An appellate court has invalidated amendments to the San Bernardino County general plan that gave the county greater authority over development within cities' spheres of influences. The Fourth District Court of Appeal ruled that the county's failure to prepare an environmental impact report on the amendments violated the California Environmental Quality Act. The court ruled that the county's project description improperly downplayed the significance of the amendments, and that the cities of Redlands and Rancho Cucamonga presented "substantial evidence of a fair argument that the amendments may have a significant effect on the environment" — one of the standard tests for when to prepare an EIR. The decision is a victory for advocates of coordinated planning, said Redlands City Attorney Daniel McHugh. The county's previous general plan called for the county to work with cities on land use planning for unincorporated territory within cities' spheres of influence. Redlands backed that plan. But, said McHugh, "The new standards do not bear any relationship with the city's standards." The county has asked the state Supreme Court to review the case or to depublish the decision. A county attorney did not return a request for comment. In 1999, the San Bernardino County Board of Supervisors adopted a general plan amendment "to clarify the county's land use planning authority and development approval discretion in sphere of influence areas." Cities objected to the amendment (see CP&DR Local Watch, August 1999), and Rancho Cucamonga and Redlands filed lawsuits challenging the county's environmental review. San Bernardino County Superior Court Judge James Edwards ruled for the cities, finding that the county had substantially changed its land use policies without properly describing the project or gathering facts needed for an adequate environmental analysis. Judge Edwards also ruled that the cities presented enough evidence that the county should have prepared an EIR. The county appealed the decision, but a unanimous three-judge panel of the Fourth District, Division Two, upheld the decision. In its appeal, the county — which adopted a negative declaration for the general plan amendment — argued that Judge Edwards wrongly decided that the project description was lacking. The county contended that the amendment only clarified the county's authority. But the Fourth District said Edwards was correct. The amendment replaced a policy that required the county to incorporate cities' land use policies with discretionary language that called for the county only to "consider" cities' policies. The county also eliminated a requirement that all projects inside cities' spheres other than single-family residences get a use permit from the county. "As argued by the cities," Justice Barton Gaut wrote, "the amendments were more than mere clarifications of existing general plan provisions. By adopting the amendments, the Board made substantive changes to the County's policies and procedures in making land use and development decisions involving unincorporated territory within a city's sphere of influence. In essence the amendments eliminated the requirement that the County give substantial weight to and even implement the standards provided in an affected city's general plan. "In fact," Gaut continued, "the Board adopted the amendments in response to Redlands's successful litigation against the county involving a conflict between the County's general plan and Redlands's growth control measures and development standards. Under the new amendments, where a conflict between city and county standards exist, the County has granted itself discretion to override city standards in making decisions concerning land within that city's sphere of influence. It appears that what the County failed to do in court, it attempted to accomplish through quasi-legislative proceedings." The court held that the county ignored the potential impact of future development that would result from the general plan amendment and that the county provided no evidence of how such a policy change would not affect the environment. The court also rejected the county's argument that the cities did not provide substantial evidence to make a fair argument for an EIR. The county characterized the cities' evidence as argument, speculation and nonexpert opinion. But the court found that the cities "provided lengthy evaluations of the potential effects of the amendments." Rancho Cucamonga, for example, noted that the county's regulations for grading on hillsides were looser than its own, and that the county did not require as much parkland as the city for new development. "Ironically, the County complains concerned the cities' lack of evidence, when it initially set the stage by failing to gather facts and evidence in conducting its initial study of amendments' potential environmental effects," Gaut wrote. "The County's conclusory evaluation of the amendments fails to support its decision to adopt a negative declaration." Finally, the court rejected the county's argument that Judge Edward's injunction against the county to prohibit adoption of the general plan amendment or similar amendments was overly broad. The order simply ensured that the county does not circumvent CEQA again, the appellate court ruled. The Cases: City of Redlands v. County of San Bernardino; City of Rancho Cucamonga v. County of San Bernardino, No. E028515, 02 C.D.O.S. 1691, 2002 DJDAR 2073. Filed January 29, 2002. Ordered published February 22, 2002. The Lawyers: For Redlands: Daniel McHugh, city attorney, (909) 798-7595. For Rancho Cucamonga: James Markman, Richards, Watson & Gershon, (714) 990-0901. For the county: Robin Cochran, deputy county counsel, (909) 387-5455.

These are both the best of times and worst of times for California's mining industry. The Interior Department has lifted some Clinton-era restrictions for hardrock mining on federal land. However, the State Mining & Geology Board is considering new regulations for implementing the Surfacing Mining and Reclamation Act (SMARA) that miners say will be burdensome. The regulatory issues are important in California, which produces more "non fuel" minerals than any other state. California's 1,000 active mines produced $3.38 billion worth of minerals, including about $1 billion worth of sand and gravel, in 2000, according to the state Division of Mines and Geology. The state board is scheduled to consider adopting the administrative regulations May 9. Most changes are not controversial. But miners question amendments that would redefine when a new reclamation plan is needed, ending the practice of using multiple reclamation plans for different phases of the same mine. Surface mines often evolve over time, growing beyond the bounds of original permits. Miners and geologists accept the slow and difficult-to-predict expansion as the nature of the resource extraction business. The state board has long required a new reclamation plan when a miner proposes a "substantial deviation" from an approved mining plan. The proposed regulation would require a new reclamation plan when "the surface mining operation is appreciably changed." Denise Jones, executive director of the California Mining Association, said this amendment could open up many more operations to new scrutiny, even if expansion is not contemplated. Furthermore, the requirement for one reclamation plan means that miners will have to bring an entire site up to present-day standards, even if they posses a valid reclamation plan for other parts of the mine or quarry. "The significant question we have is, when is an approval an approval?" Jones said. Douglas Sprague, manager of reclamation for Vulcan Materials Co. Western Division, said moving an access road could be considered an appreciable change that would trigger a long review process. And, he noted, reclamation plans are subject to California Environmental Quality Act review. "It reopens everything," Sprague said. "As far as we can see, it's an unending process because in the mining industry, you are always changing things, particularly when it comes to reclamation, which is an evolving science." Mines have multiple reclamation plans for a variety of reasons, said Sprague: They operate in multiple jurisdiction; different landowners own different parts of the site; part of the mine is in a stream and part is a pit. Forcing all those instances into one plan that would have to be revised anytime there is an appreciable change will discourage investment in aggregate mining, Sprague warned. However, Robert Joehnck, Department of Conservation staff counsel, said the industry is making too much of the amendments. "We think it's a clarification of the existing law" and will affect the minority of operators, he said. Joehnck declined to say how a CEQA review would fit into the process of revising a reclamation plan. He said the more important issue could be application of new reclamation standards — such as updated rules regarding revegetation — to all portions of a mine site. Jim Ellis, a planning division chief for Kern County, said his agency has always treated expansions as separate from an existing mine. The proposed change to one reclamation plan would probably make administration simpler, he said. But he questioned whether the amendments were fair to miners with valid permits. In earlier written comments to the state board, Kern County planners questioned the proposal for determining a "substantial deviation" that would trigger the need for updating a reclamation plan. "Conceivably, no deviation may be able to meet the test of the criteria and all plan amendments would therefore be substantial deviations," the county testified. While the industry is nervous about state action, it was pleased when the Bureau of Land Management rolled back hardrock mining rules that had been adopted less than one year earlier. The decision took effect December 31, 2001. Environmental groups condemned it and filed suit. What the changes mean for a controversial gold mine proposed in eastern Imperial County is unclear. Federal officials first adopted hardrock mining regulations in 1980, but environmentalists complained that they did not address present-day open pit mining practices. The BLM began reviewing the regulations in 1991 but never adopted any changes. In 1997, BLM restarted the rulemaking process, which then lasted four years. The rules that finally took effect in the last days of the Clinton administration set in place stricter environmental standards regarding acid mine drainage and other impacts of open pit mining, required bonds to clean up and reclaim a mine site prior to the start of mining, allowed the BLM to fine violators, and gave the BLM authority to deny a mining permit if the operation would cause "substantial irreparable harm" to environmental, scientific or cultural resources. Environmentalists cheered the regulations, but miners hated them and tried to block them in court. Interior Secretary Gail Norton suspended the regulations only weeks after taking office in 2001. After a review, the BLM repealed the "substantial irreparable harm" provision and the ability to impose fines. It retained some — but far from all — of the new environmental standards, and it kept the bonding requirement. The latest changes were a setback for environmentalists, said Lexi Schultz, legislative director for the Washington, D.C.-based Mineral Policy Center. The regulations do not take full advantage of the research that is available on how mines affect water, and plants and animals, she said. Moreover, the relaxed environmental standards mean the bonding requirements are not as significant, she said. But BLM spokesman Lawrence Finfer said the agency kept regulations regarding acid mine drainage, retained new regulations for small mines that had been exempt from most rules, and retained the full-cost bonding mandate. "It's hard to argue that that's a defeat for the environment," Finfer said. "Bonding is central because it provides an incentive to do the job right, and it protects the taxpayers. … That's a big change from what had previously existed." The agency dropped the provision allowing federal land managers to reject a permit because of the potential for substantial irreparable harm because of legal and policy concerns, Finfer said. But, he added, "We already have authority to, if not deny permits, send applicants back to the drawing board." In January 2001, only days before Clinton left office, then-Interior Secretary Bruce Babbitt did deny an application from Glamis Gold Ltd. for a 1,500-acre open pit mine in eastern Imperial County. Babbitt determined that the mine would destroy numerous Quechan Tribe cultural sites. And Glamis proposed leaving behind an 880-foot-deep pit and 280-foot-tall tailings pile. Interestingly, Babbitt based his decision on the 1980 regulations. However, Norton withdrew Babbitt's decision in November, and in February the BLM began reviewing the validity of Glamis's mineral rights. Glamis estimates it can pull 3 million ounces of gold from the site. "It looks like the new administration wants to reach back in time and pretend they were the decision-maker," said Courtney Coyle, an attorney for the Quechan Tribe. "It raises the questions of when are the decisions final." In an April letter to Norton, State Attorney General Bill Lockyer sided with the tribe and environmentalists, saying the BLM has a duty to protect lands within the California Desert Conservation Area from "undue impairment." U.S. Senators Dianne Feinstein and Barbara Boxer, and 29 House representatives, have also protested Norton's decision. Contacts: Douglas Sprague, Vulcan Materials, (323) 258-2777. Denise Jones, California Mining Association, (916) 447-1977. Robert Joehnck, Department of Conservation, (916) 323-6733. Lexi Schultz, Mineral Policy Center, (202) 887-1872. Courtney Coyle, attorney for Quechan Tribe, (858) 454-8687. Glamis Gold Ltd. website: www.glamis.com

Worried about water reliability and feeling neglected, Bay Area water agencies that get water from San Francisco's Hetch Hetchy system are taking the situation into their own hands. The agencies are working with state lawmakers on various approaches that would force San Francisco to repair and update the system, and would even let the agencies raise the capital improvement money themselves. San Francisco officials appear to feel threatened and have responded with their own capital improvement plan. City leaders are talking about placing a multi-billion-dollar bond on the November ballot to fund water system projects, or even asking voters to amend the city's charter so that supervisors could approve necessary bonds. Nearly all parties involved agree that the approximately 80-year-old Hetch Hetchy system needs repairs and seismic improvements, in addition to new facilities to meet growing demand. "There is a risk to the whole region that we could be without water after an earthquake or other natural disaster," said Arthur Jensen, general manager of the Bay Area Water Users Association, which represents the 28 water suppliers that rely on San Francisco's system. "We have three major earthquake faults in the Bay Area, and a major earthquake on any one of those faults would result in multiple failures of the water delivery system." Like most large water projects in California, Hetch Hetchy has a long history with a cast of colorful players. The initial fight over damming the Tuolumne River in Yosemite National Park's Hetch Hetchy Valley pitted Sierra Club founder John Muir against Gifford Pinchot, the legendary first chief of the U.S. Forest Service. After years of debate in California and in Washington, D.C., Pinchot and other Roosevelt Progressives won, and Congress approved dam construction in 1913. Hetch Hetchy system engineering and construction took the next two decades, far longer than it took to build the Los Angeles Aqueduct from the eastern Sierra to Los Angeles, or the Mokelumne Aqueduct from the Sierra foothills to the East Bay. The length of the project was partly due to City Engineer Michael M. O'Shaughnessy's insistence that the system be entirely gravity fed, which required a 25-mile-long tunnel through the coastal mountain range. In 1934, the Hetch Hetchy project began delivering water, which is stored in several Bay Area reservoirs. Today, the Hetch Hetchy system provides 85% of San Francisco's water, which supplies 2.4 million people in San Francisco and 26 other cities and water districts in San Mateo, Santa Clara and Alameda counties, plus a private utility and Stanford University. Municipalities and businesses — especially manufacturers of high-tech products — like the Hetch Hetchy water because of its purity. However, San Francisco's record on capital improvements is poor, according to the regional customers. The State Auditor, in a 2000 report, agreed: "The San Francisco Public Utilities Commission has been slow to assess and upgrade its water delivery system so it can survive catastrophes such as earthquakes, floods and fires. It also has been slow to estimate the amount of water it will need to meet future demand and to seek additional sources of water. As a result, the nearly 2.4 million customers in four Bay Area counties who rely on the commission for their drinking water are at greater risk of disruptions and water shortages if an emergency or a drought occurs." The State Auditor said the San Francisco PUC was slow to plan for and complete capital projects. The auditor blamed a lack of staff expertise and frequent turnover of top managers. San Francisco PUC spokeswoman Beverly Hennessey said the agency has been working on a capital improvement plan for two years. The draft plan, which is undergoing public review this month, calls for $2.9 billion in work to upgrade the water delivery system, improve water treatment facilities and increase water storage. (The capital improvement program also calls for $1.7 billion for water and sewer improvements in San Francisco proper.) As of April 1, the PUC had not set a date to consider adopting the plan. Factored into the plan is the need to create system redundancy because of the earthquake threat. Plus, said Hennessey, the system is old and deteriorating. "This is happing all over the county, and we're being very pro-active about it," she said. "We know we have to take some action. … This is the most important thing we are undertaking right now by far, and it's the largest public works project in the city." But the agencies that rely on San Francisco to provide water are not convinced. "We're not sure they are going to have the management expertise, nor the funding," said Jensen, of the Bay Area Water Users Association. "They have never adopted a capital plan." Jensen's organization is working with Assemblyman Lou Papan (D-Millbrae) and state Sen. Jackie Speier (D-San Mateo) on legislation. Papan's AB 1823 would mandate a timetable for San Francisco to complete repairs on the Hetch Hetchy system and would establish a method for state oversight. The bill would also allow San Francisco to voluntarily transfer the regional water system to a new agency. Papan's AB 2058 would let the purchasers of Hetch Hetchy water form that agency. "The structure would be somewhat like the Metropolitan Water Agency in that all the agencies would have representation on the board," Jensen said. This agency could issue its own bonds and could negotiate more effectively with San Francisco, he said. Speier's SB 1870 would allow the agencies that rely on Hetch Hetchy to establish a financing authority that could raise revenue for system improvements. Backers of a new entity say it is critical to address governance issues. Right now, two-thirds of the Hetch Hetchy water users have no say over the system's governing board. San Francisco leaders — who have an ally in Senate President Pro Tem John Burton of San Francisco — are opposed to the bills, saying they are unnecessary because the city is addressing the regional water system. Still, financing remains uncertain. Board of Supervisors President Tom Ammiano has said a bond to fund the entire $4.6 billion capital improvement plan may not get past San Francisco voters, even though water users outside the city would pay nearly two-thirds of the cost. Unlike most California cities, San Francisco's charter requires voters to approve revenue bonds, although there is an exception for water project financing approved by 9 of the 11 San Francisco supervisors. Ammiano has proposed putting a charter amendment on the ballot, but language had not been worked out as of late March. Meanwhile supporters of the Papan and Speier legislation are seizing on San Francisco's lack of definitive action as evidence that state legislation is needed. Contacts: Arthur Jensen, Bay Area Water Users Association, (650) 349-3000. Beverly Hennessey, San Francisco Public Utilities Commission, (415) 554-3155. San Francisco PUC capital improvement plan: http://www.sfwater.org/main.cfm/MSC_ID/6/holdSession/1 State Auditor's report on Hetch Hetchy: http://www.bsa.ca.gov/bsa/pdfs/99124.pdf

Quietly, while no one seemed to be paying much attention, the Central Valley has become one of the smoggiest places in the nation. Kern, Fresno and Tulare counties rank third, fourth and fifth among those counties that exceeded federal ozone standards the most days from 1997 to 1999, according to the American Lung Association's 2001 State of the Air report. While car-crazy Los Angeles is most often associated with oddly orange skies, in truth, Los Angeles's reign as smog king is over. Today, it ranks a mere eighth on the list of America's 25 most ozone-polluted counties. The top two counties are San Bernardino and Riverside, whose western ends are intensely urbanized and industrial. But the next three counties on the list — Kern, Fresno and Tulare — are in a region more commonly associated with cotton and tomatoes than with third-stage alerts and respiratory distress. Cleaning up the valley's air is a tough challenge. Unlike many smoggy metropolitan areas, the ozone and particulate matter (soot and dust) contaminating Central Valley air do not typically emanate from large stationary sources such as factories and power plants. The pollution, instead, is the product of millions of small sources, many of them mobile, such as cars, and farm and construction equipment. Moreover, farming — the top source of valley air pollution — remains unregulated and politically untouchable. Faced with this challenge, air-quality managers and health activists alike have settled on a clean-air strategy that, while guaranteed to be costly, is unlikely to do much in the short term to make the valley's air more breathable: lawsuits. The most recent was filed in March, when the Sacramento Metropolitan Air Quality Management District (SMAQMD) sued the California Air Resources Board (CARB) over its failure to require the more rigorous Smog Check II vehicle emissions tests for cars and trucks in the San Francisco Bay Area. Autos statewide are required to undergo basic idling-engine smog tests every two years, but those in particularly polluted areas are also required to pass a more rigorous test that monitors the vehicle under a variety of engine speeds. The Bay Area is exempt from that program. In its suit, SMAQMD contends that the exemption is unfair and illegal. The federal Environmental Protection Agency (EPA) has designated the six-county Sacramento region a "severe nonattainment" area for ozone under the Clean Air Act. By law, SMAQMD argues, the CARB is required to reduce migrating Bay Area smog because the board concluded in 1993 that wind-blown pollutants contribute significantly to Sacramento's violation of the federal standards. The SMAQMD lawsuit is but the latest domino to fall. In February, the San Joaquin Valley Air District (SJVAD) also sued CARB, seeking a crackdown on smog getting blown into the valley from the Bay Area and the Sacramento region. Like their counterparts in the Sacramento district, SJVAD regulators blame migrating emissions and the Bay Area's Smog Check II exemption for the valley's failure to comply with federal pollution standards. "The Valley Air District is employing every means at its disposal to control emissions originating locally," air pollution control officer David Crow said when announcing the lawsuit. "Ignoring the impact from the Bay Area is no longer an option." Additionally, Assemblyman Dennis Cardoza (D-Merced) has introduced AB 2637, which would impose the Smog Check II system on the Bay Area. However, catching a few thousand Bay Area automobiles that pass existing inspections but might fail the more rigorous Smog Check II program will not significantly affect air pollution in Kern, Fresno and Tulare counties. The SJVAD's lawyer admitted to a New York Times reporter last month that the Bay Area sends only 8 to 11 tons a day of nitrous oxide (NOX) — the primary constituent of ozone formation — into the San Joaquin region, while the valley needs to reduce its total NOX emissions by about 300 tons a day to comply with EPA regulations. But Crow's comment contains a kernel of truth, as revealed by yet another lawsuit over Central Valley smog. In early February, a coalition of environmental and public health groups sued the EPA for approving 34 local air district pollution plans in California. All those plans exempt agricultural operations from having to obtain air pollution permits because state law authorizes the exemption. "Giant farms," the plaintiffs assert, "are the San Joaquin Valley's largest source of air pollution, putting out more smog and soot than any other source, including cars, trucks, oil refineries or power plants." The exemption produces some noteworthy incongruities: diesel engines that power irrigation pumps are not required to meet emission standards; the same engines, if used in oil fields, must meet such standards. California's agricultural lobby has so far managed to fend off efforts to subject farm operations to the same air and water pollution rules applied to other industries, depriving the local air agency of a potent tool in its anti-smog campaign. Besides suing the state, the San Joaquin District is pursuing another paperwork strategy in reaction to its persistent smog problem: It has asked the EPA to change its nonattainment designation from "severe" to "extreme." In a fact sheet on this tactic, the district calls this a "bold step" but notes it could have a downside. "The valley would face the stigma of being the only other region besides the Los Angeles area to be classified as extreme," the fact sheet notes. "This could negatively impact economic development." Whether the step is bold is debatable. The changed status would simply give the district until 2010 to meet federal pollution standards. Its current deadline, which district officials acknowledge they probably cannot meet, is 2005. Missing the deadline could cost the region $2 billion in federal highway funds. As for the other impacts, public health advocates no doubt find it disingenuous, at best, for the district to warn of the negative impacts its smog strategy might have on economic development. A study published March 6 in the Journal of the American Medical Association demonstrated a conclusive link between exposure to fine particulate matter — such as dust blowing off farms and soot emitted by diesel irrigation pumps — and increased risk of death from lung cancer. That report followed one in issued in February by the University of Southern California demonstrating a connection between air pollution and childhood asthma. The California Department of Health Services says that 12,000 people are hospitalized for asthma each year in the San Joaquin Valley. More than 5,000 of them are children. Contacts: Dr. David Pepper, Medical Alliance for Healthy Air: (559) 459-5705. Brian Smith, Earthjustice: (415) 627-6700. California Air Resources Board: (916) 322-2990. San Joaquin Valley Air District: (559) 230-6000. Sacramento Metropolitan Air Quality Management District: (916) 874-4800. American Lung Association State of the Air Report: www.lungusa.org/air2001/

A public agency's proposed water treatment plant is subject to local zoning and building ordinances, the Sixth District Court of Appeal has ruled. The court held that the Government Code exemption to local zoning for "facilities for the production, generation, storage or transmission of water" did not extend to a water treatment plant. "We are unable to discern whether the Legislature actually intended to include a water treatment plant within § 53091's automatic exemption of facilities for the production of water. While we believe that the Legislature intended to include a well within § 53091's automatic exemption, the extension of the exemption to a water treatment facility involves policy considerations that we are unable to conclude that the Legislature resolved," Justice Nathan Mihara wrote for the unanimous three-judge panel. The issue arose in Santa Cruz County, where, in 1992, the county approved a four-lot subdivision. Three years later, Soquel Creek Water District purchased one of the parcels with the intent of drilling a well and building a water treatment plant. In 1997, the three remaining parcels were sold to buyers who now reside in single family residences. The new homeowners opposed the Water District's plan and fought the district on numerous fronts. The homeowners asked the county to declare the four lots illegal because the original subdivision conditions were not met, and to require the Water District to comply with local zoning and building laws. The county denied both requests, so Topsail sued. Santa Cruz County Superior Court Judge Robert Yonts ordered the county to issue "conditional" certificates of compliance for all four parcels conditioned on the homeowners and the Water District forming a property owners association for maintenance of common areas and sewers. Judge Yonts also ordered the county to record a new parcel map referencing the property owners association and restricting covenants. However, Yonts ruled that the Water District was exempt from local building and zoning regulations under Government Code § 53091. Both sides appealed, and the Sixth District overruled Yonts entirely. The appellate court ruled that the challenge to the subdivision was too late because the statute of limitations was 90 days from the time of subdivision approval in 1992. The court then reviewed the exact wording of the exemption statute and City of Lafayette v. East Bay Mun. Utility Dist., (1993) 16 Cal.App.4th 1005, (see CP&DR Legal Digest, August 1993). In that case, the court ruled that a special district's proposal to build a service center in Lafayette had to abide by a city's zoning ordinances because the service center was a support facility not directly related to the storage and transmission of water. The Sixth District panel determined that the Santa Cruz County case was similar. The problem is that the statute does not define "facilities for the production … of water," according to the court. However, other, unrelated, statutes contain specific references to particular types of facilities, which § 53091 does not. "Had the Legislature intended to exempt water treatment plants from zoning ordinances, it was clearly capable of explicitly referring to such plants in § 53091," Justice Mihara wrote. The Case: Topsail Court Homeowners Association v. County of Santa Cruz, No. H022122, 02 C.D.O.S. 874, 2002 DJDAR 1067. Filed January 28, 2002. The Lawyers: For the homeowners: Dale Dawson and Gerald Bowden, Dawson Passafuime & Bowden, (831) 438-1221. For the county: Rahn Garcia, county counsel's office, (831) 454-2040.

Remember the "see-through" office building phenomenon that hit Houston during the mid 1980s and then Los Angeles in the early 1990s? Well, it's back. This time, it is the Bay Area that is afflicted with empty office buildings. For anyone who has followed the economy during the last two years, this is no surprise. But, because we tend to get more sophisticated with land economics as we weather one dip after another, the dynamics have changed a bit. First, it is the would-be tenants who are often holding the bag this time. And, second, developers are already fast at work with planning agencies to restructure empty inventory for the next big surge. Unlike the downturn of the early 1990s that put Southern California's speculative office developers on the ropes, the Bay Area skid is hurting the businesses that hold space leases that they now cannot fill. This difference is because of the technology industry's frantic space grab during the late 1990s. Worried about being closed out of their own home base, computer, telecom, and dot-com companies went on a speculative purchase and long-term lease binge of their own. So this time around, companies not ordinarily in the real estate business are eating the cost of empty office space. Companies have also simply canceled some projects. The most publicized of these was Cisco System's plans for a vast campus at a San Jose site known as the Coyote Valley. Although courts have recently rejected CEQA-related legal challenges on the 6.6 million-square-foot development, Cisco has already folded its tent due to drastically revised space absorption projections. The San Jose Mercury News documented some of the inventory glut last fall. In addition to abandoning Coyote Valley, Cisco Systems is leaving empty 11 buildings in San Jose and Milpitas, Inktomi is not filling two buildings in Foster City (still under construction); and 3Com has decided not to occupy an entire new campus in Santa Clara. And that's just the Peninsula and Silicon Valley. Although not known primarily as a technology sector office location, downtown San Francisco is taking a beating as well. San Francisco's financial industry and the South-of-Market dot-coms were part of the boom market, and downtown San Francisco office space grew tight even though it was among the most expensive in the country. Real estate analysts at Grubb & Ellis reported that the downtown San Francisco's negative net absorption – analyst lingo for vacancy growth – was the worst on record for the third quarter of 2001. Grubb & Ellis predicts a vacancy rise to 25% by June of 2002 — compared with a vacancy rate of only 2% two years earlier. The dampening market has also deeply affected lease rates. According to combined reports, Class A space in downtown SF has slid from nearly $79 per square foot per year for the second quarter of 2000 to $33 at the end of first quarter of 2002. This free fall in rents could be disastrous for landlords because $30 per year is widely considered the break even lease rate for offices in the vicinity of Montgomery Street. Many space owners are quickly working with local planning officials to reposition inventory. The emerging market is for users of less than 10,000 square feet, according to David Shiver, principal with Bay Area Economics in San Francisco. "In year 2000, the question at large tech companies was ‘how can I get control of my real estate picture?' Lots of people grabbed lots of pieces they ended up not needing," Shiver said. He is helping clients see the slowdown as an opportunity to do more balanced planning. Bay Area Economics is working on projects that include subdivision of campuses or large office buildings for use by multiple tenants. The way Shiver sees it, the new buildings will eventually be needed because they include the type of wiring and space flexibility that was lacking in Silicon Valley in older developments. "Today, we are planning for intensification of these areas, especially in conjunction with smart growth concepts," Shiver said. He suggested that the Silicon Valley will become denser with more integration of land uses. The greatest densities will be near transit stops accompanied with high-density housing. Still, it will take time for the smaller-user market to reverse the trend. Shiver expects that 2003 will be the turn-around year. By then, new growth may be occurring with more foresight, flexibility, and with newer urban planning concepts in place. And, possibly, the tech behemoths will have covered their poor real estate decisions of the late 1990s. Stephen Svete, AICP, is president of Rincon Consultants, Inc., a Ventura-based consulting firm. Remember the "see-through" office building phenomenon that hit Houston during the mid 1980s and then Los Angeles in the early 1990s? Well, it's back. This time, it is the Bay Area that is afflicted with empty office buildings. For anyone who has followed the economy during the last two years, this is no surprise. But, because we tend to get more sophisticated with land economics as we weather one dip after another, the dynamics have changed a bit. First, it is the would-be tenants who are often holding the bag this time. And, second, developers are already fast at work with planning agencies to restructure empty inventory for the next big surge. Unlike the downturn of the early 1990s that put Southern California's speculative office developers on the ropes, the Bay Area skid is hurting the businesses that hold space leases that they now cannot fill. This difference is because of the technology industry's frantic space grab during the late 1990s. Worried about being closed out of their own home base, computer, telecom, and dot-com companies went on a speculative purchase and long-term lease binge of their own. So this time around, companies not ordinarily in the real estate business are eating the cost of empty office space. Companies have also simply canceled some projects. The most publicized of these was Cisco System's plans for a vast campus at a San Jose site known as the Coyote Valley. Although courts have recently rejected CEQA-related legal challenges on the 6.6 million-square-foot development, Cisco has already folded its tent due to drastically revised space absorption projections. The San Jose Mercury News documented some of the inventory glut last fall. In addition to abandoning Coyote Valley, Cisco Systems is leaving empty 11 buildings in San Jose and Milpitas, Inktomi is not filling two buildings in Foster City (still under construction); and 3Com has decided not to occupy an entire new campus in Santa Clara. And that's just the Peninsula and Silicon Valley. Although not known primarily as a technology sector office location, downtown San Francisco is taking a beating as well. San Francisco's financial industry and the South-of-Market dot-coms were part of the boom market, and downtown San Francisco office space grew tight even though it was among the most expensive in the country. Real estate analysts at Grubb & Ellis reported that the downtown San Francisco's negative net absorption – analyst lingo for vacancy growth – was the worst on record for the third quarter of 2001. Grubb & Ellis predicts a vacancy rise to 25% by June of 2002 — compared with a vacancy rate of only 2% two years earlier. The dampening market has also deeply affected lease rates. According to combined reports, Class A space in downtown SF has slid from nearly $79 per square foot per year for the second quarter of 2000 to $33 at the end of first quarter of 2002. This free fall in rents could be disastrous for landlords because $30 per year is widely considered the break even lease rate for offices in the vicinity of Montgomery Street. Many space owners are quickly working with local planning officials to reposition inventory. The emerging market is for users of less than 10,000 square feet, according to David Shiver, principal with Bay Area Economics in San Francisco. "In year 2000, the question at large tech companies was ‘how can I get control of my real estate picture?' Lots of people grabbed lots of pieces they ended up not needing," Shiver said. He is helping clients see the slowdown as an opportunity to do more balanced planning. Bay Area Economics is working on projects that include subdivision of campuses or large office buildings for use by multiple tenants. The way Shiver sees it, the new buildings will eventually be needed because they include the type of wiring and space flexibility that was lacking in Silicon Valley in older developments. "Today, we are planning for intensification of these areas, especially in conjunction with smart growth concepts," Shiver said. He suggested that the Silicon Valley will become denser with more integration of land uses. The greatest densities will be near transit stops accompanied with high-density housing. Still, it will take time for the smaller-user market to reverse the trend. Shiver expects that 2003 will be the turn-around year. By then, new growth may be occurring with more foresight, flexibility, and with newer urban planning concepts in place. And, possibly, the tech behemoths will have covered their poor real estate decisions of the late 1990s. Stephen Svete, AICP, is president of Rincon Consultants, Inc., a Ventura-based consulting firm.

March's statewide ballot proved to be a popular place to raise money and make budget decisions, and voters can expect to make similar decisions in November. In March, 57% of voters approved Proposition 40, which, at $2.6 billion, is the largest parks and environment bond ever proposed in California. Slightly more than two-thirds of the electorate voted for Proposition 42, which earmarked gasoline sales tax revenue for highway, street, road and public transit projects. Right after the election, backers of a high-speed train — including state Sen. Jim Costa (D-Fresno) — said they would try to get a $6 billion bond on the November ballot. The bond would provide enough money to build only part of the proposed 700-mile system: A route tying San Francisco and Oakland with Los Angeles via the San Joaquin Valley. Links to Sacramento, Riverside and San Diego would be built later (see CP&DR Public Development, December 2001, In Brief, March 2002). Also after the election, the Planning and Conservation League began gathering signatures on an initiative that would designate 30% of the state's share of the sales tax on motor vehicles for public transit, roads, bike lanes, sidewalks, and school bus replacement. The measure would generate about $870 million a year. Also likely to appear on the November ballot are a $13 billion school bond, and a $2 billion housing bond. The eight-year battle over reuse of the Tustin Marine Corps base appeared to be drawing to a close in March. The Navy, which owns the 1,600-acre site, transferred 1,000 acres to the City of Tustin. It plans extensive residential and commercial development. The Rancho Santiago Community College District received 15 acres for a new campus. The Navy will keep 240 acres, which it plans to sell to a developer. Approximately 300 acres are designated for parks. However, the longstanding fight between Tustin and the Santa Ana Unified School District over land for elementary and high schools continued, although negotiators said they were close to resolving things. Rancho Santiago and Santa Ana Unified had wanted a 100-acre site to build a K-14 learning center (see CP&DR Deals, October 2001). However, Tustin did not want to give up that particular site. Tustin offered Santa Ana Unified 22 acres elsewhere on the base, plus $38 million. The sticking point in negotiations was over a backup plan if the 22 acres proved to be too polluted for a school. All sides resumed negotiations in late February, when Duncan Holaday, the Navy's top base-reuse official, traveled to Orange County. Navy officials had suggested they would sell off the land if local officials could not reach agreement on reuse. The Belmont Learning Complex in downtown Los Angeles may get built yet. The Los Angeles Unified School District board voted in mid-March to complete the half-built high school. In January 2000, the district suspended work on the 34-acre campus designed to serve 4,600 high school students because of concerns over methane and hydrogen sulfide vapors remaining from the site's previous use as an oil field. Downtown advocates and Latino activists urged the district to complete the project. The board voted to resume construction after engineers presented a system for capturing and safely venting the hazardous gases. The school district has already spent about $175 million on construction and legal fees, and completing the campus could cost another $100 million, making Belmont the most expensive high school in state history. Some public health advocates remained unconvinced that the plan for handling gases will work. A 572-home subdivision proposed for the Verdugo Mountains was unanimously rejected in March by the Glendale City Council. Area residents had rallied in opposition to the "Oakmont View V" project, which called for building luxury homes on steep hillsides above existing neighborhoods. An environmental impact said the development would harm air quality, wildlife and scenic vistas. City planners said the project was inconsistent with the general plan and could pose a landslide hazard. Upon voting, Councilmembers said the project would irreparably harm the hillsides that help frame Glendale. The developer, Gregg's Artistic Homes, said it would file a takings lawsuit against the city. City of Los Angeles voters could decide no fewer than three proposals to carve new cities out of the existing city this November. Separate proposals for secession of the San Fernando Valley, Hollywood and the harbor area all could appear on the ballot at the same election. In March, the Los Angeles Local Agency Formation Commission released a report that said Hollywood would be a financially viable city, even if the new city paid Los Angeles between $11 million and $25 million annually (depending on the size of the new city) to make Los Angeles fiscally whole. Earlier, LAFCO concluded that the San Fernando Valley could make it as a city, while the harbor area would lack enough money to survive. LAFCO is scheduled to decide later this year whether to place any or all of the secession proposals before voters in November. Secession requires a majority vote both inside and outside the proposed boundaries of a new city. A permit for a gravel mine on federal land in the Soledad Canyon, just outside the City of Santa Clarita, was denied unanimously by the Los Angeles County Board of Supervisors in late February. The decision cheered city officials and residents, who say the 460-acre quarry would congest roads, add to air pollution, threaten groundwater, and look ugly. Transit Mixed Concrete had already sued the county, insisting that the county must abide by a Bureau of Land Management permit that allows the mine. Groundbreaking for the University of California, Merced, campus has been postponed from May until September because of a lawsuit filed by three environmental groups. The groups say that the environmental impact report approved by UC regents in January was inadequate and that UC has illegally segmented the project to avoid comprehensive study, charges that UC denies. Water quality regulators have begun reviewing Central Valley farms' longstanding exemption from the state Clean Water Act. The Central Valley Regional Water Quality Control Board, which has jurisdiction over the valley and foothills from Redding to Fresno, announced in March it would prepare an environmental impact report on runoff from farms. Also, the state Water Resources Control Board said it would contribute $1 million toward monitoring drainage canals in the valley. The federal Clean Water Act exempts agriculture, but the state law does not specifically exempt farm discharges. Still, the Central Valley regional board has not applied the rules concerning pesticide and silt runoff to farms. Environmentalists insist that farms cause some of the biggest water pollution problems in Northern California. They hailed the state regulators' announcements as an important first step. Angry farmers said they already do their part to control and filter runoff. The Southern California Association of Governments has hired Calthorpe Associates to lead a six-county "growth visioning" effort. The project will attempt to bring together government agencies and private enterprise to address ways to provide housing, services and infrastructure for an anticipated 6 million additional residents. Calthorpe, headed by renowned New Urbanist Peter Calthorpe, has led similar efforts in Salt Lake City, Portland and other metropolitan areas.

In its first takings case decision in three years, the state Supreme Court has upheld a San Francisco law that regulates the conversion of residential hotel rooms to tourist use. In a 4-3 decision based largely on its 1996 Ehrlich decision, the court ruled that exactions that are part of a broad plan deserve deferential review, while ad hoc exactions are subject to much closer court scrutiny. The state's high court overturned a First District Court of Appeal ruling for the owners of the San Remo Hotel, who argued that the hotel conversion ordinance (HCO) itself and the city's application of the ordinance to their property violated state constitutional protections against uncompensated takings. In the majority opinion, Justice Kathryn Mickle Werdegar wrote, "The HCO applies to all property in the class logically subject to its strictures, that is, to all residential hotel units; no more can rationally be demanded of local land use legislation in order to qualify for deferential review." Local government officials and planners were watching the case closely to see whether the state's high court would apply the "heightened scrutiny" standard established in the Nollan and Dolan line of cases to the San Francisco law. The appellate court said that the trial court, which had originally ruled for the city, should have used the heightened scrutiny standard, which requires a close relationship between the exaction and the project's impact. The city argued for a deferential standard, under which a court could strike down a law only if it were arbitrary. The state's high court agreed. "Extending Nollan and Dolan generally to all government fees affecting property value or development would open to searching judicial scrutiny the wisdom of myriad government economic regulations, a task the courts have been loath to undertake pursuant to either the takings or due process clause," Werdegar wrote. "The majority opinion maintains the status quo," said state Deputy Attorney General Daniel Siegel, who filed an amicus brief on behalf of San Francisco. "The Court of Appeal decision altered the status quo by expanding the application of heightened scrutiny. The Court brought the law back to where it was." Deputy City Attorney Andrew Schwartz argued that the hotel conversion ordinance is a policy issue for the elected Board of Supervisors, not for the courts. The state Supreme Court decision "is important for all California, and to the extent that the California Supreme Court is a leader nationally, it is important across the country," Schwartz said. "It upholds the validity of development impact fees that public agencies across the country rely on … to mitigate the impacts of new development." But Paul Utrecht, who helped represent the hotel owners, said the decision is another indication that the state Supreme Court "has no patience" for takings law. "Except for Ehrlich , every takings case that has come across their desk has gone for the government," Utrecht said. The controversy over San Francisco's regulation of residential hotels extends back to the late 1970s, when a shortage of affordable housing became acute. In 1981, the city adopted a hotel conversion ordinance (HCO) — which the city amended in 1990 — that prohibited the conversion of residential units to tourist use unless hotel owners replaced the converted units with new affordable housing or paid a mitigation fee. When the ordinance first took effect, the San Remo was classified as a 62-unit residential hotel based on a survey of the hotel operator. The hotel owners, Thomas and Robert Field, later disputed that classification, saying they always provided a majority of rooms to tourists. City officials refused to budge and said the Field brothers would have to pay $567,000 — equal to $9,000 per room, or 40% of replacement costs — to convert the hotel to tourist use. In 1996, the owners paid the fee in protest and then filed suit in federal court, alleging violations of federal civil rights law, 42 U.S.C. 1983. A federal appellate court moved the case to state court. San Remo Hotel v. City and County of San Francisco , (9th Cir. 1998) 145 F3d 1095 ( San Remo I ); see CP&DR Legal Digest , July 1998. The San Francisco Superior Court sustained numerous demurrers from the city. On appeal, however, the First District ruled that the hotel owners should be allowed to proceed with the case at the trial court level. The city appealed that decision to the state Supreme Court. The court first tackled the question of whether the hotel owners even needed a conditional use permit for the conversion. Without getting into how many units were actually rented to "tourists" for fewer than 32 consecutive days and how many were rented to "residents" for longer stays, the court said the proposal to convert the hotel to full tourist use triggered the need for a use permit. Citing the city's Planning Code, Werdegar wrote, "A permitted conditional use may continue ‘in the form in which it lawfully existed,' but ‘may not be significantly altered, enlarged or intensified, except upon approval of a new conditional use application.' Clearly, a change from partial tourist use to complete tourist use would be a significant alteration or enlargement of the existing use, requiring a new conditional use permit." Then Werdegar reached the key issue: Is the city's ordinance subject to heightened scrutiny? The U.S. Supreme Court in Nollan v. California Coastal Comm'n , (1987) 483 U.S. 825, ruled that there must be a "substantial nexus" between an exaction and a project. In Dolan v. City of Tigard , (1994) 512 U.S. 374, the U.S. Supreme Court ruled that an exaction must be roughly proportionate to a project's impact. In 1996, the state Supreme Court applied the Nollan and Dolan case law in Ehrlich v. City of Culver City , (1996) 12 Cal.4th 854. In Ehrlich , the state Supreme Court ruled that Culver City's exaction of $280,000 in recreation mitigation fees from a developer who proposed building condominiums on the site of a defunct private tennis club was subject to "substantial nexus" and "rough proportionality" standards, and that the exaction failed to pass those tests. But, Werdegar wrote, the San Remo case was different from Ehrlich , where "the condition was imposed ad hoc, entirely at the discretion of the city council and staff." "The HCO is generally applicable legislation in that it applies, without discretion or discrimination, to every residential hotel in the city," wrote Werdegar, who picked apart the lower court's analysis. "In suggesting that an ordinance, to be considered generally applicable, must apply to ‘every other property in the city,' the Court of Appeal invoked an impossible standard, one that would be met by almost no rationally drawn land use regulation." The court then considered the hotel owners' claims that the hotel conversion ordinance itself was invalid and that the city's application of the ordinance to the project was illegal. The court sided with the city in both instances. "Plaintiffs fail to demonstrate from the face of the ordinance that fees assessed under the HCO bear no reasonable relationship to housing loss in the generality or great majority of cases, the minimum showing we have required for a facial challenge to the constitutionality of a statute," Werdegar wrote. Chief Justice Ronald George and Justices Joyce Kennard and Carlos Moreno (in his first land use case) joined Werdegar's opinion. In a concurring and dissenting opinion joined by Justice Ming Chin, Justice Marvin Baxter agreed with the majority's ruling regarding the inapplicability of heightened scrutiny. However, he wrote, the court should have set a clearer standard that considers the "cause-and-effect relationship between the owner's desired use of the property and the social evil that the fee seeks to remedy." Baxter also wrote that the court should have remanded the case so that the trial court could apply the proper standard to the takings claims, and to determine the exact number of hotel units at issue. Justice Janice Rogers Brown submitted a dissenting opinion in which she appeared to question most land use regulations. "San Francisco has implemented a neo-feudal regime where the nominal owner of property must use that property according to the preferences of the majorities that prevail in the political process — or, worse, — the political powerbrokers who often control the government independently of majoritarian preferences." "The government, in effect, says: We have the power; therefore, pay us to leave you alone," Brown continued. "By any measure, that is extortion. Moreover, it turns the takings clause on its head. Instead of the government having to pay compensation to property owners, the government now wants property owners to compensate it to get back the fair value of property the government took away through regulation." Hotel owners' attorney Utrecht said Brown "got it totally right." But the city's Schwartz said Brown holds an ideological viewpoint that "departs from all established law." The Case: San Remo Hotel LP v. City and County of San Francisco , No. S091757, 02 C.D.O.S. 2048, 2002 DJDAR 2463. Filed March 4, 2002. The Lawyers: For San Remo: Andrew Zacks and Paul Utrecht, (415) 956-8100. For San Francisco: Andrew W. Schwartz, deputy city attorney, (415) 554-4620.

The Interior Department has announced plans to withdraw temporarily "critical habitat" designations for 19 different species of salmon and steelhead throughout the West. The March revelation came in the context of a federal judge's decision to order economic impact analyses of the critical habitat designations. Greeted with predictable boos from environmentalists and cheers from builders, the move could make it easier to develop raw land throughout California. Much of the Central Valley, for example, had been designated as critical habitat because of its proximity to streams and rivers that affect anadromous fish. The Bush Administration's critical habitat move is subject to approval from U.S. District Court Judge Colleen Kollar-Kotelly, who ordered the economic impact analyses. Environmentalists complain that it is part of a Bush Administration trend – compromising on critical habitat designations rather than fighting builder-backed lawsuits over the Endangered Species Act. In fact, the recent move reveals an important trend in species protection: The Interior Secretary's interpretation of the Endangered Species Act – and, in particular, her approach to litigation – has become more important in determining the law's impact than the words contained in the law itself. To many longtime activists in the species arena, this is something of a surprise. After all, the Endangered Species Act has often been characterized as the single strongest and most inflexible environmental law ever passed in the United States – a law that contains no trap doors or escape valves, and one that has not been significantly amended by Congress in 20 years. This is part of the reason why the law has been so important in California land use battles. The parochial debates over whether to develop property or not are instantly trumped by the listing of an endangered species, meaning that biologists from the U.S. Fish & Wildlife Service essentially function as regional land-use czars when species issues are at stake. Partly because amending the law seems so difficult, however, interpretation of the law has become more important. Both sides put a lot of effort into getting the Interior Secretary to interpret the law the way they want it interpreted. And this is an approach that began not with Republicans but with Democrats. Almost a decade ago, during his confirmation hearings as President Clinton's Interior secretary, Bruce Babbitt pleaded with the Senate to allow him to enforce the Endangered Species Act as it was then written. The law had just begun to impede growth on private land in Southern California and elsewhere, and Congress was under increasing pressure from developers and others to consider weakening the law so that economic concerns could be taken into account. In the face of such pressure, Babbitt asked the Senate to confirm him and give him the chance to use the Southern California species effort – which has since come to be known, under California law, as Natural Communities Conservation Planning (NCCP) – to show that the law could work as written. In other words, he asked for leeway in interpreting the law because he feared that otherwise Congress would weaken it. Nine years later, Bush's Interior secretary, Gale Norton, is seeking leeway in interpreting the law – not out of fear that the law will be changed, but, rather out of fear that it won't. Today there is a Republican president, a Republican House, and a narrow Democratic majority in the Senate that emerged only after four years of Republican rule. Yet not one word of the Endangered Species Act has been changed since Babbitt appeared before Congress, and the likelihood that substantial legislative change will occur in the foreseeable future is nil. Needless to say, Norton has a different approach to species protection than Babbitt did. Without little chance of weakening the law, she is looking for other ways to push her agenda. So she appears to be looking to her own independent authority, which under the federal system is considerable. She can determine how to approach litigation, and she can use budget proposals as policy tools. Norton and her policy chief, former Reason Public Policy Institute president Lynn Scarlett, have advocated an approach that relies less on regulation and more on stewardship by private landowners who would be induced by government financial incentives to do the right thing. They call this approach "Citizen-Centered Conservation," and the proposed 2003 Interior budget proposal includes $100 million for the "Cooperative Conservation Initiatives," which will provide grants to communities to protect species, and $60 million for the Landowner Incentive and Private Stewardship program, which provides direct payments to landowners. Environmentalists have excoriated this approach as a sellout to Western landowners, just as they excoriated both Norton and Scarlett as anti-environmentalists when they were appointed. (The environmentalists did agree to halt the Norton-bashing after 9/11, when she had to make hard decisions about security at national parks and national monuments.) Both Norton and the environmentalists throw the word "citizen" around a lot in discussing their approaches to environmental protection, but the environmentalists appear to have a different view of citizens' role in the species protection process than Norton does. Last year, they hammered her for attempting – as part of the Interior Department budget bill – to suspend some portions of the species law that permit private citizens to petition the secretary to consider listing an endangered species. The citizen-driven listing process has always been a controversial part of the law. In practice, it permits scientists outside the government to research the status of a species and then force the Interior Department to take action. Many of the most controversial endangered species battles have begun with this kind of listing, including the famous battle over the California gnatcatcher, whose situation was first researched by a Ph.D. student in ornithology who later petitioned the government for listing. This listing process is different than other government environmental policy processes, but one that's consistent with environmentalists' view that citizens should be empowered to take action to protect the environment. It's pretty clear that when Gale Norton and the environmentalists talk about "citizens," they have different people in mind. Norton is speaking of Western landowners who control the natural resources she oversees; the environmental activists are thinking of themselves and sympathetic scientists. This is an old battle that we have seen throughout California during the last 15 years: Do you work with the landowners or fight them? The decision to withdraw the critical habitat designations suggests that the Bush administration has chosen, not surprisingly, the landowners' side. But a good environmental policy probably requires government officials to play a tricky game of working with private landowners while fighting them at the same time. As an experienced and cagey Western politician, Bruce Babbitt was pretty good at burning both ends of that particular candle. It remains to be seen whether Gale Norton is interested in trying.

This year marks the 30th anniversary of the first voter-approved growth control initiative in California. In 1972, voters in the City of Petaluma — in Sonoma County, 40 miles north San Francisco — capped approval of new homes at 500 units per year, or about half the previous year's total. Growth has remained a hot issue in Petaluma, but today it lacks the urgency it had during the 1970s. "Twenty-five or 30 years ago, Petaluma was really just thinking about itself. Now we're much more connected to the rest of the Bay Area," said Vice Mayor Mike Healey. "The regional forces have been driving things." Residential growth has slowed to below the 500-unit cap in the last few years, and rapid development of office space for the region's high-tech companies is emerging as an issue. On the local political front, the residential growth management system that voters imposed 30 years ago is overshadowed by an urban growth boundary (UGB) that the electorate approved in 1998. Residential development pressure hit a peak in Petaluma during 1969, when Caltrans completed the Highway 101 freeway from the Golden Gate Bridge into Sonoma County. Until that time, Petaluma had been mostly a dairy and poultry town that saw a few hundred new homes built annually. The freeway transformed Petaluma into the northern-most bedroom community for workers in San Francisco. In 1970, builders erected about 600 homes in Petaluma, an increase of two-thirds from the year before. The number of new homes jumped to 900 in 1971. The rapid growth overwhelmed public services: Schools went to double sessions and the wastewater treatment system failed. "Things were just getting out of hand," recalled Jack Balshaw, one the seven citizens who drafted the ballot initiative. "Basically, what got the whole community in an uproar is that the schools went on screwy sessions." Balshaw said he presented the number 500 as a starting point for negotiations, but people immediately accepted it without discussion or study. Unlike most caps approved later in other cities, the initiative did not address building permits or certificates of occupancy. Rather, it controlled the city's ability to create parcels or housing units through subdivision maps and other regulated activities. Balshaw, who later spent four years on the Planning Commission and 13 years on the City Council, said initiative supporters wanted to slow growth to a manageable rate so that the city and other public entities could provide adequate schools, streets, water lines, sewer treatment, parks and public safety facilities. Developers immediately challenged the initiative in court. But the Ninth U.S. Circuit Court of Appeals upheld the initiative in the landmark case Construction Industry Association, Sonoma County v. City of Petaluma , 522 F2d 897 (9th Cir.) 1975. The case set a precedent because the court recast the police power, said Thomas Jacobson, a professor in the Sonoma State University environmental studies and planning department. Previously, local government used the police power to facilitate development. But the Ninth Circuit said it was not unconstitutional for Petaluma voters to use the police power to dictate a slower rate of growth. Moreover, voter approval of the initiative combined with the court ruling challenged the notion that growth is always good, said Jacobson, who called the Petaluma situation "a pivotal event occurring at a pivotal time." City councilmembers were not always happy with the constraint and several times they backed ballot measures to overturn the 1972 initiative. But voters always said no. Over time, the residential growth management system became an accepted part of the political and planning landscape. Community Development Director Michael Moore said the original initiative did what it was supposed to do and has help give Petaluma a stable rate of growth for three decades. "It created an opportunity for the city to look not just at growth in numbers, but for the city to look at facilities and services," Moore said. "The system was really set up to take a long-term view of growth." Today, Petaluma's population of 56,000 is about double what it was 30 years ago. Nearly all growth during that time was east of Highway 101, creating something of an east-west rivalry in town. Downtown has very slowly morphed into a trendy shopping and nightlife district. A niche of the telecommunications industry has made its home in southern Sonoma County, and Petaluma received applications for about 2 million square feet of office space in only 18 months. Yet Petaluma remains well-connected to its rural roots. Pastures and open space surround the city. Two creameries still operate in town. Tall feed silos that hover over downtown are still in use. A handful of manufacturers and resource companies still use the Petaluma River through the middle of town for transporting materials and products. "One of the things that is attractive about Petaluma is that mixture of old and new," Moore said. A proposed specific plan commits the city to protecting the older land uses that could otherwise get crowded out. Grain silos and creameries "still support the surrounding agricultural community, and people see that as an important tie to the community's past." Hoping to further protect agriculture, Petaluma voters in 1998 approved an urban growth boundary; since then, UGBs have swept through Sonoma County to protect the vineyards, pastures and open space that contribute to the local character. Petaluma's boundary is just beyond the city's sphere of influence, and Moore worries that it places too great a constraint on the town because there are few large, vacant parcels remaining within the UGB. Further complicating the situation is the popular opposition to increasing densities within existing urbanized areas, and the city's lack of serious redevelopment efforts. In fact, redevelopment earned a bad name in Petaluma in a roundabout way. An auto mall built along Highway 101 during the 1990s was a redevelopment project. The city insisted on minimizing auto mall signs so it allowed the developer to erect one large marquee. Locals dislike the large, brightly lit sign next to the freeway and see it as a failing of redevelopment, Moore explained. Thus, there is a hesitation to increase redevelopment efforts. The city has maintained an aggressive housing program, and 22.5% of units built since 1984 are affordable. Still, Vice-Mayor Healey noted, the city will reach buildout inside the UGB in less than 20 years. He said city officials must pursue infill and redevelopment projects, which he called "healthy and challenging." "Those things would be harder to make happen if the fields around town were available, which, for the most part, they are not," Healey said. Contacts: Michael Moore, Petaluma Community Development Department, (707) 778-4301. Thomas Jacobson, Sonoma State University, (707) 664-3145. Jack Balshaw, 1972 initiative proponent, (707) 763-2846. Mike Healey, Petaluma vice mayor, (707) 778-4360.

A water connection fee charged by a special district is a development fee not subject to the constraints of Proposition 218, the Third District Court of Appeal has ruled. However, a "fire suppression" assessment levied by the same district is subject to Proposition 218 and required two-thirds voter approval. In 1994, the Shasta Community Services District, in the foothills west of Redding, approved a water service and connection fee of $2,000 for new users. The fee included a $400 fire suppression charge. In 1997, the district raised the connection fee to $3,176 based on the estimated cost of providing new capacity and the number of projected users. The district board also decided to continue levying the $400 fire suppression fee. Subdivision developers within the district filed a lawsuit, arguing that both charges were subject to Proposition 218, the Right to Vote on Taxes Act of 1996. Shasta County Superior Court Judge Richard McEachen ruled for the district. A unanimous three-judge panel of the Third District overturned part of McEachen's ruling. The court held that the connection fee clearly fell outside the boundaries of Proposition 218, which expressly excluded development fees. " he distinguishing feature between a tax or assessment and a development fee is the voluntariness of the latter," Justice Harry Hull wrote for the court. "A property owner is not compelled to pay a development fee unless and until he or she elects to develop the property. Considered as a whole, Proposition 218 was not intended to reach such fees." To meet the requirements of Proposition 218, the district would have to identify the parcels for which water service would ultimately be requested, and then conduct an election. But, Hull wrote, it would be impossible for the district to identify those parcels. Thus, the proposition could not apply to the connection charge. The fire suppression fee, however, was different. The charge was an assessment for general government services, and all such fees — even existing fees — had to comply with the election mandate of Proposition 218 by July 1, 1997, the court held. The special district never conducted an election of the fire suppression fee, so it is illegal. The Case: Jerry Richmond v. Shasta Community Services District, No. C034239, 02 C.D.O.S. 1187, 2002 DJDAR 1427. Filed February 5, 2002. The Lawyers: For Richmond: Walter McNeill, (530) 222-8992. For the district: David L. Edwards, (530) 221-0694.

Dawn Serpa is president of The Surland Companies, a private, 13-year-old residential and commercial developer that builds 100 to 200 houses per year. It is currently building Redbridge in Tracy, a 450-home project that mixes an array of housing sizes and styles in one subdivision, and plans to build Tracy's first mixed-use urban village. Unlike some developers, Serpa does not fear the "smart growth" movement. She even complains that many local regulations prevent traditional neighborhood developments. CP&DR Managing Editor Paul Shigley interviewed Serpa at her office in San Ramon. CP&DR: You do business on both sides of the Altamont Pass. How big a difference is there in the two locations? Serpa: There are still large pieces of land in Tracy, and in San Ramon there clearly aren't. There are tremendous political differences. Tracy is still a small town and still operates more like a small town. Things in that community have a lot to do with what you do in the community, how you give back to the community and how involved you are and your reputation. San Ramon is a little more strategic. It's very much by the book, follow the rules and go through the process and say a few prayers. But San Ramon is fairly friendly to development, versus Danville and Pleasanton and Livermore. CP&DR: How would you characterize the political atmosphere in the Tri-Valley area? Serpa: I tend to see things as opportunities rather than as obstacles. Many of the politicians are becoming more educated on development and on the entitlement processes and on what options are available to them. Politicians are a little bit savvier about trying to see certain development opportunities occur in their communities that benefit the entire community. And I see that as a positive. I think there are lots of ways to make money in this business. Why not make it while you are making someone else happy and doing something good for the community you are building in? I do think there are people in the industry who see it as another obstacle and just as an excuse for no-growth and an opportunity for no-growthers to stand up at a podium and condemn their projects. But I think if you really listen to what they say, the Sierra Club and most of these groups and these people ask for very specific things. They want transit-oriented development, they want sustainable development, and they can articulate those things and define them. They are sort of banking on the fact that most of us don't get it, and if we don't get it we're not going to get our project approved and, therefore, there is slow growth or no growth. But I think if you actually listen to what they say and give it to them, what are they going to say then? I'm of the mindset, give them what they are asking for. CP&DR: That's a different approach than many developers take. Serpa: Yeah. I think we spend a lot more time figuring out how we can do it, how it can be financially viable. And there are so many opportunities at the state level and at the federal level to get funding for these projects. But you do have to invest some time in figuring it all out, making sure that your team understands it and wants to go in that direction. CP&DR: Give me some examples. Serpa: The quintessential builder team is comprised of the director of purchasing and the forward planner and the VP of finance and the head of construction and the president. It just has that conventional program in terms of manpower. It's probably going to have a difficult time because they are not going to have high-level people on staff who understand these other issues that take research and a different level of sensitivity and a whole different area of experience — understanding the ins and outs of smart growth and some of these public-private partnership benefits. You need to invest some time and some money in people who have different skills than what we're used to having. CP&DR: What sort of people would you bring in to work on a project? Serpa: We have some development consultants who are specifically interested in doing infill type of development and redevelopment and revitalization. Most of the people who are interested in that can help in forward planning and putting together projects that are transit-oriented development and mixed-use, rather than a typical subdivision. CP&DR: Is it difficult to build in the Bay Area? Serpa: It's difficult if you want to do things the easy way and the way that we as developers and builders have done them for years, which is to find a site and build 100 houses with four different plan types and three different elevations and not go through the aesthetic review process. … It's difficult unless you are willing to be flexible and reinvent parts of your business. CP&DR: Does the development community as a whole recognize that? Serpa: I think they recognize it. Whether or not too many of them are willing to do anything about it is another story. It's hard to change CP&DR: What's the market like these days? Serpa: The more affordable market is stronger. The discretionary market is not as strong. People aren't as wealthy as they were last year. Job-security is an issue for people. CP&DR: Where is the market going? Serpa: It will rebound like it always does. It's going to rebound slower than most people think. The only thing that's saving us in our industry is that there is such a shortage of product in the market and there is still such a pent up demand from people who want to buy a house. But I think we're going to run through that. I happen to think things are going to get a little bit worse before they get better for some people. CP&DR: You've been building in Tracy for nine years. How have you seen that market evolve? Serpa: It's become more sophisticated. For quite a while it was a real affordable bedroom community. We sold a couple houses last year for $975,000. I think it's an evolution. What we're selling for $225,000 to $250,000 is a two-bedroom cottage that's on a 3,000-square-foot lot. It's a little tiny dollhouse. You can't get a three-bedroom ‘real' house for less than $350,000 — when the average sales price there two years ago was about $170,000. Because land prices in the Bay Area went up so high and the very basic tract homes in the San Ramon and Pleasanton area sell for $700,000, $800,000, then Tracy at $350,000 still seems like a bargain. CP&DR: Is it good, from your perspective, that prices have gone up in Tracy? Serpa: They have enough affordable housing to last them through eternity. You can't say we need that much affordable housing in one community with a population that size. They did need move-up housing so they could start seeing job-growth and seeing businesses relocate there and establish themselves there. … They were sort of a dumping ground for a while. CP&DR: Tracy seemed receptive to anything. Serpa: It was their naivete. They didn't really have the mechanisms to watch over things like that. They didn't understand how it would affect their community in years to come. So when the big growth boom occurred over the last three years, they went, ‘Woah.' And that's when Measure A passed. CP&DR: Do ballot initiatives like Measure A worry you? Serpa: They do because anything that sort of boils everything down to a number doesn't really help the bigger issue. In Tracy, their bigger problem is they just weren't getting what they wanted from the development world. … They were getting a lot of really affordable housing — not attractive housing — going up very quickly and in areas, such as view corridors, where maybe they didn't want to see that. So instead of saying we want to control the development process from a creative and visionary standpoint, they controlled it by numbers, which is what the average citizen does. They don't know how to handle it any other way. CP&DR: Do you try to head off these ballot initiatives? Serpa: The industry does – the BIA and the HBA. Some of them are not all bad. Did we actively, aggressive fight ? No. I understood where these people were coming from. It's hard to philosophically argue with people saying, ‘Hey, this is too much for us. This is overwhelming our community. We're not happy about what we're seeing.' I couldn't really disagree with them. CP&DR: What would make you life easier as a builder? Serpa: Land being less expensive. When we're not being in the position of developing the land, either the developer or the landowner understanding the bigger picture. It's difficult when everyone is gouging everyone. It's hard to have anything left to do anything great. It becomes all about cutting and cutting and just trying to eke something out. And I think that's a tragedy. It would be really nice if landowners, whether it's a farmer or whether it's a developer, would understand that to get a great project, you can't get the ‘maximum' value out of the land that you're consultant is telling you to get. CP&DR: That has to be a tough sell. Serpa: It's impossible. I don't see that changing. But I think the great projects that you see in California or anywhere in the country are generally about a developer or a landowner saying this is going to be something amazing and I'm going to do my fair share and contribute some of the profits I would make to make this thing amazing.