California Enacts Landmark CEQA Reforms to Accelerate Housing and Infrastructure Development

Context on CEQA
CEQA was enacted in 1970 and is modeled after the federal National Environmental Protection Act (NEPA). Its purpose was to protect California’s natural environment by requiring state and local agencies to conduct a comprehensive environmental impact review prior to approving a project or taking any major action and further requiring that any feasible mitigation measures be adopted as part of any project approval, going a step further than NEPA. These requirements have imposed significant costs on development projects of all kinds, including housing and commercial developments, by delaying projects to accommodate lengthy review periods and by requiring project sponsors to pay for consultants and studies to support the environmental review process. Project opponents or other interested third parties have frequently filed CEQA lawsuits, where a third party claims that a project’s sponsor or the approving agency failed to meet CEQA’s requirements, to either extract additional concessions from developers (e.g., labor unions using CEQA lawsuits to force developers to engage unionized labor forces for their projects), or to block projects from proceeding entirely (e.g., the owner of one gas station in San Jose sued the owner of another gas station across the street to prevent an expansion).

Overview of AB 130 and SB 131
AB 130 and SB 131 were originally introduced as AB 609 (Wicks) and SB 607 (Wiener), respectively, but were ultimately incorporated into the legislature’s final package of budget bills. AB 130 creates a new categorical CEQA exemption for infill housing projects that meet applicable density, zoning and other objective planning standards in the relevant jurisdiction. SB 131 creates several additional categorical exemptions, and also drastically narrows the scope of environmental review required for certain housing projects not eligible for a categorical exemption from CEQA. The following is intended as a general overview and does not address all aspects of the new legislation. Other requirements of AB 130 and SB 131 may be covered in future client alerts.

AB 130 focuses on streamlining the approval of urban-infill housing. AB 130 creates a new categorical CEQA exemption, significantly reducing entitlement timelines, for residential and mixed-use housing projects that meet the following requirements:

• Urban-Infill Location. The project site must satisfy the following: (1) be no more than 20 acres (or only five acres for a builder’s remedy project), (2) be located within an incorporated municipality or an urban area, as defined by the U.S. Census Bureau, and (3) have been previously developed with an urban use or be surrounded by existing urban uses.
• Underlying Zoning Compliance. The project must be consistent with the applicable local general plan, zoning ordinance and any coastal program (if any). AB 130 includes a presumption of compliance if any “reasonable person” (not a technical zoning administrator) would conclude that the project complies with underlying zoning.
• Minimum Density. The project must meet a minimum density requirement, generally equating to 10 units per acre in suburban areas and 15 units per acre in urban areas.
• Avoids Environmentally Sensitive Areas. The project may not be located in sensitive areas of the Coastal Zone, prime farmland, wetlands, very high-fire-hazard severity zones, hazardous waste sites, delineated earthquake fault zone (without additional seismic standards), a special flood hazard area (without meeting additional federal criteria), a regulatory floodway, an area subject to a community conservation plan or conservation easement, or habitat for protected species—language that comes from SB 423 (formally SB 35).
• Historic Preservation. The project must not require demolishing a historic structure that was registered on a national, state or local register prior to the developer submitting a project application.
• No Hotels. No portion of the project may be designed and used as a hotel, motel, bed and breakfast inn or other transient lodging.

For qualifying projects, the following requirements will still apply:

• Limited Labor Standards. Certain labor standards apply for projects over 85 feet in height and for 100% affordable housing projects. For projects up to 85 feet in height, the prevailing wage and “skilled and trained” workforce requirements of SB 35 do not apply. In addition, in San Francisco specifically, labor standards will apply to projects exceeding 50 units, even if the project is under 85 feet in height.
• Tribal Consultation. Tribal consultation is required under AB 130 for projects located on sites with traditional or cultural affiliations with a particular Native American Tribe and requires CEQA lead agencies for such projects to approve or disapprove the project within 30 days from the conclusion of that consultation process.
• Limited Environmental Review. As a condition of approval, the developer must obtain a Phase I environmental site assessment and implement mitigation measures if any recognized environmental condition or hazardous substance is discovered on the project site. Developments near freeways (within 500 feet) must conduct limited air quality and noise assessments.

SB 131 complements AB 130 by removing CEQA hurdles for a broader range of project types and land use decisions:

• Rezoning CEQA Exemption. SB 131 exempts local governments from CEQA review for rezoning actions that implement an adopted housing element, so long as the rezoning complies with local planning and zoning laws. Under existing law, a decision to rezone certain land could trigger a CEQA review (or lawsuit). SB 131 eliminates that risk where the local government seeks to align a zoning designation with the locality’s approved housing element.
• Targeted CEQA Review for Partially Qualified Projects. If a project narrowly misses qualifying for a categorical exemption (including the new categorical exemption created by AB 130), SB 131 limits CEQA review to only the disqualifying environmental impact, rather than to the entire project. Specifically, where a project would have qualified for a categorical exemption from CEQA “but for a single condition,” SB 131 requires that the CEQA review for that project be narrowly focused only on the environmental impacts caused by that single condition. For example, if a housing project would otherwise qualify for the new exemption created by AB 130, but the proposed site exceeds 20 acres, then CEQA review of that project must be limited to the environmental impacts of developing a site that exceeds 20 acres.
• Exemptions for Specific Project Types. SB 131 also exempts from CEQA several socially beneficial project types meeting specified requirements, including:

- agricultural employee housing;

- advanced manufacturing facilities;

- parks;

- broadband;

- nonprofit food banks;

- clean water infrastructure;

- wildfire risk reduction projects in high-fire-hazard zones;

- childcare centers; and

- health care clinics.

SB 131 will also reduce the size of the administrative records prepared in CEQA litigation for most types of projects by excluding staff notes and internal agency communications from the record.

Implications for Developers and Investors
The passage of AB 130 and SB 131 signals a new era of streamlined development in California. For real estate professionals, these changes carry several notable benefits:

• Streamlined Approval Process. Projects qualifying under these new laws, which include many new multifamily housing projects, can either bypass CEQA review entirely or take advantage of a significantly narrowed review process, accelerating entitlement timelines by months or years. This creates a more predictable development environment and allows for faster deployment of capital.
• Reduced CEQA Litigation Risk. For projects qualifying for a CEQA exemption or a streamlined review, the risk of CEQA litigation is dramatically reduced. CEQA litigation has long introduced major risks for developers and investors in California, chilling development activity (particularly among small and medium-sized developers, who do not always have the capacity to withstand prolonged litigation). These bills provide more certainty that project approvals can be obtained without extra delays and reduce or eliminate the need to dedicate funds to legal expenses during project entitlement.
• Improved Project Feasibility and ROI. Developers can more confidently assess site acquisition opportunities knowing that entitlement risk is lower and that project timelines will be shorter. Developers also know in advance what labor standards will apply to their projects, allowing for more accurate budgeting and reducing the time needed for negotiating global arrangements as part of the project entitlement process.
• Opens New Avenues for Public-Private Partnerships. With SB 131’s exemptions for community-serving facilities, developers may find new opportunities to partner with public agencies or nonprofits to deliver housing linked to schools, clinics or childcare centers.

Considerations and Compliance Notes
While these new laws offer powerful incentives, developers should still proceed with diligence. CEQA exemptions do not override local zoning authority. Projects must be fully consistent with general plan and zoning codes to qualify under AB 130 or SB 131. These bills also do not exempt projects that are located in environmentally sensitive locations, like wetlands, so it remains important for developers to understand the environmental and geotechnical attributes of a project site before proceeding with entitlements. Lastly, though these bills significantly reduce the risk of CEQA litigation and delays for public comment periods during environmental review, public opposition to a project can still pose an obstacle to a successful development. Developers should proactively engage with interested stakeholders and work to identify potential sticking points early in the process to ensure a smooth development process.

AB 130 and SB 131 dramatically change the development landscape in California for some projects, providing a new level of regulatory clarity and opportunity for the real estate sector. These reforms not only remove key barriers to development, particularly for multifamily housing projects, but also realign the state’s environmental laws with the urgent need for housing and climate-resilience by promoting urban-infill development projects in transit-rich areas of the state.