Brutal Honesty Over Hype Since 2008
The California Environmental Quality Act was signed into law in 1970 by Governor Ronald Reagan. Its original purpose was straightforward and defensible: require state and local agencies to assess the environmental impact of projects they approve, and give the public a voice in that process. Fifty-five years later, CEQA has evolved into something its architects did not intend: a litigation tool of extraordinary power, wielded by competitors, unions, neighborhood groups, and political opponents to delay, block, or extract concessions from almost any significant business activity in California that requires government approval.
Understanding CEQA is not optional for California entrepreneurs contemplating any physical business activity that requires permits. It is one of the most significant variables in the California regulatory environment — and one of the least discussed in early-stage business planning.
How CEQA Works
CEQA requires that before a public agency approves a “project” — broadly defined to include almost any activity requiring a discretionary government approval — it must determine whether the project may have a significant effect on the environment. If so, the agency must prepare an Environmental Impact Report analyzing those effects and considering alternatives and mitigation measures. The EIR process is expensive (typically $200,000–$2,000,000 for complex projects), time-consuming (often 2–5 years for contested projects), and subject to litigation by any person who participated in the public comment process.
The litigation piece is where CEQA’s impact on business becomes most acute. Any person or organization can file a CEQA lawsuit challenging the adequacy of an agency’s environmental review. CEQA lawsuits do not require the plaintiff to show environmental harm — they require only that the agency failed to follow proper procedure or adequately analyze potential impacts. The result is that CEQA has become the preferred tool for blocking development of any kind, because the legal standard for bringing a CEQA challenge is low and the cost of defending against one is high.
Who Actually Files CEQA Lawsuits
The mythology around CEQA is that it is primarily used by genuine environmental advocates to protect significant natural resources. The data does not support this characterization. Studies of CEQA litigation in California have found that the most frequent CEQA plaintiffs are: competing businesses seeking to block new market entrants, labor unions seeking to compel project labor agreements as a condition of CEQA withdrawal, neighborhood groups opposing housing development (NIMBYism codified in law), and individuals or organizations with purely political opposition to specific projects.
The infill housing crisis in California is the most visible consequence of CEQA abuse. California desperately needs more housing, particularly near transit in urban areas. Virtually every significant infill housing project in California is subject to CEQA litigation filed by opponents who are not primarily concerned with environmental impacts. The litigation delays projects by years, increases costs by millions, and makes California housing construction among the most expensive in the world.
The Business Impact Beyond Housing
For entrepreneurs contemplating physical business activity, CEQA’s reach extends far beyond housing. Any project that requires a discretionary government approval — which includes most commercial construction, most changes of use, many infrastructure improvements — potentially triggers CEQA review. A restaurant seeking to expand into an adjacent space. A manufacturer seeking to add equipment that requires a building permit. A retailer seeking to develop a new location. Any of these could trigger CEQA review, and any CEQA review could attract a legal challenge from a competitor, a neighbor, or a political opponent.
The cost of CEQA compliance — environmental consultants, legal review, EIR preparation, public comment processes — is overhead that exists nowhere else in the United States at the same scale. Texas does not have CEQA. Florida does not have CEQA. Nevada does not have CEQA. For businesses that require physical development in California, this is a structural cost and risk that competes with no equivalent burden in most alternative jurisdictions.
— The Hedge | Brutal Honesty Over Hype Since 2008
The Hedge 