too often abused by those seeking to gain a competitive edge, to leverage concessions from a project or by neighbors who simply don’t want any new growth in their community—no matter how worthy or environmentally beneficial a project may be,” Deukmejian, Wilson and Davis wrote in a February 2013 joint op-ed for the Sacramento Bee.

And, in 2012, Brown declared, “CEQA reform is the Lord’s work.” But, so far, his fellow Democrats in the Legislature have failed to heed the call.

To be sure, CEQA is hardly the only roadblock to development or affordable housing in California. Restrictive zoning ordinances, high development fees that average more than three and a half times those in the rest of the country, excessive and unnecessary building code mandates, high labor costs, other labor and environmental regulations all play a role in restricting housing supply and driving prices much higher than they would be in a freer economy with greater protections of property rights.

But, in a state with such a severe housing shortage as California, to deny that a capriciously applied law that requires costly and time-consuming studies and government approvals, and lends itself to extortionary lawsuits that delay projects for years, significantly raises the costs and reduces the quantity of development, as the Senate Environmental Quality Committee has just done, is economically illiterate and tone deaf in the extreme.