An environmental impact report for a proposed subdivision that would rely heavily on the State Water Project has been invalidated by the Second District Court of Appeal. The EIR for the 2,500-unit West Creek project in Los Angeles County failed to say that deliveries by the State Water Project (SWP) are not reliable, and the study appeared to postpone a final decision on water until the subdivision approval process. "The EIR relies heavily on SWP entitlements in calculating the total available water supply," Presiding Justice Arthur Gilbert wrote for the unanimous three-judge panel of the Second District, Division Six. "As the court in

Supposedly we're in an economic downtown, which, if past behavior of local officials in California is any indication, ought to mean that development impact fees are heading south. After all, high fees often become a scapegoat in a down economy, and lowering those fees is often touted as a way to stimulate an economic recovery. But that is not happening. Throughout California, fees are not going down. They're going up. And, most significantly, they're going way up in the inexpensive inland areas that have, until now, enthusiastically accepted the spillover housing growth from coastal areas. It's indicative of a new trend in California growth policy — piling on several layers of fees — and it could lead to the next Proposition 13-style revolt. In Riverside County, the county government and the cities have joined together in adopting the Transportation Uniform Mitigation Fee (TUMF), a $6,650-per-new house assessment designed to help foot the bill for $2.6 billion in transportation improvements envisioned for the county over the next 20 years. The most recent approval came in late February, when the City of Riverside signed up for the TUMF. Although Riverside County has a reputation for providing affordable housing, the TUMF comes on top of local mitigation fees that total $30,000 to $40,000 per unit in most jurisdictions. Local economic developers and builders have complained that the TUMF could push growth into adjacent San Bernardino County — except that San Bernardino has begun to consider a TUMF as well, partly because of the possible loss of state funds for local government. Meanwhile, big mitigation fees are also appearing on the horizon in the inland areas that provide spillover housing for the Bay Area. In January, Stanislaus County increased capital facilities fees from $2,900 to $7,800 per house — and that's just inside cities, which have their own impact fees. In unincorporated areas, the fee is now $8,600. Despite this huge jump in Stanislaus County fees, the City of Modesto is now considering a big boost too. Having identified a $185 million shortfall in capital facilities — partly because of the debacle over the Village I project (see , September 2002) — the council is scheduled to vote this month on a proposal to double its own capital facilities fees. This is not the sort of thing that is supposed to be happening right now. With a downturn in the economy, there is also supposed to be a downturn in housing production, and the conventional wisdom would suggest that cities and counties would be cutting fees rather than raising them. This, after all, is what they did during the early 1990s. But the relationship between housing production and the overall economic cycle has been skewed for more than a decade. Throughout California's postwar boom, housing production appeared to lead the state out of recessions again and again. But the last 10 years have been oddly different. When the bottom dropped out of the California economy during the early '90s, housing production plummeted too. Seeking to stimulate the economy, many local governments responded at that time by cutting permit approval processes and, in many cases, cutting fees as well. But this did not stimulate housing production. In fact, housing production lagged far behind the economic boom during the latter half of the '90s. Production was stuck at around 100,000 units annually — half of what housing experts say was needed in a state adding about 600,000 people every year — and housing costs have increased dramatically. But the economy roared forward anyway. Now, the economy has slowed. Yet housing production has inched up, reaching a 10-year high of 164,000 units in 2002. Even with a downturn and an increase in production, home prices are still shooting through the roof. These trends seem to have persuaded many local government officials that they happily can rely on development impact fees, especially in the current budget context. Virtually all of the recent fee increases have been accompanied by rhetoric about likely cuts in state support for local government. Clearly, the current enthusiasm for boosting fees is informed by the mid-90s experience of cutting fees. The main reason that Modesto is in tough shape today — especially in funding capital facilities for the Village I project, a major development originally approved in 1991 — is that the city cut fees twice during the recession and it didn't work. Neither the 1994 fee cut nor the 1997 version did much to accelerate development interest in the Village I project, and the net result is that the city has had to eat tens of millions of dollars in capital facilities for the area. A recent audit found that the Village I debacle had not been caused by criminal actions but merely by mismanagement. So even in the supposedly affordable parts of the state, developers and homebuyers will have to get used to paying more — not only much higher fees, but also fees levied by different government agencies for different purposes. In places like Stanislaus and Riverside counties, there are now local fees and regional fees; city, county, and school fees; and more. This multi-level system of fees is mostly a creation of the Proposition 13 tax revolt, which began to shift the cost of capital facilities for urban growth from payers of property tax to homebuyers and created a strong expectation that growth would pay for itself. Ironically, the current situation bears an eerie similarity to the period leading up to the Proposition 13 vote in 1978. At that time, the biggest problem was accountability. Many different local government agencies had the independent power to levy property taxes, but no single agency was accountable to taxpayers for the entire bill. At a time when property values were increasing rapidly, many homeowners were hit with a big tax bill and no truly responsive public officials to whom taxpayers could complain. And so it is now. With most of their other options for raising revenue shut off, local government officials are simply following the path of least political resistance by sticking the cost of facilities and services to purchasers of new homes. But these officials are also creating a situation in which no one has full accountability to the overall schedule of fees. If the fees on your brand-new house in Modesto are headed toward $50,000, to whom do you complain? In the same fashion as the pre-Proposition 13 environment, nobody has to take responsibility for the total amount. The city points to the schools, which point to the county, which points to the special district, and so on. The one difference, of course, is that property tax is a tax on the voters themselves, whereas development fees are essentially a tax on people who have not moved in yet; therefore, they don't vote. So maybe there will be no homebuyer revolt. Or maybe the fees will simply go up and up until projects don't pencil anymore and then the politicians will be forced to cut them in the vain hope that they will stimulate construction. That would certainly seem to be a typical response to the yo-yo economy that has emerged in California since the 1980s.

The regional housing allocation process should be suspended until it can be reformed, the Legislative Analysts' Office (LAO) has recommended. "The regional housing planning process is not very effective at ensuring the construction of affordable housing or obtaining compliance with state law," the LAO reported. "Almost half of communities are not in compliance with state law, and some communities do not make an effort to obtain compliance. There are few incentives or sanctions to encourage local government compliance and accountability. Moreover, in its current form, the process is only a planning exercise. Little follow-up effort is made to ensure that the plans are followed and affordable housing is actually built." The recommendation came in the LAO's late-February analysis of the proposed 2003-04 budget. Cities, counties and councils of government are eligible for state reimbursement of some costs related to the fair-share housing allocation process and local housing element updates. However, state reimbursements have not kept pace with local claims. The current year's budget and the proposed 2003-04 budget both defer payment of the mandated costs, which could amount to more than $5 million, the LAO reported. The LAO found that there was wild variation in the amounts claimed by local governments, and that there was no correlation between the amount of time and money a local government spent and its compliance with the state housing element law. State law requires cities and counties to update their housing elements every five years based on their fair-share allocation of regional housing needs, which is decided by the state and councils of government. The state suspended one round of housing element updates because of the budget crunch of the early 1990s. The current round of updates is scheduled to be completed by December 31. The LAO recommended not beginning the next round "pending the enactment of reforms to the process." THE HOUSING ELEMENT PROCESS also was questioned in a new study by the Public Policy Institute of California (PPIC). In "California's Housing Element Law: The Issue of Local Noncompliance," PPIC Research Fellow Paul Lewis detected no relationship between housing element compliance and housing production. Even out-of-compliance cities approved multi-family housing projects. After living with the housing element statute since 1969, the state needs a new approach, Lewis urged. "It may be a ripe occasion for policymakers and affected interests to seek an approach to housing policy that is more workable, transparent and straightforward," Lewis wrote. "In so doing, policymakers will need to resolve whether the major goal of such a law is a sheer increase in residential construction or an equitable distribution of affordable housing. Using a fair-share planning approach as a tool to encourage overall housing production may place an unrealistic burden on a relatively fragile policy." Lewis found that as of September 25, 2002, 33% cities and 22% of counties had housing elements that the state Department of Housing and Community Development judged as out of compliance with the state law. Lewis found that the cities most likely to be out of compliance were smaller, wealthier and had older housing stock than other cities. He also found that cities with long development review processes or overt limitations on residential growth were also more likely to be out of compliance. Compliance rates were lowest in the Bay Area, Central Valley and Inland Empire. The report is available on the PPIC website, http://www.ppic.org GOV. DAVIS HAS SIGNED a bill that sets fixed, four-year terms for members of the Coastal Commission who are appointed by the Legislature. Assembly Bill X2 1 (Jackson) passed the two houses of the Legislature in February largely along party lines. The bill responds to an appellate court ruling that found the appointments unconstitutional (see and , February 2003). Bill supporters said eliminating the ability of the Assembly speaker and the Senate Rules Committee to remove Coastal Commission appointees at will should solve the constitutional deficiency. Property rights advocates, however, said that allowing lawmakers to appoint eight of 12 commissioners still violates the separation of powers doctrine. THE MOUNTAIN YELLOW-LEGGED FROG deserves protection under the federal Endangered Species Act (ESA), the U.S. Fish and Wildlife Service (USFWS) has concluded. However, USFWS officials announced in February that a lack of money prevented the agency from listing the rare frog under the ESA. The agency said compliance with court orders and judicially approved settlements, and defending new lawsuits, is eating up almost its entire budget. Environmentalists contended the Bush administration had intentionally gutted the USFWS budget to prevent the agency from protecting more species. The USFWS also announced in February that it would not grant protection to the California spotted owl because the bird's habitat is not sufficiently threatened. The decision was highly anticipated because the agency's 1990 decision to list as endangered the northern spotted owl greatly reduced logging in Oregon and Washington. Timber companies applauded the decision on the California owl, but environmentalists vowed to file a lawsuit. KERN COUNTY SUPERVISORS have approved a 1,100-acre expansion of the Tejon Industrial Complex along Interstate 5. The Tejon Ranch Company has already developed 1.5 million square feet of warehouse and distribution space. The new project, combined with previous approvals, permits the company to build up to 20 million square feet of industrial space at the northern end of the Grapevine. Full development is expected to take seven to ten years. The complex could eventually employ 6,000 people. However, there are few homes within 20 miles of the site, a fact noted by project opponents, who complained commuting workers would worsen the region's already dirty air. In late February, four environmental groups filed a lawsuit over the project's environmental impact report. THE EIR FOR A 4,600-unit housing development in unincorporated Riverside County has been thrown out. Riverside County Superior Court Judge E. Michael Kaiser ruled that the EIR for the Domenigoni-Barton subdivision in French Valley did not adequately address the impact of traffic in the nearby city of Temecula, which filed the lawsuit. The CITY OF GLENDALE and the Santa Monica Mountains Conservancy have purchased the 240-acre site of a proposed housing subdivision. Gregg Development Inc. had been trying to develop the mountainous site for 10 years before the City Council rejected the 572-lot Oakmont View V project in early 2002 (see CP&DR In Brief, April 2002). There had been a great deal of public protest against the project, as Glendale has restricted hillside development for years. Gregg filed a takings lawsuit against the city as well as a suit over the cost of the EIR that the city had billed to the developer. The suits were settled when Gregg agreed to sell the property for $25 million — $13 million from the city and $12 million from the conservancy. ORANGE COUNTY Chief Executive Officer Michael Schumacher did not survive a Development Services Department fee crisis. County supervisors voted 3-1 to dismiss Schumacher in early February. The agency was running a deficit of about $500,000 a month in late 2002 when then-director Thomas Mathews proposed a 50% increase in fees. Supervisors rejected that idea, Mathews resigned in January, and the size of the department has decreased by about 20%. ABOUT 24,000 APARTMENT units have converted from rent-restricted status to market rate in recent years, and another 48,000 units are at risk of conversion by 2006, according to a report by the state Senate Office of Research. The paper offers a number of recommendations to make housing permanently affordable, including amending state law to require local governments to make some portion of new housing permanently affordable. The report is available at http://www.sen.ca.gov/sor/senate.htp

In a landmark ruling, the state Supreme Court has made clear that maps recorded prior to 1893 do not create legal, developable lots for today's purposes. And the court at least hinted that maps recorded between 1893 and 1929 might not be valid unless a city or county somehow exercised discretion in approving the map. The decision was a major victory for planners and government regulators, who have contended for years that "paper lots" should not be recognized because they were recorded with few or no standards for development, or for the provision of roads and utilities. On the losing end of Gardner v. County of Sonoma were property owners and real estate speculators. During the last few decades, they have sought certificates of compliance based on old maps so that they could build in areas where current regulations tightly control or even prohibit development. (For details of the case, see Legal Digest .) "It has answered the question resoundingly in favor of the counties and in favor of the orderly development of the state," said Alan Seltzer, Santa Barbara County assistant county counsel and an authority on antiquated subdivisions. Pacific Legal Foundation attorney James Burling, who helped argue the property owner's case at the state Supreme Court, called the ruling a "clear loss" for people who own property with a map recorded prior to 1893, when the first precursor to the Subdivision Map Act was passed. According to the court's ruling, what landowners believed were separate parcels, are not, he said. "It's going to make development of these properties more difficult," Burling predicted. Widespread impact Nobody knows for sure how many paper lots exist. The estimate most often cited was prepared during the early 1980s for the state Senate and the Coastal Conservancy. That study identified more than 1 million lots — including 70,000 in San Luis Obispo County alone. However, the survey included lots in subdivisions that had been only partially built and for subdivisions approved as recently as the 1950s if there were few or no provisions for infrastructure, recalled Madelyn Glickfeld, the study's author and now an assistant secretary of the state Resources Agency. Most of the parcels identified were created during the 20th century, she said. Daniel Curtin Jr., author of Curtin's California Land Use and Planning Law , said, "There are hundreds of thousands of these lots out there, and more of them are being discovered in ‘areas that need to be developed.'" Curtin, who helped argue the government's case at the state Supreme Court, said that planners often believe the issue is not a problem in their jurisdiction — until a landowner shows up at the counter one day with a crinkled map. "These lots exist in almost every corner of the state," said Peter Detwiler, a consultant to the Senate Local Government Committee. "They are a nightmare to planners. But another way to look at it is that equity is locked up because common sense tells you that the lots are too small to ever use." In fact, many of the paper lots are only 25-feet-square, or 25-feet-by-50-feet, and they are arranged in a grid without any place for roads. Speculators have used a "land use alchemy" that involves combining the paper lots and moving lot lines around to fashion parcels that are saleable today, Detwiler said. Two years ago, lawmakers approved SB 497 (Sher) to halt the practice of "serial lot line adjustments," which landowners used to create buildable lots or to move lots to more desirable locations within a larger holding. Developers had argued that as long as the number of lots did not change, they could move the lines wherever they wanted. The high-profile example when SB 497 was being considered in 2001 was at the Hearst Ranch in San Luis Obispo County. The landowner had discovered a 19th century map with about 200 lots in the backcountry of the 80,000-acre ranch. Hearst indicated it would seek certificates of compliance for the parcels, and then use the lot line adjustment process to move the parcels to the coast. Environmentalists contend this approach can harm rural and environmental integrity. Portions of Santa Barbara County's Gaviota Coast and Santa Ynez Valley are blanketed by old maps, said Linda Krop, executive director of the Environmental Defense Center, which advocates in San Luis Obispo, Santa Barbara and Ventura counties. "In all three of our counties, landowners have been searching for old maps and surveys and whatever documents they can find that show parcels, even if the parcels don't comply with local zoning," said Krop, who was pleased with the Supreme Court's ruling. During hearings on SB 497 in 2001, lawmakers heard that some counties, including Sonoma and San Luis Obispo, were seeing as many new lots created through certificates of compliance as through fresh land divisions under the Subdivision Map Act. Many of the maps in question were from the early 20th century. The state Supreme Court did not directly address the validity of those maps. Still, some municipal attorneys contended the court strongly hinted that maps from 1893 to 1929 might not create legal lots. Other attorneys said the court specifically avoided ruling on post-1893 maps. Those dates are important because 1893 was the year the first precursor to the Subdivision Map Act was adopted. That brief statute, however, simply set cartography standards for the physical making of maps. Not until 1929 did local governments receive specific authority for the substantive review of a subdivision map's design and improvements, Seltzer explained. Thus, lots created prior to 1929 were likely not subject to any local government standards. The court noted that a "‘final map' or a ‘parcel map' … are statutorily defined to include only those maps that have been reviewed and approved for recordation by a local agency under the provisions of the Map Act or a local ordinance adopted thereunder." Seltzer contends that local agency review and approval could not have occurred prior to adoption of the revised Subdivision Map Act in 1929. "The way the court wrote its opinion, it is the design and improvement of subdivisions that is critical," Seltzer said. "If old maps were recognized, the whole state could be subdivided into these grids that no one knew existed." In essence, all land use planning and infrastructure planning would go out the window, he said. The court ruling, written by Justice Marvin Baxter, almost reads like a county's brief: " f we were to adopt plaintiff's position and hold that local agencies must issue a certificate of compliance for any parcel depicted on an accurate, antiquated subdivision map, we would, in effect, be permitting the sale, lease and financing of parcels: (1) without regard to regulations that would otherwise require consistency with applicable general and specific plans and require consideration of potential environmental and public health consequences; (2) without consideration of dedications and impact mitigation fees that would otherwise be authorized by the Act; and (3) without affording notice and an opportunity to be heard to interested persons and landowners likely to suffer substantial deprivation of their property rights." Jonathan Wittwer, counsel for the Granada Sanitary District in San Mateo County and a longtime municipal law attorney, said the Supreme Court's analysis supports making 1929 — and not 1893 — the cutoff date. "As I read the case, if the local government did not have the authority to deny or conditionally approve a subdivision map, then why should they have to recognize the map today?" Wittwer said. "It wasn't until 1929 that local governments got this authority." However, the PLF's Burling said the government attorneys are reading too much into the opinion — although all attorneys agreed the subject is likely to be litigated soon. Burling contended that the other side's interpretation is unfair to landowners who, at the time they recorded maps, did everything according to the law in place at the time. Plus, the grandfather clause in the 1929 version of the Map Act "clearly did not abrogate" previously recorded maps, he said. These landowners obviously thought they were creating subdivisions, Burling said. "Were they going out and hiring surveyors and recording these maps just for the hell of it?" he asked rhetorically. Local solutions Stanislaus County probably has addressed antiquated subdivisions as a planning issue more directly than any other jurisdiction in the state. Two years ago, the county adopted an ordinance requiring a use permit for the development of any lot created prior to 1972, when the Subdivision Map Act was last overhauled. What county planners had learned, after an exhaustive search of assessor's records, was that about 3,000 old lots existed in "inappropriate areas," county Planning Director Ron Freitas said. "The real issue we have is with a concentration of dwellings in any agricultural area," Freitas said. One map, for example, created 100 one-acre parcels in an agricultural zone without sewers, public water service or paved roads. The county does not dispute the legality of the parcels, Freitas said. Instead, the process allows the county to decide what can be built on the parcels. When reviewing applications to build houses on these lots, the county considers the availability of infrastructure and the impact of development on surrounding uses. So far, the process has worked well, he said. In coastal San Mateo County, maps from the early part of the 20th century have been relied upon for years for development, Planning Administrator Terry Burnes said. The county generally has treated the lots as legal and has allowed construction so long as it meets modern development standards, he said. That might mean a landowner must combine several 25-by-25 parcels. San Mateo County's local coastal plan draws a line around territory where these maps exist and generally prohibits development outside that line, he said. "I think the term ‘antiquated subdivision' may get used too broadly," Burnes said. "I make a distinction between an old subdivision that has been the framework for development, and a subdivision map that sits out in the middle of nowhere and hardly anyone knows about and has never been relied upon for any reason." Wittwer's client, the Granada Sanitary District, provides sewer service to these areas covered by the old San Mateo County maps. The agency requires a variance before it will extend service to a nonconforming lot, he said. Contacts: Peter Detwiler, Senate Local Government Committee: (916) 445-9748. Daniel Curtin, Jr., McCutchen, Doyle, Brown & Enersen, (925) 937-8000. Alan Seltzer, Santa Barbara County Counsel's office, (805) 568-2950. Jonathan Wittwer, Granada Sanitary District, (831) 429-4055. James Burling, Pacific Legal Foundation, (916) 362-2833. Terry Burnes, San Mateo County Planning and Building Division, (650) 363-1861. Ron Freitas, Stanislaus County Planning Department, (209) 525-6330. Linda Krop, Environmental Defense Center, (805) 963-1622.

Elisa Barbour is a research associate at the Public Policy Institute of California (PPIC) in San Francisco. She recently published a comprehensive study on regional planning, "Metropolitan Growth Planning in California, 1900-2000." In her study, Barbour says that California has tried to create stronger metropolitan planning institutions for 100 years. She calls the most recent surge of regionalism the "third wave," after the establishment of home rule, and the rise of single-purpose agencies. Barbour sees promise in the third wave reforms, but she notes that longstanding political obstacles remain (see CP&DR, March 2002, August 2001). Her study is available on the PPIC website, www.ppic.org. Barbour spoke with Managing Editor Paul Shigley in February. : Why is now the time to study regional planning and growth management? BARBOUR: I think momentum has been building for a couple of reasons. One of them is global economic conditions, which highlights the importance of regional economic health. Today we are facing continuing growth pressures in the face of limits — fiscal and environmental limits. That has changed the equation from past decades, when resources were more plentiful. : How big a factor is housing affordability in building momentum for regional planning? BARBOUR: The housing affordability crisis has played a very interesting role. On the one hand, housing policy has not been a strong venue for improving regional planning coordination. Even today, as the state government looks for means to strengthen housing mandates and incentives, most proposals are geared toward local jurisdictions, rather than toward strengthening regional institutions. On the other hand, the housing affordability crisis has opened up a logjam in policy debates. Because of the housing crisis, the state government has scrutinized local land use policy, and its regional consequences, much more carefully than it has in many decades. But local governments resisted efforts by the state to impose new housing mandates. Instead, they wanted to widen the discussion to include their own concerns about fiscal stability and discretion, and about other state policies affecting land use that may conflict with housing goals. What I'm suggesting is that a much broader discussion has opened up, because of the housing affordability crisis, to include the whole set of incentives and regulatory mandates. … Business leaders have all suggested that housing affordability is a major issue with their own competitive situation and an important factor in the quality of life for their employees. What it has done is bring the elements of land use policy to the table. : You use this great term, "vertical regionalism." What exactly is that? BARBOUR: After World War II, we adopted two main approaches to strengthening regional planning in California, and vertical regionalism was one of them. I'm speaking of the state and federally dominated regional planning in policy areas like transportation and environmental planning — policy areas that are inherently regional in scope, that required massive investments beyond the ability of local governments to muster, or intrusive regulation across local jurisdictions. The regional agencies that were established were generally organized along narrow, single-purpose functional lines. Their policies and programs were generally not coordinated with one another, and did not form part of a broader state growth policy framework. The other half is what I call horizontal regionalism. This refers to the institutions such as LAFCOs, councils of government and metropolitan planning organizations. These were established to incorporate local governments, and their land use authority, into regional planning more explicitly. These institutions tend to be organized like federations among independent governments, which implies that joint measures that affect local land use usually can be adopted only on a consensus basis. The most effective approach to regional planning should combine the three elements, and those are regional focus, policy integration and accountability. Many of our regional plans have been able to accomplish one or two of these goals, but rarely have we been able to see all three. … I think that's what the current reform wave is attempting to do — address a more comprehensive approach across policy areas, and to do so by aligning existing programs so that they can achieve the accountability. : We all know about competition for land uses among local governments. You talk about competition between the state and local governments. Could you explain what is at work there? BARBOUR: I decided that conflict is a better word. What I'm talking about is the ERAF shift that started in the early ‘90s that drove a wedge between the state and local governments regarding planning policy. I think this issue is the one where local governments have taken a stand and that local governments will not concede to new, more restrictive planning mandates unless their needs are addressed. For its part, the state government has not seen fit to renegotiate the relationship. What this indicates is that fiscal constraint is serving as a double-edged sword for regionalism. On the one hand, it has drawn attention to the need for regional cooperation to promote efficiency in public expenditure. But on the other hand, it exacerbates the conflict between local governments, and between local governments and the state. And this is why I think the housing crisis is so critical. It has cracked the nut open and forced the state to reconsider local land use policies, which, as local governments are quick to point out, are connected to fiscal policies and the framework in which local governments operate. : You talk about aligning state programs and policies with outcomes of collaborative regional processes. Does that mean regional decisions should drive state programs and policies? Who gets to decide? BARBOUR: Yes, regional needs should inform state programs and policies. But the second question — who gets to decide? — is complicated. In other words, who should assign regional needs? Many of our most pressing planning problems are regional, from water supply to air pollution to transportation investment needs. Even housing problems are regional in scope, and quite different across metropolitan areas. Policies developed from the bottom up by local governments have often lacked accountability and regional focus. But policies implemented from the top down by the state or federal government have also been rendered ineffective sometimes because they were too narrowly conceived or they lacked local support. The history of regional planning in the state suggests that clear policy objectives are needed for collaborative models to succeed, and in many cases, these objectives have been imposed externally. For example, regional planning experiments like the NCCP , Cal-Fed and the RCIP relied on the existence of clear environmental mandates to help provide a focus for planning. Political and economic realities in the state make an authoritative top-down micromanagement approach unlikely, and a one-size-fits-all approach difficult to imagine. So local participation and flexibility is critical. … If the state leverages existing resources — incentives like priority funding for housing or regulatory streamlining — then you might have a way to approach regional planning that avoids the major pitfalls of the past, when new mandates were rejected as too interventionist, but there was not the money for major incentives. : Clearly, you think there is need for more collaborative, regional approaches to planning. How would you convince state lawmakers of this? City council members? Average voters? BARBOUR: I think we're seeing an increased acceptance at the local level … In many cases, it's become clear that if they want to retain control, that may mean trading a measure of autonomy just because so many of their planning problems cross borders. Voters also recognize that planning problems cross local boundaries. Voters have long indicated that they are willing to support multi-jurisdictional planning for such things as transportation and utilities. : How about the state lawmakers? What would you tell them? BARBOUR: Lawmakers are also moving towards more concerted, coordinated state investment planning through measures such as AB 857, the new five-year capital investment planning requirement, and ACA 11. The projected level of need for new investment is so mind-boggling that more strategic planning and efficient investment have become more critical. … By aligning state programs and policies with the outcomes of a collaborative regional process, the state might avoid those pitfalls by promoting coordination through the promise of mutual gains.

Opponents of a proposed power plant in San Jose have lost an attempt to get their arguments heard in court. The Third District Court of Appeal ruled that project opponents could not bring a case in Superior Court because the California Supreme Court has exclusive jurisdiction to review power plant certification decisions by the state Energy Resources Conservation and Development Commission. The fact that the Supreme Court rejected the opponents' lawsuit without reviewing the record did not matter, the Third District held. The case stemmed from the Energy Commission's approval in September 2001 of Calpine Corporation's proposal to build a 600-megawatt power plant in San Jose's Coyote Valley (see , October 2001; July 2001, March 2001). In December 2001, project opponents simultaneously filed lawsuits at the state Supreme Court and in Sacramento County Superior Court. The lawsuits argued that the Energy Commission had violated opponents' due process rights by failing to provide a fair hearing, violated the public trust doctrine of the state constitution, and violated the U.S. constitution's supremacy clause because the proposal conflicted with federal air quality regulations. Superior Court Judge Gail Ohanesian dismissed the lawsuit, concluding only the state Supreme Court had jurisdiction under a law approved in 2001 (Public Resources Code § 25531). Five days later, the Supreme Court summarily denied the opponent's petition for a hearing. Opponents appealed Judge Ohanesian's decision. They conceded the statute required them to seek relief in the Supreme Court, but they argued that the Superior Court had jurisdiction to consider the case because the Supreme Court had ruled summarily. They contended their constitutional claims had to be heard somewhere. But the unanimous three-judge panel of the Third District ruled that the state Supreme Court's summary ruling was all the opponents were going to get. "The flaw in argument is plaintiff's assumption that the Supreme Court failed to conduct any substantive review of their constitutional claims when the court summarily denied their petition for a writ of mandate. This assumption is unwarranted," Justice Ronald Robie wrote for the court. "If a writ petition in the California Supreme Court is the exclusive means of obtaining review of a quasi-judicial decision, the Supreme Court's summary denial of such a petition is a final judicial determination on the merits," Robie continued. Robie cited the U.S. Supreme Court's ruling in , (1920) 251 U.S. 366. That case stood for the proposition that judicial review on the merits may occur without a review of the evidentiary record, Robie wrote. For the same reason, the court rejected the opponents' argument that the Superior Court's unwillingness to review the actions of an executive branch agency was a violation of the separation of powers doctrine. "Plaintiffs constitutional claims were judicially reviewed on the merits by the California Supreme Court," Robie concluded. The Case: , No. C041090, 03 C.D.O.S. 1115, 2003 DJDAR 1407. Filed February 5, 2003. The Lawyers: For Santa Teresa Citizen Action Group: Stephan Volker, (510) 496-0600. For the commission: William Chamberlain, CEC, (415) 654-3951. For Calpine: Jeffrey D. Harris, Ellison, Schneider & Harris, (916) 447-2166.

More than a decade ago, a state appellate court ruled that developers could hire their own consultants to prepare environmental impact reports required by the California Environmental Quality Act (CEQA). Now, prompted by events surrounding the controversial Newhall Ranch development in Los Angeles County, a Southern California legislator has launched an effort to outlaw the practice. Assembly Bill 406, introduced February 14 by Assemblywoman Hannah-Beth Jackson (D-Santa Barbara) would prohibit anyone except the lead public agency or a consultant employed by the lead agency from preparing draft CEQA documents. It also would forbid the use of confidentiality agreements to prevent those consultants from publicly disclosing their findings — a tactic increasingly used by large developers, ostensibly to protect "trade secrets" — and would prohibit landowners from denying government employees and consultants access to their property to conduct environmental surveys. The use of private consultants to draft EIRs has long made project opponents squirm. How objective can a study be, they ask, when it is being drafted by people paid by the developer, whose financial interest in a favorable outcome is so clear and urgent? That concern was given new weight in recent months by a criminal investigation into the environmental review for Newhall Ranch. The project, proposed to be built over 25 years on 12,000 acres at the northwest end of the booming Santa Clarita Valley, would contain enough houses, condos and apartments for about 70,000 people. Newhall Land and Farming Company, developer of the nearby planned community of Valencia, is the developer. Because of its size and location — an undeveloped swath of oak-studded hills and valleys abutting growth-averse Ventura County —the Newhall Ranch project has been a magnet for controversy and litigation. That litigation has so far resulted in one court ruling of statewide significance: A Kern County Superior Court judge in 2000 ordered the company to redo the analysis of water availability in the project's environmental impact report, finding that Newhall had improperly relied on "paper" supplies from the State Water Project in determining that there would be no need to tap local groundwater. The company's latest entanglements, however, stem not from the perennial California struggle over water but from discovery of a rare plant on the Newhall Ranch property. Previously thought extinct, the San Fernando Valley spineflower was rediscovered in 1999 on land in the Santa Monica Mountains in Ventura County where another large development, Ahmanson Ranch, is planned. Given the ecological similarity between the Ahmanson and Newhall properties, it was logical to suspect the rare plant might be present at both, and in 2000 Newhall hired biologists to look for it. The biologists found one stand of spineflowers along a dirt road at Newhall Ranch, and several other stands of what they suspected were members of the same species. According to court documents recently obtained by the , Newhall then told the biologists to stop searching and reminded them that they were bound by a confidentiality agreement that barred them from disclosing what they'd found to anyone outside the company. The suspect plants were never sent to a lab for testing. When Newhall released a revised draft EIR in 2001, it reported just the single confirmed stand of spineflowers along the road, and concluded that the plants could easily be protected by fencing if the development were allowed to proceed. Environmentalists were suspicious and so were investigators for the California Department of Fish and Game (DFG), who contacted the Los Angeles County District Attorney's Office with allegations that Newhall was covering up the presence of additional stands of the endangered plant. Prosecutors began an investigation, and last year obtained a warrant to search Newhall's property. After the search, Newhall acknowledged having found additional stands of spineflowers, but said that any destruction of endangered plants took place during the course of routine agricultural operations and was therefore lawful. The company subsequently filed new environmental documents disclosing the additional spineflower populations. The company has steadfastly denied wrongdoing — and the District Attorney has dropped his investigation — but the episode renewed skepticism about the Los Angeles County policy allowing developers to hire their own consultants to prepare disclosure documents required by CEQA. Los Angeles County is hardly alone in doing so. The practice was given a stamp of judicial approval in 1991 by a state appellate court ( , 232 C.A.3d 1446; see , September 1991), which rejected an environmental group's claim that an EIR was "tainted" because it was prepared by a consultant retained by the developer. The court held that as long as the county used its own independent judgment in approving the EIR, the process was valid. A least 166 cities and counties allow developers to hire their own consultants to prepare CEQA documents, according to the Governor's Office of Planning and Research. So the Newhall episode raises a question of broad significance: For whom are those consultants really working? Under CEQA, legal responsibility for determining the environmental impact of a proposed project belongs to the lead permitting agency. The existing law, and AB 406 reaffirms, however, that the public agency may hire private consultants to prepare EIRs, and then bill project applicants for the EIR's cost. Private consultants engaged in the CEQA process are, in essence, acting as proxies for that public agency, even though the developer is paying the bills. But if those consultants are acting as surrogates for the public, can their work product legally be kept out of the public record through the sort of confidentiality clause Newhall used to prevent its biologists from talking about spineflowers? If so, the policy potentially turns CEQA on its head, helping developers suppress unfavorable information rather than forcing full disclosure. Jackson's bill is meant to eliminate that unintended consequence of the 1991 appellate court ruling, while specifically exempting legitimate trade secrets from the disclosure requirements. "These are issues that people who work with CEQA have been concerned about for a while," said Sandra Spelliscy, general counsel for the Planning and Conservation League, which sponsored AB 406 in response to the Newhall Ranch controversy. "The whole point of CEQA is transparency," Spelliscy said. Sources: Sandra Spelliscy, Planning and Conservation League, (916) 313-4513. Newhall Land and Farming Company, (661) 255-4000. Assemblywoman Hannah-Beth Jackson, (916) 319-2035.

The owners of apartment buildings in the City of West Hollywood cannot avoid the city's rent control ordinance by relying on 1980s-era approvals to convert the buildings to condominiums, an appellate court has ruled. The owners of two buildings received approval from the state Department of Real Estate to convert the units to condominiums that could be sold separately. They received this approval before West Hollywood incorporated in 1984. However, the Department of Real Estate's "public report" — a disclosure to potential buyers — expired after five years. The owners have received new public reports twice, but only after lengthy periods when no public reports were available. Those lapses were the key part of the case. In 1991, the state Supreme Court ruled in , 52 Cal.3d 1184 (see , April 1991), that the city could not impose its requirement for a conditional use permit prior to the conversion of the buildings to condominiums. And because the units were condominiums, the city could not apply its rent control ordinance. But in the case at hand, a unanimous three-judge panel of the Second District Court of Appeal held that the property owners' protection under Beverly Towers ended when the public reports lapsed. "It is obvious that the application of Beverly Towers contemplates a legitimate enterprise to develop and sell residential property," Justice Charles Vogel wrote. "Here, however, respondent owners have been engaged in a charade to continue in the apartment rental business, not an enterprise to convert and sell apartment units as condominiums." The city sued the owners of the two apartment buildings in 2000, alleging that they were charging rents in violation of the city's rent control law. The city asked the court to bar the excessive rents and order refunds to tenants. The city also sought a declaration that at least one condominium unit had to be sold before an owner could seek an exemption to the rent control ordinance allowed under the Costa-Hawkins Rental Housing Act (Civil Code §§ 1954.50 – 1954.535). None of the units had ever been sold, although apparently one unit in each building was sold after the city filed its lawsuit. A trial court judge ruled for the property owners, but the appellate court reversed the decision. The property owners argued that the public report was a minor, ministerial item, and that the Department of Real Estate's approval of renewed public reports without requiring a city use permit meant that the owners were not required to comply with the local law. The appellate court rejected both arguments. The public report is a critical document. A developer who sells a unit without obtaining a public report is subject to criminal sanctions, and the buyer has the right to void the contract, according to the court. As for the state agency, the court ruled that the property owners' failure to comply with the city ordinance was not a basis for the Department of Real Estate to deny a public report. "The reality is that City had no input into the process when respondent owners requested renewals of the public reports. City therefore had no opportunity to argue the pertinent legal point: the prior expirations of the first public reports now required respondent owners to comply with City's regulations enacted after incorporation," Vogel wrote. The court remanded the case to the trial court for further proceedings. The Case: , No. B154786, 03 C.D.O.S. 982, 2003 DJDAR 1221. Filed January 30, 2003. The Lawyers: For the city: T. Peter Pierce, Richards, Watson & Gershon, (213) 626-8484. For the property owners: Michael Anderson, Law Offices of Rosario Perry, (310) 394-9831.

The value of property being taken by eminent domain cannot be based on the property's zoning if the same entity that is taking the property also imposed the zoning, the Fourth District Court of Appeal has ruled. The court held that San Diego County Superior Court Judge Sheridan Reed was correct to prevent the jury from considering restrictive zoning on property that the City of San Diego took for a freeway. Instead, the jury based its decision on testimony from the property owners' experts, who presented values based on the property being rezoned like similar, nearby land. " he city ignores established law that a condemned property is to be valued as if the project for which the land is taken did not exist," Justice Gilbert Nares wrote for the unanimous three-judge panel. " he city cannot enact restrictions on property it seeks to condemn for the express purpose of preventing development and thereby freeze or depress property values, and then attempt to show that that same zoning restriction prevents a highest and best use inconsistent with its terms. Such a position is contrary to eminent domain law." The case stemmed from the construction of Highway 56, an east-west route connecting Interstate 5 and I-15 in northern San Diego. The freeway has been under consideration since 1959 and has been part of the city's circulation element since 1965. The freeway was proposed to run through the 12,000-acre "North City Future Urbanizing Area," which the city had zoned for agriculture, permitting only one dwelling unit per 10 acres to prevent leapfrog growth. In 1992, the city adopted a framework plan for the future development of the area, and, in 1996, voters supported the city's decision to rezone a portion of the area to allow development of up to 10 units per acre once the exact route of Highway 56 was selected. In the meantime, the city maintained the 10-acre zoning to prevent development that might conflict with the final freeway alignment. In June 1998, the city approved the final alignment; Caltrans did the same the following year. In September 1999, the city filed an eminent domain lawsuit against Rancho Penasquitos Partnership. The city sought to take 11 acres of the partnership's 108-acre parcel. The city offered $1.3 million, based on the property's agricultural, 10-acre zoning. The landowner set the value at $3.8 million based on a higher development potential and requested $4.6 million to offset damages to the remaining property. During the trial, the city and the landowner differed over what evidence the jury should consider. Judge Reed sided with the landowner, and the jury awarded the property owner $3.9 million — $2.9 million for the 11 acres, and $1 million for damage to the remaining property. The city appealed on a number of grounds, but the main argument was about what evidence the judge should have allowed. Essentially, the city contended that the agricultural zoning had to be considered, while the landowner said other properties' recent upzonings to permit residential development should be the basis for the valuation. The Fourth District ruled that the landowner — and the trial judge — were right. The court relied heavily on , (1973) 33 Cal.App.3d 960, which analyzed a situation where the condemning authority and the entity responsible for zoning were the same. The San Diego zoning, the court ruled, "falls squarely under the rule set forth in that evidence of a zoning restriction is inadmissible to show a lower value to the condemned property where (1) the restriction is imposed to freeze or depress the value of land that a government agency seeks to condemn, and (2) the same entity is both the condemner and the authority responsible for that restriction." The city argued that it had acted in good faith, and that its zoning was a valid exercise of the police power, was "good planning," and was the proper designation of land for future acquisition. But none of that was a good enough defense for the court. " he terms of the restrictions state clearly that they were designed to prevent development on land that might later be condemned," Justice Nares wrote. "City was attempting to prevent development on properties it intended to condemn in order to freeze or depress values. Indeed, the city offers no other explanation for the zoning restriction." The court also pointed to Code of Civil Procedure §1263.330, which prevents the use of "preliminary actions of the plaintiff relating to the taking of the property" in determining fair market value. The city contended the zoning was not a preliminary action because the zoning was in place years before the final alignment was decided. But the court did not buy the argument. All of the city's actions were leading to the freeway project. The Case: , No. D038316, 03 C.D.O.S. 942. Filed January 30, 2003. The Lawyers: For the city: David Skinner, Meyers, Nave, Riback, Silver & Wilson, (510) 351-4300. For Rancho Penasquitos Partnership: Jeffrey Oderman, Rutan & Tucker, (714) 641-5100.

Your tax dollars at work! proclaims a sign at the edge of the road, where a public works project is under construction. If we were to see this sign in Calimesa, a city in the San Gorgonio Pass area of western Riverside County, we might be forgiven for pausing and trying to parse its meaning. When the sign says "your tax dollars," what exactly is the sign referring to? The taxpayers of Calimesa? Or the taxpayers in neighboring Beaumont, whose tax dollars are now flowing to Calimesa as a result of a settlement to avoid litigation between the two cities. The peculiar settlement between Beaumont (population 11,000) and Calimesa (population 7,800) could be characterized as one of those "don't-try-this-at-home" tricks. In this case, the trick not to try is attempting to readjust the spheres of influence of two neighboring cities — and then not completing the job. The ensuing standoff between the two cities and the generous payoff that followed is exactly the kind of wrangling and side-deal-making that the Cortese-Knox-Hertzberg Act and Local Agency Formation Commissions are supposed to avoid. A massive residential subdivision, known as Oak Valley and covering more than seven square miles, is the gambit in this small-town tragi-comedy. The specific plan for the project, approved by Riverside County for an unincorporated area of the county, entitles the developer, Oak Valley Partners LP, to build up to 13,000 single-family homes, giving the Oak Valley subdivision a larger population than Beaumont and Calimesa combined currently have. At issue is the last bit of Oak Valley that has not yet been incorporated, a 2.7-square-mile area that surrounds The PGA of Southern California Golf Club at Oak Valley. By itself, this area has entitlements for 4,000 houses. During the 1990s, LAFCO had placed nearly the entire unincorporated portion of the project within Beaumont's sphere of influence. In the late 1990s, Beaumont and Calimesa negotiated about splitting the Oak Valley subdivision more evenly between the two cities. According to an agreement dated July 23, 1997, Beaumont would give up its claim to the golf club portion. The two cities shortly thereafter sent applications to Riverside County LAFCO requesting the sphere change. A side story, which or may not be meaningful to this case, is the highly in-grown nature of local government during this period. Alan Kapanicas, Beaumont's city manager then and now, was also contract city manager for Calimesa. That position is currently filled by Harry Jensen. Beaumont city staff prepared the sphere-change applications for both Beaumont and Calimesa, according to George Spiliotis, executive officer of Riverside County LAFCO. Later, according to Spiliotis, Calimesa asked LAFCO to put the sphere amendment application on hold. In spring of 2002, according to Calimesa's Jensen, "we started working with LAFCO to resume progress to complete the application and finalize the transfer of the sphere of influence and simultaneously annex that area." Yet about two months after Calimesa re-started the annexation process, "Beaumont and a prospective (land) purchaser started to talk to LAFCO about annexing the same area into the city of Beaumont." Perhaps Beaumont considered the 1997 agreement a dead letter when the city informed LAFCO in more recent times that the city wanted to incorporate the golf club area. We do not really know, because we were unable to reach Kapanicas or any other Beaumont city officials, including the mayor, who did not return repeated calls for this story. We do know this: Calimesa officials got wind of the plan and threatened to sue both Beaumont and LAFCO. The two cities had public and sometimes acrimonious discussions about a settlement. In December, they finally hit upon a deal. In my view, it is a generous settlement for Calimesa. Basically, the agreement works this way: In exchange for renouncing its bid to annex the territory that Beaumont wants, Calimesa receives $100,000 from the developer, Oak Valley Partners LP. The city will also receive a fee surcharge of $100 for each of the 4,000 homes from the land developer and the homebuilder, Pardee Oaks. In addition, the two cities will share sales and property tax revenue from commercial development on a 50-50 basis for the next 15 years. Similarly, the two cities will share transient occupancy tax for 25 years. A tiny bit of the property, about 1 acre adjacent to an existing retail center, will be annexed by Calimesa. Maybe I am being uptight, but the way this pie was carved up bothers me. It is being called tax sharing, but it really more like a tax shakedown. Now, I think tax sharing can be an enlightened form of public policy. It is unfortunate that the peculiarities of the current California tax code tend to make competitors and enemies out of neighbors. Rather than raiding each other's retailers, killing each other's projects and wasting public money in endless court battles, cities are often better off sharing the tax benefits of major projects. The difference here, however, is that this ostensive tax-sharing plan is not based on policy. The money that Beaumont is giving to Calimesa is not based on some notion of the regional good. It is a penalty that one city is paying for allegedly trying to screw its neighbor. Without a clear benefit to Beaumont taxpayers, the tax-based payoff to Calimesa seems like a confusion of the nexus between taxpayers and the public benefits that taxpayers can reasonably expect to receive. In other words, this "tax-sharing" deal is one further example of neighbors fighting and despoiling one another, rather than cooperating. Beaumont taxpayers might well ask where their tax dollars are going. If they are interested in finding out, all they need to do is drive to Calimesa and look for a sign that says, "Hey Beaumont — Your tax dollars at work."

The owner of a business that spreads sludge from wastewater treatment plants on fields in Kings County has taken a beating in court over a lawsuit that claimed the county could not exempt an ordinance regulating sewage sludge disposal from environmental review. In upholding a decision by Kings County Superior Court Judge Peter Schultz, the Fifth District Court of Appeal ruled that Shaen Magan failed to present any evidence to support his claim that the ordinance was not categorically exempt from the California Environmental Quality Act (CEQA). In the opening of her opinion, Justice Rebecca Wiseman wrote, "Let us get this straight: We have a party whose business it is to dump sewage sludge generated in Southern California on agricultural property located in the San Joaquin Valley. His complaint is that the Board of Supervisors violated environmental laws when it took regulatory action phasing out and ultimately prohibiting this practice. Astoundingly, he alleges there was a reasonable possibility that the Board's decision to prohibit the spread of sewage sludge would have an adverse environmental impact. He reasons that, among other things, not spreading sewage sludge degrades agricultural land. We, like the trial court, do not buy it." After a year of hearings, the county in January 2001 adopted the ordinance regulating sewage sludge application to land. The Board of Supervisors cited studies that found sludge, because it contains heavy metals, pathogens and other pollutants, threatened human and environmental health and that federal regulations were inadequate (see , July 2000). The county determined the ordinance was categorically exempt from environmental review under CEQA Guideline § 15308 because it was a regulatory action to protect the environment. Magan filed suit. He had a permit to dispose of sludge on 1,800 acres in Kings County owned by the Orange County Sanitation District, and he also had contracts with the Los Angeles County Sanitation District and the cities of Goleta and Santa Barbara to apply sludge to other properties in Kings County. Judge Schultz rejected Magan's CEQA claims. On appeal, Magan argued there was no substantial evidence in the record demonstrating that the county had considered the ordinance's environmental impact, and there was enough evidence of a potential impact to block the ordinance from receiving a categorical exemption. The unanimous three-judge appellate panel, however, ruled that county did not need to present substantial evidence before declaring the exemption. "Contrary to appellant's assertions, the county was not required to conduct an environmental analysis under CEQA after determining the ordinance was categorically exempt," Justice Wiseman wrote. "Once the agency determines that the project falls within the exempted class, no additional environmental analysis is required. … he county only has the burden to demonstrate substantial evidence that the ordinance fell within the exempt category of projects. This the county has done." As for potential environmental impacts, Magan argued that the ordinance would shift sludge disposal to other jurisdictions, cause sludge generators to employ additional treatment that could harm the environment, and degrade Kings County farmland. The court ruled that Magan "has failed to support his claims with any evidence in the record. The claims are based entirely on speculation. Opinions which state ‘nothing more than "it is reasonable to assume" that something "potentially … may occur" do not constitute substantial evidence' necessary to invoke an exception to a categorical exemption." Wiseman cited , (2001) 90 Cal.App.4th 1162, (see , September 2001). The court also rejected Magan's argument that he did not have time to establish a record of evidence. The Case: , No. F039802, 03 C.D.O.S. 548. Filed December 12, 2002. Ordered published January 13, 2003. The Lawyers: For Magan: David Doyle, Doyle, Penner, Bradley & Armstrong, (559) 261-9321. For the county: Peter Moock, county counsel's office, (559) 582-3211.

An economic downturn that has forced up Bay Area unemployment and office vacancy rates shows little sign of abating. Business leaders, economic development experts and analysts say that righting the greater Bay Area's economic ship will be neither easy nor quick. In the meantime, some business leaders and analysts say the region must get prepared for the next wave by building more workforce housing and reconsidering the role of the office park. The problem — clearly seen now — is the region's over-reliance on all things high tech. Many tech sectors are struggling, so the economic downturn has been the worst in Santa Clara County, home to Silicon Valley. During 2002, Santa Clara County lost 34,300 jobs and saw its unemployment rate rise well above the state and national averages to 7.5%, according to the state Employment Development Department. Overall, the county has lost about 100,000 jobs since the dot-com sector started to crash in late 2000. During the past year, San Francisco lost a greater share of jobs than the San Jose area, but San Francisco's unemployment rate is lower. Job loss, in fact, has been localized during the recession, and parts of the East Bay and North Bay have seen continued, yet slowing, economic growth, according to an analysis by SPHERE Institute Vice President Michael Dardia. The office vacancy rate is grim in many places, including San Francisco and the South Bay, where the rate remains in the neighborhood of 25%. Some real estate experts say a portion of the space that is leased is discounted or underused. Things are not likely to turn around until the economic malaise affecting much of the world — especially Japan — lifts because Bay Area manufacturing and sales is tightly tied to the global economy, experts say. A January survey of business executives by the Bay Area Council (a coalition of 275 businesses) detected little optimism. Forty-seven percent of respondents said economic conditions were moderately or substantially worse than six months earlier. And the quarterly poll found optimism regarding the next six months at its lowest level since the poll began in October 2001. Some economic development proponents are using this period to reassess the big picture. "You look at the state atmosphere right now and it's not real appealing to economic development," said Sean Randolph, president of the Bay Area Economic Forum. The cost of electricity has settled at a high level and many people believe the power system solutions of 2001 were temporary, he said. Randolph also pointed to the high cost of housing, transportation congestion, rising worker's compensation costs, and a structural state budget problem. Randolph's organization is finishing a report on international trade that makes clear how reliant the Bay Area is on global commerce. Bay Area Economic Forum is also pursuing a regional platform to improve coordination among security planners and tech companies, Randolph said. Joint Venture Silicon Valley recently put together a regional economic strategy leadership team "to look at our behaviors and our perceptions," said Marguerite Wilbur, the organization's president and CEO. Joint Venture has already collected the data, so the leadership team should have recommendations by June, she said. A Joint Venture paper released last year, "Preparing for the Next Silicon Valley," emphasized the need for government, schools and the private sector to be flexible. The next wave of technological innovation could bypass the Silicon Valley in favor of San Diego, Boston, Washington D.C., or another tech hotbed. Or the next wave "could roll over us like the Internet boom," which may have left behind more damage than prosperity in the Bay Area, according to Joint Venture. "We have to prepare ourselves rather than react to changes in the economy," Wilbur said. "That is not something that most regions do." Preparation should involve education changes such as new college degrees that combine life sciences and computer engineering, better workforce training, construction of more workforce housing, and increased local government flexibility in zoning and providing infrastructure and services. The next technological wave is unlikely to involve development of large business parks on the cheapest available land, Wilbur said. One large company, whom Wilbur declined to name, recently decided it would rather have employees working in small nodes near their homes in places like Palo Alto and San Francisco, rather than commuting to a large campus in the South Bay. If a dispersed work force is the model for the future, it "has huge implications for land use," she said. Commercial and residential development patterns, and the transportation system — all of which are based on the automobile — would change. Again and again, business analysts return the economic development discussion to the Bay Area's housing, which remains the nation's most expensive. "We are always focusing on the issues of economic development and the cost of doing business," Randolph said. "In the Bay Area, a lot of that comes down to housing availability and the huge deficit we've been living with for so long. And it causes many of the transportation problems we have." For a variety of reasons, developers often must fight to build housing in the Bay Area, said Stephen Levy, executive director of the Center for the Continuing Study of the California Economy. "I've been arguing that building housing is the region's number one economic development priority," Levy said. Bay Area businesses and public agencies struggle to hire employees because housing is scarce and expensive, said Levy, who also argues for reducing land use regulation and overhauling the government fiscal formula so that property taxes are enough to fund high-quality public services. Wilbur said jobs and education currently rank higher than housing and transportation on the public's list of concerns. But, she said, "I think housing is just as important now as before. The gap between what you can afford and what is available is still extreme." There is talk of converting some vacant office buildings into residential or mixed-use buildings. However, the cost of conversions, financing difficulties, and local governments' reluctance to rezone property where they had planned for uses that generate jobs and sales tax appear to be thwarting movement toward office building reuse. Contacts: Sean Randolph, Bay Area Economic Forum, (415) 981-7117. Marguerite Wilbur, Joint Venture Silicon Valley, (408) 271-7213. Stephen Levy, Center for the Continuing Study of the California Economy, (650) 321-8550. Joint Ventura Silicon Valley website: www.jointventure.org Bay Area Council website: www.bayareacouncil.org