A few years ago, a field representative for Pacific Gas & Electric told me a startling story about how the now-bankrupt electric utility was treated by one of the county governments in his district. The county had approved a major residential subdivision in PG&E's service area that required PG&E to build an adjacent substation to provide the subdivision with electricity. But when PG&E went to the county to get approval for the substation, the county required the company to widen the adjacent arterial, build a sidewalk, and pay a traffic mitigation fee of something like $800,000. PG&E squawked. The company said that it was building infrastructure to support a project the county itself had approved and that the substation would generate one additional trip a week — the PG&E employee who would check on the substation's operations. But the county refused to back off. To the county, PG&E was not providing infrastructure; it was just another developer. That story came to mind recently for two reasons. The first is the simple fact that the electricity crisis has reminded everyone in California — for the first time in several years — that you cannot simply take the infrastructure associated with urban growth for granted. And the second is that a lot of people in Sacramento are now beginning to draw analogies between the crisis in electricity generation and the state's five-year-old effort to link land-use permits to the adequacy of water supplies. The common issue in each case is whether or not our state has enough infrastructure and urban services — whatever they are — to actually accommodate all the new urban growth we're getting. But the underlying problem is really about something different. All private, urban development must obtain permits from a land-use regulatory agency, which in California is usually a city or a county. But all growth also requires a wide variety of urban services, including roads, sewers, streetlights, schools, parks, police and fire protection, water, and electricity. Part of the point of land-use regulation, of course, is to ensure that urban growth will not be approved unless the urban services it requires are available. There's just one catch: Not all urban service providers are created equal. Some services required by urban development are provided by private companies, some are provided by single-function agencies, and some, such as electricity, are usually provided by private companies. Public Education is always provided by a single-purpose district. Water and sewer services are frequently provided by single-purpose special districts as well. And some services – such as roads as well as police and fire protection – are most frequently provided by the general-purpose local governments, i.e., cities and counties. It is the cities and counties, of course, that also get to issue land-use permits. So is it any wonder that the services which cities and counties must provide themselves are the ones that get the most attention in the permit approval process? In fact, there's a pretty clear pecking order as to which service providers get listened to when permits are processed. Cities and counties listen to themselves first. Then they listen to special districts, such as school districts and water districts — but not usually voluntarily. Cities and counties often wait until they are forced by lawsuit or by a state law to pay attention. And the last people cities and counties listen to are the private companies that provide services, such as the electric utility companies. Water has been the biggest battleground in the urban services war during the past few years. In 1995, the state passed SB 901, a bill that required analysis of water supply as part of the environmental review for large development projects. SB 901 was watered down in the approval process and often seems to require little more than consultation with water purveyors, which are accustomed to routinely issuing "will-serve" letters for new developments. A recent survey by Randele Kanouse – Sacramento lobbyist for the East Bay Municipal Utility District and the chief crusader for the SB 901 process – concluded that the law has not been strongly implemented. In fact, he argues, SB 910 requires considerably more than a will-serve letter, which he calls "a sham a hoax and a fraud." The law also requires real, identified sources of water and various assessments of what would happen in a drought. Kanouse's verdict: All but two of the 119 projects subject to SB 901 since 1996 "failed to do a thorough assessment of what happens to existing water customers during extended drought." Kanouse is using his survey to bolster the chances of SB 221, a bill by Sen. Sheila Kuehl (D-Santa Monica) that would strengthen the tie between land use and water by requiring water supplies be committed as part of project approval under the Subdivision Map Act. Kuehl's bill stalled last session, but may have a better shot at passing this year. Kanouse likes to focus on water, but the truth of the matter is that California school districts have been fighting the same battle for more than 15 years. In the wake of Proposition 13 it was very clear that they could not raise enough tax money to build all the new schools required in the state. So they began leaning on cities and counties to consider school adequacy in the project approval process. After years of contentious negotiation, the result is a deal in which developers, local school districts, and the state are all expected to come up with part of the money – and if they don't, it is possible to turn down projects. And in the wake of the electricity crisis, an increasing number of people have been wondering how California can routinely approve urban development that increases demand for electricity without considering energy in the permit approval process. You can see the pattern here. In times of crisis, organizations that must provide one specific urban service start to lean on the state to require that provision of the service be more seriously considered in the project approval process. And in response, the cities and counties that hold the permitting power resist the idea that they should take anybody else's concerns into account. But are cities and counties really so short-sighted that they don't care about services to their own residents if they don't provide them? If roads were provided by a separate road agency, would cities and counties really approve projects without worrying about whether the roads will be built? Well, yes. In fact, they already do that with regard to the state highway network operated by Caltrans. That agency is constantly complaining that local governments fail to consider the impact of their projects on state highways. The truth of the matter is that it makes no sense for one urban service provider to get the land-use permitting power while the others are shut out and must push their way in the door. It would make far more sense to separate land-use regulation entirely from service provision, and then require the regulators to consider provision of all urban services when making decisions. That is not going to happen at this late date in California, of course; cities and counties — and developers — have too much to lose. But if the state is going to force cities and counties to examine the question of urban services, it should consider a comprehensive approach. Water, schools, electricity — who knows what the next crisis in urban infrastructure is going to be? Lobbyists for single-purpose agencies should recognize that they have something in common, whether they work for East Bay MUD, a school district, or PG&E. And if cities and counties are going to have the power to approve projects, they ought to have the responsibility to ensure that all the services required by urban development can really be provided.

In a stunning trial court ruling, the California Coastal Commission was declared an unconstitutional agency. Sacramento County Superior Court Judge Charles Kobayashi ruled that the commission's composition violated the separation of powers doctrine because the Speaker of the Assembly and Senate Rules Committee appoint eight of the twelve commission members. The ruling surprised people on all sides of the coastal development debate and the Commission itself. Kobayashi issued the ruling in late April, but in May he stayed it pending the outcome of an appeal. Still, Ronald Zumbrun, a property right attorney who filed the case, said, "While awaiting the appeal process, there will be a legal cloud hanging over the Commission's activities." A frequent critic of the Coastal Commission, Zumbrun said the agency "for too long has been an oppressive agency answerable only to itself. The public's interest will be better served by a restructured Commission concentrating on coastal policy." Coastal Commission Executive Director Peter Douglas called the ruling "an aberration" that was unlikely to stand. He added, "At the same time, it's a major decision and a matter of great concern." Mark Massara, an attorney who heads the Sierra Club's California Coastal Program, called the decision dangerous. "It means that there are a couple hundred local judges who now have the power to call state agencies unconstitutional," Massara said. California voters passed the Coastal Act in 1972. The act created the Coastal Commission and granted the new body extraordinary control over land uses within the coastal zone, which typically extends about 1,000 feet inland. The Commission approves Local Coastal Plans, which are part of city and county general plans, and any amendments to LCPs. In jurisdictions without approved LCPs, such as the City of Malibu, the state Commission makes all land use decisions within the coastal zone. Plus, all coastal zone permitting decisions made by cities and counties can be appealed to the state Commission. The case at hand was brought by the Marine Forests Society, a nonprofit group that had been building artificial reefs out of old tires off the Newport Beach coast. The Coastal Commission last year issued and cease and desist order to the organization, which had no permits for the reef building. The organization contended it was creating new mussel and kelp habitat. But the Commission and environmentalists said that the project was doing more harm than good, and that Marine Forests Society needed Commission permits for its activities. Marine Forests Society then sued in Sacramento County Superior Court, arguing that the Coastal Commission is unconstitutional. The group said the Commission is a legislative body — not an executive or judicial entity — because two-thirds of its members are appointed by lawmakers. Yet members are not answerable to voters. The Commission argued that Marine Forests Society was raising only a hypothetical question because there was no proof that the Legislature has usurped the Commission's authority. The Commission further argued that a system of checks and balances is in place because the Senate Rules Committee, the Assembly speaker, and the governor each appoint four members, those members by law come from many coastal areas and must have certain qualifications, and some members are nominated locally. But Kobayashi was not persuaded. "The question is not hypothetical," he wrote. "The system of checks and balances does not give adequate protection. Nether the fact that the power is disbursed among the legislative branches nor the geographical diversity changes the fact that eight of its members are appointed and subject to at-will dismissal by the legislative branch of government." Kobayashi continued, "The Coastal Commission is effectively a legislative agency. Comity and pragmatism cannot save it. The judicial and executive powers that it exercises are not incidental to the lawmaking power. They are not properly under the jurisdiction of the Legislature." Zumbrun said that if the ruling is upheld, the ability to make and enforce land use decisions in the coastal zone will revert solely to cities and counties, whose elected leaders are accountable to voters. The Sierra Club's Massara predicted an appellate court would overturn the decision. If the ruling were to stand, he added, environmentalists would respond with a new — and probably far more strict — coastal initiative. The Case: Marine Forests Society v. California Coastal Commission, Sacramento County Superior Court No. 00AS00567. The Lawyers: For Marine Forests Society: Ronald Zumbrun, (916) 486-5900. For the Commission: Lisa Trankley, deputy attorney general, (916) 327-7877.

Charles Buki is the director of the Neighborhood Reinvestment Training Institute in Washington, D.C. The institute was created by Congress in 1978 to revitalize older, distressed communities through a network of local nonprofits. Buki is a former Loeb Fellow in advanced environmental studies at Harvard University. He has written and lectured widely on neighborhood revitalization and neighborhood dynamics, their interrelationship with the environment and implications for social equity. In May, Buki spoke during the Great Valley Center's annual conference about material wealth and cultural poverty. He defined "material wealth" as the ability to make choices, and "cultural poverty" as the opposite. Thus, the growth of wealthy suburban areas cannot occur without inner city problems. Buki said the tenor of a place is best measured by studying who moves in, and who moves out. Buki was sharply critical of development patterns in the Central Valley. Decrying the sameness of development across the United States, Buki urged people to show respect for the land and climate. CP&DR: During your presentation, you used the term "coast to coast placelessness." What do you mean? Buki: It's virtually impossible to find unique qualities anywhere you go that are not replicated elsewhere. As you sit here in this Radisson and look out at the lake, it's impossible to tell if you're in Sacramento or Denver or Dallas. In fact, I could drive all the way into Sacramento and never know that I'm in Sacramento and not in Denver. CP&DR: Why has this happened? Buki: It's economically efficient in the short run. Do you know what Applebee's is? Or Benigan's? They are restaurants that are all designed with the same footprint … because they want an economy of scale. Your burger is 79 cents because the McDonalds cost $179,000 to build, rather than $279,000 it would cost to design and build a unique building that would be much nicer. The conundrum is, is it worth the price? Would you be willing to pay $6 for a sandwich at Subway, instead of $5? Economics tells us the answer is probably not. CP&DR: How do we get beyond this approach? Buki: You have to be able to convince people that long-term prosperity has a different paradigm than short-term economic gain. Most folks in that audience probably agreed with what I had to say. But they are still going to eat at McDonalds in the next week. You have to live your values. If you eat steak, you have to understand that there are consequences. I choose to eat steak and I understand the effects of that decision. You might have a 22-year-old in Davis who is a vegetarian, but he still wears leather shoes. We have to require people to change how they live to reflect their values. CP&DR: You said you flew over the Valley in a small plane. What struck you about what you saw? Buki: There is a mistake that is being made. Your asset is land, but you are trading it for townhouses and subdivisions. You have a "servants quarters" mentality, providing houses for people with jobs in the Bay Area. If you are going to lose farmland, you should lose it to a use of better and higher value. CP&DR: You mean trade farmland for economic development? Buki: Right. There is a very limited value in townhouses. CP&DR: What choices do Valley leaders need to make? Buki: You have to have planning. It's obvious you have no planning. CP&DR: Is that a problem elsewhere in the country, too? Buki: Almost every place in the country is making the same mistakes. CP&DR: These are strong sentiments. I'm sure you give talks elsewhere. What are people's reactions? Buki: Planners and designers usually react badly to what I have to say. Most planners and designers believe you can plan your way out of problems. They don't recognize the costs that are associated with that approach. They want to be all-important and all-manipulating. CP&DR: Who is your most receptive audience? Buki: Residents. People wear different hats — fireman, police officer, employee. It's when they wear their hat as a family member that they are most receptive. Realtors make money on housing developments. But when they take off their realtor hat and put on their family hat, they find that everything they are doing conflicts with their values as family members. It's a longer lecture, and it pushes people more. I sensed this audience was not ready to be pushed that far. CP&DR: What does the Valley need most? Buki: Make the Valley competitive. Make it be able to compete for investments. Right now, it's a very weak economy. The Valley essentially attracts pawn shops, so it doesn't recycle its capital. The Valley needs to attract a different type of investor, which it won't do until it diversifies its economy from strictly ag, to ag plus technology. That means farmers will have to give up some of their land. But they are already giving it up to housing developments. They need to give it up for higher economic value. Managing Editor Paul Shigley interview Charles Buki during the Great Valley Center's annual conference in Sacramento.

Despite what Ralph Nader claimed, the differences between Al Gore and George W. Bush on environmental issues were stark. Those contrasts have become even more vivid during Bush's first few months in office. However, Bush appears likely to continue the Clinton Administration's support for Habitat Conservation Plans as a way of managing endangered species issues. In March, Bush began eating away at the Clinton environmental legacy. First, Bush announced the United States would not abide by an international agreement calling for reductions in carbon dioxide emissions. The same month, Environmental Protection Agency Administrator Christine Todd Whitman said she would revoke a Clinton administration plan to reduce the allowable level of arsenic in drinking water, and Interior Secretary Gale Norton revealed that she would reconsider a ban on snowmobiles in Yellowstone National Park. Also in March, regional directors for the National Marine Fisheries Service (NMFS) and the U.S. Fish and Wildlife Service (USFWS) announced they would stop obeying a Clinton order to decrease logging along salmon streams east of the Cascades in the Pacific Northwest, and the Justice Department said it would not defend a rule prohibiting road construction in 60 million acres of national forest — a rule blocked last month by a federal judge in Idaho. But habitat conservation plans (HCPs) provide a different case, because they embody the new president's clearly expressed faith in stakeholder involvement, respect for property rights and consensus-based policymaking. A previously ignored approach to endangered-species protection, HCPs took on new life under Clinton and his Interior secretary, Bruce Babbitt. California has an enormous stake in the administration's stance toward these controversial conservation tools; it has more HCPs in place than any other state, and they have become the crucial means by which urban growth is balanced against the needs of a lengthening roster of imperiled fish, plants and wildlife. Reliance on HCPs to reconcile potential conflicts between use of private property and protection of endangered species was a hallmark of the previous administration, particularly after Republicans took control of Congress in the 1994 midterm election. Republican legislators used their newfound control over key committees in the House and Senate to press for substantial changes in the Endangered Species Act (ESA), a lightning rod for criticism from political conservatives who view it as an impediment to business and an assault on property rights. Revision of the act was a key component of the party's "Contract With America," the sweeping set of policy objectives that had much to do with the GOP's success that year at ending decades of Democratic control over Congress. In 1995, Republican representatives and senators introduced bills to impose a moratorium on new listings of species as threatened or endangered, to cut off funding to federal agencies that enforce the act, to require reimbursement for landowners whose property values were decreased by ESA restrictions, and to abolish the ESA's protection of habitat. Those legislative efforts to revise the ESA (which has not be formally reauthorized since 1992) ultimately faltered in the face of rising public opposition, veto threats by Clinton, and defections by moderate Republicans representing suburban districts in the East, where the law remains popular and where few of its impacts are felt. The battle nevertheless had a significant affect on federal policy, indirectly prompting administrative changes in how the ESA was applied and enforced. Early in 1995, hoping to blunt congressional enthusiasm for rewriting the ESA, the administration proposed exempting some small landowners from regulation and toughening the scientific scrutiny of proposals to list species. It also began encouraging the use of HCPs, first authorized by Congress in 1982 but used only sparingly until that time. Before 1994, only 20 had been adopted. In the next two years, USFWS approved 196. There are now 341 in effect. Habitat Conservation Plans are voluntary agreements negotiated between the federal government and private landowners or states, allowing the "incidental take" of a listed species during the course of otherwise lawful activity. An HCP must accompany any application for an incidental take permit, spelling out how the effect of the permitted activity on a listed species will be minimized and mitigated. In theory, an HCP incorporates measures that actually improve a species' chances for survival — allowing destruction of a small amount of habitat in one place, for example, while requiring preservation of an even greater amount elsewhere. At the same time, HCPs also enable farmers to continue farming, loggers to continue logging, and builders to keep building. It is still a bit early to fully gauge the Bush administration's enthusiasm for HCPs. The USFWS does not even have a new director yet, and many policy positions in the Department of Interior remain unfilled. A spokesman for USFWS said the rationale underlying the HCPs program appears to mesh comfortably with the administration's emphasis on local participation in regulatory decisions and balancing conservation with protection of private economic activities. He stressed, however, that no formal pronouncements had come from the Interior secretary's office. California alone has more than a quarter of all the HCPs approved by the federal government and, therefore, has a huge stake in the administration's eventual position. Despite their popularity among large landowners and businesses, HCPs remain controversial and are particularly unpopular among national environmental organizations. Perhaps the best example of the pitfalls liable to trip up an HCP is provided by the Natomas basin, a vast swath of farmland and open space on the northwest side of Sacramento. The area around the state capital is booming, and local planners and elected officials view Natomas — with its convenient access to downtown Sacramento, an airport and two freeways, and its proximity to existing urban services — as a logical place to channel urban growth. The 83-square-mile basin, which reaches into Sutter County, also is home to several endangered and threatened species, including the giant garter snake and the Swainson's hawk. The presence of those creatures led four years ago to negotiation of an HCP among local landowners, the city of Sacramento and USFWS. About a quarter of the basin is within city limits; planners project that acreage could eventually be home to 62,000 people. The HCP allowed builders to proceed on the condition that they pay into a fund that land conservancies would use to purchase wildlife habitat elsewhere within the basin. With the HCP approved and an incidental take permit in hand, builders ago began bulldozing home sites two years ago. Environmentalists sued. Although they lost in Sacramento County Superior Court, they prevailed last year in federal court when a judge ruled the HCP inadequate. The judge noted that the HCP purported to address wildlife needs through the entire basin, even though the other major parties that would have to be involved to make the plan work — two counties, a water company and a reclamation district — had not agreed to participate. By itself, the habitat acquisition program undertaken within city limits could not guarantee survival of the snake and hawk, the judge said. In May, parties to the lawsuit agreed to a settlement allowing limited development in Natomas to move forward in exchange for a more aggressive habitat-acquisition program — one that includes the possibility that the city might condemn land and purchase it from unwilling owners. The HCP for the basin is also being revised. Condemnation of private property to benefit wildlife is probably not a strategy the Bush administration would endorse. But the essence of the plan, and even the resolution of the dispute surrounding it, includes bedrock Republican objectives: local involvement, and a balancing of environmental and economic needs. Created during a Republican administration, raised to prominence under pressure from a Republican Congress, the HCP process seems well adapted to survive the new political climate in Washington. Contacts: Department of Interior: 202-208-3171 USFWS information about HCPs: http://endangered.fws.gov/hcp/index.html

A Santa Barbara County special district had no standing to sue over the apportionment of property taxes from a resort development within the district's boundaries, the Second District Court of Appeal has ruled. And even if the district did have standing, its claim was filed after the 60-day statute of limitations for challenging a government agency's action under the Cortese-Knox Local Government Reorganization Act, the court held. At issue in the case was tax revenue from a hotel and resort that Santa Barbara County approved for a 73-acre coastal site north of Santa Barbara. The property lies within the Embarcadero Municipal Improvement District (EMID), a special district that provides or has provided wastewater treatment, parks and recreation, drainage, trails, emergency services, trash collection and other services starting in 1960. From 1980 through 1998, EMID received 17.6% of property taxes generated within its boundaries. When the Board of Supervisors approved the hotel, it required that the parcel be annexed to the Goleta West Sanitary District — which provides sewer service to the project — and to the Santa Barbara Metropolitan Transit District. In October 1997, those two districts and the county adopted joint resolutions that divided tax increment from the hotel as follows: 10.26% for the county, 6% to the sanitary district, 0.354% to the transit district, and 1% to EMID. Because the EMID board did not adopt a similar resolution, the county approved EMID's allocation — a move apparently allowed by Revenue & Taxation Code § 99.01 subdivision (a)(4). After annexation was completed and upon further negotiation, the county raised EMID's share of property tax revenue to 6% and cut the county's portion to 5.26%. However, the sanitary district refused to give up its 6% cut. In October 1999, EMID sued, claiming that it was not given proper notice of the tax allocation negotiations and that county officials had colluded to reduce EMID's rightful share of tax revenue. Superior Court Judge Thomas Anderle held that the tax allocation was "inextricably intertwined" with the annexation approval, and, therefore, was subject to the 60-day statute of limitations in Code of Civil Procedure §6. A unanimous three-judge panel of the Second District, Division Six, upheld that ruling. But before getting to the statute of limitations issue, the appellate court tackled the issue of whether EMID could sue at all. Writing for the court, Justice Paul Coffee cited two cases that suggested the answer was no. San Miguel Consolidated Fire Protection Dist. v. Davis, (1994) 25 Cal.App.4th 134, and Sacramento County Fire Protection Dist. v. Sacramento County Assessment Appeals Bd., (1999) 75 Cal.App.4th 327. In San Miguel, a fire district challenged the early 1990s property tax transfer to schools, known as ERAF. The court ruled that special districts have no "vested right" to property tax revenues and no "property interest" in those revenues "because as against the state, the county has no ultimate interest in the property under its care." In the Sacramento case, a fire district challenged the lowering of an assessed valuation because it would require the refunding of millions of dollars the district had already spent and would reduce future levels of service. But the court held that the district had "neither a ‘vested right' nor a ‘property interest' in a particular assessed valuation for particular property." In the case at hand, Coffee wrote: "If the district in Sacramento County Fire Protection Dist. had no beneficial interest in taxes it had already received and spent, then EMID certainly can have no property interest in any portion of a future tax increment generated by new development to which it did not provide services in the past, nor intend to provide services in the future. The tax allocation agreement does not take away funds that were specifically appropriated for EMID's use. The agreement maintains EMID's historic 17.6% share in the property tax revenues generated from the area in which it provides services, and in the event EMID begins providing services to the 73-acre property, the County is bound to renegotiate EMID's allocation. "The statutory scheme," Coffee continued, "gives the County unfettered discretion to determine EMID's allocate share if EMID refused to agree." Robert Goodwin, EMID's attorney, said that portion of the ruling was particularly troubling because the applicable law, Revenue and Taxation Code §99.01, does not address what happens when a county and a special district cannot agree on apportioning tax revenue. "The court cites no authority for that proposition. Our position was that it had to negotiate with us," Goodwin said. He also noted that the issue of standing was never raised at the trial court level. "None of us ever had any doubts about the ability of EMID to sue another government entity over this or anything else," Goodwin said. The district was trying to enforce its post-Proposition 13 allocation of local property tax revenue, he said. The decision allows counties to unilaterally change that allocation formula, which was established by a state law commonly known as AB 8. Even though the appellate court ruled that EMID lacked standing to file suit, the court still addressed the statute of limitations question. The court noted there is a 60-day statute of limitations regarding public agency actions of this type. The special district was challenging an intermediate step in such an action, and Cortese-Knox and case law "make clear that EMID cannot challenge an intermediate step in the annexation process long after the validity of the annexation itself has become conclusive." Goodwin said EMID was not challenging the annexation, it was challenging the distribution of property taxes, which is subject to at least a three-year statute of limitations. Goodwin was unsure if the tiny special district would ask the state Supreme Court to review the case. The Case: Embarcadero Municipal Improvement District v. County of Santa Barbara, No. B141893, 01 C.D.O.S. 3325, 2001 Daily Journal, D.A.R. 4057, filed April 25, 2001. The Lawyers: For EMID: Robert Goodwin, Goodwin & Associates, (925) 443-0840. For the county: Alan Seltzer, chief deputy county counsel, (805) 568-2950. For Goleta West Sanitary District and Santa Barbara Metropolitan Transit District: Stanley Roden, Hatch & Parent, (805) 963-7000.

A new method of awarding state funding for school construction projects under Proposition 1A appears to be favoring urban districts at the expense of suburban and rural districts. The change has satisfied, for now, a number of ethnic and anti-poverty groups that had sued over an earlier state funding method. However, the change has angered many school districts, about 110 of which have sued the State Allocation Board. Meanwhile, the Legislative Analysts Office has released a report that recommends an entirely new approach. The LAO recommends the state provide capital facilities funding on an annual, per pupil basis after a "transition program" that would bring districts across the state to comparable starting points. The LAO report has received a mixed reception. The policy debates and lawsuits rage at a time when demand for school construction dollars outstrips available funding. California has 6 million grade school and high school students, about one-third of whom are taught in crowded or substandard classrooms. A new school bond is likely to appear on the statewide ballot in November 2002, but nothing is certain. In 1998, state voters approved Proposition 1A, a $9.2 billion bond that contained $6.7 billion for K-12 school construction and modernization, and $2.5 billion for community college facilities. Legislation to implement Proposition 1A (SB 50) called for awarding the K-12 money largely on a first-come, first-served basis, with local funding matches required in most cases. It was the type of system the State Allocation Board has used for years. By September 2000, the State Allocation Board had spent nearly $5.4 billion for K-12 projects, including all modernization funding. However, some fast-growing urban districts, often in poor areas of Southern California, had received little or no money. "That just did not make sense given that the statute was intended to address school overcrowding," said Hector Villagra, staff attorney for the Mexican American Legal Defense and Educational Fund (MALDEF). So that organization and others sued the state last year to force a change in State Allocation Board practices. Under the contested system, a district needed to have land for a school, arrange various environmental clearances, get state approval for construction plans, and line up local matching funds before the district could apply for Proposition 1A money. Those steps took urban districts longer because there is often little land available for new schools, Villagra said. Urban districts often must consider a brownfield site that needs extensive study and possibly cleanup, or must acquire property through eminent domain. Thus, it appeared all $6.7 billion would be spent before these districts got in line for funding, Villagra said. Los Angeles County Superior Court Judge David Yaffe agreed and ordered the state to craft a fairer system. When the State Allocation Board drew up a "priority points" system that favored the most overcrowded schools, the group of mostly small and medium-sized districts and the Coalition for Adequate School Housing (CASH) filed their lawsuit claiming the Board did not have authority to change the system. The State Allocation Board went ahead and adopted the priority points system last December, causing MALDEF to put its lawsuit on hold but infuriating districts that were in line for money under the previous rules. "The system is awry," said Thomas Duffy, of CASH. "They are hurting the districts that were pushing forward with the things they needed to do." Under the new system, the State Allocation Board awards $125 million per quarter in seven cycles through June of 2002, explained Philip Shearer, chief of operations for the Office of Public School Construction. In August of 2002, the board will have $450 million of Proposition 1A funds remaining. That money will go to urban districts most in need of new classrooms. Under the new system, there is already a backlog of $600 million worth of school construction, and the backlog will grow because the priority points system is withholding money, Shearer said. Representatives of CASH propose going back to the old SB 50 system, with additional money awarded to "underperforming" districts. A similar method worked well for 25 years, Duffy argued. But the Legislative Analyst's Office report, released in May, concluded that the system has not functioned effectively. "The state's first-come, first-served approach did not … necessarily allocate construction aid to districts where the need was greatest," the report states. "In the case of the SB 50 program, for example, some districts (such as Irvine Unified) submitted applications and received state aid to build facilities for all eligible students. Other districts with large construction needs (such as Los Angeles Unified and Santa Ana Unified), in contrast, have been slower in submitting applications and have received funding for just 2% of their eligible population." The LAO recommended the state fund capital projects annually, just as it pays for school operations. Under the recommended program, the state would provide districts with about $550 per student, with adjustments for poor districts. School districts would have broad discretion to spend the money. Assuming districts match the state funding, there would be about $3.2 billion available every year for capital projects — enough to cover a moderate backlog and fund future needs. The longstanding practice of a large slug of bond money becoming available at unpredictable intervals makes school planning difficult, said Marianne O'Malley, principal fiscal and policy analyst for the LAO and an author of the report. "The notion that we pass a great big bond and some districts get shiny new schools — and some districts don't — does not make sense," O'Malley said. "It's not a good way to run a capital outlay program." The longstanding system also confuses the public, as local school officials blame the state for being stingy, while state officials blame the locals for poor planning, according to O'Malley. Thus comes the recommendation to make districts responsible. O'Malley described reaction to the report as ranging from "cautiously very interested to nervous." Duffy, from CASH, outright rejected the recommendations. He said districts with large capital needs would not receive enough money, while districts in good shape would receive more money than necessary. But MALDEF's Villagra said the LAO report "is pushing us in the right direction." A steady stream of funding makes sense, especially because bonds appear irregularly and are always oversubscribed, he said. A school bond appears likely for the November 2002 ballot, although nothing is final. Some people have noted that selling a bond to the Legislature and public could be difficult because of the State Allocation Board's plan to have $450 million available as late as August 2002. "There will be a lot of skeptics," warned Shearer, "who say, ‘How can you have another bond when there is still money in the account?'" Contacts: Philip Shearer, Office of Public School Construction, (916) 445-2704. Thomas Duffy, Coalition for Adequate School Housing, (916) 441-3300. Hector Villagra, Mexican American Legal Defense and Education Fund, (213) 629-2512. Marianne O'Malley, Legislative Analyst's Office, (916) 445-6442. LAO report, "A New Blueprint for California School Facility Finance," www.lao.ca.gov

All quiet on the western real estate front? The silence is probably a result of California's property owners collectively holding their breath while listening for the other shoe to drop. The first shoe to fall with a thud was the reversal of fortune in the state's storied dot-com sector. Since the dramatic about-face during the second half of last year, stories have been leaking out of the Bay Area and West L.A. about plummeting commercial leasing activity and lease rates, particularly in San Francisco's South of Market area. But so far, the bust has not significantly affected the state's housing markets. And even some commercial and industrial markets are still humming right along. The widely-publicized misfortunes of Internet giant Cisco Systems — which cancelled real estate projects in three Bay Area counties (Sonoma, Contra Costa, and Santa Clara) — has sounded an alarm in the real estate pages of California's daily newspapers. Layoff announcements that underscore the "Tech Wreck" are weekly occurrences. Yet, the other shoe fails to drop. Two watchdogs of California's real estate health are still publishing reports that insist the market remains strong. The Construction Industry Research Board's April report says, "California private building activity, measured by building permit valuations, totals $3.814 billion, up 19% from February, and down 5.8% from March 2000." The CIRB goes on to predict that developers will build 152,000 housing units this year, the highest number since 1990. Furthermore, the inflation-adjusted dollar totals for all building activity is forecast to reach $47 trillion, the highest number since 1999. What remains to be seen is whether these statistics are harbingers of a new recession – much as the 1989 and 1990 figures now appear to have been. Meanwhile, according to the California Association of Realtors, the state's median home price rose nearly 10% for the first three months of 2001 compared to one year earlier. This includes a 22.5% rise at the epicenter of the Tech Wreck, Santa Clara County. In fact, every housing market tracked by the CAR logged increases from the first quarter of 2000. The Northern Wine Country (Sonoma, Napa, and Mendocino counties) logged the largest spike in median price – a 27% increase to $348,000. One of the popular axioms from the 1990s recession was that consumer confidence ultimately drives the overall economy. And it's well known that home-buying activity is strongly linked to consumer confidence. If economic health can be rendered at a micro level, then perhaps market-level data on home-buying activity is a better indicator of the real-time health of a local economy than alarming trends in certain economic sectors. At a statewide level, the only down-trending data in the housing markets are the sales activity numbers. Transactions posted a 5.4% decrease from the first quarter of 2001 compared with the first three months of 2000. But other sales data countered even this statistic. For example, the number of days it took for single family home to sell dropped from 35 days in the first quarter of 2000 to 28 days in 2001 — hardly evidence of a chilling market. And, whereas sales activity weakened in a more than half of the 16 state markets tracked by CAR, some of the more affordable markets (Central Valley, Sacramento, and Northern California) logged sizeable increases during this year's first quarter. In fact, the Central Valley logged an 11.3% increase in first quarter sales — and a 20% increase in the median priced home. It's fair to assume that some that the Valley's metropolitan regions such as Stockton, Modesto and Bakersfield are experiencing spill-over growth from the Bay Area and Los Angeles to combine with the booming agricultural sector. John Frith, a Sacramento-based lobbyist for the California Building Industry Association, has noticed that the Capital's housing market is not the only thing that appears strong. "A new downtown high rise office project that is largely leased was just announced last week. And Sacramento continues to experience a significant migration of technology sector firms relocating from the Bay Area, joining already established Apple and HP," Frith observed. Sacramento experienced a nearly 3% growth in sales activity for the first quarter of 2001, combined with a 23% growth in the median home price. Meanwhile, Silicon Valley first quarter sales activity dropped 28%from a year ago, though the already high median price still grew substantially to nearly $600,000. So, despite the hand-wringing on the business pages these days, the picture is not black and white. It's reasonable to assume that the Silicon Valley's problems will affect localized Bay Area housing markets — and may cause ripples elsewhere. But it's also looking like the state's housing markets are more subject to local economic conditions – some of which are decidedly not recessionary. We may be waiting for that other shoe to drop for quite a while. Stephen Svete, AICP, is president of Rincon Consultants, Inc., a Ventura-based consulting firm.

A Sacramento County Superior Court judge has overturned eight amendments that the Wilson administration made to the Guidelines for implementing the California Environmental Quality Act. And although Judge Ronald Robie had not issued a final judgment as of late May, sources said his decision was unlikely to be appealed. Robie essentially gutted a new portion of the Guidelines that address cumulative impacts, finding that the changes were contrary to the statute (Public Resources Code § 21000 et seq.). Robie also threw out a Guideline dealing with local environmental standards, and a Guideline that excluded at least some government reorganizations and administrative activities from CEQA review. The decision on the Guidelines (14 Cal. Code Reg. 150000 et seq.) drew a mixture of responses. Environmental groups that filed the lawsuit praised it. The California Building Industry Association, which intervened to defend the Guidelines, decried the ruling. Both the CBIA and the state, which did not defend five of the overturned Guidelines, appeared to have little interest in pressing the case further. Some practitioners said the decision would result in more reliance on "substantial evidence in the record," and, thus, longer environmental impact reports. Everyone involved seemed to agree that the 12 Guidelines that environmentalists challenged were the most important changes adopted during the 1998 update. "These were the big ticket items, and these were the ones that seemed illegal," said Richard Drury, attorney for the lead plaintiff, Communities for a Better Environment. "These were adopted at the end of the Wilson Administration, and our feeling was that they did not reflect the requirements of the statute," added Ellison Folk, an attorney with Shute, Mihaly and Weinberger who represented the Environmental Protection Information Center (EPIC), and Desert Citizens Against Pollution in the lawsuit. But Maureen Gorsen — lead author of the revised Guidelines for the Resources Agency and now an attorney with Weston, Benshoof, Rochefort, Rubalcava & MacCuish, which represented the CBIA — said the decision only makes CEQA compliance more difficult for lead agencies. "I think all the rules that were struck put an outline on open-ended impact requirements," Gorsen said. Consultants and local government officials had settled on standard practices to satisfy CEQA "and all the Guidelines really did was put in the rules what was standard practice," she said. "There was no groundbreaking change in the Guidelines." But Folk contended that there were major changes, and she pointed to Guideline 15064(h), which allowed a lead agency to determine that a project's impacts were insignificant if the project complied with local thresholds of significance. Folk argued – and Robie agreed – that the rule conflicted with the "fair argument" standard, under which an environmental impact report is required if someone makes a fair argument that a project may affect the environment. "It really shifted the presumption away from environmental review, which the courts have repeatedly upheld," Folk said of the Guideline. Robie struck down rules addressing what projects must be considered in a cumulative impacts analysis (Guidelines 15130(b)(1)(B)(2). Under the amended rules, projects to consider were limited to previously approved projects that had not been built, projects for which applications had been filed, projects in an adopted plan of some sort, and public projects for which money was budgeted. Robie focused on the word "or" between the types of projects, which he said limited study to only one of the four project types. Gorsen said the intent was to include all four project types in cumulative impacts analyses. Robie also rejected three rules addressing "de minimus" findings for cumulative impacts (Guidelines 15130(a)(4), 15064(i)(4) and 15152(f)(2). And he tossed out a rule that allowed a lead agency to find a project's cumulative impact was insignificant if the project complied with an adopted plan that provided mitigation for the impact (Guideline 15064(i)(3). A rule that limited the definition of a project (Guideline 15378(b)(5)) also was tossed out. The Guideline said that purely "political" activities, such as governmental reorganizations and administrative activities that would not result in physical changes, were exempt from review. Gorsen said the rule was aimed at actions such as the redrawing of school attendance boundaries. But Robie indicated the new Guideline went beyond existing court precedent. Folk said the rule was too broad. The question under CEQA, she said, is whether an activity will lead to a reasonably foreseeable change in the environment. The simple practice of drawing lines on a map is part of a chain of decisions that can lead to changes in the physical environment, she said. Robie upheld four revised rules. Guideline 15064.7 encourages agencies to develop thresholds of significance. Guideline 15041(a) says that mitigation measures must be connected to the project and be "roughly proportional" to the project's impacts – standards encompassed by the U.S. Supreme Court's Nollan and Dolan decisions. Guideline 15330 exempts certain environmental cleanups costing less than $1 million. Guideline 15332 exempts urban infill projects of less than 5 acres, provided that the project will not result in significant traffic, noise, air quality or water quality impacts, and will have adequate public services and utilities. Drury said he was surprised Robie upheld the infill exemption, which appeared to conflict with the judge's conclusions regarding cumulative impacts. Drury said that if the other side appeals the decision, he would cross-appeal the infill exemption ruling. The case appears to be the first ever facial challenge of the CEQA Guidelines since they were first introduced about 20 years ago, said Marian Moe, a deputy attorney general who represented the Resources Agency. The typical lawsuit concerns how the Guidelines are applied to a particular project, she said. The Resources Agency is expected to release a new round of Guideline revisions this summer. The Case: Communities for a Better Environment v. California Resources Agency, Sacramento County Superior Court, Case No. 00-CS00300. The Lawyers: For CBE: Richard Drury, (510) 302-0430. For the Resources Agency: Marian Moe, deputy attorney general, (916) 322-5460. For the California Building Industry Association, John A. Henning, Weston, Benshoof, Rochefort, Rubalcava & MacCuish, (213) 623-2322.

Long considered a poor stepchild in Orange County, Santa Ana is working to turn around its image. The city is pressing forward with downtown redevelopment efforts, and the midtown Civic Center continues to cement its position as a center of government. The city recently landed the first Mexico Trade Center, beating out Los Angeles and San Diego for the office. And business leaders have undertaken a "branding" campaign that they hope to convert into a major marketing effort. "They appear to be doing a great job downtown. They are preserving a lot of the old buildings," said Alan Saltzstein, chair of the division of Political Science and Criminal Justice at California State University, Fullerton. "It does seem like they are doing a lot of interesting things despite not having a lot of money." Some of those interesting things come with a measure of controversy. As the city focuses on downtown redevelopment, some people in the Latino community fear they are being forced out. Downtown's Fourth Street has long been a bustling hub of retail trade — nearly all of it conducted in Spanish. But a thriving artist's village and some new offices have brought a hip, yuppie-type crowd to the district. With a population of 338,000, Santa Ana is Orange County's largest city. Over time, that population has become increasingly Latino. The 2000 Census found that 76% of Santa Ana's residents are Hispanic, up from 44% of a population of 200,000 only 20 years ago. In recent years, Santa Ana's overcrowded public schools have become dominated by Latino students. "It's unique in that it has been more of a center for Latino heritage in Orange County," Saltzstein observed. Santa Ana certainly did not fit with the upper-middle-class, white bread image portrayed by much of Orange County. More significantly, the city struggled with one of the county's highest crime rates and with extensive poverty in some neighborhoods. But those conditions helped the city win status as a federal "Empowerment Zone," one of only 15 such zones designated in 1999 by the Department of Housing and Urban Development. The designation was supposed to come with $100 million in seed money for healthcare, workforce training, housing, economic development, youth development, community safety and transportation and other programs. The city established a nonprofit corporation in late 1999 to run the Empowerment Zone program. Since then, officials have developed a large number of partners and have connected entities that were not working together, said Shawna Lahey, zone manager. So, for example, workforce development groups are collaborating with economic development planners, and healthcare organizations are working with child-care advocates. Empowerment Zone programs have put about 500 zone residents into jobs, and officials are working to build a community center in a long-neglected part of town. However, federal funding has not come through as expected. Congress must allocate the city's Empowerment Zone funding every year. The first two fiscal years, Santa Ana received only $3 million and $3.6 million, respectively. This year (2000-01), Santa Ana got $12.3 million. Zone directors have about $8 million remaining to allocate. To qualify for the federal program, city officials promised the community would match federal dollars 25 to 1. They have been able to do that by using things such as volunteer labor as a match. The bulk of the four-square-mile Empowerment Zone lies south of downtown, but the Zone does straddle Main Street to reach into downtown, which is undoubtedly the heart of the city. "We have the only real downtown in Orange County, and it's a very large downtown," boasted Larry Yenglin, a redevelopment project manager for the city. The city is working with downtown merchants on extensive streetscape and façade improvements, and officials are trying to decide how to rehabilitate and reuse an old, large building the city has acquired at Fourth and Broadway. But the downtown project getting the most attention now is construction of 86 live-work lofts. The for-sale lofts will be newly constructed on three separate sites in the Artists Village along Second Street. The city is working with The Olson Company on planning and designing the lofts, which will be marketed for singles and couples, Yenglin said. The lofts would pump even more life into the six-year-old, eight-block Artists Village, where monthly open houses draw throngs of art enthusiasts from around the region. A CSU Fullerton arts center opened there two years ago, and the University of California, Irvine, is considering opening its own arts center in the district. Private capital is also finding its way to the Artists Village and adjacent downtown streets. Last year, DGWB Advertising moved its office and 100 employees from Irvine to the 66-year-old former City Hall building, which the firm purchased and renovated. Leaders of the national advertising company said the art deco building and lively neighborhood drew them to the area. Nearby, a private developer has purchased and restored a 1930 Masonic Hall, which sat empty for nearly two decades. The hall is being converted into a performing arts center with multiple stages, restaurants and banquet facilities, according to Yenglin. In the early planning stages is a 38-story office tower on Broadway that is not getting as warm a reception. Some city officials believe the tower would be the crowning achievement of redevelopment; however, historic preservationists complain that the project would wipe out a number of historic buildings along Broadway. Just north of the downtown bustle is the Civic Center, where about 20,000 people work for various government agencies. The County of Orange has extensive offices, and the Ronald Reagan Federal Courthouse opened there in 1999. Two state appellate court buildings are scheduled to be built next year. Still, keeping all of those workers in midtown and downtown Santa Ana after 5 p.m. continues to be a challenge. Next to the Civic Center is the new International Business Center, the first tenant of which is the Mexico Trade Center. Business experts credit Santa Ana Mayor Miguel Pulido for bringing Mexico's first trade center in the United States to Santa Ana. "When we were looking for different sites, he immediately started calling," Juan Hernandez, an advisor to Mexican President Vicente Fox, told the Orange County Register. "He doesn't know how to accept maybe." Besides the Mexican trade outpost, city officials hope the International Business Center — a city-owned office building — will provide a home for CSU Fullerton and UCLA business development classes, a Small Business Administration District Office, a federal Export Assistance Center, a California-Mexico Trade Assistance Center and county business development offices. Santa Ana also has one of the state's oldest enterprise zones, which offers tax credits to businesses that purchase equipment and add employees. The fact that Santa Ana appears to be pulling itself up by its bootstraps is largely unknown to the outside world. So the Santa Ana Chamber of Commerce has hired DGWB Advertising to conduct a "brand audit." DGWB is interviewing about 40 "opinion leaders" inside and outside Santa Ana, as well as average citizens. The effort is similar to what Madison Avenue undertakes for consumer products, such as cars or beer. Only in this case, the "brand" is a city. "We want to understand what the perceptions are of Santa Ana and what the prospects are for Santa Ana," said Gil Aranowitz, DGWB director of planning. "You're talking about how to build the appeal of Santa Ana. … You can say ‘Santa Ana' as a brand the same way you can say ‘Coca Cola' as a brand." Too many people have a poor, outdated perception of Santa Ana, conceded Chamber President and CEO Mike Metzler. Many people fled the city for Orange and Riverside county suburbs years ago, especially when crime was increasing, and those people have never been back since. "There are a number of perceptions that are out there that are not positive," Metzler said. "It's time to get out the real story about the city." Chamber leaders hope to settle on a "brand" this fall and then begin a full year marketing blitz aimed at businesses, potential residents and tourists. "I think you'll see other communities trying to do this in the future. I'm surprised no one else has done this yet," Metzler said. Contacts: Shawna Lahey, Santa Ana Empowerment Zone, (714) 647-5372 Larry Yenglin, Santa Ana Community Development Agency, (714) 647-5360. Gil Aranowitz, DGWB Advertising, (714) 881-2300. Michael Metzler, Santa Ana Chamber of Commerce, (714) 541-5353. Alan Saltzstein, CSU Fullerton Division of Political Science and Criminal Justice, (714) 278-3771.

The latest round in the legal saga of an adult bookstore in Las Vegas has been won by the city. The U.S. Ninth Circuit Court of Appeals upheld the city's regulatory system for adult businesses after the city adopted measures to ensure prompt reviews of adult business license applications by city officials and state courts. The decision follows two earlier Ninth Circuit victories by the adult bookstore, when the court struck down the city's ordinances for regulating adult businesses. Baby Tam & Co., Inc. v. City of Las Vegas , 154 F.3d 1097 (1998) ( Baby Tam I ) and Baby Tam & Co., Inc., v. City of Las Vegas , 199 F.3d 111 (2000) ( Baby Tam II ). See CP&DR Legal Digest , March 2000. In Baby Tam I , the Ninth Circuit threw out the city's ordinance because it failed to provide for prompt judicial review of a denial of a license for an adult bookstore. The lack of prompt legal recourse made the regulation a restraint of speech that violated the First and Fourteenth amendments, the court held. After that decision, Las Vegas amended its ordinance and secured changes to state law to ensure that such legal challenges would be decided within 30 days of the filing of a writ. But the court was still not satisfied and ruled 2-1 in Baby Tam II that the licensing scheme was illegal because it set no time limit for the city's director of the Department of Finance and Business Services to rule on an application. In March 2000, Las Vegas officials revised their ordinance again. The amended law gave the director 30 days to decide on a license upon receipt of an application and "applicable fees." If the director did not decide within 30 days, the application would be deemed approved. And if the application was denied, and the state court did not rule on a lawsuit over the denial within 30 days, the city had to issue a temporary bookstore license. After adopting those changes, the city asked U.S. District Court Judge Philip Pro to lift an injunction that prohibited the city from denying a business and zoning license to Baby Tam. Baby Tam, which operates an adult bookstore on West Charleston Boulevard, filed a counter motion asking Judge Pro to compel the city to issue a license. In May 2000, the judge ruled for the city and vacated the injunction. The city then issued citations to Baby Tam, which closed its bookstore. The city also obtained a state court injunction prohibiting Baby Tam from operating in an improper zone and without a business license. Baby Tam then appealed to the same three-judge panel that has struck down past city ordinance. This time, however, the bookstore lost, despite presenting an array of arguments. First, the bookstore argued that because the court found the city's licensing scheme invalid in Baby Tam I , the business was entitled to a license because it was a lawful business at the time and is entitled to legal nonconforming use status. But the unanimous three-judge panel pointed to a city ordinance that grandfathers businesses in existence on September 16, 1992. Baby Tam did not register as a business corporation until 1997. " t is established that city zoning may eliminate features of the landscape that pre-existed the zoning code and have been found objectionable under it," Judge John Noonan wrote. He continued, "We note that at no time did this court or the district court order the City to license Baby Tam. Litigation in this case has proceeded on the assumption that the City could amend its licensing scheme to meet Baby Tam's challenges." The bookstore owners also argued that the new regulatory scheme was flawed because it did not ensure prompt judicial relief if a denied applicant brought suit in a federal court, rather than state court. But the Ninth Circuit ruled that there is "no constitutional requirement of prompt review by both court systems. State courts are entirely capable of adjudicating federal constitutional claims." The court also rejected Baby Tam's contentions that the "applicable fees" portion of the revised ordinance could stall the process by giving the director too much discretion, and that the fees are a tax on the exercise of free speech. The court found the definition of fees to be straightforward — $30 for processing and the advance payment of a semiannual license fee based on projected gross sales. "The gross sales tax of the City falls on all businesses in the City. The tax is not imposed on the exercise of free speech. Furthermore, it is minimal. It ranges from $25 on semiannual gross sales of $12,000, to $670 on $1.2 million of such sales. It is not a burden on speech," Judge Noonan wrote. The court also rejected arguments that the city's definition of an "adult" business was unconstitutionally vague and conferred too much discretion on the city. "The ordinance is specific in spelling out what sexual acts and what parts of the human body and what sexual toys qualify as sexual," Noonan wrote. "No set of regulations can be applied without a modicum of judgment being exercised by the regulators. This ordinance cabins their discretion and directs their judgment and therefore passes constitutional muster." Finally, the court rejected the argument that the regulatory scheme improperly places the burden for seeking legal recourse on the applicant. The Case: Baby Tam & Co., Inc. v. City of Las Vegas , No. 00-16123, 01 C.D.O.S. 3295, 2001 Daily Journal D.A.R. 4083, filed April 26, 2001. The Lawyers: For Baby Tam: Michael Stein, Michael Stein & Associates, (702) 380-1000. For the city: William Henry, senior litigation counsel, (702) 229-6201.

If you do not care about either law or land use, there is much to laugh at in the story of how Majestic Realty used the state Legislature as a club with which to beat the City of Redlands. The premise seems funny enough: A somewhat naïve, small-town city council says no to a regional mall, then finds itself overmatched by a billionaire developer with a beetled brow and a notoriously heavy hand. They are fighting over 1,200 acres of orange groves and empty space known locally as the Doughnut Hole, which nobody cared about until very recently. Gray Davis himself appears in a comic cameo as the Good Witch who grants the developer his wish in the name of "military-base reuse." For anyone who cares about local land-use control, however, the story of the Doughnut Hole is an infuriating example of how money and power can subvert government and orderly land-use regulation. The Doughnut Hole is an unincorporated piece of land in San Bernardino County entirely surrounded by Redlands. In 1972, the county LAFCO placed the Doughnut Hole within the city's sphere of influence. Redlands did not think of annexing the land until the 1990s, probably because most of the site was farmland protected by Williamson Act contracts. In the late 1980s, the Pentagon announced the closing of Norton Air Force Base, which lies immediately west of the Doughnut Hole. In 1990, the Inland Valley Development Agency, the joint-powers group responsible for the reuse of Norton, included the Doughnut Hole acreage in its jurisdiction; the agency is promoting development in a 14,000-acre area, which includes the former Air Force base. Farmers, who can smell development like they can smell rain, stopped renewing their ag preserve contracts and began selling to investors. One developer that stood particularly tall among the orange groves was Majestic Realty, which is based in City of Industry and is probably the largest and wealthiest developer in Los Angeles County. Under chief executive Ed Roski Jr., Majestic developed an enormous portfolio of industrial buildings, then branched out to office buildings, a Las Vegas casino and half-ownership of Staples Center arena in downtown Los Angeles, where Roski also plans to build a long-awaited convention-center hotel. In 1993, Roski applied to the City of Redlands to build the 1.4 million-square-foot Citrus Plaza on a 125-acre site. The developer and the city did not come to terms on development fees, however, nor did the city grant water and sewer hook ups for the project. Roski and other would-be Doughnut Hole developers sued the city multiple times over the standoff. In 1999, Roski convinced State Assemblyman Thomas Calderon (D-Montebello) to author a bill that would take the Doughnut Hole out of Redlands' sphere of influence and give it back to San Bernardino County. Smelling rich sales-tax revenues — Roski had dangled an astronomical $18 million in annual sales tax from his project — San Bernardino County was receptive. The bill, one of dozens of special-fix bills that come swarming through at the end of the legislative session like salmon flapping up fish ladders, was vetoed by California's sharp-eyed freshman governor. At the same time, Davis said Redlands' position of turning down virtually all development was "ridiculous" in the light of the 10,000 jobs lost when Norton closed. Seeing the Roski project and others as potential job creators, Davis promised to sign a similar bill the coming year if the parties did not work out their problems among themselves. They did not work out their problems. Instead, the lawsuits became strategic and nasty, such as an environmental challenge brought by Roski and his fellow developers over a 500,000-square-foot Hershey's candy warehouse proposed inside the city of Redlands. In other words, if Redlands was going to stand in the way of Roski's mall, Roski was going to stop the city from building its own favorite projects. True to his word, Davis signed the second Calderon bill in August 2000. The governor's spokesmen hotly rejected the suggestion that governor had shown favoritism to the developer, who had contributed $80,000 to Davis's gubernatorial campaign. Roski spokesman Tim Chaikovsky also dismissed the idea. "Ed supports people that basically are supportive of business growth in the state of California," Chaikovsky told the Los Angeles Times. The governor's rationale that the Doughnut Hole is somehow important to the redevelopment of Norton Air Force Base is hard to accept, other than the mall would be a big provider of low-paying, service-industry jobs. I do not believe, however, that Davis took a dive for Roski. The governor, instead, has a history of favoring solutions that are both friendly to business and of minimal political risk to himself. If this held true, the governor's pro-business instincts won out over his local-control convictions. In February of this year, everybody agreed to stop the lawsuits. The Redlands City Council, the San Bernardino Board of Supervisors and the developers all signed a cease-fire that essentially gave Roski the right to build, and the city the right to control the process. The fight had been costly for Redlands, which spent more than $1 million fighting a developer whose pockets are far deeper than the city's. Today, Roski is moving forward with the first phase of Citrus Plaza, a 450,000-square-foot power center anchored by a Target store and a multiplex theater. Property-rights advocates might say, with some justification, that the city got its just desserts for trying to deny Roski's right to build anything at all. But was Sacramento justified in stepping into this local dispute? I think not. The Calderon bill weakens local land use control by allowing a well-heeled developer to turn to the Legislature for a better deal. There are indeed cases when the state should step in, such as when cities refuse to build an adequate amount of affordable housing. But in a straightforward land use dispute, the courts have a role, not made-to-order legislation. (It is also true that both sides used the courts, not to resolve the dispute but to punish each other.) There is no denying that the Doughnut Hole is a funny story. But the punch line of the Doughnut Hole leaves an empty feeling where local control should be.

The City of Vernon has lost a case in which it alleged that the California Public Utilities Commission should have required environmental review of a proposed rail yard expansion. A unanimous three-judge panel of the Second District Court of Appeal ruled that Vernon failed to prove that the project was unreasonable. The case demonstrates the differences between projects controlled by the California Environmental Quality Act, and projects that fall under other sections of the state Public Resources Code. " nlike review under CEQA where the burden of demonstrating the reasonableness of a project lies with its proponent, the burden here was on Vernon as the opponent of the Hobart Yard expansion to show that it was unreasonable," Justice Robert Mallano wrote for the court. The Hobart Yard is a large "intermodal" facility partially located in the City of Vernon and owned by Atchison, Topeka & Santa Fe Railway. Large shipping containers are transferred from trains to trucks at the yard. In 1994, Santa Fe filed an application with the city for conditional use permits to allow an expansion of the Hobart Yard. Vernon refused to process the application, saying Santa Fe needed to file an application covering the entire yard, not just the additions. In 1995, Santa Fe sued the city; Vernon responded with a complaint to the Public Utilities Commission (CPUC). In February 1996, a Superior Court ruled in favor of Santa Fe, a decision that an appellate panel upheld later in an unpublished opinion. In November 1996, the CPUC also ruled for Santa Fe. The CPUC found that the project was exempt from CEQA because it was a project of a public utility that did not require approval or other discretionary acts. The CPUC held that Vernon could only complain about utility conduct that was unreasonable. However, the CPUC allowed Vernon to amend its complaint, which the city did. The city argued that the Hobart Yard expansion would increase truck traffic, that the additional trucks would cause unsafe conditions and lower the level of service at five intersections, and that Santa Fe could reduce the impacts by paying 7% of the cost of a $26 million intersection improvement project. In December 1998, the CPUC again rejected Vernon's complaint, citing Public Resources Code § 21082.2. The commission held that the impact on the intersections did not require mitigation because the level of service would be identical whether or not Santa Fe expanded its rail yard. The commission held that the significant environmental effects were unavoidable. Vernon sought a rehearing, which the CPUC denied. Vernon then took its case to the Second District Court of Appeal, where the city argued that the CPUC "clearly had an affirmative responsibility to conduct an environmental review which would give prime consideration to preventing environmental damage." But the court said Vernon had not proven its case. "Vernon had the burden of demonstrating to the Commission that changes to the Hobart Yard project ‘ought reasonably be made', giving consideration to the project's ‘influence on the environment,'" Justice Mallano wrote. He noted that Public Utilities Code §§ 762 and 762.5 controlled the Commission's decision, not CEQA (Public Resources Code § 21000). " he commission … has not on any occasion that has been brought to our attention deemed itself to be generally bound by the requirements of CEQA," Mallano wrote. "In short, by no stretch of law or logic may the requirements of CEQA be engrafted onto a determination of reasonableness under Public Utilities Code §§ 762 and 762.5" Although Vernon and Santa Fe differed on the extent to which the rail yard expansion would increase traffic, Mallano wrote, "we find nothing in the record that would compel us to conclude that Santa Fe's projections were not supported by substantial evidence. More important, Vernon offers nothing that would cause us to question the Commission's findings … ." The Case: City of Vernon v. Public Utilities Commission of the State of California, No. B131559, 01 C.D.O.S. 3263, 2001 Daily Journal D.A.R. 4005. Filed March 26, 2001, ordered published April 24, 2001. The Lawyers: For Vernon: David Brearley, city attorney, (626) 336-3408. For CPUC: Peter Arth Jr., CPUC counsel, (415) 703-2015. For Santa Fe: John C. Nolan, Gresham, Savage, Nolan & Tilden, (909) 884-2171.