The First District Court of Appeal has thrown out the City of American Canyon’s approval of a Wal-Mart supercenter because the city did not comply with the California Environmental Quality Act and violated its own zoning ordinance. Without conducting additional environmental review, the city permitted the Wal-Mart project as a minor change to an earlier approved mixed-use project. However, the court found that the city incorrectly described the size of the Wal-Mart project in what the court suggests was a deliberate attempt not to trigger environmental review and the zoning ordinance requirement for a “major modification application.” In 2003, Lake Street Ventures (later succeeded by Napa Junction I, LLC) proposed a 40-acre project on Highway 29 in American Canyon, a 15-year-old city between Napa and Vallejo. The project consisted of a hotel, about 200 apartments, a 3-acre park, and retail space. Phase one would consist of the hotel, housing and approximately 32,000 square feet of retail space. Phase two would add about 165,000 square feet of retail. In December of 2003, the City Council adopted a mitigated negative declaration for the project, and approved zoning ordinance and map amendments, a general plan amendment and a tentative subdivision map. Seven months later, Wal-Mart applied for a design permit and sign program. The company proposed building a supercenter of 173,000 square feet, plus a 12,000-square-foot outdoor garden center and 7,600-square-foot seasonal sales area in the parking lot. Various groups quickly formed to fight Wal-Mart, but the Planning Commission approved the design permit and sign program without further environmental review. However, the Commission limited hours of operation to 6 a.m. to midnight. Wal-Mart wanted a 24-hour store, so it appealed to the City Council. Project opponents also appealed, and the City Council gave Wal-Mart what it wanted. The groups American Canyon Community United for Responsible Growth and Citizens Against Poor Planning sued, alleging the city violated CEQA and the local zoning ordinance. The lawsuits were combined, and a Napa County Superior Court judge ruled for the city. The case then went on appeal to the First District, Division Five. Wal-Mart opponents argued that the supercenter was a new project that should have triggered a fresh environmental review. The First District rejected that argument, instead ruling that Public Resources Code § 21166 and CEQA Guidelines § 15162 apply because the supercenter was a change to an already approved project. The court found that the Wal-Mart plan was substantially larger than the originally approved project — despite city staff reports that the Wal-Mart would actually be smaller than the original project. The city had excluded 38,000 square feet of stockroom, employee use area and seasonal sales space and said the Wal-Mart project amounted to only 154,000 square feet. In court, the city and Wal-Mart argued that the 154,000 square feet figure was consistent with the definition of “gross leasable area” in the general plan. Based on this square footage, the city determined the Wal-Mart store was not a substantial change from the original project and would need no supplemental environmental review. But the court found that there was no reason to redefine the project this way, and that it did not meet the general plan definition anyway, because the general plan speaks to “total gross floor area designed for tenants’ occupancy and exclusive use.” “By making adjustments in the square footage of the supercenter proposal and then comparing that adjusted square footage to the unadjusted square footage of retail space in the original project, the city makes an inapt comparison,” Justice Linda Gamello wrote for the court. “The city cites no evidence and makes no argument to justify using different methods of calculating the square footage of the supercenter and the other retail spaces. Absent such a foundation, the city’s comparison is distorted and cannot support the conclusion that the square footage of the project’s retail component did not materially change.” The city did prepare a brief, revised traffic study — based on 154,000 square feet — that concluded the daily peak hour trips generated by Wal-Mart would be 1,207, compared with 1,273 estimated in the original project’s mitigated negative declaration. Again, the court rejected the city’s description of the project size. “Nothing in the record explains the city’s use of 154,074 for the square footage of the supercenter in the revised trip generation analysis. The analysis itself is a one-page document consisting of two tables and footnotes, none of which explains how the relevant square footage of the supercenter was determined,” Justice Gamello wrote. “The staff report to the City Council makes the naked assertion that 154,074 square feet was used because the storeroom and employee space ‘will not generate vehicle trips.’” The city’s low calculation “fatally undermines its conclusion that the supercenter proposal would have no significant effects on traffic requiring supplemental environmental review.” The court also accepted the opponents’ argument that the city failed to consider the Wal-Mart project’s potential to cause urban decay outside the city limits. The city and Wal-Mart countered with a city manager’s cost/benefit analysis that was limited to the city. “Other evidence in the record strongly suggested the supercenter might have substantial extraterritorial effects,” Gamello wrote. “Appellant’s expert predicted that the supercenter would cause both a Wal-Mart discount store and a Food-4-Less grocery store in Vallejo to close. Because those stores are co-anchors of a shopping center, the expert opined that their closure would likely lead to urban decay.” The court further advised the city that, when it reconsiders the project, it should take into account the impacts of reasonable foreseeable development, as the supercenter proposal reserved two other areas in phase two for future development. As for the zoning violation, the court cited the city zoning ordinance, which requires a major modification application for an increase of more than 5% in a project’s square footage. Again rejecting the city’s description of a 154,000-square-foot project, the court determined the Wal-Mart project was an increase of at least 6.5%. The court directed the city to comply with CEQA and its own zoning code, and asked the Superior Court to consider halting construction or retail activity until the city complies with CEQA. In fact, construction has stopped on the nearly completed supercenter. The Case: , No. A112088, 06 C.D.O.S. 11552. Filed November 13, 2006. Ordered published December 19, 2006. The Lawyers: For ACCURG: Steven Herum, Herum, Crabtree & Brown, (209) 472-7700. For the city: William Ross, (650) 843-8080. For Citizens Against Poor Planning: Timothy M. Taylor, Somach, Simmons & Dunn, (916) 446-7979. For Wal-Mart: Judy Davidoff, Steefel, Levitt & Weiss, (415) 788-0900.

Calaveras County supervisors, in a 3-2 vote, have denied permits for a golf course that was built without governmental approval on agricultural land protected by a Williamson Act contract. The county has been wrestling with The Ridge at Trinitas for six years. The 18-hole golf course near Camanche Reservoir is owned by Mike and Michelle Nemee, who built the championship-level course without securing any permits or conducting an environmental review. The Nemees also intend to construct a small hotel and spa on the property, as well as a restaurant and high-end housing. An after-the-fact environmental impact report considered the golf course as an existing condition, but a group of local residents called Keep It Rural Calaveras strongly fought that characterization. The group contended that the golf course was incompatible with the surrounding ranch lands and that the Nemees had not addressed traffic and water-supply issues in their proposed development. In rejecting permits for the project in May, the Board of Supervisors cited the project's incompatibility with the general plan and the area's lack of public water and sewer infrastructure. Now the question is whether the property owners have to remove the golf course. A court is likely to decide. A Bush administration rule change that aimed to streamline reviews under the Endangered Species Act and to eliminate any consideration of how a proposed project may contribute to climate change has been dropped. The Bush Interior Department finalized the rule in December despite waves of protest from environmentalists and California Attorney General Jerry Brown. Besides barring Endangered Species Act (ESA) reviews from considering individual sources of greenhouse gas emissions, the rule would have authorized individual agencies to make ESA determinations on projects, thereby tossing out a longstanding requirement that the reviewing agencies consult with the Fish and Wildlife Service or the National Marine Fisheries Service. President Obama issued an executive order putting the rule change on hold earlier this year. Then Congress authorized the administration to overturn the rule without having to go through the usual, laborious rulemaking process. Environmentalists celebrated the rule's repeal, while development interests predicted a new wave of litigation based on climate change claims. The final rule, 50 CFR part 402, was published in the Federal Register on May 4. A locally written plan to aid the endangered California tiger salamander in Sonoma County is apparently dead. In May, the Obama administration settled a lawsuit with the Center for Biological Diversity, which had sued the Bush administration over its decision to remove land on the Santa Rosa Plain from the rare salamander's designated "critical habitat." In exchange for environmentalists' dropping the lawsuit, the Fish and Wildlife Service will consider reinstating the critical habitat designation. The Bush administration and local governments in Sonoma County, as well as some conservationists, had endorsed a locally devised plan to preserve roughly 4,000 acres of salamander habitat in the most densely populated part of the county (see CP&DR Environment Watch , February 2006 ). The unusual plan, however, languished because funding never materialized. The Fish and Wildlife Service is now considering designating 74,000 acres in Sonoma County as critical habitat, a move that could slow development. Development company DMB Associates announced in May it was dropping a plan to build a 6,800-unit new town in San Benito County. A few days after the announcement, the Arizona-based developer said it had formed a partnership with Cargill to build 12,000 housing units on old San Francisco Bay salt ponds in Redwood City. The proposed new town in Rancho San Benito would have accommodated about 20,000 people on 11,000 acres of agricultural land and pastures just south of the Santa Clara County border (see CP&DR Local Watch , February 2007 ). DMB cited the poor national economy as the reason for dropping the project. The company still owns more than 5,000 acres and has options to buy another 6,000. The Redwood City project would build a 1,400-acre, mixed-use project on abandoned salt ponds east of the Bayshore Freeway. The property was one of the few Cargill held onto when it sold most of its salt ponds to the state in 2003 as part of a giant wetlands restoration project (see CP&DR In Brief , April 2003 ; Environment Watch , July 2002 ). In November 2008, Redwood City voters rejected competing ballot measures that would have required subsequent voter approval for development on the Cargill property. Environmental groups are already lining up to fight the project. A whistleblower lawsuit accusing Pacific Lumber's former parent company of defrauding the federal government in an agreement that managed the harvesting of redwoods on the North Coast has been settled. Maxxam, Inc., agreed to pay $4 million, ending a trial at which former Maxxam CEO Charles Hurwitz was expected to testify. In the suit, Richard Wilson, former director of the California Department of Forestry and Fire Protection, and agency forester Chris Maranto accused Maxxam of falsifying harvesting studies so Pacific Lumber could win approval for an unsustainable level of timber harvesting on about 210,000 acres in Humboldt County. The harvesting figures were approved as part of a 1999 agreement that Pacific Lumber signed with the state and the federal governments, which also resulted in the state acquiring the Headwaters Forest for $480 million. Implementation of the agreement and Pacific Lumber's practices have been the subject of extensive litigation and regulatory activity ever since (see CP&DR Legal Digest , August 2008 and February 2008; Environment Watch , November 2007, March 2006, and August 2004). Wilson and Maranto initially sought $750 million in damages but agreed to drop the suit when Maxxam promised to pay $2.5 million to the federal government, $500,000 to the state and $1 million to the plaintiff's lawyers. Both sides claimed a measure of victory with the settlement. The state and federal governments were not parties to the litigation because of a mutual defense agreement that part of the 1999 deal. Ukiah-based Mendocino Redwood Company acquired Pacific Lumber in a court-supervised bankruptcy sale last year.

Even as local officials in Southern California attack the question of how to implement SB 375, they have slyly begun to suggest that the bill isn't the best way to attack the problem it supposedly addresses – greenhouse gas (GHG) emissions. It is not clear what the locals will do with this line of attack, unless they are angling to try to go back to the Legislature to shift the responsibility for GHG emissions reductions away from land use and back toward technological improvements. The most public attack so far came last week from Ty Schuiling, planning director for the San Bernardino Associated Governments (SANBAG) – a group of local governments that can be expected to be hostile to SB 375's goals. At a conference last week put on by the Leonard Transportation Center at Cal State San Bernardino , Schuiling challenged the idea that land use changes are required to meet the state's GHG reduction goals because the goal cannot be met by making cleaner vehicles, as the California Air Resources Board has suggested. "That is simply not true," Schuiling said. Schuiling pulled out what he clearly regards as a "smoking gun" on the GHG issue – a letter from the South Coast Air Quality Management District claiming that zero-emission vehicles still must be the weapon of choice against GHGs. "To achieve federal clean air standards, this region has little choice but to reduce the very GHG emissions targeted by SB 375 to near-zero," the air district's letter to the I-710 Technical Advisory Committee says.  "Clean vehicle penetration far beyond levels assumed by the ARB have been identified as the most likely – perhaps only - way to do it." Schuiling also noted that different types of cars have different GHG emissions – noting that a 2004 Toyota Prius has half the GHG emissions of a 2004 Chevy Malibu, suggesting that fleet turnover can have a big effect. A similar but more subtle argument came from Hasan Ikhrata, the executive director of the Southern California Association of Governments , which is charged with implementing SB 375 in the Los Angeles region. Speaking on the same panel as Schuiling, Ikhrata said: "I don't think 375 should be thought of as a global warming bill. I don't think it's the most cost-effective way to reduce GHG emissions. … When I speak about 375 I speak about a land use bill, an urban form bill." This was substantially the same point Ikhrata made a couple of weeks ago at the SCAG General Assembly in La Quinta, when he rolled out SCAG's "conceptual land use plan". Ikhrata did not deny that SCAG and the region's local governments should pursue a more efficient urban form, but, rather, argued that policymakers should rely less on the idea that climate change is the reason for doing so. All the powerpoints from the Leonard conference, including my opening keynote speech – which focused on the difference between meeting technical requirements of SB 375 (such creating Sustainable Communities Strategies) and actually creating communities "on the ground" that result in less driving (mostly by concentrating development around transit and parking) – can be found at here . – Bill Fulton

The recession and slack development activity have caused about 10 cites and counties to reduce their development impact fees, while more jurisdictions have delayed collecting fees until new buildings are ready to occupy. Some interest groups regard the fee deferrals as helpful in generating local activity. But whether fee reductions are similarly stimulative is debatable. During the construction slowdown in the early 1990s, many cities and counties cut their development impact fees as an incentive for builders. The reductions almost became a contest, as one city after another sliced their exactions to entice builders to build. The recent fee reductions have not become as widespread. In part that's because cities and counties have been taking advantage of a state law – clarified last year by AB 2604 – that permits local governments to delay fee collections until a final building inspection and the granting of the certificate of occupancy. Nearly 50 jurisdictions have adopted such deferrals, according to the California Building Industry Association (CBIA). The City of Fremont has cut fees and this month is likely to approve fee deferrals as well, according to Planning Director Jeff Schwob. The fee deferral "seems to be something more people are interested in because you don't have to finance the impact fees. From what we hear from the development community, that might be more effective" than fee reductions, he said. Schwob's finding would not surprise Richard Green, director of the University of Southern California Lusk Center for Real Estate. "Giving away tax incentives or reducing fees in the short-run – I'm not convinced from the academic literature that's a very effective strategy," Green said. With housing prices "less than it costs to build a house," why try to spur new housing construction? Still, the business of the CBIA is to spur housing construction, so the organization has lobbied at the state and local levels for lower development fees. "During the housing boom, many cities and counties sharply raised the fees they charge new-home builders – and, thus, new-home buyers – by ten of thousands of dollars per home," said Mick Pattinson, head of San Diego-based Barratt American and the chair of the CBIA's Impact Fee Task Force. "The average impact fee today is about $50,000 statewide, and there are many jurisdictions where the fees total more than $100,000 – nearly as much as it costs to actually build many homes." During the recession, the falloff in housing construction in California has been unprecedented – from 213,000 housing units in 2004 to 65,000 units last year. The CBIA estimates that fewer than 45,000 units will be built this year. The commercial real estate market may be even weaker, especially with such retail chains as Circuit City, Mervyn's and Gottschalks going out of business, and shopping mall powerhouse General Growth filing for bankruptcy. Cities and counties rely on building application fees to pay staff salaries, on development impact fees to finance infrastructure projects, and on property and sales taxes to fund services. To help maintain revenues, some cities have adopted their own economic stimulus packages ( see CP&DR , March 2009 ), and impact fee cuts and deferrals are usually part of them. In Fremont, for example, the City Council approved a stimulus package that reduced development impact fees by 10% through 2010 and by 25% in the Central Business District through 2011. The package includes a three-year business license tax exemption for clean technology companies and a doubling of the local business purchasing preference. Planning director Schwob conceded that the modest fee cuts are mostly symbolic, although he said they reflect the lower cost of constructing projects included in the city's capital-improvement program. He doubted that any of the city's backlog of approved projects would break ground this year simply because of the fee reductions. The fee deferral, which could be implemented this summer, might have a bigger effect, he said. Other jurisdictions have cut fees, whether for symbolic or practical reasons. Corona slashed its development impact fees by 40% for two years. Dublin reduced traffic impact fees by 3% to 11%, depending on the project; it also suspended for two years a city requirement that developers of large commercial and residential projects provide a piece of public art. The new City of Menifee and the Riverside and San Bernardino county governments are weighing development impact fee reductions of 20% to 50%. The City of Thousand Oaks has left its impact fees untouched but slashed its affordable-housing fees to zero in hopes of making at least some market-rate projects financially feasible. Last year, it adopted a comprehensive housing program that contained an inclusionary measure requiring developers to make 10% of their units affordable or pay an in-lieu fee of $9,000 per single-family house and $25,000 per condominium. The program also added "linkage fees," of up to $4.50 per square foot for new non-residential development. In May, the city set all of these fees at zero through June 30, 2010. The CBIA trumpeted Thousand Oaks's fee cuts as "an effort to jump-start homebuilding and its local economy." Thousand Oaks Community Development Director John Prescott characterized the move differently. "I don't know that resetting these fees to zero is really going to jump-start anything on the residential side," Prescott said. "But it's a factor that will benefit applicants for single-family housing when they put together their pro formas." Since the city commissioned a study to explore the effects of its comprehensive housing program and fee reductions, "the housing economy and some of the non-residential sectors have suffered," Prescott noted. The temporary elimination of affordable housing fees is simply a recognition of the current economic downturn, he said. Unquestionably, housing in Thousand Oaks is more affordable today than it was earlier in the decade. According to city officials, the median sales price has dropped by $305,000 since the 2006 peak to $423,000. And prices are not expected to rise in the near future because of the number of foreclosures in the city. These kinds of statistics bolster the arguments of Max Neiman, associate director of the Public Policy Institute of California. He says reducing legitimate fees in the hopes of stimulating economic development is a "desperate act," especially considering the huge number of foreclosed homes on the market. "Do communities really need more housing construction at this point? Unless you're talking about trying to keep a developer with a desirable project from walking way, it makes no sense," Neiman said. "In times like this, communities get more involved in economic development," Neiman added. But "this economic downturn is very, very different from others we've had. It looks much more like a classic downturn that involves a broad array of industries." Green, of the Lusk Center, said the legitimacy of the fees is the larger issue. Some jurisdictions jacked up fees during the housing boom because developers were willing to pay nearly anything simply to win entitlements, he noted. "It was opportunistic." Now might be a good time to reconsider whether a development's impact truly relates to the supposed burden offset by a fee, Green said. "To the extent the fee is justified, don't get rid of it now. You don't want to allow a developer to add to congestion for free," he said. That debate is playing out in Riverside County, where supervisors are considering cutting a variety of fees that fund infrastructure projects, and where pressure is rising for the Western Riverside County of Governments to slash a regional transportation fee. Supervisors Roy Wilson and Bob Buster have balked at reducing fees, calling the idea a "feel good" move that that would hurt the county's ability to build needed infrastructure. A decision on the fees is likely this summer. Contacts: Richard Lusk, USC Lusk Center for Real Estate, (213) 740-4093. Max Neiman, Public Policy Institute of California, (415) 291-4441. John Prescott, City of Thousand Oaks, (805) 449-2323. Jeff Schwob, City of Fremont, (510) 494-4440. California Building Industry Association: www.cbia.org

There's never been a weirder time to try to do planning in California. On the one hand, the state has made climate change a major priority – and it's driving local government efforts in a hundred different ways, ranging from greenhouse gas analyses in environmental documents to switching out light bulbs in city corporation yards. On the other hand, the state is cutting back all over the place because of the ever-more-dismal budget crisis. And this is going to make it hard for local governments to meet the requirements the state is laying out. For example, shortly after passing SB 375 – which seeks to reduce driving -- the state cut back on assistance to public transit considerably. In addition, the state is encouraging localities to prepare climate action plans – or at least include climate as a major issue in their general plan updates. However, the state has not appropriated any funds for such plans and, most recently, has proposed balancing its own budget by borrowing $2 billion – 8% of property tax revenues – from locals, which will make it more difficult for cities and counties to pay for planning out of their general funds. So how will the locals pay for these plans? Surely not through the federal stimulus package. After all, plans are, almost by definition, not "shovel-ready." At best, a plan leads to a project, which then requires design and environmental review before it's shovel-ready. But wait. The stimulus package does contain one pot of money that can be used for climate-related planning, if local governments apply for it and if the planners can successfully arm-wrestle the public works department for the money. That money is in the Energy Efficiency Conservation Block Grant program, which is funneling more than $100 million into California, including $70 million directly into the coffers of cities and counties around the state. Although it's part of the stimulus package – the American Recovery and Reinvestment Act – the energy block grants are not like the other pots of stimulus money. They can be used for a wide range of purposes, and they do not have any performance requirements attached to them. That is because the energy block grant was one of those ideas kicking around Washington, D.C., for a long time looking for an excuse to be funded. The idea was hatched by the U.S. Conference of Mayors some years ago, and now has been included in the stimulus package. Especially in the context of current local government budgets in California, the dollars are huge. Small cities such as Brea and Culver City get around $200,000 apiece. Large suburban cities – population 100,000 to 200,000 – are eligible for somewhere between $500,000 and $1 million. Bigger cities like Riverside, Chula Vista, and Anaheim get $2 million to $3 million. Very large cities get even more. The deadline for submission of proposals to the federal Department of Energy is June 25. Like regular block grants, most of the money goes straight to the locals. For jurisdictions of fewer than 35,000 people, the money is funneled through the California Energy Commission. And that's not all: There's another $20 million or so that the Energy Commission can give out however it wants. The criteria have not been established – but planning is definitely on the list. So how can all this dough be used for planning? Well, for one thing, the federal energy block grants criteria are very broad. According to the state Energy Commission, the money can be used to engage in activities that will: • Reduce fossil fuel emissions in the jurisdiction • Reduce total energy use • Develop renewable energy sources • Improve energy efficiency in transportation and buildings. Sounds like the perfect general plan funding source in the wake of AB 32 and SB 375. Except for one thing: Planners aren't the only folks in California local government who want this money. In fact, most of the time the planners don't even know about this money. Thanks to Jerry Brown and other factors, locals feel a lot of pressure these days to reduce greenhouse gases and energy consumption. SB 375 notwithstanding, there are two areas of great concern. Land use is one. The other is the actual operations of the local governments themselves. And this is where the competition for the energy block grant money is likely to come from. Brown's famous 2007 settlement with San Bernardino County, forcing the county to implement AB 32, focused on two things: first, minimizing greenhouse gas (GHG) emissions created by land use decisions the county makes, and, second, minimizing emissions from county operations ( see CP&DR , September 2007 ). In other words, the attorney general concluded that development permits and the agency's own operations are the two major items that generate GHGs which are within the agency's control – and therefore those were his targets. At the same time, many local governments have gotten a lot more sophisticated in understanding the energy consumption and greenhouse gas emissions from their own buildings, fleets, and so forth. They're interested in retooling their recreational facilities, their corporation yards, their municipal buildings, their water and wastewater utilities – all the big energy-sucking operations. Replacing those things will help them get the GHGs down and also reduce their operating costs for electricity. But they don't want to invest their own capital funds because the payback period is so long – 5, 10, sometimes 30 or 40 years. So the first call on "free money" for energy conservation in most cities is likely to go to public works. But that doesn't ace out planners. California will also be getting a separate $226 million from the stimulus package for the State Energy Program – a program that does require local governments (and others) to forecast and document the actual energy savings from the expenditures. That's the kind of money more likely to flow into energy-saving capital projects, and it's difficult for cities and counties to combine the two programs (state energy and energy block grants) because the reporting requirements and the performance measures are different. Finally, don't forget the California Energy Commission is still sitting on $20 million it can distribute however it wants. The Energy Commission may yet decide the highest priorities are general plans and climate action plans.

With the State of California again facing financial calamity, the fight in Sacramento over tapping the revenues of local redevelopment agencies to fund schools is likely to intensify. One of the latest developments came April 30, when a Sacramento County Superior Court judge blocked implementation of a portion of a 2008 law (AB 1389) requiring redevelopment agencies to transfer $350 million in tax increment revenue to schools. The ruling was a victory for the nearly 400 redevelopment agencies and the California Redevelopment Agency (CRA), which lead the litigation. The Schwarzenegger administration will almost certainly appeal. A report released by the state controller's office days before the court decision only heats up matters. It found that more than one-quarter of redevelopment agencies face sanctions for being out of compliance for their pass-through payments to schools. That report, which infuriated the CRA and certain redevelopment agencies, will be updated shortly and is expected to show more agencies are in compliance, according to the controller's office. Still, the issue of pass-through payments remains, and it is the subject of potentially controversial CRA-sponsored legislation. Signed into law last year, AB 1389 requires redevelopment agencies to transfer a portion of their tax increment revenues to school districts. The law also requires the state controllers' office to report on the separate issue of pass-through payments from redevelopment agencies to schools for the 2003-04 through 2007-08 fiscal years. The April court ruling was the result of a lawsuit filed in October 2008 by the CRA and the redevelopment agencies of Moreno Valley and Madera County. The suit contended that the law's requirement that $350 million of tax increment revenues of the state's redevelopment agencies for the 2008-09 fiscal year be transferred to their county Educational Revenue Augmentation Funds (ERAF) violated the state and federal constitution for several reasons (see CP&DR Capitol Update , October 2008 ). The ruling by Superior Court Judge Lloyd Connolly focused solely on legislative findings and declarations used by state lawmakers to legitimize the mandatory transfers. Lawmakers said the transfers were legal because the money would be distributed to schools serving students who live in redevelopment project areas and in housing built with redevelopment money. In siding with the CRA, Connolly said, " he ERAF funds are distributed without any procedures to assure that the schools and educational programs receiving funds contributed by the city RDAs are serving students within the redevelopment project areas or communities of the city RDAs or are serving students living in housing assisted by the contributing city RDAs. … These circumstances directly undermine the findings and declarations." CRA Executive Director John Shirey said he would not rule out a settlement of the litigation, but he added, "There is no indication anybody wants to work out a compromise with us." A legislative remedy might be the more likely outcome. Shortly after Connolly's ruling came down, legislative staff members were reportedly working on a remedy to the legal flaw Connolly cited. But a legislative remedy may be too late for the 2009-10 fiscal year. Gov. Schwarzenegger's "May revise" contained no shift of money away from redevelopment agencies, even though the governor proposed "borrowing" $2 billion in property tax revenues from cities and counties. The state controller's report on property tax pass-through payments covered the five fiscal years from 2003-04 through 2007-08. State law requires most redevelopment agencies to share a portion of tax increment with school districts – a "pass-through" payment. The amount of pass-through payments varies depending on the redevelopment project area's age and negotiations between the redevelopment agency and school districts. The Legislative Analyst's Office previously estimated that, over the five yeare period, redevelopment agency underpayment of pass-throughs to schools combined with school errors in reporting these pass-throughs to the state increased the state's education costs by about $98 million. The controllers' office followed up last year with a report that said schools had underestimated the amount of pass-through payments received by more than $100 million in one year alone. The controller identified many other discrepancies in the complex and inconsistently implemented pass-through system. The latest controller's report, issued in April, found that the redevelopment agencies were supposed to make $355 million in pass-through payments to school districts for the five-year period, and that agencies had paid $331 million by the end of February. At that time, 67 agencies had not fulfilled their pass-through obligations, according to the controller's office. That number has since dropped but many agencies still lack a "finding of concurrence" from their county auditor. A total of 107 agencies face sanctions for not making payments, lacking a finding of concurrence or not filing a report, the controller concluded. Eighty-three agencies submitted statements of dispute with their county auditors. The CRA's Shirey lambasted the report. "It was full of errors and mistakes. There has been no leadership or guidance on the part of the controller," he said. Controllers' office spokeswoman Hallye Jordan said her office's role is merely to compile the information as required by law. She said the report would be updated as the state receives new information from redevelopment agencies and county auditors. In an attempt to clarify the enormously complex pass-through requirements, the CRA is sponsoring SB 530 (Dutton). The bill initially met stiff resistance from schools. "It was kind of redevelopment agencies' wish list on how to allocate redevelopment money," said Dennis Meyers, lobbyist for the California Association of School Business Officials. In response, the CRA dramatically narrowed the bill for the time being but intends to push for significant amendments later this year. Jean Hurst, a lobbyist for the California State Association of Counties, said her organization, CRA and the California Association of County Auditors continue SB 530 negotiations. "We've aired all the issues. We're trying to work it out," Hurst said. School representatives, however, have not been closely involved with the talks. Lawmakers last year approved a measure (SB 360 – Negrete McLeod) that would have given the authority to make and report pass-through payments to county auditors instead of redevelopment agencies. Schools and State Controller John Chiang endorsed SB 360, while county auditors opposed it. The bill was one of the victims of Schwarzenegger's mass veto of what he determined was not priority legislation. Contacts: John Shirey, California Redevelopment Association, (916) 448-8760. Dennis Meyers, California Association of School Business Officials, (916) 447-3783. Jean Hurst, California State Association of Counties, (916) 327-7500. State Controller's Office report on pass-through payments: http://www.sco.ca.gov/Files-ARD-Local/ab1389_proptax_passthru_pments_0409.pdf Court case: California Redevelopment Association v. Genest , Sacramento County Superior Court Case No. 34-2008-00028334-CU-WM-GDS.

Voters in the Santa Clara County city of Morgan Hill have changed their minds and approved a growth control modification to permit additional housing development in the downtown area. Measure A keeps in place Morgan Hill's population cap of 48,000 by 2020, but permits 500 more units downtown than had been allowed. In November 2008, the nearly identical Measure H failed by 10 votes. When the governor called a special election, the City Council quickly placed Measure A on the May 19 ballot. This time supporters ran a more aggressive campaign, winning 58.8% of the vote. Downtown Morgan Hill has rebounded during recent years, but city officials and a downtown association say the district would benefit from additional private investment and a built-in base of residents to patronize businesses. A residential development control system first approved by voters 30 years ago limited downtown development. Measure A modifies the growth-control system in a fashion that supporters say encourages "smart growth," mixed-use development and housing that appeals to a broader demographic than Morgan Hill's single-family subdivisions. City councilmembers envision a bustling, walkable neighborhood and often point to nearby Los Gatos as a model.

A charter city does not have to comply with California's prevailing-wage law if its public works projects are financed exclusively with city revenues, a divided three-judge panel of the Fourth District Court of Appeal has ruled. The reason: The state law "does not touch upon matters of statewide concern sufficient to outweigh the power of charter cities over their municipal affairs," Justice Patricia Benke wrote for the court's majority. In a long dissent, Justice Joan Irion contended that her "colleagues improperly perform an inquiry into the effectiveness and advisability of the prevailing wage law" rather than review the statute's reach under the state constitution. The case involved the San Diego suburb of Vista, one of the state's 83 charter cities. In November 2006, Vista voters approved a half-cent sales tax to finance construction of two fire stations, a civic center, a sports park and an amphitheater stage house. The estimated cost of the projects was about $100 million. Seven months later, the city's voters approved a charter to govern city affairs. Among the pro-charter arguments was that a charter would permit Vista to bypass prevailing wage and other public contracting statutes that apply to general law cities. "One of the advantages that the charter gave us was the ability to do design-build," city attorney Darold Pieper said. "All of these projects are design-build." The fire stations are occupied, and the stage house is scheduled to be completed this summer. The civic center and sports park are under construction and due to open in 2010, according to Robin Putnam, community projects director. Shortly after voters approved the city charter, the State Building and Construction Trades Council of California, AFL-CIO, filed a lawsuit asking a court to direct Vista to comply with the prevailing wage law despite the city's charter status. San Diego County Superior Court Judge Robert Dahlquist ruled against the union, a decision upheld by the appellate court panel. Adopted in 1937, the prevailing-wage law (Labor Code §§ 1720–1780) aims to ensure that contractors that use union labor can compete for public works projects; to prevent public agencies from undercutting local wage rates; and to maintain construction trades apprentice programs. To achieve these goals, the law requires contractors on public works projects to pay their workers, skilled and unskilled, a "prevailing wage." The state director of industrial relations determines that wage in different labor markets by consulting local collective bargaining contracts. Hence, prevailing wages are typically urban area union rates. The law also requires contractors in most instances to hire some lower-wage apprentices and to pay into a state fund for apprentice training programs. Public agencies frequently complain that the law drives up the costs of construction. Labor unions counter that it ensures high-quality work on public works projects. In arriving at its ruling, the Fourth District Court of Appeal, Division One, first examined the "home rule," or municipal affairs clause, of California's constitution. This clause – article XI, § 5 – permits cities to adopt charters to govern their municipal affairs. A state's interest may supersede city charter powers only when a state law qualifies as a matter of "statewide concern," Justice Benke wrote in the majority opinion. If a state law meets that standard, the reviewing court must determine whether it "is both reasonably related to resolution of that concern and narrowly tailored to limit incursion into legitimate municipal interests." In turning to the prevailing wage law in question, the court focused on the statute's exemption for construction projects that do not use public funds. "This basic exception to the application of the law is, for us, telling," Benke wrote. "The protection which the PWL provides to workers is plainly not so vital a part of the state's larger overall goal of protecting the state's workers that it applies generally to all construction contracts. Thus, at its most basic level, the dimensions of the policies advanced by the PWL are limited." In addition, the court noted, the Legislature has exempted some agreements between public agencies and private entities – including those to construct low-income and group housing – from the law's provisions. " pplication of the law is fairly elastic," the court declared. " he statute is not designed to raise or set local wages and working conditions, but rather to keep state contracting from undermining what local labor markets have established," Benke wrote. "At its core, the PWL is not a mandate, but a restraint on the manner in which the state spends its resources." A city's decision to expend its resources on public works is solely a municipal concern and does not undermine the state government's contracting practices, the court concluded. " t does not take undue speculation to recognize that in any given locality the volume of private construction activity is likely to match or exceed the volume of a municipality's public works contracts. As has been the case since the PWL was enacted, in this factual context, it is difficult to conclude that extraterritorial impact of a municipality's contracting practices is significant and substantial enough to warrant subordination of a municipality's power over its spending, when the Legislature itself has determined that no regulation is necessary with respect to what, in any particular area, might be an equal or far larger volume of private contracting," wrote Benke. The State Building and Construction Trades Council of California, AFL-CIO, she added, "offers no evidence which suggests the contracting activity of municipalities materially impacts regional labor markets. ... he wages paid on local public works projects are not matters of sufficient extramural dimension to support legislative intervention." In her dissent, Irion contended that the panel's majority had framed the question incorrectly to address the law's effectiveness. "In my view, using the proper legal construct, the record establishes that the legislative purposes of (1) maintaining the wage base in the construction industry and (2) promoting quality apprentice training in the construction trades are both matters of statewide concern and, further, that the prevailing wage law is reasonably related to advancing those purposes." Pieper, Vista's attorney, said the city is "especially pleased that the electoral will of the citizens of Vista will be respected, and that their decisions to tax themselves and assert local autonomy can be fully implemented." The union will appeal to the California Supreme Court, said Sandy Harrison, the union's spokesman. "It is a matter of statewide concern, and charter cities are able to skirt state law only on matters of exclusively local concern," he said. While the state's top court accepts only about 1% of the cases brought to its attention, observers see the Vista case as a strong candidate for review. "Given the importance of this issue and the divided vote in the Court of Appeal, this case seems like a very good bet for Supreme Court review," wrote Steven Mayer, an appellate lawyer with the law firm Howard Rice who has argued before the state high court. Harrison added that, "There are a great many charter cities that find that it's in their interest to pay a prevailing wage." According to Putnam, Vista's projects director, some of the workers on the city's projects, such as the iron workers building the civic center, are indeed union members. The Case: State Building and Construction Trades Council of California, AFL-CIO v. City of Vista , No. D052181, 2009 DJDAR 6133. Filed April 28, 2009. The Lawyers: For the Trades Council: Scott Kronland, Altshuler Berzon, (415) 421-7151. For the city: Darold Pieper, city attorney, (760) 639-6119.

Seven years ago, Bill Fulton and I wrote a lengthy story for Governing magazine about San Bernardino County. We didn't write the headline, but it was appropriate: "Addicted to Corruption." Apparently, the county still has not entered rehab. On Tuesday, May 12, the San Bernardino County Board of Supervisors released an investigative report into the county assessor's office. The report says Bill Postmus – who resigned as assessor in February after an extended leave of absence, an admission of drug addiction and lots of bickering with the Board of Supervisors – along with his appointed staff, ran the office as "a personal political operation fully funded by San Bernardino taxpayers." Postmus and his lieutenants spent virtually no time actually assessing property values, according to the report. Also on the 12th, the Board of Supervisors sued Postmus and five other individuals to get back taxpayers' money. Among the other five are Rancho Cucamonga Councilman Rex Guiterrez, a former Postmus aid who was also fired from his job with the county's Economic Development Agency. The board's news release, the investigative report by former federal prosecutor John Hueston and the civil suit are available on the county's website . Back when we were reporting our story for Governing , the county was pursuing similar lawsuits against two former county administrators, the former treasurer-tax collector and about 20 other individuals and legal entities. The county eventually got more than $10 million in restitution. Careers ended. People went to prison. (Our story was reprinted in a book from CQ Press .) Because of the county's ongoing civil suits, as well as state and federal criminal prosecutions, we originally thought our story was going to explain how a local government pulls itself out of corruption scandals and rebuilds its integrity and reputation. We ended up less than fully convinced the county was going to change its ways. Why? Because Supervisor Gerald Eaves was still in office despite having recently pleaded guilty to accepting bribes. Because two reformers brought in by the board – a highly regarded county administrator and an ethics consultant – gave up because they were convinced the elected leadership was not serious about reform. (I still remember the ethics expert, Michael Josephson, telling me, "There was a big kill-the-messenger situation.") Because I hadn't been in town more than few hours before people started leaking damning internal documents to me. Besides Eaves, one of the other members of the Board of Supervisors at that time was Postmus. They made up two-thirds of what I would characterize as the pro-corruption bloc on the board, which has since turned over entirely. In a written statement released this week, Postmus described the latest investigation as "a taxpayer-funded hit piece." Former Assistant Assessor Adam Aleman, among those sued by the county, said in a separate statement that the political activity in the assessor's office was no different from "what occurs in the offices of other county elected officials." Among the things Aleman reportedly did on county time was edit the Republican website www.redcounty.com (which has had little to say about situation). The level of corruption on which we reported seven years was shocking. Not only was the county implicated, but so were the cities of San Bernardino and Colton; some councilmembers in both cities were indicted. Nearly as shocking to me, though, was the lack of public outrage. "Good government" groups and true watchdogs were virtually nonexistent. I couldn't even get the local League of Women Voters to call me back. It was almost as if government corruption was an accepted part of the landscape. I know there are honest people in San Bernardino County, and I feel badly for the hardworking civil servants who get splashed by the mud. Still, the Postmus situation suggests that we got it right seven years ago. San Bernardino County smelled bad then. The stench remains overwhelming today. Bill Postmus will not be the last government official in the county to fall amid scandal. – Paul Shigley

A City of Los Angeles ordinance that subjects replacement rental units to the city's rent control scheme has been upheld by the Second District Court of Appeal. The city's law provides that if a landlord demolishes a residential property that is subject to the city's rent stabilization ordinance, and then builds new residential rental units on the same property within five years, the new units are also subject to the rent stabilization ordinance. The Apartment Association of Los Angeles County challenged the law as prohibited by the Costa-Hawkins Act, which exempts newly constructed units from local rent control measures. The court, however, disagreed with the association's reading of state law. For years, Los Angeles has had a rent stabilization ordinance that limits the amount landlords may charge for certain residential units. The ordinance applies to an estimated 700,000 apartments. In 2007, the city adopted a new ordinance that applies the rent control provisions to replacement units built within five years of demolition of the rent-controlled units. The apartment owners group sued, and Los Angeles County Superior Court Judge Elizabeth Grimes ruled for the city. The apartment owners then appealed. At issue in the litigation was interpretations of the Ellis Act and the Costa-Hawkins Act. In general, the Ellis Act (Government Code � 7060 et seq .) permits the owner of a rental property to evict the tenants and go out of business. However, the Ellis Act contains recontrol provisions intended to prohibit bogus evictions. If a landlord begins renting a property again after evicting tenants, local rent control measures still apply. In addition, local governments may impose rent control on replacement units under the Ellis Act. The Ellis Act was passed in 1985. Ten year later, lawmakers passed Costa-Hawkins (Civil Code � 1954.50 et seq.), which prohibits the application of local rent control ordinances to units built after February 1, 1995, and which establishes "vacancy decontrol" that permits a landlord to reset rent levels when a tenant has voluntarily vacated, abandoned or been legally evicted. The Apartment Association argued the Costa-Hawkins prohibition on rent control of newly built units repealed the Ellis Act provisions regarding replacement units. A unanimous three-judge panel of the Second District, Division Three, disagreed. The court examined the legislative history of the Ellis Act and found that the original bill was amended to include recontrol provisions after concern arose that landlords would evict tenants under the pretext of going out of business. Specifically at issue here was Government Code � 7060.2, subdivision (d), which applies to demolished rent controlled units that are replaced within five years. " he legislative history of � 7060.2, subdivision (d), clearly indicates that the statute was enacted to authorize local public entities to promulgate ordinances that discourage landlords from evicting their tenants under the false pretense of going out of business pursuant to the Ellis Act," Justice Patti Kitching wrote for the court. Los Angeles adopted the ordinance in question pursuant to this statute. Costa-Hawkins repealed portions of the Health and Safety Code related to housing, but did not repeal the Ellis Act, the court noted. Specifically, Costa-Hawkins did not affect the authority of local government to "regulate or monitor the basis for eviction" as provided in Ellis Act provisions against bogus evictions. Moreover, lawmakers amended the Ellis Act in 1999 and 2002, the later time specifically to make nonsubstantive amendments to the recontrol provision. "The 2002 amendment to the Ellis Act shows that after Costa-Hawkins was enacted, the Legislature continued to regard � 7060.2, subdivision (d), as the law of this state," Kitching wrote. "This amendment conclusively rebuts position regarding the alleged implied repeal of � 7060.2, subdivision (d). The Legislature would not have amended section 7060.2, subdivision (d), in 2002 if it had repealed the statute with Costa-Hawkins in 1995. We cannot presume the Legislature engaged in an idle act." Rather, the court ruled, the statutes "should be interpreted to work together." The Case: Apartment Association of Los Angeles County, Inc. v. City of Los Angeles , No. B204334, 09 C.D.O.S. 4583, 2009 DJDAR 5455. Filed April 17, 2009. The Lawyers: For the Apartment Association: Trevor A. Grimm, California Apartment Law Information Foundation, (213) 380-0303. For the city: Gerald Sato, city attorney's office, (213) 485-5417.

The San Bernardino Local Agency Formation Commission may proceed with the proposed consolidation of two water districts, the Second District Court of Appeal has ruled. The court rejected the argument of one district that the proposed consolidation is not subject to the Cortese-Knox-Hertzberg Government Reorganization Act and that the consolidation is actually a dissolution. The entities involved in the controversy are the San Bernardino Valley Water Conservation District and the much larger San Bernardino Valley Municipal Water District. The Water Conservation District covers 78 square miles in Highland, Redlands, Loma Linda, Colton, San Bernardino and unincorporated San Bernardino County. The district's primary responsibility is diverting water from the Santa Ana River and Mill Creek into percolation basins in order to recharge the groundwater aquifer, which is the primary water supply for the area. A seven-member board elected by districts governs the district. The San Bernardino Valley Municipal Water District covers 352 square miles encompassing all or parts of nine cities and unincorporated territory in San Bernardino and Riverside counties. The district serves as a water wholesaler that imports water from the State Water Project and manages the groundwater basin. A five-member board elected by districts runs the district. The Water Conservation District lies entirely within the Municipal Water District. In 2006, the Local Agency Formation Commission (LAFCO) board decided that because the districts provide similar services to the same area, the districts should be considered for consolidation. Late that year, the Municipal Water District submitted an application for consolidation. The Water Conservation District sued LAFCO to bar it from processing the application. The City of Highland and environmental organizations oppose the consolidation because they say the move would jeopardize a proposed habitat conservation plan for the Upper Santa Ana River Wash. The Water Conservation District has sought increased rights to Santa Ana River water to provide for environmental needs in the habitat conservation plan area. A final environmental impact report on the district consolidation that was released earlier this year, however, concluded there would be no significant impacts resulting from the consolidation. A LAFCO study concluded the consolidation would save the Water Conservation District's taxpayers about $700,000 annually, a conclusion disputed by the district and environmentalists. The lawsuit was moved to a neutral venue in Ventura County, where a Superior Court judge ruled LAFCO could proceed with the application. On appeal, the Ventura-based Second Appellate District, Division Six, upheld the lower court. The Water Conservation District argued that because it was organized pursuant to the Water Conservation District Law of 1931, LAFCO could not proceed under the Cortese-Knox-Hertzberg Act to consolidate the districts. In a to-the-point opinion, however, Justice Paul Coffee noted that the Legislature repealed the 1931 law and incorporated the pertinent provisions into the District Reorganization Act of 1965, which created LAFCOs and served as the precursor to the Cortese-Knox-Hertzberg Act. Thus, the San Bernardino LAFCO has the authority to order the consolidation of the two districts "should it determine that such a consolidation is in the public interest," Coffee wrote. The Water Conservation District argued that the proposal would prompt creation of a new successor district, which would not be possible because two districts already exist. The court rejected this interpretation. The Water Conservation District's "contention ignores that the term ‘successor' is included in the statutory phrase. The creation of a ‘new successor district' necessarily implies the existence of multiple entities that become a single entity," Coffee wrote. It is up to LAFCO to decide which existing district will be the consolidated successor, the court ruled. The proposal before LAFCO calls for the Municipal Water District to assume all of the Water Conservation District's duties, obligations and employees. The LAFCO board is scheduled to decide on the consolidation in July. The Case: San Bernardino Valley Water Conservation District v. Local Agency Formation Commission , No. B208974, 09 C.D.O.S. 4833. Filed March 23, 2009. Certified for publication April 22, 2009. The Lawyers; For the Water Conservation District: H. Jess Senecal, Lagerlof, Senecal, Gosny & Kruse, (626) 793-9400. For LAFCO: Kendall MacVey, Best, Best & Krieger, (909) 686-1450. For the San Bernardino Valley Municipal Water District: David Aladjem, Downy Brand, (916) 444-1000.

The Southern California Association of Governments has unveiled a new "conceptual land use plan" that concentrates development on a half-million acres of land near rail, bus rapid transit, and local bus lines in the six-county SCAG region. Initial numbers suggest that this plan would only get SCAG 60% of the way toward the region's likely SB 375 emissions reduction target. During SCAG's annual conference in La Quinta, Executive Director Hasan Ikhrata emphasized that the new map is simply "the starting point of a conversation" and that SCAG would not force local governments to take an allocation number for emissions reduction purposes because SB 375 does not require it. "We are not here to tell people what to do," Ikhrata said. "We do not have the power or the inclination to do that. We are here to help cities implement SB 375 in a way that is beneficial to everybody." Councilmember Larry McCallon of Highland, who chaired the meeting of SCAG's Committee on Economic and Human Development, added: "We're not going to ask SCAG dictate to you what needs to be done. We're going to put these out there for discussion. Whatever we put out there as a region reflects your input. This is a law we are trying to implement good or bad and you are not obligated to use anything, it's not mandatory. You are welcome to come out with your own ideas on how to make this whole thing work and get involved in process." Reaction from local elected officials on the SCAG Regional Council was predictably unenthusiastic. Several local officials said they thought emissions reduction targets should be balanced on other sectors of the economy, such as cleaner fuels for both cars and trucks and energy efficiency. But heavy trucks and energy efficiency are being dealt with outside the SB 375 process. Others feared that if they were already built out and did not densify they would lose transportation dollars. Ikhrata assured them that they would not, though SB 375 directs SCAG to dole out transportation dollars so as to maximize emissions reduction. SCAG is assuming that when the California Air Resources Board issues regional targets for emissions reduction sometime next year, the six-county Southern California region will be required to take about half the reduction in the state � or about 2.5 million metric tons of carbon dioxide. Alone among regional planning agencies in the state, SCAG is permitted under SB 375 to downshift implementation of these emissions reduction targets to some or all of its 14 subregions. But unlike with the regional housing assessment, SCAG is not required by law to give the subregions � or individual cities and counties � a hard target for emissions reduction. To read more about the plan and proposed methodologies for distributing emissions reductions, click here .� � Bill Fulton