It is not too much of an overstatement to suggest that the California planning and development landscape as we know it today was created by Proposition 13 when it was passed by the voters 20 years ago this month. Prop. 13 didn't invent most of the impulses at work in California's communities today, of course. Fiscal zoning and competition between municipalities for tax revenue is nothing new. Neither is the vigorous political jockeying within any community over who pays for new growth, nor the slow-growth desire to "pull up the drawbridge", nor even the practice of requiring two-thirds voter approval for local school bonds. All these things existed before 1978. But all were accelerated by the passage of Proposition 13. And just as important, Proposition 13 created an intensified, crisis-oriented atmosphere among local governments - a kind of a hothouse - within which all these trends have baked together to create California's peculiar approach to building and financing communities. Part of Proposition 13's intent, of course, was to reduce the size of government by reducing the amount of tax revenue available. What Proposition 13's drafters couldn't predict, however, was that instead of reducing their size, government agencies - especially at the local level - would intensify their competition with one another for the revenue sources available. Proposition 13 created a "zero-sum culture" among government agencies. And because local government revenues sources are so closely tied to land and real estate development, the zero-sum culture was quickly translated into tangible changes on the urban landscape, many of which were tied to post-Proposition 13 revenue-raising strategies. The "auto mall" is now common throughout the United States, but it was invented in California - not by the auto industry trying to sell cars, but by local governments trying to capture sales taxes. The plethora of outlet malls, entertainment retail centers, and regional malls is also partly the result of Proposition 13. So is the boomlet in the creation of new cities in the last twenty years - because for the first time in history, a California community could incorporate by transferring money out of the county treasury rather than raising taxes. Many of California's sprawling regional development patterns are the result of Proposition 13 also. Well-located cities have been able to cherry-pick retail centers, high-end housing, and other tax "winners". Meanwhile, starter homes and other tax "losers" have been relegated to distant locations on the metropolitan fringe, often in unincorporated areas, where county leaders are desperate to generate any types of revenue they can get. As to the benefits of Proposition 13, they are unquestionable - even if local governments officials are rarely willing to admit it. By reducing property taxes and keeping them low, Proposition 13 reduced California's overall tax burden. Sales and income taxes are still high by national standards, but the low property tax means that overall California's tax burden falls somewhere in the middle nationally - rather than at the high end, as was the case prior to Proposition 13. This tax situation is especially important to property-intensive businesses, making California more competitive for businesses than it might otherwise be. Proposition 13 also made real estate a better investment for most Californians. Every dollar not used for property taxes was another dollar available to pay the mortgage. Thus, the average homebuyer could qualify for a higher mortgage - and this fact permitted real estate prices to continue going up even after the passage of Proposition 13. Perhaps most important, Proposition 13 eliminated the unpredictability of property taxes for millions of California homeowners. Traditionally, property owners had been vexed by two different types of unpredictability - the property assessment and the property tax rate. The assessment was traditional in the hands of the county assessor, while the tax rate was in the hands of myriad local government agencies with the power to levy property tax. Keeping property taxes down required taxpayers to fight a war on several fronts at once. With one stroke, Proposition 13 ended that war. "The lasting legacy for taxpayers," wrote Larry McCarthy of the California Taxpayers Association in a recent op-ed piece, "is the protection against surprise increases in assessed value. Taxpayers know what to expect in property taxes when they buy property and what they will owe 10 years down the road." The End of the Crooked Assessor A citizen initiative placed on the ballot by taxpayer activists Howard Jarvis and Paul Gann, Proposition 13 contains three critical provisions that have become political bedrock in California over the past two decades: o Property may be reassessed only when it is sold. o The total property tax rate may not exceed 1%. o New property-based taxes may be imposed only by a vote, with a majority vote required for "general" taxes and a two-thirds vote required for "special" taxes. To understand why Proposition 13 passed - and why it remains popular today - it is important to understand the problem that Proposition 13 was trying to address: a system of property assessment and taxation that was arcane and unpredictable at its best and scandalously corrupt at its worst. In his new book PARADISE LOST, a chronicle of the Proposition 13 era, author Peter Shrag points out that until the 1960s, California - like most other states - was rife with shady assessment practices that led to jail time for more than a few local assessors. California's first attempt to deal with the property assessment problem came in the 1960s, when a new law was passed that required all property to be reassessed every three years at 25% of market value. The irony, according to Shrag, was that even the crooked assessors had always been smart enough to assess residential property too low and business property too high. Such a skew was only good politics, because voters were far more likely to be homeowners than business owners. By standardizing assessment practices, however, the new law ended this favoritism and shifted the taxation burden away from businesses toward residences. Little wonder that in San Francisco and elsewhere a popular bumper-sticker of the time read: BRING BACK THE CROOKED ASSESSOR. When real estate prices skyrocketed in the 1970s, the tax burden on residential property only became more of a political target. Millions of middle-income homeowners saw their home values and their property assessments increase 30% per year or more. As a result, many property-tax bills doubled virtually overnight, quickly outstripping the ability of salaried workers and retired homeowners to pay them. It was this phenomenon - the portrait of the retired widow forced to sell her house to pay the property-tax bill - that captured the public's imagination. Proposition 13 was popular partly because of the salesmanship of its co-author Howard Jarvis, a longtime political activist who was himself 75 years old at the time. But the annual fight with the assessor was only half of the reason that property taxes were politically vulnerable, because the assessed value of any individual's house is only part of the equation that yields the final property tax bill. Just as important - though harder to combat for the average taxpayer- was the question of the property-tax rate, which was set every year by local officials. This was especially true in suburban areas - including most of California - where the typical homeowner might be subject to a separate property tax rate from the county, the city, the school district, the water district, the park district, the fire district, and three or four other taxing districts. Each government agency set its own rate, but no one was politically accountable for the "bottom line". Typically, no single agency imposed a property-tax rate of more than one-half of 1%, but the cumulative total could easily add up to 2.5% or 3% - on an assessment that, in the late 1970s, was rising dramatically every year. That's why the 1% cap on the property-tax rate was just as important as the reassessment provisions. During the run-up to the June 1978 election, Proposition 13 was opposed by almost every element in the state's political and business establishment - not just public unions and government officials, but also the state Chamber of Commerce and the California Taxpayers Association. (Most backed a competing ballot measure, Proposition 8, that would have permitted a split roll taxing owner-occupied residential property at a lower rate.) Nevertheless, Proposition 13 was approved by approximately 65% of the state's voters in the June 1978 election. Throughout the country, Proposition 13 is widely viewed as the bellwether event in what became a widespread and enduring nationwide revolt against high taxes. Ronald Reagan quickly picked up on Proposition 13's themes in shaping his successful presidential campaign in 1980. Most other states now have some form of property-tax limit. And the rhetoric of limited taxes and limited government is now a staple of American politics. The Zero-Sum Culture While Proposition 13 has become an icon of America's political culture, it has also become an important lesson in the politics of unintended consequences. Like most citizen initiatives, Proposition 13 was not finely crafted legislative surgery. It was a harsh blow with a blunt instrument. As such, it sent California government - and, by extension, California planning and development trends - spinning in unpredictable directions. The immediate impact of Proposition 13 was pretty much as predicted. All local government agencies had less money. But over time, the unintended consequences emerged, and they had a major impact on the distribution of political power and governmental resources. For the vantage point of planning and development, Proposition 13 had two major impacts that were not foreseen at the time of its passage. o First, it transferred a great deal of power from local governments to the state government in Sacramento. o And second, it led local governments on an endless quest for forms of revenue other than property tax - a quest that has benefited some local agencies (such as cities and redevelopment agencies) far more than others (such as counties and special districts dependent on property tax.) It is difficult to imagine that either Howard Jarvis or Paul Gann intended to remove power from local governments and give it to the state. Yet that is what Proposition 13 did. In placing a cap on the overall tax rate, the initiative raised the question of who should allocate the property-tax revenues. Proposition 13 answered that question with a single sentence delegating that responsibility to the state government. Coincidentally, Proposition 13 passed only two years after the second of the two Serrano v. Priest decisions, which required the state to "equalize" the operating budgets of school districts across the state. Prior to the Serrano cases, a school district with a large property tax base had more money per student than a school district with a small property tax base. After the court rulings, the state had to make up the difference. The net effect of Proposition 13 and Serrano together was to convert the property tax into a state revenue source. Under Serrano, the state was required to commingle its own funds with school property-tax revenue to reach a statewide equilibrium. Under Proposition 13, the state had the power to allocate property taxes among local agencies however it wished. In 1979, when the state was flush with cash, it allocated most of the property taxes to cities and counties and made up the difference by increasing state outlays to schools. So perhaps it was inevitable that when the state ran into financial trouble in the early 1990s, the legislature would reverse the trend. In the 1992-93 and '93-94 budget years, the state did just that - shifting approximately 25% of the funds away from cities and counties back to school districts in order to balance the state's own budget. In this kind of environment, it is not surprising that local governments have become active lobbying groups in Sacramento. Under Proposition 13, one of their major revenue source depends far more on their lobbying ability in Sacramento than on their relationship with their own local residents and taxpayers. By restricting property tax, Proposition 13 also changed the strategic importance of all revenue sources in local government. Sales tax became far more important - especially for cities - and development fees and property assessments emerged as critical revenue generators. All these trends had an impact on urban development patterns. Proposition 13 essentially rewarded cities and counties for developing retail land uses, which generated sales tax, and punished them for developing land uses that generated only property tax - essentially, all low- and moderate-income housing. This is one of the main reasons for today's "fiscalized" urban landscape, with its plethora of shopping centers and auto malls and its paucity of balanced housing developments. While retail developments were subsidized because of their tax attractiveness, housing developments were essentially charged a premium in the form of development fees, which were required to pay for new infrastructure no longer obtainable through the increased property tax flows. Among other things, these trends have made local government budgets subject to far more volatility. Retail sales transactions and real estate development activity fluctuate wildly depending on market conditions, while property assessments are traditionally more stable. Many of the revenue-raising measures that resulted from Proposition 13 created their own backlash. For example, after the 1992-93 property tax shift, counties and special districts turned to assessment districts as an important source of replacement revenue - especially since districts could be formed and assessments levied without a vote. This trend led directly to Proposition 218, the 1996 taxpayer initiative that required, in essence, two-thirds approval from property owners for new assessments. And all across the board, local governments have taken advantage of complicated legal loopholes to gain an advantage in the "zero-sum culture". When Proposition 13 passed, for example, most experts assumed that declining property taxes spelled the end of redevelopment in California - because redevelopment finance plans depended heavily in increased property-tax flows. But redevelopment enjoyed a scandalously successful renaissance in the 1980s because it was an important zero-sum tool: Clever cities could use it to capture property-tax dollars that would otherwise have to be shared with counties, school districts, and special districts. Widespread use of redevelopment as a zero-sum tool led directly to the redevelopment reforms of 1993. Similarly, Proposition 13 sparked a renaissance in new city incorporations because cityhood could also be used as a zero-sum tool. Incorporations had waned in the late '60s and '70s because of opposition from taxpayers, who assumed creation of a new city also meant higher taxes. But with property tax increases "outlawed" by Proposition 13, political resistance to incorporations lessened. And cityhood proponents realized that incorporation was a good way to take property and sales tax revenue from a distant county treasury and return it to their community. Not surprisingly, this trend produced its own backlash: The so-called "revenue neutrality" bill, passed in 1992 at the insistence of counties, which has stifled incorporations by requiring that counties be made financially whole by new cities. Returning to Equilibrium? Curiously, after two decades, the world of local planning and development may be reaching a strange kind of equilibrium. Calls to repeal Proposition 13 used to be common among liberals and local government leaders. Now they're so rare they seem anachronistic. For example, Bill Press, the former state Democratic Party chair and current CNN "Crossfire" host, made just such an appeal last fall at the California Chapter, American Planning Association, conference last fall. And while he received a hardy round of applause, the audience's appreciation seemed more nostalgic than realistic. Everyone appeared to recognize that Press was giving a 1970s speech in the 1990s. Most local government officials in California seem resigned to working within the basic tenets of Proposition 13: the 1% cap, the reassessment on sale, and the two-thirds vote requirement. This acceptance has forced them to try to achieve traditional goals within the more rigorous framework of public acceptance that Proposition 13 imposes - and, in the process, they have begun to restore the faith of at least some voters in at least some government activities. Local school bonds backed by increased property taxes were originally banned under Proposition 13. Now they are permitted with a two-thirds vote - the same requirement that existed prior to 1978. And even though the percentage of voters who are public school parents today is only half what it was in the 1960s (20% versus 40%), most school bonds are now winning. School districts have made the case that good school facilities help everyone in the community. And in the process, oddly enough, they have reinforced the assumptions contained in the Proposition 13 culture. Attempts to lower the vote requirement in Sacramento (to 60%, 58%, or a simple majority) are met with strong resistance. Why lower the rate when the bonds are already passing at two-thirds? The local school bond, however, represents a rare instance in the post-Proposition 13 world where local voters can engage in the traditional task of determining whether what they are getting is worth paying for. If there is one lingering problem that results from Proposition 13, it is that the process of raising government revenue has been severed from the process of spending it - which isn't doing much to restore faith in government. Property tax revenues are received more or less automatically by local governments as the result of political decisions in Sacramento. Other revenue comes, essentially, from taxing either newcomers (development fees) or outsiders (sales taxes). For these reasons, the revenue base is simply an assumption, and the only political discussion that occurs in most California communities is how to spend the money. For better or worse, in the old days, the political debate had to do with both revenue and expenditure and with the relationship between the two. As UC Davis Professor Alvin Sokolow has so eloquently pointed out, prior to Proposition 13 the typical local budget debate focused on how much property taxation was politically tolerable - and this was inevitably tied to the question of who would benefit from spending the proceeds. In other words, localities controlled the entire debate, instead of only half of it, and they were able to debate the question in terms of the value received for the political pain inflicted. These days, local officials, homebuilders, open-space advocates, school leaders, and others involved in planning and development in California frequently debate the question of what the ultimate "fix" for Proposition 13 should be. After the property-tax shift of 1992-93, many local officials advocate running some kind of initiative that would guarantee local governments a certain share of the property tax - similar to Proposition 98 for schools. Indeed, Assemblyman Fred Aguiar, R-Chino, recently introduced ACA 42, a bill sponsored by the League of California Cities, which calls for just such a solution. This solution may be the best political alternative; it is clearly in keeping with California's budgeting trends of the last two decades. But it doesn't address Professor Sokolow's basic point about the need to have the revenue debate at the same political level as the expenditure debate. In a certain way, it simply gives local governments more "free" money - free in the sense that they need not engage in difficult political debates over how much money should be raised, or from whom. If local governments don't get a Proposition 98-type solution, then California is at a crossroads on the question of how to finance local government. Either the expenditure decisions will have to up to the state level, where revenue is allocated, or the revenue allocation decisions will have to come down to the local level where the expenditure decisions are currently made. Indeed, this is the guts of the debate that has occurred in Sacramento over the last year: Should the state government provide more money to local governments - but dictate what it should be used for? Or should the Proposition 13 system be reformed so that local officials (cities, counties, schools, special districts) can decide for themselves how to divvy up the available tax revenue? At first glance, this question may seem to be a long way from the question of planning and development, but the experience of the last 20 years suggests that it is not. Local land-use decisions will always be driven to some extent by revenue concerns. And it is clear that the more tangled local government finance has become over the last 20 years, the more difficult it has been for California's communities to engage in rational land-use planning. Neither of the two solutions described above may be ideal. On the one hand, a Sacramento-driven solution may strip local governments of much of their remaining power; on the other hand, the locals may not be able to work together well enough to allocate their own resources. But any solution that breaks the grip of the zero-sum culture on California's communities is better than nothing.

The end of the decade-long battle between the City of Citrus Heights and Sacramento County may be soon approaching, if the city and the county can agree to a new formula under which the city will make annual payments to the county. The negotiations underscore the confusion and acrimony created by the 1992 law which requires cities to make tax revenue payments to counties under the doctrine of "revenue neutrality." In early 1996, Citrus Heights was scheduled to make the first of 25 annual payments of $5.6 million to the county. The arrangement was expected to end the bickering over revenue neutrality. But the city reneged on the payments, saying it could not afford them, in part because of the declining revenues at the city's regional mall. (Ironically, the profitability of that mall was part of the inducement for Citrus Heights to first seek cityhood in 1986). Most recently, on April 30, the Sacramento County Board of Supervisors voted 5-0 to withhold $2.2 million in property tax revenue generated in the Citrus Heights. Despite that saber rattling, however, city manager Mike Oliver said in May that the city was prepared to pay $2.3 million annually for the next 25 years - a sum that he described as the city's property tax revenues for the inclusive period. He predicted the case would be settled before the scheduled court date in July. "The status is we are continuing with the county and we're hoping that they will see the light," Oliver said. "We believe we are making progress and we will know more in the next 30 days for sure." Despite the projected loss of the city's property tax revenues, Oliver sounded confident that the city would be able to create a redevelopment agency, even though redevelopment projects are financed by tax increment, which is derived from property taxes. "That's part of what we will be negotiating over the next couple of weeks," he said. Although he is not a party to the negotiations, Walter Kieser, a fiscal expert with Economic & Planning Systems in Berkeley, said that it is possible to create a redevelopment agency, in which the county gives back enough property taxes to the city to pay for redevelopment projects, and that the City of Shasta Lake had a redevelopment agency of this kind. Shasta Lake is the only other city besides Citrus Heights to incorporate since the passage of the revenue-neutrality bill. According to Citrus Heights' Oliver, the legacy of litigation that has marked the first decade of Citrus Heights was a "tremendously high price to pay for cityhood," adding that "the state legislature needs to go back and address the issue. We have been left out in the cold." In a lighter moment, he referred to Citrus Heights as "the poster child of revenue neutrality." County Supervisor Illa Collin, however, defended a deal that would take most or all of the city's property taxes. While she said she wanted Citrus Heights to succeed, she also hinted that newly incorporating cities should not be encouraged in Sacramento County. She pointed out the necessity of preserving the tax base in a county where a majority of the population still lives in unincorporated areas. She also said that Citrus Heights would probably become the second-biggest user of the county's judicial and probation services, presumably in view of the city's slum areas. And she was incensed that Citrus Heights City Council had voted to increase the police service failing to pay the county. "Citrus Heights has been using our nickel to provide for increased services. They (city officials) have not wanted to tell their citizens the truth about where the money came from," she said. Collin added that the county was not trying to act punitively toward Citrus Heights. But neither did it seem did she want to send a message of permissiveness to other would-be cities in Sacramento. "The problem in this county is that we have so many others in the wing. They figure if there is a windfall to be had, just as Citrus Heights enriched (itself) by drawing a line around a sales-tax Generator, then they can do it, too." Meanwhile, two legislative attempts to reform Cortese-Knox, the "revenue-neutrality" statute, have moved forward in Sacramento. On May 14, AB 2147 (Thompson) won approval from the Assembly by 67-1. In its present form, the bill does little more than state that tax transfers under revenue-neutrality need a "rational" basis. On the same day, the state approved by a 37-0 vote, SB 1793 (Greene), which instructs local LAFCOs to inform counties which services new cities will assume on their own, and which will be contracted. A senate analysis describes the bill as "much ado about nothing," since LAFCOs already perform this role. A third reform bill, AB 2158 (Ortiz), died in assembly committee in late April. Possibly of greater significance are the ongoing talks between representatives of the California League of Cities and the California State Association of Counties on a new formula for revenue neutrality. If the parties reach a decision, the formula may be inserted into the Thompson bill. Contacts: Mike Oliver, city manager, City of Citrus Heights, (916) 725-2448 Walter Kieser, Economic & Planning Systems, (510) 841-9190 Illa Collin, Saramento County Supervisor (916) 874 5411

In an important decision on taking law, a divided California Supreme Court has ruled that a temporary taking did not occur when an erroneous decision by the California Coastal Commission delayed a property owner's plans to build a house in Malibu. The case is likely to be appealed to the U.S. Supreme Court. The property owner had argued that a temporary taking should have been found under the temporary taking doctrine contained in the U.S. Supreme Court's ruling in First English Evangelical Luthe... In an important decision on taking law, a divided California Supreme Court has ruled that a temporary taking did not occur when an erroneous decision by the California Coastal Commission delayed a property owner's plans to build a house in Malibu. The case is likely to be appealed to the U.S. Supreme Court. The property owner had argued that a temporary taking should have been found under the temporary taking doctrine contained in the U.S. Supreme Court's ruling in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles, 482 U.S. 304 (1987). But in the majority opinion, Justice Stanley Mosk noted that the U.S. high court said its holding did not extend to "the quite different questions that would arise in the case of normal delays in obtaining building permits, changes in zoning ordinances, variances, and the like which are not before us." The court ruled in favor of the Coastal Commission by a 4-3 vote. "We conclude that the present case falls squarely into the category of a normal delay rather than a temporary taking," Mosk said in an opinion that was joined by Chief Justice Ronald George and Justices Joyce Kennard and Kathryn Werdegar. "Such delay is an incident of property ownership and not a taking of property. The high court's decision overturned a decision by the Second District Court of Appeal, Division One. (See CP&DR Legal Digest, March 1997.) That panel found that a taking occurred because the property owner got caught in the crossfire of a dispute between the Coastal Commission and Los Angeles County over which agency had jurisdiction over lot-line adjustments. By insisting that the lot-line adjustment was illegal because they had not approved it, the Coastal Commissioners had put the property owner, Landgate Inc., "in a situation which was not of Landgate's own making and which Landgate could do nothing to cure," the Second District wrote. The court added that the commissioners, "with apparent indifference to the consequences of the applicant, denied the permit without the jurisdiction to do so." The Landgate project in Malibu was actually approved by the Coastal Commission in 1993. The lawsuit involved the question of whether a temporary taking had occurred between February 1991 and February 1993. The Landgate case began in 1989, when Los Angeles County approved the reconfiguration of two two-acre lots, each of which was zoned for a single-family home. The landowner agreed to grant a roadway easement to the property in exchange for reconfiguring the lots on either side of the road. The landowner did not seek Coastal Commission approval for the adjustments, and the commission did not challenge the county's approval. The question of which agency has jurisdiction over lot-line adjustments has long been a matter of dispute between the Coastal Commission and L.A. County. At the time, the commission had approved the Land Use Plan for Malibu, but had not approved the Local Coastal Program, so it continued to have jurisdiction over the issuance of coastal development permits in the area. Landgate purchased one of the lots in 1990, and began processing a proposal to build a 9,000-square-foot single-family home, a guest house, and a swimming pool. The developer planned to grade 8,500 cubic yards on the property. After negotiating with the commission staff, Landgate reduced the size of the proposed house by 1,500 square feet and also cut the amount of grading in half. But the commission rejected Landgate's application, finding, among other things, that the lot constituted an "impermissible" development because it had been created without the commission's approval, and also because the proposed house and other structures would produce excessive soil, grading, and visual degradation. At two meetings of the Coastal Commission, commissioners had expressed concern over the question of who had jurisdiction over the lot-line adjustment and indicated they would not have approved the adjustment if it had come before them. After Landgate sued, Superior Court Judge Richard Hubbell ordered the commission to reconsider the project. Instead, the commission appealed the judge's decision to the Second District. The appellate court affirmed the writ and concluded that the lot-line adjustment was not a new "development" within the meaning of the Coastal Act, and the commission had no jurisdiction to deny the permit on hat ground. The permit was then issued. In reviewing the appellate court's opinion in Landgate, the California Supreme Court noted that the court " ppeared to accept the Commission's assertion that reasonable mistakes made by a government agency in the development approval process do not necessarily constitute takings. But, as it stated: ' hat we cannot accept is the Commission's characterization of the treatment of Landgate here as the reasonable result of a 'mistake'. Nothing in the record suggests that a lot-line adjustment issue arose out of anything other than the Commission's ongoing jurisdictional spat with the County of Los Angeles combined with a desire to prevent Landgate from building on its parcel'." In the majority opinion, Mosk examined the case by reviewing case law about the impact of a regulatory mistake. "Virtually every court that has examined the issue has concluded, for various reasons and under various theories, that a regulatory mistake resulting in delay does NOT, by itself, amount to a taking of property," he wrote. In support of this view he cited, among others, a Massachusetts case, Steinbergh v. City of Cambridge, 604 N.E. 2d 1269 (Mass. 1992) and a California case, Littoral Development Co. v. San Francisco Bay Conservation Development Commission, 33 Cal.App.4th 211 (1994). Mosk wrote: "We substantially agree with the Supreme Judicial Council of Massachusetts, with our Court of Appeal, and with the other courts ... that an error by a governmental agency in the development approval process does not necessarily amount to a taking even if the error in some way diminishes the value of the subject property, any more than the commission of state law error during a criminal trial is an automatic violation of the due process clause." Mosk compared the situation to condemnation proceedings for land which stops the development process. He argued that the U.S. Supreme Court had upheld the California Supreme Court on just such a point in Agins v. Tiburon, 447 U.S. 255 (1980). In that case, Mosk wrote, the U.S. Supreme Court agreed "that we had 'correctly rejected the contention that the municipalities good-faith planning activities, which did not result in successful prosecution of an eminent domain claim, so burdened the appellants' enjoyment of their property as to constitute a taking." The California Supreme Court opinion in Landgate said that the appellate court "erred in its attempt to divine, through the statements of Commissioners and commission staff and through circumstantial evidence, the 'true', illegitimate motive for the Commission's decision to deny Landgate's development permit. Citing cases such as Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the court said: "The proper inquiry is not into the subjective motive of the government agency, but whether there is, objectively, sufficient connection between the land use regulation in question and legitimate governmental purpose so that the latter may be said to substantially advance the former." The court said that cases such as Nollan and Ehrlich v. City of Culver City, 12 Cal.4th 854 (1996), "suggest that judicial review of governmental conditions imposed upon development will be more deferential when the conditions are simply restrictions on land use and not requirements that the property owner convey a portion of his property." The court said that the commission's denial of the Landgate permit in February 1991, including the portion of the denial based on an improper lot-line adjustment, appeared to "substantially advance legitimate governmental interests and to be supported by substantial evidence." The Mosk opinion said there was nothing in the record to show, as the Court of Appeal panel found, that the commission was motivated by a "jurisdictional spat" within Los Angeles County. Justice Mosk tried to distinguish the Landgate matter from First English. "Here," he wrote, "there was a postponement of development pending resolution of a threshold issue of the development approval process - whether the lot was legal - and not a final decision denying development. In First English, on the other hand, the Supreme Court assumed that the ordinance in question categorically denied all property owners within its purview the right to develop their property." Two dissenting opinions were filed: one by Justice Ming Chin and one by Justice Janice Brown. Justice Marvin Baxter concurred in both. In his dissent, Justice Chin said that he did not consider the delay to be a "normal delay" of the permit approval process. " argue that the Commission's total and final ban on all use of Landgate's property (which existed during the litigation delay) gave rise to the temporary taking," he wrote. The majority opinion, he wrote, used the same arguments for "normal delay" that were part of a dissenting opinion written at the U.S. Supreme Court in First English. In her dissent, Justice Brown wrote: "It is evident that the majority is unwilling to come to terms with the true meaning and operative effect of Lucas and First Lutheran." Benjamin Reznick, the attorney for Landgate, said he expects the case to be appealed to the U.S. Supreme Court but no final decision has been made. "It's a case of great importance and it's clearly a landmark case here in the state," he said. The Case: Landgate v. California Coastal Commission, No. S059847, 98 Daily Journal D.A.R. XXXX (May 1, 1998). The Lawyers: For Landgate: Benjamin Reznick, Jeffer, Mangels, Butler & Marmaro, (310) 201-3572. For Coastal Commission: Peter Kaufman, Deputy Attorney General, (619) 645-2020.

In 1998, for the first time in a generation, school bonds are building more schools in California than any other funding source. Voter-approved schools are back, as are other tax measures for school operations and special programs. This stands in sharp contrast to the first 15 years after Proposition 13. From 1978 to 1986, school bonds and taxes were not permitted on local ballots at all. After the Constitution was amended to once again allow school tax elections in 1986, school bonds and taxes began reappearing on the ballot - but most of them failed. Over time, both the number of school bonds and their frequency with which they pass has grown. In the April elections, about 50 measures appeared on local ballots, and more than half of them passed with a two-thirds vote. (Even most that failed got at least 60% of the vote.) Overall since 1986, approximately 500 bond and tax measures have appeared, and about 40% have passed. Every school superintendent knows that a bond is in his or her future. The question is no longer whether to pursue a bond, but rather when, how much, and for which projects. Like cities and counties, schools have become accustomed to a world dicated by certificates of approval, Mello-Roos bonds, developer fees, and capitalized redevelopment pass-throughs. School districts' capital needs have also brought them closer to cities and counties - because they often need the additional mitigation money available to them through local government planning processes. At the same time, however, they've also learned how to win local bond elections. School bonds have caught on mainly because the school facility problem couldn't be ignored any longer. With resistance growing to more fees and user charges, other public agencies are likely to step up their attempts to win voter approval for debt. Schools may simply have been first. And this raises a whole series of questions about the future relationship between school districts and local governments about infrastructure funding. Cities, counties, and special districts will inevitably start charting the waters of voter tolerance for higher taxes. But voters see taxes as a single bottom line, meaning bond and tax proposals compete with one another. What will this mean in the future: more cooperation, more competition - or simply greater reliance on state funding? Even 20 years after Proposition 13, California still lacks a coherent philosophy about public infrastructure needs. Communities are becoming aware of the imbalance between growth areas needing new infrastructure and older areas requiring more maintenance. This battle is just beginning to emerge on the local government front, but it has been fought on the school front for several years, as urban and suburban school districts battle over whether state bond funds will go for modernization or new schools. In the future, this competition will only intensify. Multiple agencies - cities, counties, school districts, park districts, water agencies, and others - may have to begin coordinating and balancing their competing needs. Poorer communities and areas with strong anti-tax voters may get left behind. Here again, all public agencies facing these choices will benefit from the school experience. Take the issue of proposed state bonds for infrastructure construction - an oft-cited idea that is politically attractive because state bonds require only a simple majority vote rather than two-thirds. In the wake of Proposition 13, schools became far more dependent on the state for their capital funds, benefiting from several billion dollars in voter-approved school bonds since 1982. But they have paid a price. The state has ceased to be the schools' partner and has, instead, become their regulator and auditor. School districts must adhere to strict state design and construction guidelines and therefore have little independence. At the local level, it seems that both developer and homebuyer tolerance for development fees has reached its maximum - for schools or anything else. This is especially true in the school arena, where it appears likely that the building industry's decade-long attempt to place a cap on school fees is likely to succeed in the near future. So more money will have to be raised from voter-approved bonds and parcel taxes. And it's unlikely that the state will lower the two-thirds requirement for any local debt issuance. Therefore, local governments, like their school counterparts, will have to learn to win bond campaigns that require two-thirds vote. This may well lead to a faddish, pork-barrel approach to local bonds. Every voting block has its price in the form of a special goodie on the bond list. And it may lead local governments to work together with schools in shaping a community infrastructure strategy and seeking joint voter approval. Cooperating with schools on the local ballot is probably far less risky than competing with them. After all, few community symbols are as powerful as schools. Not many of us feel the same emotional bond to all those pipes under the street.

Proposition 13 and its progency - the most recent being Propositon 218 - didn't just limit California's taxes. They also sent a message that some of California's citizens wanted to rein in government activity of all kinds - and one of the major areas affected has been spending for parks and open space. With the passage of the original initiative in 1978, parks and open space suddenly fell low on the spending list for both state and federal governments - far behind such needs as public safety, education, and health services. Over time, a new structure has emerged - one that relies more heavily on state bond funds, private foundation dollars, the work of entrepreneurial private land trusts, local tax increases that can survive a two-thirds vote requirement, and mitigation from private developers. While this new structure has helped plug the gap, it also tends to focus on land acquisition - often at the expense of maintenance and management of parks and open space. After Proposition 13 - and especially after Proposition 98, which earmarks some 40% of the state general fund for education - state budget priorities shifted away from parks and open space. According to the San Francisco Chronicle, state spending for new parks has dropped from $46 million 15 years ago to $7 million today. Though the recent economic boom has improved the state's fiscal condition for the moment, both the state Department of Parks & Recreation and other agencies that manage open space land, such as the Department of Fish & Game, struggle to maintain the property they now own. For a while, it appeared as though state bond funds might plug the gap. In the 1980s, lack of state spending motivated the Planning and Conservation League, a well-established environmental group, to qualify the first bond measure via initiative in the state's history. The result was Proposition 70 in 1988, which provided $770 million for parks and open space acquisition statewide. Working with land trusts and open space groups around the state, PCL later qualified and passed Proposition 117 in 1990, the so-called "mountain lion" initiative, which appropriates $30 million a year for certain types of open-space acquisition. PCL later ran into criticism, however, for its alleged "park barrel" tactics - supposedly enlisting local conservation organizations to gather signatures in exchange for listing their pet projects in the bonds. PCL never admitted to such tactics and they were never proven. However, the "park barrel" criticism, along with the recession, seemed to put a damper on the statewide bond initiatives. Proposition 180, a $2 billion bond initiative, was defeated by the voters in 1994. Local governments have also struggled to find ways to pay for parks and open space. In some cases - including Sonoma County and more recently Napa County - local voters have approved sales-tax increases for open space acquisition. More typical was the strategy of land conservation activists in Los Angeles County, who won voter approval for large property-assessment bond issues in both 1992 and 1996. Property assessments for park purposes, however, were the main cause of Proposition 218, an initiative supported by taxpayer groups that passed statewide in 1996. Prop. 218 was stimulated largely by the California Supreme Court's ruling in Knox v. Orland, 4 Cal.4th 132, which authorized expansive use of assessment districts for such purposes as park maintenance. Proposition 218 essentially requires two-thirds voter approval from property owners for increased property assessments. As the public money has dried up, private foundations and non-profit land conservation organization have attempted to step into the breach. While public budgets have withered, foundations have grown in wealth dramatically in the last 15 years because of the stock market boom. Several large foundations in California and elsewhere have made major commitments to parks and open space. Most notably, the Packard Foundation announced in March that it would provide $175 million over the next five years to protect open space, farmland, and wildlife habitat in the Central Valley, the Central Coast, and the Sierra Nevadas. The Lila Wallace Readers Digest Fund likewise helps fund urban parks. While initial reports made the Packard program sound like the grants alone would be sufficient to save much of the open space in these regions, the funds come with strings attached. Foundation money will provide only half the funds required to acquire a property. Local governments must match the grant with their own funds - which can come from other private organizations or from state or federal sources. Foundation money "shouldn't be an excuse for local or state governments not to do their fair share," said Michael Mantell, former undersecretary of the California Resources Agency and now a consultant to the Packard conservation program. Also plugging the gap are a variety of "mitigation" efforts, as well as the efforts of private conservation organizations such as The Nature Conservancy, the Trust for Public Land, and local land trusts up and down the state. In addition, a new breed of organization has emerged in recent years - private firms such as the Center for Natural Lands Management in Sacramento, which specialize in owning and/or maintaining land that has been set aside for open space or wildlife preservation. Local, state, and federal agencies often acquire open land as part of a "mitigation" package that permits some private development to occur on environmentally sensitive land. In addition, large landowners, such as The Irvine Co. and Newhall Land & Farming Co., often retain ownership to sensitive land but contract with The Nature Conservancy or the Center for Natural Lands Management to help meet mitigation requirements for other development projects. The result is a crazy-quilt of land ownership and management patterns. Some land is owned by the government - federal, state, and local. Some land is owned by non-profit organizations, and some land remains in the hands of private developers. Land is bought or traded with the help of public, non-profit, and private money. And, increasingly, these different groups and organizations work together. For example, the Orange County Natural Reserve created as part of the state's endangered-species preservation program is overseen by a board that includes public, private, and non-profit organizations. And in spite of everything else, the public bond may be on the way back. Currently, Sen. Mike Thompson, D-Napa, has proposed SB 2, which would place an $880 million park bond issue on the ballot in November. The bill is currently stuck in the Assembly, but if it goes on the ballot and passes it will be the first major park bond to pass statewide since Proposition 70 a decade ago.

Mike Gotch, who carried an important Local Agency Formation Commission bill as a member of the state Assembly, has signed on with the California Association of Local Agency Formation Commissions as executive officer. Gotch's hiring is viewed as an attempt by CALAFCO to regain lost clout. The organization has dwindled in membership in recent years. In addition, disgruntled participants in the LAFCO process - including developers and special districts - are increasingly "going around" their local LAFCOs to the Legislature in hopes of obtaing a better deal in Sacramento. Gotch, a former LAFCO staff member in San Diego, was the author of the important bill AB 1335, which gave LAFCOs the power to initiate special district consolidations but also permitted the addition of special district representatives on many LAFCO boards

It's the archetypal Hollywood tourist scene. Visitors compare their handprints with those of stars at the Chinese Theater. They gawk at a premiere at the El Capitan. They point to names lit up on neon marquees, and recite the names enshrined in terrazzo on the Hollywood Walk of Fame. Only one thing is wrong with this scene: It is occurring in Florida, on a replica of Hollywood Boulevard at Disney/MGM Studios Theme Park in Walt Disney World. It's the archetypal Hollywood tourist scene. Visitors compare their handprints with those of stars at the Chinese Theater. They gawk at a premiere at the El Capitan. They point to names lit up on neon marquees, and recite the names enshrined in terrazzo on the Hollywood Walk of Fame. Only one thing is wrong with this scene: It is occurring in Florida, on a replica of Hollywood Boulevard at Disney/MGM Studios Theme Park in Walt Disney World. The real Hollywood Boulevard, meanwhile, looks shabby by day and menacing by night. While Tinseltown still attracts millions of visitors, most react with disappointment at the lack of attractions and historical flavor. Tour groups pile off the buses to take a gander at the Chinese Theater, and then pile on again. There is nothing else to see, at least in the eyes of tour guides. When first announced in 1986, the Hollywood Redevelopment Project seemed an easy winner. Hollywood has an inexhaustible hold on the world's imagination, and the area has a pent-up tourist demand. If most of the film studios have left the area, Hollywood continues to be center of entertainment-related businesses. The commercial strips are filled with handsome buildings from the 1920s and '30s. "Hollywood has so many positive things going for it: a central location, the cultural history, a great collection of buildings, and some of the world's greatest housing nearby," says Los Angeles architect Barton Myers. But nearly five years later, the $1 billion Hollywood redevelopment is still largely an idea. With one exception, all major projects are dormant. And millions of dollars of tax increment designated for the project remained tied up in court Ironically, commercial developments with filmland themes have been popping up in Southern California and Florida in recent years. Much of the tourist trade destined for Hollywood is siphoned away by MCA-Universal Studio Tours. Some skeptics say that Hollywood has waited too long to stage a comeback, and that the real thing may have difficulty competing with glitzy imitations in more controlled environments. Why has redevelopment taken so long? Councilman Michael Woo, a professional planner who spearheaded the redevelopment project, points to the thoroughness of the planning process. A soft office market and the notorious "credit crunch" are other answers. Legal problems also took up time. One lawsuit resulted from the disbandment of the original Hollywood Project Area Committee, which had been set up to advise the CRA. The PAC had contained a number of outspoken opponents of redevelopment; they claimed their lack of cooperation caused their dismissal. (Woo and the CRA later set up another committee, Hollywood Community Advisory Council, that critics claim has been friendlier to redevelopment.) Former PAC members sued to be reinstated, and to have their powers enlarged. A Superior Court judge ruled against the group in February 1989, and an appeal failed. In a second and still unresolved case, a group of local residents, Save Hollywood Our Town (SHOT), sued the CRA, challenging the legality of the Hollywood Redevelopment Project. In particular, SHOT claimed the CRA had not properly notified property owners or held public meetings regarding the plan. A Superior Court judge dismissed the suit; SHOT is currently appealing the case. As a result of the suit, the tax increment from the Hollywood Area -- now about $10 million -- has been parked in an escrow account until the case is resolved. The case made it next to impossible for the agency to float bonds for Hollywood-area projects. But if the courts have delayed Hollywood, the time was arguably well spent in planning. After rejecting a prior plan prepared by consultants, Woo in 1987 created an advisory group, Hollywood Planning and Design Review Committee, headed by Hollywood-based architect Myers, to create policy for urban design and "built form." Woo and CRA staff also created a design "workshop" and invited public participation in numerous meetings that sometimes resembled the "charrette" or collective-design process favored by designers such as Andres Duany. For a city agency accustomed to dictating design criteria from on high, the workshops were a "unique" experience, says Cooke Sunoo, CRA project manager for Hollywood. The latest version of the plan is remarkable for its close attention to local conditions. The plan divides Hollywood into three overlapping areas: tourism and entertainment to the West, a "gateway" to Hollywood near on Hollywood and Vine, and residential-oriented retail to the east. Residential mixed use is a priority throughout. Design guidelines are also proposed. They include wider sidewalks and tree planting on Hollywood Boulevard. A 150-foot height limit is imposed on new construction, to conform to the standard of the 1920s. A continuous "streetwall" is to be maintained, while architectural styles are to complement Hollywood's combination of "Chateau, Moderne, and Spanish," according to Myers. The transition from planning to development has been frustrating, however. Only the Hollywood Galaxy, a 200,000-square-foot shopping center, is currently under construction. The Hollywood Promenade project, arguably the linchpin of Hollywood redevelopment, remains in limbo. The project, intended for a five-block area between Highland Avenue and the Chinese Theater, combines certain elements of shopping malls, office districts, and theme parks. It includes a high-rise office building, a major hotel, a shopping center, a Hollywood museum, and an American Cinematheque film center to screen classic Hollywood fare. But the developer, Melvin Simon & Associates, has been unable to obtain financing. After months of rumors that the project was all but dead, the CRA has offered "tens of millions" of dollars in incentives, according to CRA's Sunoo; he declines to identify them. Conceivably because of those incentives, the project in late October seemed close to getting financed at last. Other ambitious projects are also quiet. Little has been heard lately of a project of the Bass family of Fort Worth, Texas, to build 1,000 units of housing and 200,000 square feet of retail. Ditto for Alexander Haagen's plans to refurbish a former Sears location. The difficulty of moving projects forward in Hollywood has prompted skeptics to ask whether Hollywood has missed its moment -- and its market. Planning consultant Larry Kosmont is one of the doubters. "They lost the office market to the Burbank Media District and the tourist market to Universal Studio Tour," he says. "You tend to wonder whether people would be a lot more comfortable in a more contrived environment, such as Universal City, as opposed to the real grit of Hollywood." The idea makes Woo bristle. "It's a mistake to think that Hollywood needs nothing more than a new amusement park to turn it around. ... Hollywood has a number of unique attributes ... and a multi-ethnic constituency that makes for a genuine, dynamic urban district, as opposed to an entertainment park atmosphere." In making such comments, Woo is simply pointing out the critical difference between Universal City and Hollywood. Universal is an attraction, not a city. It has no housing and no jobs apart from the MCA payroll; it offers nothing of interest that does not cost money, and it closes at night. Hollywood, on the other hand, is a genuine urban environment. It partakes of the "disorder" that social critic Richard Sennett has identified as a needed element in an increasingly controlled world. The real Hollywood is bound to lose some of the tourist trade to its clean-cut imitators. Eventually, however, the middle class will return to Hollywood, as an antidote to oppressive orderliness. Despite what film studios say, life is more interesting than any amusement park. Maybe sooner or later the lenders will catch on, and the Hollywood redevelopment plan will start moving forward again.

In increasing numbers, developers throughout the state are suing citizen groups -- and individual citizens -- who oppose their projects. But most of these so-called "SLAPP" lawsuits seem to be failing, and some have even backfired as citizens have countersued against the developers. In increasing numbers, developers throughout the state are suing citizen groups -- and individual citizens -- who oppose their projects. But most of these so-called "SLAPP" lawsuits seem to be failing, and some have even backfired as citizens have countersued against the developers. In late September, the Ninth U.S. Circuit Court of Appeals overturned a $600,000 sanction against two Thousand Oaks lawyers who represented a citizen group against the developer of a large subdivision. The sanction had been imposed by a federal judge in Los Angeles who said the homeowner lawsuit was frivolous. The term "SLAPP" -- for "Strategic Lawsuit Against Public Participation" -- was coined by two University of Denver professors who have examined hundreds of such cases around the country. SLAPP suits have been filed not only by developers, but also by other large companies which have been the subject of public criticism. The suits take all forms, but often they are libel or slander suits against citizen groups and individual citizens. Citizen advocates and their lawyers claim that such lawsuits deliberately seek to stifle public opposition to projects -- and abridge free speech rights in the process. "Any citizen has the right to contact any branch of government to try and encourage some public policy," says sociologist Penelope Canan, one of the University of Denver researchers. (Canan is a visiting professor this year at the University of California, Berkeley.) These citizen advocates argue that, for those hit with the SLAPP suit, the best defense is a good offense -- the filing of a countersuit against the developer or company. In the most controversial example of this so-called "SLAPP-back" technique, three Kern County farmers won $10.5 million in punitive damages and $3 million in compensatory damages in a malicious prosecution case with agribusiness giant J.G. Boswell Co. Previously, Boswell had sued the farmers for libel over a newspaper ad they published during the 1982 campaign over the Peripheral Canal proposal, which split the agricultural community. The case is on appeal. In a similar case, the president of a San Jose-area homeowner group won $260,000 in a malicious prosecution case against a developer who sued him for libel. The controversy revolved around campaign literature in a slow-growth campaign in Saratoga. The developer has appealed the decision, but another trial is about to begin -- one in which the homeowner group itself will allege malicious prosecution. Other prominent California SLAPP suits are pending in Stockton and Squaw Valley. In Stockton, a local alliance of farmers, slow-growthers, and environmentalists is fending off SLAPP-type suits from two developers simultaneously -- one seeking $25 million in damages, the other seeking $12 million. Citizen advocates even turned to the legislature this year in their attempt to fight SLAPP suits. At their request, Senate Judiciary Chair Bill Lockyer introduced SB 2313, which would have made it more difficult for SLAPP suits to be filed. In essence, the bill would have created a "pleading hurdle" in SLAPP suits, requiring plaintiffs in free speech cases to provide "a substantial probability of success" before proceeding with the suit. The bill passed both houses of the legislature easily, but was vetoed by Gov. George Deukmejian, who said citizens already have protection against frivolous lawsuits. The Thousand Oaks case was not a SLAPP suit strictly speaking, but it did involve SLAPP tactics within the context of a lawsuit by homeowners against a developer. The dispute arose after the Lang Ranch Co. and the City of Thousand Oaks reached a legal settlement exempting Lang Ranch's proposed subdivision from city growth-control laws. The Westlake North Property Owners Association then filed an environmental lawsuit. At the request of the Lang Ranch Co., U.S. District Court Judge Dickran Tevrizian Jr. sanctioned both the group and its lawyers, saying the lawsuit was brought in bad faith because the previous suit had been settled. Tevrizian set the sanction at about $700,000. The homeowner group settled the case for $123,000, but the lawyers appealed the sanction for the remaining $600,000. (CP&DR, February 1990.) A three-judge panel of the Ninth Circuit overturned the sanction, saying that the homeowner had put a good-faith argument in front of the court after all. Lang Ranch has asked for a rehearing on the case, arguing, among other things, that the homeowners should have been bound by the legal settlement between the company and the city. But Canan, the University of Denver sociologist, says such legal arguments have not worked in the past. "I can understand that property owners believe they have the green light," she said, "but that doesn't mean all citizens can never have an opinion on a contract that has just been made." The SLAPP suit from Saratoga has already created a thicket of litigation, as well as an important appellate court ruling. The case began a decade ago during the campaign on a slow-growth initiative, Measure A. Three homeowner associations began circulating brochures attacking the Parnas Corp., a development company actively opposing Measure A, and claiming that Parnas had created a conflict-of-interest relationship with a former mayor of Fremont. Parnas sued all three homeowner associations and their individual presidents alleging the brochure libeled the company. The suits were dismissed, but one group and its president countersued, alleging malicious prosecution. Fremont lawyer Steve Bernard, who filed the original libel suit, settled the countersuit with both the West Valley Taxpayers and Environment Association and president Victor Monia for a total of about $100,000. But Parnas continued to resist. Last year, a Santa Clara County jury awarded Monia $260,000 in damages, later reduced by a judge to $210,000 because of the settlement with Bernard. Parnas has appealed the judgment. Meanwhile, a trial in the countersuit brought by the West Valley association is set to begin. That case was separated from the case against Monia by Santa Clara County Judge Thomas Hastings. Hastings said that Parnas had probable cause to bring a libel suit against the taxpayers association because of the brochure, but not against Monia, whose name did not appear anywhere in the brochure. The taxpayers association appealed, and earlier this year received favorable ruling from the Sixth District Court of Appeal in San Jose. The court agreed with the taxpayers association that the lawsuit raised a triable question, that is, whether Parnas really believed that the brochure contained false statements. (West Valley Taxpayers and Environment Association v. Parnas Group, 222 Cal.App.3d 627.) The taxpayers association has argued that Parnas knew the statements were true and therefore the libel suit was filed in bad faith. At least three other prominent SLAPP-type suits are still pending in California. They include the following: Ž In Stockton, a local citizen organization and the Grupe Corp. have been wrangling for several months over whether the citizen group violated an agreement not to oppose a Grupe project. The Land Utilization Alliance, a citizen group, had agreed not to oppose Grupe's proposal to build a 4,000-unit residential project in north Stockton. The project included expensive homes that would face the Calaveras River, and Grupe proposed closing the river's levee to bike riders and other public users. Prior to any litigation, the Land Utilization Alliance agreed not to oppose the project on most issues. But the agreement specifically permitted the organization to challenge Grupe on the public access issue. Grupe agreed to contribute $300,000 to environmental trust funds. Subsequently, the Land Utilization Alliance did sue Grupe over the public access issue. Grupe then countersued for $25 million, saying the agreement had been violated because the Alliance's lawsuit contained challenges under the California Environmental Quality Act. Grupe says the CEQA challenges were prohibited by the agreement; the Alliance claims the CEQA challenges were part of the public access issue. The two sides are reportedly close to an agreement in which no money would change hands. Ž Meanwhile, the Land Utilization Alliance has been hit with a libel and slander suit by Stockton developer John T. Verner. The Alliance has protested Verner's proposal to finance the expansion of a sewer plant in the Manteca area in order to accommodate a development proposal. The lawsuit named three individual Alliance leaders, including one who was also sued by Grupe. Ž In Squaw Valley, Perini Land and Development Co. has sued daredevil skier Rick Sylvester and others who spoke out against Perini's proposed resort project in Squaw Valley. As with Grupe, Perini claims that Sylvester and others violated an agreement not to oppose the project in exchange for other concessions, such as improved water quality. The case is expected to go to trial soon

A Pacific Gas and Electric proposal to auction its hydroelectric assets could bring about a new land rush in the Sierra Nevada, the southern Cascades and the coastal mountain ranges. If the sale goes forward as proposed, as many as 20 different owners could assume control of PG&E's 99 reservoirs, 174 dams, 110 electricity generating units — and 140,000 acres of land, much of which is pristine. State and federal land managers, advocacy groups and a draft environmental impact report make clear that the proposed sale — which is driven by state's energy deregulation plan — has the potential to greatly alter the landscape. The sale could invite large-scale timber and surface mining, and could induce urban development in areas that have remained largely untouched, especially along the Interstate 80 corridor east of Sacramento. In sworn testimony to the California Public Utilities Commission, U.S. Forest Service Lands Officer Carol Efird said, "Auctioning the PG&E facilities and land has a great potential to fragment habitat, increase the risk of negatively impacting water quality, disturb or destroy cultural resources, increase the development of land within National Forest boundaries and reduce the Forest Service's ability to properly manage forest resources across a landscape or watershed." The Forest Service is only one member of a state-federal "Hydro Working Group" that is reviewing the proposed auction and preparing comments on the 4,100-page DEIR that the CPUC released in late November. Other entities involved in the Hydro Working Group include the Bureau of Land Management, National Marine Fisheries Service, the state Resources Agency, the Department of Fish & Game, California Department of Forestry, the Department of Parks and Recreation, and the State Water Resources Control Board. The working group's charge is to protect environmental values associated with PG&E's hydroelectric assets, said Jim McKinney, the working group project manager for the Resources Agency. "These assets have been under PUC regulation for more than 80 years, and there are a lot of public interest environmental values that have accumulated over that time," McKinney said. Now, there is a once-in-a-lifetime opportunity for PG&E to transfer ownership of those assets and greatly reduce government oversight, he said. The working group contends — and the DEIR appears to agree — that licenses granted by the Federal Energy Regulatory Commission, which regulates nearly all of PG&E's generating facilities, do not contain strong enough provisions to protect environmental resources if the ownership changed and new management practices were implemented. The working group and some environmentalists believe the proposed auction creates an opportunity to impose additional conditions on dam operations and land use, and gives the state the chance to take ownership of some sensitive areas at least temporarily. But PG&E is wary of additional regulation. The CPUC ultimately will decide on the proposed sale of assets, and there are serious questions about how far the CPUC can extend its jurisdiction, PG&E Spokesman Jon Tremayne said. The CPUC has mostly stuck to rate-setting in the past, while FERC — not the CPUC — has regulated power plant operations, he noted. So it remains unclear whether the CPUC can impose some of the mitigations suggested in the DEIR, such as conservation easements, parameters for stream flow and reservoir levels, and even the dismantling of some facilities. The auction In September 1999, PG&E filed an application with the CPUC to auction its hydroelectric assets. A year earlier, PG&E had announced that it did not intend to keep its hydroelectric assets within its regulated utility. Instead, PG&E wanted to transfer ownership of the hydroelectric system to an unregulated subsidiary, which could charge market rates for electricity. PG&E shopped this idea to the state Legislature but could not strike a deal, even though it offered a number of pot-sweeteners, such as conservation easements, guaranteed water releases and money. Noting that the state's deregulation legislation calls for establishing the market value for all of PG&E's non-nuclear generating facilities by the end of 2001, PG&E then filed the application to auction its hydroelectric assets to the highest bidders. Undoubtedly, the auction would determine the market value. The proposal divides PG&E's assets into five watershed bundles that include all hydroelectric facilities and equipment, water rights and land interests. These five watershed bundles could be broken down to a total of 20 smaller bundles. Some observers say — but PG&E denies — that the proposed auction is only a bluff intended to get the Legislature to look favorably on PG&E's original plan to transfer the hydroelectric system to a subsidiary. Under this scenario, the environmental and electricity market consequences of the auction would appear so severe that state officials would have to reject it. The utility did offer a "proposed settlement" that was similar to the deal it pitched to the Legislature in 1999. However, PG&E has withdrawn the settlement because it valued the hydroelectric assets at $2.8 billion, and PG&E believes the value has risen considerably during the electricity shortage of recent months, PG&E's Tremayne said. At this point, the proposed auction remains a live project. The DEIR The CPUC ruled that the proposed ownership transfer was a project under the California Environmental Quality Act. After a month-long scoping phase, Aspen Environmental Group commenced a six-month review that resulted in the nine-volume DEIR released in late November. An untold number of public employees, consultants, environmentalists and PG&E experts are now reviewing the report. The document identifies a wide range of very specific impacts, said Tim Duane, a University of California, Berkeley, City and Regional Planning professor with a background in energy policy. The DEIR specifies areas where development is likely to occur and identifies concerns related to the potential development. The DEIR also makes clear that possible changes in forest management practices could have a substantial impact on the region, said Duane, who reviewed the document for the CPUC. The proposed auction would have 49 significant adverse impacts, including two that could not be mitigated: changes in operation of dams would harm some endangered species of fish, and development of lands around hydroelectric facilities would adversely affect air quality in local air basins. " sale to new owners could produce changes in the rate and timing of water releases," according to the DEIR. "A sale could also produce changes in other areas, including forestry or grazing practices on watershed land; recreational access and use of waterways, reservoirs and land; and land development opportunities." The DEIR also makes clear that the auction is not the most environmentally friendly option of the 16 studied. "Nine of these alternatives would be environmentally superior to the auction," the DEIR states. "The best of these — having Pacific Gas and Electric Company retain its hydroelectric facilities under CPUC regulation — would avoid all of the auction's significant environmental effects." Environmentalists and public officials have promised to file extensive comments on the DEIR's findings and recommendations. PG&E itself has assigned a number of people to study the document. Said PG&E's Tremayne, "There are some analytical flaws that need to be corrected and some factual errors that were made." Staff and consultants of the CPUC have scheduled 26 public hearings from January 29 through March 5 to accept testimony on the DEIR. The sessions will be spread among 13 locations from Burney to Porterville. The Concerns The proposed auction includes 88,000 acres of land that is outside boundaries of any project regulated by FERC. Generally, these are undeveloped lands adjacent to reservoirs. These lands, plus about 7,000 acres inside FERC boundaries, are of great interest to state and federal land managers, planners and environmentalists. (A good portion of the remaining "FERC lands" is under water.) According to the DEIR, up to 10,226 dwellings could be built on these 95,000 acres, including nearly 4,000 homes in portions of Placer and Nevada counties. Because most of these lands now have few improvements and lie in remote regions, there is a strong possibility of conflicting land uses, according to the DEIR, which recommends extensive use of conservation easements to offset significant impacts. Nancy Ryan, a consultant to Environmental Defense (formerly the Environmental Defense Fund), said that the potential for extensive land development — and the secondary affects of that development, including inducement of other growth —is one of the principle environmental threats of PG&E's proposal. McKinney, of the Resources Agency, suggested that the DEIR understates the extent of potential development. Depending on the particular county board of supervisors that is involved, the auction presents "a ripe situation for wholesale land use changes," he said. "It just takes one vote to change the zoning on a piece of land in California," McKinney said. "You just look at the development pressures in Placer and Nevada counties, and look at how highly popular recreation is in that area." The U.S. Forest Service has expressed similar concerns. In comments to the CPUC, the Forest Service pointed to an earlier sale of 160 acres in the rugged South Yuba River watershed by PG&E to Manasha Corporation. Manasha logged the land, then sold it to a developer, who convinced Nevada County supervisors to amend the general plan to allow construction of a resort that could accommodate more than 100 visitors at a time. "What goes on on PG&E land greatly affects how we manage our lands," said Christine Nota, the USFS regional forester's representative in Sacramento. In general, PG&E has managed its land similarly to the Forest Service and made its property available to the public, she said. Those stewardship values are especially important in areas where PG&E property and federal holdings form a checkerboard pattern. The DEIR "assumes a new owner would have an economic incentive to develop this land." The analysis found that development on PG&E lands in Shasta, Butte, Plumas, Nevada and Placer counties could induce further growth by introducing roads, utilities and other public services into remote regions. The Bureau of Land Management is worried about the likelihood of many more people building homes and cabins in woods. A bunch of new landowners can hinder federal land management techniques and reduce public access to federal land, said Duane Marti, a BLM realty specialist. "One thing that we're really concerned about is the wildfire — the urban-wildland interface," he said. "It's just getting harder and harder to fight a wildfire because of all the houses." On PG&E lands in the Feather River watershed of Butte and Plumas, in Shasta County's Pitt River watershed, and in portions of the upper Eel River watershed in Lake and Mendocino counties, logging appears to be a greater concern than urban development. A large portion of PG&E's lands are heavily forested, so they will be attractive to logging companies, said Nota of the Forest Service. Laurie Wayburn, president of Pacific Forest Trust, which advocates sustainable logging, commended PG&E's past forest stewardship. But in the past decade, she said, PG&E has increased logging on its land, and has sold thousands of acres to Sierra Pacific Industries. The state's largest private landowner, Sierra Pacific's aggressive clear-cutting of its property in recent years has been criticized by environmentalists and some state regulators. Most people expect Sierra Pacific to bid on PG&E property. The analysis in the DEIR and PG&E's recent track record provide backing for the CPUC to impose a conservation program and allow the state to purchase some sensitive lands, Wayburn said. The CPUC could work with the Resources Agency on a package that would adequately compensate PG&E, said Wayburn, who called the DEIR's alternatives too limited. "They just have some critical watersheds," Wayburn said. "This is a particular point in time that we have a chance to get some people to coalesce around this." The Resources Agency's McKinney agreed that the auction presents a unique opportunity to look for means of enhancing the environmental aspects of PG&E's hydroelectric system. Besides the land, of course, are the actual power generating facilities. The DEIR specifies numerous potential problems if a new owner, including PG&E's subsidiary, would change operations to maximize energy output, of if a new owner would maximize water storage. Such changes would alter dam releases, harming endangered fish and affecting water quality and availability, according to the DEIR. Moreover, PG&E currently provides 90% of the 200,000-acre-feet of water consumed annually by Mendocino County's Potter Valley Irrigation District, the Nevada Irrigation District and the Placer County Water Agency. PG&E's contracts with these three mostly agricultural agencies end at different times during the next 22 years. "If the new owners do not renew these water contracts when they expire, this water could be used to support the consumptive needs of about 1.3 million people elsewhere, possibly producing growth-inducing impacts," the DEIR states. The Prospects While the auction is uncertain at this point, in part because of the volatile electricity market, most interested parties believe the extensive environmental analysis is not an academic exercise. "PG&E has indicated it does not want to continue to operate these generating plants," said UC's Duane. "The PUC clearly needs to address the impacts of that, especially in light of the electricity crisis that has hit the state." Tremayne said PG&E is moving ahead with the auction application. "Obviously, there is a much larger crisis looming, but we still need to move forward and value these assets by the end of 2001," he said. The Resources Agency's McKinney said, "Nobody has ever looked at Pacific Gas & Electric's and Southern California Edison's hydroelectric assets in their entirety." Such an examination makes, he said, because nearly all of PG&E's system drains into the Bay Delta, which serves as the center of California's water universe. Plus, the growth inducements and cumulative effects of new ownership and asset management extend across the entire system. Contacts: Jon Tremayne, Pacific Gas & Electric, (415) 973-5930. Jim McKinney, Hydro Working Group, (916) 654-3999. Duane Marti, Bureau of Land Management, "(916) 978-4675. Nancy Ryan, Environmental Defense, (510) 658-8008. Christine Nota, U.S. Forest Service, (916) 498-5901. Laurie Wayburn, Pacific Forest Trust, (707) 895-2091. CPUC PG&E Hydropower Project Website: http://cpuc-pgehydro.support.net

It's not every day that a city places a full-page newspaper advertisement demanding a larger sphere of influence. Yet that is just what the City of Santa Clarita did last fall — on the same day it placed another full-page ad in the Los Angeles Times complaining about a gravel quarry proposed outside the city limits. The splashy advertisements are just one part of the latest round in the City of Santa Clarita's long fight with Los Angeles County over control of one of the fastest growing areas in the county. When Santa Clarita incorporated in 1987, it became a city with no sphere of influence. The city filed applications in 1989 and 1991 with the Los Angeles County Local Agency Formation Commission to establish a large sphere of influence, but LAFCO said no both times. In January 2000, the city filed another application with LAFCO, this time seeking to place 116 square miles of the Santa Clarita Valley and its hillsides into the city's sphere of influence. The city of 151,000 residents now covers about 47 square miles. Once again, Santa Clarita faces opposition from the county and from builders — who do not want the city to get between them and the development-friendly Board of Supervisors. This time, however, Santa Clarita is gathering as much political support as it can muster. The city has lined up endorsements from Assemblyman George Runner (R-Lancaster) and U.S. Rep. Howard McKeon (R-Santa Clarita), who served on the original Santa Clarita City Council. Several schools districts and a number of business and civic organizations also support the city's proposal. The newspaper ads and a mass mailing generated about 10,000 response cards, 95% of which endorsed the city's sphere request, said Planning and Building Director Jeff Lambert, who is leading the city's efforts. "This is a full-court press," Lambert said. "We're going up against Newhall Land & Farming, and they are much more persuasive downtown than we are." Newhall has been responsible for much of the development in the Santa Clarita Valley and still owns tens of thousands of acres in the area. The developer opposes Santa Clarita's proposal to reach across Interstate 5 to Newhall holdings west of the freeway. That area includes the site of the proposed Newhall Ranch, where the developer plans what would essentially be a new town of 21,800 homes and 1,000 acres of commercial and mixed-used development. (See CP&DR , January 1999, July 2000.) Los Angeles County has approved a specific plan and zoning changes for Newhall Ranch, but the project is mired in litigation brought by neighboring Ventura County over the development's water sources. Publicly, Santa Clarita does not want to block the giant Newhall Ranch development. The city, in fact, is not part of the lawsuit against the project. Still, there are lingering questions. Santa Clarita has raised a fair number of slow-growth activists since becoming a city and some of them have lobbied against Newhall Ranch. "We are opposed to the sphere of influence west of the 5 freeway on our property. We are not opposed to the sphere of influence request for our property on the east side of the 5 freeway," Newhall spokeswoman Marlee Lauffer said. "We've always seen the 5 freeway as the dividing line between the city and the county. … There are no city services in that area and it's isolated from the rest of the city." Currently, the city's boundary coincides with the Interstate for several miles. To the west lies Newhall Ranch, the 6,000-unit Stevenson Ranch, which is partially approved and built, and Six Flags' Magic Mountain theme park. All of those interests want the city to remain on the other side of the eight-lane freeway. But Santa Clarita officials complain that they have no control over development that is greatly affecting their city. "Over 40,000 new housing units are approved or pending for development in the unincorporated (non-city) Santa Clarita Valley," said the city's newspaper ad, which featured a picture of children taking a number to play on a swing. "This will seriously impact our schools, traffic, emergency service, natural environmental resources, water availability and other urban services. Right now, the City of Santa Clarita has no formal voice in new development approvals outside City boundaries where the majority of development is occurring, and no voice in the adequate provision of schools, parks and roads." The second ad, regarding a proposed quarry in the hills east of the city, contained even stronger language. The advertisement said the Transit Mixed Concrete proposal would worsen traffic, affect groundwater, lower property values and threaten children's health. The county has scheduled a public hearing on the quarry this month. The newspaper advertisements were not popular in the office of Los Angeles County Supervisor Michael Antonovich, who has represented the area for 20 years. Antonovich Policy Deputy Conal McNamara called the ads "offensive." He said they unfairly painted the county as the villain, and he questioned their timing. "I think city-county relations are a lot better than they used to be, to the credit of some people at the City of Santa Clarita," McNamara said. McNamara, a former Santa Clarita planner, said the city does not need a sphere of influence to have a say on area development. Antonovich requires developers to meet with city officials and work out details before seeking county entitlements, McNamara said. "I don't know what it's going to get them that they don't already have," he said of the sphere of influence. In fact, the city and county have even embarked on a joint general plan for the area. "The sphere doesn't give them control over the land." said LAFCO Executive Officer Larry Calamine, "But it does give them a seat at the table." McNamara and the area's big developers say future residents, some of whom will not arrive until houses are built 20 years in the future, should determine who governs their communities. "It is premature and inappropriate to say to future Newhall Ranch residents that this is your only option for jurisdiction," Newhall's Lauffer said. They should have the opportunity to form their own city or even incorporate with the nearby community of Castaic, which opposes Santa Clarita's proposed sphere of influence, she added. City Planner Lambert recognizes that the county does provide the city opportunities to influence development of unincorporated lands. But the city wants a formalized review process. Moreover, there should be only one agency that decides on development for the entire valley, he contended. Lambert endorsed the joint general plan effort. If both the city and county agree on guiding principles, they should go ahead with specifics for a new general plan, he said. But that does not mean the city's sphere of influence effort will end. The Los Angeles LAFCO will likely conduct a public hearing on Santa Clarita's application in February or March, Calamine said. He said the city's request is more reasonable than its previous two filings, and it is unusual in that it seeks residential areas, not only revenue-generating commercial strips. "They make a good case for much of the property they want to add," said Calamine, who declined to say what he would recommend to the LAFCO board. Lambert said the proposed sphere is not as expansive as earlier proposals and that it closely matches community college and high school district boundaries. Contacts: Jeff Lambert, Santa Clarita Planning Division, (661) 255-4330. Marlee Lauffer, Newhall Land & Farming Co., (661) 255-4000. Conal McNamara, Office of Supervisor Michael Antonovich, (213) 974-5555. Larry Calamine, Los Angeles LAFCO, (213) 974-1448.

A lawsuit that has already reached the state Supreme Court is again making its way up the legal ladder. In mid-December, San Joaquin County Superior Court Judge Bob McNatt upheld the San Joaquin Local Agency Formation Commission's approval of the Califia project (formerly called Gold Rush City) in the City of Lathrop. Last year, the state Supreme Court allowed the case to go forward after McNatt and the Third District Court of Appeal ruled that project opponents did not exhaust their administrative remedies as required under an obscure procedural rule. The state's high court said the "Alexander rule" was not applicable and reinstated the lawsuit. (See CP&DR Legal Digest, October 1999, August 1998.) McNatt ruled that LAFCO need not prepare a supplement EIR. But project opponents said they were asking LAFCO to exercise its independent judgement and to adopt its own findings and mitigation measures — not to prepare a supplement EIR. They contend that the project EIR improperly defers an analysis of water availability, and they promised to appeal the ruling. Califia proposes building about 5,800 homes and several theme parks on 6,000 acres in the Bay Delta that Lathrop annexed. In November, city voters changed the development agreement to allow Califia to build the houses before constructing the theme parks and other commercial developments that were projected to provide thousands of jobs. The case is Sierra Club v. San Joaquin Local Agency Formation Commission, No. CV001997.

The California Supreme Court has accepted a takings case that threatens the viability of San Francisco's Hotel Conversion Ordinance. The court has decided to hear San Remo Hotel v. City and County of San Francisco, C.A. 1st Div. 5, No. A083530 (see CP&DR Legal Digest, September 2000, October 2000). In an opinion published in two portions, the First District Court of Appeal ruled that the "heightened scrutiny" test applied to the hotel conversion ordinance, meaning there must be a close relationship between the exaction and the project's impact. The court ruled that a lawsuit filed by owners of the San Remo Hotel should proceed in trial court. The hotel owners had argued that the city's ordinance violated state and federal constitutional provisions against taking private property without just compensation. The City's law bars the conversion of residential hotels to tourist use unless the hotel owner replaces the converted units with new affordable housing or pays a substantial mitigation fee. Both sides agreed that imposition of the Nollan/Dolan "heightened scrutiny" test could mean the end of the hotel conversion ordinance. The city would have to provide an "essential nexus" between the permit conditions and the impact of the proposed hotel conversion, as well as a "rough proportionality" between the exaction and the project's impact. Property rights advocates say such a standard is required to prohibit uncompensated takings; the city argues that land-use laws of general applicability need not meet the standard. The Fifth District also remanded to the trial court the factual issue of whether the San Remo was a nonconforming use. If the hotel were a legal nonconforming tourist hotel prior to passage of the hotel conversion ordinance, a $567,000 mitigation fee that the city has tried to impose would seemingly not apply. The Fifth District made clear it thought the San Remo was a tourist hotel at all times and there was no "conversion" involved. Five of seven state Supreme Court justices voted to hear the case. No date for oral arguments has been set.