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In a case involving municipal zoning, the U.S. Ninth Circuit Court of Appeals has ruled that a city cannot enforce zoning regulations for signs if they require the alteration of a registered service mark. The court did rule, however, that a city can prevent a company from erecting an awning containing a service mark. The case arose in Tempe, Arizona, where Blockbuster Video and Video Update, two national chains, rented space in two separate shopping centers. All exterior signs in Tempe's shopping centers must conform to the center's sign package, which specifies such things as the color, size and location of the signs. The package is created by the owner of the center, and is reviewed and approved by the Tempe Design Review Board, which can grant variances. Video Update was not allowed to use its signature color pattern on its sign, while Blockbuster was not allowed to construct its blue awning service mark. Both corporations sued the city, and the district court granted a preliminary injunction requiring Tempe to allow Blockbuster and Video Update to displace their registered service marks. The three-judge panel of the appellate court ruled in Video Update's favor and against Blockbuster. The case hinged on the interpretation of the federal Lanham Act 15 U.S.C. Section 1121 (b), which states "No state...or any political subdivision or agency thereof may require alteration of a registered mark ..." In an opinion by Circuit Judge David R. Thompson, the judge wrote, "The color red is a characteristic of Video Update's mark. By requiring Video Update to change the red color of the lettering on one of its signs to white letters on a turquoise background, Tempe required Video Update to 'alter' its service mark. This alteration violates Section 1121(b) of the Lanham Act." But the judge distinguished the Lanham Act in Blockbuster's case, noting that Section 1121(b) speaks only to the alteration of a mark, and does not require cities to allow businesses to display their registered mark. "A municipality retains the power to prohibit the use of a registered mark altogether," he wrote. "Thus, Tempe could prevent Blockbuster from installing its awning service mark on the outside of the building it leased in the shopping center." The court noted that Congress limited section 1121(b) to prohibiting any alteration of the mark itself. " state, political subdivision or agency remains free to regulate where and whether signs may be placed and how large they may be," Thompson said. Looking at the legislative history of the Lanham Act's adoption, the court said it was unlikely that "Congress intended the broad zoning exception that Tempe seeks." The court noted that a trademark is recognized by having a uniform appearance in design and color, so that customers will recognize it. Two federal cases, the judge said, show that color is so important that "the color itself can be registered as a trademark because customers identify a particular brand by its color." Qualitex Co. v. Jacobson Prods. Co., 115 S. Ct. 1300, 1303 (1995), and In re Owens-Corning Fiberglas Corp., 774 F. 2d 1116, 1127 (Fed. Cir. 1985). Circuit Judge James R. Browning dissented in part and concurred in part of the opinion. "There is no reasoned basis for drawing a distinction for purposes of Section 1121 (b) preemption between local regulation of color and or architectural features. Color and architectural features are analogous aesthetic components of registered trademarks. If Congress intended to leave localities free to prohibit the use of architectural features, surely localities can also control the use of color." Browning contended that the majority adopted "an extreme interpretation of the Lanham Act that will give trademark holders the absolute right to display their marks, free or regulation, no matter how garish and inappropriate they may be..." The Case: Blockbuster Videos, Inc. v. City of Tempe, No. 97-15535, 98 Daily Journal D.A.R. 3811 (April 16, 1998). The Lawyers: For Tempe: Clifford Mattice, City Attorney, (602) 350-8227 For Blockbuster/Video Update: Marcia B. Paul, Kaye, Collyer & Boose, (212) 940-8200. For Video Update: David K. Jones, (602) 340-0900.

Ask any local government veteran in California what has most hurt their cause and the answer will very likely be Prop 13. Since 1978, the infamous taxpayer revolt and its aftermath has been blamed for every public service woe in the book: closed libraries, lack of police protection, dying street trees, indeed faith in government itself. Yet a growing body of research suggests that per-capita spending by cities in California has not changed from that of pre-Prop 13 years. And nearly all observers of municipal finance agree that spending for police and fire services far surpasses that of the early 1970s. How can this be possible, since cities' primary source of general fund expenditures - property taxes - was severely limited in the complete restructuring that the initiative implemented? For answers, we checked in with Michael Coleman, A policy analyst for the League of California Cities. His data confirms that property tax dropped precipitously. Indeed, inflation-adjusted per capita revenues from property taxes have dropped from $150 in 1978 to about $75 in 1995. But the drop was mostly an instant free-fall: the worst year was actually 1979, right after the revenue pie was re-sliced. In that year, property taxes dropped to only $50 of per capita revenue. Since then, the numbers have ebbed and flowed along with assessed valuations, actually growing to about $105 in 1992. In planning lore, Prop 13 has forced cities to grovel for sales tax revenues, accounting for much hand-ringing about the zero-sum gain of fiscally-based land use decisions. But truth be told, revenues from sales tax are actually lower than in pre-Prop 13 years. In 1978, about $125 of cities' revenue per capita came from sales tax, on average. But in 1995, this figure had declined to only $100. Taxes aside, the total revenue picture hasn't really changed in all of this time. While 1978 was a peak year for per capita revenue for the state's cities ($750 dollars), overall revenues have essentially remained stable. For example, 1975 totals were approximately $630 per capita, as were they in 1994. Special taxes, utility user taxes, and transportation sales taxes pumped the revenue pie back up. So how come libraries are closed and tree wells are paved over? In part, because new police cars and rapidly growing administrative salaries consume a much greater portion of the municipal expenditures, to the detriment of not so fortunate services. According to the Coleman's research, police and fire spending are up an inflation-adjusted 50% since 1976. Meanwhile, parks, libraries, and long-range planning are down. Parks is the most dramatic victim - down 24% since 1976. It's a fair bet that a larger proportion of overall expenditures go to white collar salaries at city hall. In an annual review of public employee salaries conducted by the Vacaville Reporter, Karen Nolan noted that Vacaville's public works director collects a base salary that is 47% higher than 20 years ago - after adjustments for inflation. The city's police chief is an adjusted 24% higher than in 1997. And this is a pattern that is mirrored throughout California. When faced with such data, why is it that Prop 13 stirs such acrimony amongst dedicated public servants? Fred Silva, research director for the San Francisco-based non-profit Public Policy Institute has theory. "There is no city-wideness to fiscal policy anymore," he surmises. The post-Prop. 13 fiscal system offends the public servant's sense of propriety, and complicates the mission to provide for the broader public interest. It's a loss of city wide-ness. But whose public and whose interest? Silva points out that "Prop 13, along with the Coastal Act, were exactly the types of policies that reformist governor Hiram Johnson had in mind when he invented the initiative process in 1910." Prop 13 would have happened with or without Howard Jarvis, because it was a fundamental reaction to a legislative/statehouse impasse in resolving a widely understood problems in the annual property assessment system. So when it comes to local government financing, maybe the question should not so much be "how much?" but "how?" In this 20th anniversary of the passage of Prop 13, let us take comfort in the fact that the blood is still in the turnip. But at the same time, let us pay greater attention to how we slice it.

The City of Wasco in Kern County is trying to stave off municipal bankruptcy as a result of a series of problems with Marks-Roos and other bonds. The possibility of bankruptcy compounds the legal and financial problems facing the city, including a "cease-and-desist" order in May from the U.S. Securities & Exchange Commission which bans the agencies from issuing further bonds. Wasco was one of three California municipalities, including the City of Ione and Nevada County, to consent to the cease-and-desist orders. Both Wasco's financial straits and the SEC order are evidence of the mounting problems stemming from the poor performance of certain Mello-Roos and Marks-Roos bonds, particularly when used to finance speculative real estate projects. The city owes nearly $12 million in both bond payments and legal judgments, although the city's annual budget is only about $8 million, according to the California Debt and Investment Advisory Commission. Many of Wasco's current difficulties center on defaults on bond payments on a golf course in the city. In 1989, Wasco Public Finance Authority spent $8.86 million of bond proceeds to finance the construction of the Valley Rose Golf Course. Under the repayment structure, the bonds were to be repaid by golf course revenues, and the city would make up any shortfall in payments out of the city's general fund. In addition, the city itself leased the golf course from the developer, and attempted to run it as a business. The golf course, however, has never been profitable, and the city is at least $2.75 million in arrears on lease payments. Last November, a Kern County Superior Court judge issued a statement of intended decision that required the city to make the late lease payments, plus interest of 12% annually after November 1997. In the same statement of intended decision, the judge authorized the bond trustee, State Street Bank and Trust Co., to pursue deficiency judgments against the city directly. The judge also approved foreclosure proceedings against the golf course. To date, however, the city has been unable to make any further lease payments on the golf course, according to the Debt and Investment Advisory Commission. A court-appointed receiver is in charge of all golf course revenues. The city, which has gained notoriety in financial circles for both its high debt level and its troubled land-based bonds, is hoping to find a negotiated solution with bond trustees, to avoid filing Chapter 9 bankruptcy. "We have decided not to take that drastic step without evaluating every possible means to avoid it," said contract city attorney Tom McCartney. The city may face a challenge, however, in convincing the bond trustee to renegotiate the level of the bond payments, according to McCartney. He reported that the bond trustee of a golf course in Wasco financed by a Marks-Roos bond, State Street Bank & Trust Company of Boston has indicated ominously that "legally, it cannot compromise the rights of the bond holders. Therefore, as a corollary to that, it cannot compromise the lease obligation," that is, the lease payments that the city is making on the golf course. As a result, he said, "the trustee has taken the position that he will force us into bankruptcy, unless we can compensate the bondholders." The city is currently consulting with financial experts to review its options, according to McCartney. One state official, who asked not to be named, said one possibility for Wasco is an "asset transfer" sale, in which the city sells off a major asset, such as a utility or water company, leases back the services, and uses the sales proceeds to pay off the bond debt. Wasco has both water and sewer districts that could possibly be sold. Wasco has other obligations and judgments, as well. The city has also defaulted on $4 million of industrial development bonds, and may be facing a lawsuit from an attorney the city had hired to sue Richardson and First Capital, who has now sued the city for non-payment. Troubles with Wasco's golf course are part of a larger set of difficulties stemming from land-based bonds underwritten by First California. In February, the U.S. Securities & Exchange Commission charged three California bond issuers with securities fraud. Significantly, all of the securities at issue were Mello-Roos and Marks-Roos bonds underwritten by the San Diego-based firm of First California Capital Markets Group. The federal agency charged the Wasco Public Finance Authority, the City of Ione, and Nevada County with a variety of offenses, centering on failure to make disclosures in official statements about the true nature of the risks entailed in development projects that were to provide the revenue to pay off the bonds. Among the charges: o For a $35 million Marks-Roos bond issued in 1989 by the Wasco Public Finance Authority, the official statement for the offering to investors failed to warn investors that the projects were "highly contingent, if not speculative." o For a $9.07 million bond issued in 1991 by Nevada County to finance the Wildwood Estates residential project, the official statement misrepresented the value of the property, the developer's experience and financial qualifications, and the plan by which the developer intended to finance the project. The developer of the 286-acre project reportedly abandoned the development shortly after receiving the bond proceeds. o For a $14 million Mello-Roos bond issued in 1991 by City of Ione for the Castle Oaks Residential project, which includes a golf course, the official statement misrepresented the developer's ability to complete the project with the bond proceeds alone, the value of the underlying land, and the adequacy of other funding sources to enable the developer to complete the project. Specifically, the statement failed to mention that the project needed $3 million more than the $7.5 million being provided out of the bond proceeds. The securities-fraud charges and the subsequent cease-and-desist order in May were the outgrowths of a two-year investigation by the federal agency into municipal bond fraud. In May, all three municipalities consented to a "cease-and-desist" order from the SEC, which essentially banned those agencies from issuing further securities for the time being. Two other defendants, including Virginia Horler, a Dain Rauscher securities broker who was a financial consultant to Nevada County and William McKay, A real estate appraiser who worked for both Ione and Nevada County, have not settled with the SEC and are scheduled to appear before an administrative law judge in July. Contacts: Tom McCartney, contract city attorney, City of Wasco, (805) 327-4147. Riley Walter, bankruptcy attorney for the City of Wasco, (209) 438-2390.

In the latest in a long line of cases challenging the constitutionality of San Francisco's hotel conversion laws, the Ninth U.S. Circuit Court of Appeals has sent one hotel owner back to state court. The case involves the longstanding attempt by the owners of the San Remo Hotel to have the city officially recognize their hotel as a tourist hotel. San Francisco has had strict restrictions against the conversion of residential hotels to tourist use in place for almost twenty years. When the first "hotel conversion ordinance" was passed in 1979, the San Remo Hotel in North Beach was operating as a tourist hotel. However, when Thomas and Robert Field began operating it in 1984, it was classified as a residential hotel. Under a 1987 zoning law for North Beach, new tourist hotels require conditional use permits, while existing tourist hotels were classified as non-conforming uses. In 1990, the Fields requested under the hotel conversion ordinance that their hotel be officially re-classified as a tourist hotel. Because of the 1984 classification, however, the San Remo was never listed by the city as a non-conforming use and therefore the Fields were required to obtain a conditional use permit under the North Beach zoning ordinance. Field first contended before city administrative agencies that he did not need a conditional use permit because his property was a non-conforming use that pre-dated the 1987 zoning ordinance. However, the Board of Permit Appeals rejected this argument, claiming that Field was bound by the residential classification under the hotel conversion ordinance and therefore required a conditional use permit. In 1993, the Planning Commission approved Field's request for a conditional-use permit, provided that Field paid 40% of the cost of replacement units to make up for the loss of the 62 residential units and that Field offered lifetime leases to existing long-term tenants. Field then sued the city in federal court under 42 U.S.C. 1983, the federal civil rights law, claiming that the hotel conversion ordinance (as amended in 1990), was unconstitutional both on its face and as applied in this case and seeking damages. Field also argued that the 40% fee was a violation of both procedural and substantive due process. In 1996, U.S. District Court Judge Lowell Jensen ruled against Field and also refused him permission to amend the complaint to state an equal protection claim, reasoning that it would be futile. Field later dropped the due process claims but appealed Jensen's ruling on the constitutionality issues. In addition, the Fields argued on appeal that under the so-called "Pullman abstention", the federal courts should refrain from deciding the takings question - a strategy usually undertaken by government agency defendants seeking to avoid federal court, rather than plaintiffs. On appeal, the Ninth Circuit panel ruled against the Fields on both the facial and as-applied takings cases - ruling that the case was not ripe for federal review under Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172 (1994). Regarding the facial challenge, the court wrote: "Field has not filed an inverse condemnation action in state court, and therefore has not been denied compensation by California. It follows that Field's facial takings claim - insofar as it alleges the denial of the economically viable use of his property - is unripe." This is especially true, the court said, in light of the famous First English Evangelical Lutheran Church v. County of Los Angeles case, 482 U.S. 304 (1987), which re-established inverse condemnation claims in California state courts. Similarly, on the as-applied taking claim, the Ninth Circuit concluded that the claim was not ripe because the Fields had not pursued an inverse condemnation claim in state court. Regarding Judge Jensen's denial of Fields' attempt to add an equal protection claim - which arose after the Fields conceded defeat on the due process claims - the court concluded that such an amendment would have been futile under Younger v. Harris, 401 U.S. 37 (1971). Finally, the court granted the Fields unusual request - unusual for a plaintiff, at least - that the federal courts abstain from deciding the takings issue under Railroad Comm'n v. Pullman, 312 U.S. 496 (1941). The Pullman abstention requires the plaintiff to require a definitive ruling in state courts regarding state law before returning to federal court. It is typically used by government agencies that are defendants as a mechanism for removing cases from unsympathetic federal courts. "Unsurprisingly," the Ninth Circuit panel wrote, "the City views Field's request for abstention as an outrageous act of chutzpah, and argues that Field should be stuck with the federal forum he chose. Although we have some sympathy for the city's position, we agree with Field that a plaintiff may raise Pullman abstention just as a defendant may, and he may do so for the first time on appeal." However, the court concluded that the Pullman abstention "does not exist for the benefit of either of the parties but rather than for the rightful independence of the state governments and for the smooth working of the federal judiciary....There is no reason why federal defendants should have a monopoly on preserving the harmonious functioning of the federal and state court systems." On the merits of the Pullman issue, the court concluded that the case hinges on an interpretation of the city's ordinance - specifically, "the meaning of a prior non-conforming use under state law," which the Ninth Circuit concluded is properly a question for California state courts. The Case: San Remo Hotel v. City and County of San Francisco, No. 96-16843, 98 Daily Journal D.A.R. 5827 (issued June 3, 1998). The Lawyers: For San Remo Hotel and the Fields: Andrew M. Zacks and Paul F. Utrecht, (415) (821-0347 For City and County of San Francisco: Andrew Schwartz, Deputy City Attorney, (415) 554-3800.

In a move that promises to bring a planning commission back to Kern County, the county board of supervisors voted 3-2 on June 17 on a measure directing planning staff to recommend ways to reinstitute the long-disbanded body. The decision was applauded by activists who had complained that the public had not received adequate notice of public hearings, nor provided enough input into projects in their early stages. The county's planning director also welcomed the decision, which he said would assist in exploring new policy directions, including the update of the county's general plan and a new system to rate the importance of agricultural land. County staff is expected to deliver a response to the supervisors on August 3. "It was a good policy decision to bring it back," chief of staff for Kern County Supervisor Jon McQuiston, who spearheaded the June 21 vote. "We are only one of two counties that did not have a planning commission, and the other county is 99% trees." The county disbanded its former planning commission in 1981 in the name of streamlining. In 1992, however, the county took the half-measure of instituting a seven-member "planning advisory board," to evaluate the San Emidio new town just north of Grapevine and subsequent major projects. The advisory board meets only occasionally to consider major projects. "With the growth that is continuing to occur, people want to know what is going, and they want to understand. They want more access to the process," said Ronald Brummett, executive director of the Kern County Council of Governments. In recent years, he added, there have been "several incidents, at the county and Bakersfield and COG (i.e. council of government) levels, where there have been projects about which people in the greater community wanted to have their voices heard, to be able to state their opinion." One "incident" that galvanized support for a planning commission was an amendment to the metropolitan Bakersfield general plan that won approval after a very limited public hearing. The property at issue was a 1,300-acre unincorporated area in the city's sphere of influence, known as the Coberly-Etcheverry property. County supervisors voted 5-0 in October to approve the change in land-use designation, which changed the zoning from agriculture to residential, and also certified a negative declaration on the requirement for an EIR. Despite his support for the general plan amendment, McQuiston proposed a motion in October, approved 5-0, that authorized the planning department to report back to the board on the advisability of reinstituting the planning commission. Craig Peterson, McQuiston's chief of staff, said McQuiston's decision was motivated both by a respect for a more inclusive public process, as well as a feeling that the supervisors were getting bogged down in examining the minutiae of projects. McQuiston, he said, had "wound up spending more time on Coberly-Etcheverry than he had spent on major problems, like our financially troubled medical center." The supervisor, Peterson added, "said his time should be spent on policy-making decisions, as opposed to handling planning-commission issues." Also supporting a new planning commission was a community group known as Smart Growth Coalition, which has a mailing list of 150 households. The group favors development in existing urbanized areas and opposes urban sprawl and leap-frog development but stops short of urban-growth boundaries, according to president John Fallgatter, a Bakersfield insurance agent. He said a planning commission was needed to facilitate public comments on projects. "We felt that the lack of a planning commission prevented adequate information getting to the public in a timely fashion. And so the real push was to allow more public input in to what was going on," he said. The existence of a commission, in fact, "helps the developer," he said. Rather than invest years of work in a project, only to see it killed by public outcry at the last minute, the planning commission process would include public hearings earlier in the development process, and allow the developer to make the changes that will render the project politically acceptable, according to Fallgatter. "The way it was structured here, a project got basically one shot in front of a public entity way down the road," Fallgatter said. Fallgatter was critical of the planning advisory board, however, saying it met too seldom to provide policy leadership in planning issues. "It typically met twice a year, if that often," he said. Maintaining consistent and complimentary policy is a badly needed role that could be filled by a planning commission, according to Fallgatter. County supervisors have approved major projects in unincorporated county areas, without regard to the metropolitan Bakersfield general plan, he claimed. "There was a 2010 Plan, and it has been chewed up. There is no consistency here," Fallgatter said. "The developer goes in and says. 'This is a crap shoot.' More often than not, they get their way. I am not knocking the development community. It's using the system as it is set up." The concept of a new planning commission is not universally supported. Earlier this year, the planning advisory board held four public hearings on the question of whether a planning commission should be convened, The county Planning Advisory Commission in May recommended against reinstating the commission, and forwarded a series of recommendations to the supervisors intended to improve the public-hearing process, such as earlier notification and expanding the radius of property owners to be notified beyond the 300 feet currently required by county law. The local Board of Realtors, an organization which often sides with the building industry in opposing development guidelines, holds that "county's existing planning staff and process are highly responsive to citizens' concerns, and do an excellent job of public outreach in general," according to Sheila Henderson, president of the group, in a letter to the Planning Advisory Committee. And, surprisingly, the Kern County Grand Jury, concluded in January that the county's method of evaluating projects was adequate and did not need a planning commission. Ted James, the county's Planning Director, seemed ebullient about the possibility of a more coordinated planning policy made possible by a planning commission. He said he was pleased particularly because the planning commission could participate in the upcoming update of the county's general plan. Part of that plan is to devise a policy about the preservation of farmland, which is one of the most debated issues in Kern County. James said one possibility was to emulate the "point" system developed by Tulare County to rate the importance of farmland. Properties that receive high rankings as prime "ag" land in a county "survey" remains zoned for agriculture. James said his recommendations to the board on the new planning commission would also propose some new guidelines on public-hearing notification, including an expansion of the current 300-foot limit on property owners to be notified. In addition, he plans to recommend different methods of appointing the planning commissioners, possibly allowing each supervisor to appoint one commissioner, plus an alternate commissioner to ensure a quorum. That approach worried Fallgatter of the Smart Growth Coalition about the commission's independence, however. "We don't want the planning commission to be a carbon copy of the Board of Supervisors," he said. Contacts: Ted James, director, Kern County Planning Department, (805) 861-2099. Ronald Brummett, executive director, Kern County Council of Governments, (805) 861-2191. Craig Peterson, chief of staff to Jon McQuiston, Kern County Supervisor, (805) 363-8463. John Fallgatter, President, Smart Growth Coalition, (805) 868-3650.

The federal Bureau of Reclamation violated the Endangered Species Act by renewing Friant Dam water contracts prior to completing required consultations with the U.S. Fish & Wildlife Service and the National Marine Fisheries Service, the Ninth U.S. Circuit Court of Appeals has ruled. The court has also overturned District Court Judge Lawrence Karlton's decision that environmentalists' challenges to the renewal of the water contracts under the California Fish & Game Code were moot. The case involves the Bureau's decision to continue renewing water contracts with local irrigation districts in the San Joaquin Valley after the passage of the Central Valley Project Improvement Act in 1992 - a law that imposed new environmental requirements on CVP water contractors. The Bureau had begun renewing CVP water contracts in 1988, but when the CVPIA was passed four years later half of the 28 water contracts were still pending. The CVPIA imposed several new requirements on the Bureau. Among other things, it restricted water contracts to 25 years in length rather than 40, and it required the Bureau to prepare an environmental impact statement on the contract renewals. Among the complicating factors in the water contract renewals was the listing of the winter-run chinook salmon as endangered. The Natural Resources Defense Council and other environmental groups who sued the Bureau claimed that the Bureau violated the federal Endangered Species Act by not concluding satisfactory consultation with the two agencies that deal with endangered species, the National Marine Fisheries Service and the U.S. Fish & Wildlife Service. In response to the lawsuit, Judge Karlton rescinded the contracts issued after the winter-run chinook was listed. NMFS has jurisdiction over the winter-run chinook. Rather than consult initially with the agency, the Bureau of Reclamation independently concluded that the renewal of the water contracts would not harm the winter-run chinook and then sought NMFS's concurrence. NMFS responded by disagreeing with the Bureau of Reclamation's conclusion, but also by adding that it did not believe a consultation was necessary under the species law. In the appellate ruling, the Ninth Circuit concluded that both agencies were wrong. "The Bureau had an affirmative duty to ensure that its actions did not jeopardize endangered species, and the NMFS letter clearly disagreed with the agency's determination of no adverse impact," the Ninth Circuit wrote. "Under those circumstances, regardless of the NMFS position that a formal consultation was 'unnecessary', the Bureau had a clear legal obligation to at least request a formal consultation." By not doing so, the court wrote, the Bureau "acted arbitrarily and capriciously and not in accordance with the law". For that reason, Judge Karlton was correct in rescinding the contracts. The Ninth Circuit found a similar flaw in the Bureau's consultation with the Fish & Wildlife Service, which has jurisdiction over several other protected species in the Friant Dam area. In this case, although information consultation had take place over a two-year period, the formal consultation was not requested until after a number of the contracts had been renewed. "Even where there is a 'no jeopardy' biological opinion, the service may make non-binding conservation recommendations," the court wrote. "The failure to respect this process mandated by law cannot be corrected with post-hoc assessments of a done deal". In other aspects of the ruling, the court also concluded that: o Individual circumstances involving a number of local irrigation districts did not require the court to set aside Judge Karlton's contract rescissions in those situations. o While the Bureau of Reclamation may have violated the National Environmental Policy Act by not preparing an environmental assessment or EIS as required by the CVPIA, this question was rendered moot by Judge Karlton's action of rescinding the contracts. o Judge Karlton erred in ruling that the environmentalists' challenge to the water contract renewals under California Fish & Game Code §5937 was not ripe. This section requires that dams allow sufficient water to pass in order to keep fisheries in good condition. Judge Karlton ruled that this challenge was not ripe because the question of whether the federal government must abide by §5937 is in dispute. However, the Ninth Circuit concluded that the section is not pre-empted by federal law in its face, and therefore the court remanded this challenge to Judge Karlton for further action. The Case: NRDC v. Houston, No. 97-16030, 98 Daily Journal D.A.R. 5872 (issued June 24, 1998). The Lawyers: For NRDC and other environmental groups: Philip F. Atkins-Pattenson, Sheppard, Mullin, Richter & Hampton, 415) 434-9100. For Friant Water User Authority: Gregory K. Wilkinson, Best, Best & Krieger, (909) 686-3958. For Bureau of Reclamation: Louis J. Schiffer, U.S. Department of Justice.

In a major victory for environmentalists, Unocal has agreed to a settlement that will clean up 400,000 gallons of petroleum contamination in Avila Beach, an unincorporated area south of San Luis Obispo. The June settlement is being called the largest Proposition 65 settlement in state history and is believed to be the first time a company has been forced to remove contamination and rebuild a community. "This is the biggest cleanup since Love Canal," said Richard Drury, legal director of the environmental group Communities for a Better Environment in San Francisco. The action came after years of wrangling on the issue, with pressure applied from a lawsuit filed by CBE, the local Avila Alliance and the Environmental Law Foundation. The California Attorney General's office, the county, and the Regional Water Quality Control Board later joined in the suit, which charged violations of state and federal Clean Water laws, as well as of Proposition 65 for illegal discharges to a source of drinking water. Unocal has had a marine loading facility in Avila Beach for about 100 years, according to Ken Alex, a deputy attorney general for the state. Pipes connect the facility to 14 storage tanks on a hill above the town, and those pipes leaked into the groundwater. A small amount of the pollutants has leached from the soil and is flowing into the Pacific Ocean, he said. Unocal covered the beach with thousands of pounds of sand to keep the oil from surfacing during recent winter storms. Among the petroleum products found to have been spilled were gasoline, diesel, crude oil and MTBE, according to an analysis done by CBE. The analysis found significant levels of benzene and toluene, which are considered toxic. Many people familiar with Proposition 65 think of it as solely a toxic warning statute. But the law, passed by California voters in 1986, has a second provision which prohibits the discharge of toxic chemicals to potential sources of drinking water. Drury, CBE's legal director, said that the provision is also being used to challenge other groundwater contamination problems in the state, including lawsuits against Rocketdyne in Simi Valley in Ventura County and Aerojet in Sacramento County. Under the Avila Beach agreement, Unocal will pay an $18 million penalty to local and state groups, with much of the money being used for environmental restoration in Avila Beach. A half million dollars will go to the State Oil Prevention Spill Fund, and $1.5 million to attorneys for the environmental groups. Additionally, the agreement calls for the oil company to excavate contamination from huge chunks of the small town - about 40 parcels of land that include a small business district and residences. Many of the buildings will be torn down and rebuilt. That project is expected to take over a year and cost between $70 million and $200 million. Drury described Avila Beach as a low income community, with a large portion of residents living in mobile homes. About 350 people live in the community. Dennis Lamb, Unocal's manager on the project, said he is uncertain as to how the rebuilding will look, since the county has not yet prepared a specific plan for the area. Current plans are to complete the work by the year 2000. Alex Hinds, the county's planning director, described Avila Beach as a "very eclectic group of buildings" or "1950s California coastal funk," that hadn't changed much in 40 years. Some historic buildings, such as the yacht club, will be saved, he said. Hinds said the consensus at this point is that residents don't want the town to look like just another modern coastal community. As part of the settlement, Unocal will also donate land in Avila Beach valued at $1.5 million to the county. Originally, Unocal officials had opposed excavation, and instead promoted biosparging, which is a technique involving the injection of oil-eating bacteria into the contaminated area. Lamb called it a "high-tech, less intrusive method." But it was opposed because it would take an estimated 75 years to clean the spill, according to CBE officials. Other lawsuits by Avila Beach residents are still pending against Unocal. Cotchett & Pitre, a Burlingame law firm, recently filed about 20 lawsuits based on negligence and nuisance claims. The settlement agreement provides funds for a number of restoration projects for the town, including: o The $ 6 million Avila Beach Restoration Trust, with $2.5 million to be used for studies and restoration of injuries to animal and plant life due to the contamination, and another $3.5 million for restoration of public facilities affected by the oil release. The trust will be administered by the National Fish and Wildlife Foundation. o A $1 million endowment fund for water quality improvements The recent settlement does not cover the contamination at Unocal's tank farm, a hilly area in Avila Beach where storage tanks stood until recently. The tank farm served at times as a refinery and as one of the West Coast's major oil distribution facilities. A study by Unocal showed that nearly a foot of pure petroleum products had accumulated on top of the groundwater in some spots, according to the San Luis Obispo Telegram-Tribune. Unocal is working with the regional water quality control board on an assessment plan on the contamination, Lamb said. Unlike the other contamination in the town, the tank farm which is on 90 acres, is all on private property, he said. There's no information that contamination from the tank farm is migrating anywhere, he said. Drury of CBE and Saro Rizzo, attorney for the Avila Alliance, are expected to file another lawsuit on the tank farm contamination soon. The contamination problem in Avila Beach was discovered in 1989, when a local resident was digging a basement and hit oil, Drury said. About the same time, fumes from the pollution in another basement caused an explosion. Contacts: Ken Alex, Deputy Attorney General, (510) 286-1219. Dennis Lamb, Manager of Avila Beach affairs for Unocal, (805) 595-7657. Steve Williams, Cotchett and Pitre, (650) 697-6000. Richard Drury, legal director, Communities for a Better Environment, (415) 243-8373. Saro Rizzo, Avila Alliance, (805) 783-2050. Case Name: Avila Alliance, et al. v Unocal Corporation, et al., case no. CV 079728

Reiterating earlier court decisions stating that "neither the public nor a public service corporation could tolerate as many standards and policies as there were towns, cities, or boroughs through which they operated," the Fourth District Court of Appeal has ruled that the City of Carlsbad may not require San Diego Gas & Electric Co. to remove dredged sand from its beach. San Diego Gas & Electric has dredged the Agua Hedionda Lagoon in Carlsbad ever since the early '50s, when it first constructed the Encina Electrical Generating Plant. The dredging is required to permit sea water to be used for cooling the plant's electrical generating units. The dredging spoils are typically piped westward to an adjacent beach owned by the State Lands Commission and operated by the California Department of Parks & Recreation. The beaches in the Carlsbad area have undergone severe erosion in recent years. Ten years ago, Carlsbad adopted its floodplain management ordinance, which requires a special use permit for any structure in floodplain areas. SDG&E resisted compliance with this ordinance but agreed, under protest, to a five-year special use permit for dredging in 1993. Two years later, the city ordered SDG&E to place the spoils on a different beach about a mile north of the typical location to which SDG&E spoils are pumped. SDG&E did not appeal the conditions of the permit, but began dredging in violation of the permit. City ordered work stopped. In response, SDG&E appealed unsuccessfully to the Carlsbad City Council and then sued. Carlsbad cross-complained and also obtained an advisory opinion from the state Public Utilities Commission staff stating that the city would not be pre-empted from its jurisdiction over where to place the sand. However, SDG&E won a motion for summary judgment in the trial court, which concluded that the ordinance represented a thinly disguised attempt to regulate a public utility in violation of state law. On appeal, the case boiled down to a contest between state public utilities law and state planning law. The state has clearly pre-empted public utilities regulation by local government. But the city argued that the floodplain ordinance represented an area of that is not specifically regulated by the PUC and therefore is not pre-empted. But the Fourth District disagreed. "Here, City's regulation of a special use permit for dredging, placing conditions on the exercise of SDG&E's right to dredge, on its face places a significant physical and economic burden on SDG&E's operation and maintenance of its facilities," the court wrote. "...This form of regulation goes beyond City's police power into a field that is significantly and fully occupied by the state in such a manner as to indicate clearly that a paramount state concern will not tolerate further or additional local action." In addition, the court rejected the city's argument that the trial judge should have specified whether the floodplain ordinance violated the state constitutional provisions covering public utilities facially or as applied. Clearly, the court said, this was an as-applied challenge and the trial judge was not required to deal with a facial challenge. Carlsbad also contended that the city was permitted to impose the floodplain regulations pursuant to the Coastal Act and that regulatory mechanisms that appear to conflict can co-exist so long as they serve different purposes. But the court rejected this argument as well. "Essentially," the court wrote, "the floodplain ordinance adds another layer of regulation to the operation and maintenance of the utility plat," creating an illegal "checkerboard of regulation by local governments". The court also rejected a proposal by many cities that filed as amici curiae to establish standards permitting local regulation if no state or PUC regulation exists. These standards "disregards the rule of implied pre-emption and would promote endless litigation," the court wrote. The Case: San Diego Gas & Electric co. v. City of Carlsbad, No. d027407, 98 Daily Journal D.A.R. 6042 (issued June 9, 1998). The Lawyers: For San Diego Gas & Electric: Jeffrey A. Chine, Luce, Forward, Hamilton & Scripps, (619) 699-2545. For City of Carlsbad: Ronald R. Ball, City Attorney, (619)434-2891.

An appellate court has overturned a significant ruling by a trial judge in San Bernardino County that sought to adjudicate conflicting claims on groundwater in the Mojave River Basin. The Fourth District Court of Appeal, Division 2, ruled in favor of farmers who will likely be forced to change their water usage as a result of the sweeping decision issued in 1995 by Superior Court Judge E. Michael Kaiser. In the ruling, Kaiser consolidated a series of conflicting water claims and sought to make an "equitable apportionment" of water rights to all water users in the basin. But in overturning portions of Kaiser's decision, the Fourth District ruled that the judge had erroneously ignored the farmers' "overlying" water rights. However, the Fourth District stopped short of overturning the entire ruling. Rather, the court called upon all parties to stipulate to a new agreement that recognizes the farmers' water rights. The Mojave River Basin litigation emerged from the conflict between rapid urban development and continued agricultural cultivation in a groundwater basin that is already overdrafted. The adjudication overseen by Judge Kaiser began with a suit brought by the City of Barstow against the City of Adelanto, the Mojave Water Agency, and a series of other upstream users. The water agency then filed a broad-ranging cross-complaint that opened the door for a full adjudication. The Mojave River basin water rights issue was complicated because thousands of well owners, including farmers and municipalities, used a wide variety of legal theories in order to assert their claims. Instead of sorting through these claims one at a time, however, Judge Kaiser chose to take the bold step of applying a doctrine known as "equitable apportionment." Refusing to grant legitimacy to any individual water claim, he concluded that all users were at fault because virtually all development in the region has taken place since the overdraft problem first arose in the 1950s. Therefore, he ordered all parties involved to share in water cuts and named the Mojave Water Agency to serve as "water master" of the region. Under Kaiser's plan, all water users in the basin are required to participate in a "rampdown," reducing their water usage over a period of several years until the overdraft is eliminated. Water users that use more water than called for in the rampdown plan will pay assessments to the Mojave Water Agency, which will use the money to buy water rights from other water users in the basin or from the State Water Project. The ruling was expected to drive some farmers out of business and thus facilitate urban development. Some lawyers predicted that alfalfa farmers, who use large amounts of water, may not be able to survive with less water and probably can't afford to pay the assessments required to maintain current levels of water use. Thus, it appears likely that many of them will sell their water rights to the Mojave Water Agency, which will fund the purchases with the overdraft assessments. The ruling was challenged by Manuel Cardozo and a group of alfalfa farmers, who argued that their rights should have been considered in the ruling. After a lengthy review of California water law, the Fourth District recognized that while Kaiser's ruling may invoke "general equitable principles to achieve practical allocation of water to competing interests," it may not "ignore or eliminate the rights of riparian or overlying property owners over their objections." (Though it did not require changes in engineering and diversion practices, Kaiser's ruling fell within the general category of "physical solutions" to water problems because it required a re-allocation of already developed water. The Fourth District's ruling built on previous rulings involving "physical solutions".) The Mojave Water Agency argued in court that the Cardozo family and another property owner, Jess Ranch, had not proven in court that they actually held water rights. But the Fourth District ruled otherwise. The water agency argued that the land transfer records indicate that the Cardozos' purchase agreements did not specifically grant the Cardozos water rights as well as land ownership. However, the Fourth District concluded that these same documents provided "no substantial evidence that the Cardozo Appellants did NOT have overlying rights." The Fourth District also concluded that agricultural cultivation is a "beneficial use" under state water law and therefore the Cardozos did have rights that Judge Kaiser should not have ignored. "Here," the Fourth District wrote, "the trial court did not attempt to determine the priority of water rights, and merely allocated pumping rights based on prior production. This approach elevates the rights of appropriators and those producing without any claim of right to the same status as the rights of riparians and overlying owners. The trial court erred in doing so." Instead of overturning the entire ruling, the Fourth District concluded that Kaiser's ruling should be amended to respect the Cardozos' water rights. In a somewhat different situation, the court also overturned Judge Kaiser's decision not to permit the property owners of Jess Ranch, which uses recirculated water to stock trout ponds, to participate in the final agreement. Judge Kaiser concluded that Jess Ranch's previous usage had failed to establish that the ranch's historical use of about 18,000 acre-feet of water is "reasonable and beneficial" under state law. The judgment permitted the ranch to continue to use the water for the trout ponds but did not permit the ranch to use the water for any other purpose or sell it. The Fourth District ruled that the Jess Ranch landowners should have been permitted to participate in the final judgment, thus allowing them to sell their water as part of the overall settlement. The Case: City of Barstow v. Mojave Water Agency, Nos. E18023 and E18681, 98 Daily Journal D.A.R. 5717 (issued June 1, 1998). The Lawyers: For the Cardozo Family: Robert E. Dougherty, Covington & Crowe, (909) 983-9393. For Jess Ranch: Calvin House, Gutierrez & Preciado, (818) 449-2300 For City of Barstow: Arthur G. Kidman, McCormick, Kidman & Behrens, (714) 755-3100. For Mojave Water Agency: William J. Brunick, Brunick, Alvarez & Battersby, (909) 889-8301.

El Dorado County Voters rejected a measure that would restrict housing density levels and force public referendums on three proposed major residential developments. Measure A: No, 54.5% Marin County City of Fairfax Voters turned down a proposal to rezone the site of the Marin Town and Country Club to allow the construction of 45 homes and the creation of a 14.5 acre park site. Measure C, No: 77.9 %. San Diego County City of San Diego Voters overwhelmingly approved a plan to finance a $216 million expansion of the city's Convention Center. Measure A: Yes, 62%. City and County of San Francisco Two ballot measures in San Francisco were seen as attempts to rein in Mayor Willie Brown's power. Measure F requires city employees to return to City Hall after it is refurbished; Measure K set rules on conflicts of interest and competitive bidding on the Treasure Island Development Authority, and would not allow casino or card gambling on the island. Measure F: yes, 59.3% Measure K: yes, 55.5% Santa Clara County City of Santa Clara Voters approved plans for Sun Microsystems to enter into an agreement with the city to develop the former Agnews Developmental Center into a high-tech campus. Measure D: Yes, 64%. Sonoma County City of Rohnert Park A move to widen the city's urban growth boundary was handily defeated. The measure would have allowed the development of an additional 1,520 acres, and would have given the city council the power to annex land outside the boundary for residential uses without voter approval. Measure A: No, 67.6 % Sutter County A 1/2 cent sales tax to finance additional levee repairs failed by a slim margin to garner a 2/3 majority vote. Measure ii: No, 34.8%

The June 1998 election featured only eight land use and environmental measures throughout the state, the lowest since 1986 according to a CP&DR analysis of election returns. Seven of the eight measures were on the ballot in Northern California cities and counties. In the only Southern California ballot measure, voters in San Diego overwhelmingly approved a measure to finance a $216 million expansion of the city's convention center. That expansion had been fought by opponents of downtown redevelopment, who had earlier brought a lawsuit to challenge a different financing plan proposed by the city (See CP&DR, February 1997). The lawsuit is currently pending before the California Supreme Court, which heard oral arguments on the case in June. In San Francisco, Mayor Willie Brown's plans to use City Hall after its remodeling and redevelop the former Naval facility at Treasure Island were reined in by voters. Brown had originally said he wanted to move only 700 of the 1,300 city employees back to City Hall when its earthquake renovations were completed, but voters disagreed. Later plans called for moving 1,100 employees back. Brown's plans for the redevelopment of Treasure Island are now affected by Measure K, which places rules on conflict of interest and competitive bidding on the project and prohibits casino and card club gambling on the site. The measures were sponsored by political consultant Clint Reilly and State Senator Quentin Kopp, both of whom are considered political challengers to Brown in 1999. In El Dorado County, which has seen fierce battles in recent years over development issues, a measure to limit housing density and give voters a chance to weigh in on three large projects was defeated. (See related story). One ballot measure in the Central Valley failed by the narrowest of margins. Measure ii in Sutter County would have raised the sales tax by a 1/2 cent to finance additional repairs of levees. The agricultural county was hard hit by floods during the winter of 1997, and the federal funding has not covered all the desired repairs. The measure needed 66.7% percent yes votes to pass, but garnered only 65.2%. A similar measure may be placed on the county's November ballot. Santa Clara city voters agreed with their city council and voted to allow Sun Microsystems to build on the site of a former state mental facility that contains historic buildings. Sun plans to restore four of the historic buildings of the Agnews Developmental Center, but opponents wanted more of the buildings preserved. The opponents are expected to continue with a legal challenge to stop the center. In Marin County, Fairfax voters turned down plans to build 45 homes on the site of a former country club. The developer had also promised to donate 14.5 acres of the site for a city park. The land is currently zoned for parkland, and is the only large undeveloped parcel in the city of 7,100. In Sonoma County, Rohnert Park voters refused to change the city's urban growth boundary, which was adopted for a four-year period by a narrow margin in 1996.

Overturning a trial judge in Idaho, the Ninth U.S. Circuit Court of Appeals has ruled that the U.S. Forest Service erred in not preparing an environmental impact statement for a proposed timber sale in Idaho. U.S. District Court Judge B. Lynn Winmill had ruled that the Forest Service's environmental assessment and subsequent findings of no significant impact were adequate. But a three-judge panel of the Ninth Circuit disagreed, saying that the Forest Service had not adequately examined the impact on water quality, fisheries, and the cumulative impact of the proposed sale and another, larger sale nearby that was proposed subsequently. The dispute arose over the Forest Service's proposal to permit the harvesting of 3.1 million board-feet of timber from two sub-watersheds in Idaho - the Miners Creek and West Camas Creek sub-watersheds. Both are inhabited by brook trout, which is considered a management indicator species in Targhee National Forest. In 1993, the Forest Service prepared an environmental assessment relying on water quality reporters from 1985 and 1990 and issued a Finding of No Significant Impact, or FONSI. The Idaho Sporting Congress and other outdoor and environmental groups appealed this decision to the Regional Forester, who upheld it. In 1996, the Forest Service proposed the sale of 7.2 million board-feet of timber in the Camas Creek watershed, of which the West Camas Creek sub-watershed is a part. Again the Forest Service prepared an EA, and it did not supplement the earlier EA to reflect the cumulative impact of this later timber sale. Idaho Sporting Congress and other groups sued, claiming that the Forest Service should have prepared an environmental impact statement under the National Environmental Policy Act and alleging violations under the National Forest Management Act and the Clean Water Act. After Judge Winmill ruled in favor of the Forest Service, the Idaho Sporting Congress appealed to the Ninth Circuit. The Ninth Circuit focused much of its attention on the 1985 and 1990 water quality reports. Idaho Sporting Congress had argued that the 1990 report did not contain the necessary analytical data required for any public challenge to the proposed sale. The Forest Service argued - and Judge Winmill agreed - that these defects could be remedied in the EA by referring to the 1985 water quality report, which had been prepared by the same hydrologist. The three-judge panel of the Ninth Circuit disagreed, however. Among other things, the Ninth Circuit found that the 1985 report did not cover the Miners Creek area, but only the West Camas Creek area. Second, the Ninth Circuit found that the two reports contained "factual differences". The panel also rejected the Forest Service's arguments that the impact on water quality will be minimized by mitigation measures. " ince the effects of the sale will not be known until the EIS is prepared," wrote Judge Betty Fletcher for the unanimous panel, "we cannot know whether the mitigation measures are sufficient." She added: "Without analytical data to support the proposed mitigation measures, we are not persuaded that they amount to anything more than a 'mere listing' of good management practices." The court also took the Forest Service to task on several other items, especially the cumulative impact of the subsequent proposed sale. While acknowledging that the Forest Service did do a "sparse" cumulative impact analysis in its 1993 environmental assessment, Judge Fletcher concluded that a more extensive analysis in the EIS is necessary. The court also addressed the Idaho Sporting Congress's claims under the Clean Water Act and the National Forest Management Act, but brought both those claims back to the EIS question. The Congress claimed that the Forest Service violated the State of Idaho's "anti-degradation" policy on water quality, which federal agencies are required to follow because it was prepared in conformance with the federal Clean Water Act. While suggesting sympathy with the Forest Service's contrary viewpoint, the Ninth Circuit stated that without an EIS "we lack sufficient facts" to determine whether the state statute had been violated. The NFMA claims focused on the Forest Service's obligation to monitor and report on changes in the trout population. The Ninth Circuit concluded that the Forest Service could properly use trout habitat as a substitute for trout populations in its analysis, but stated that the EIS should address the adequacy of the trout habitat. The Case: Idaho Sporting Congress v. Thomas, No. 97-35339, 98 Daily Journal D.A.R. 4999 (issued March 4, 1998; amended May 13, 1998).