The costs of CEQA

I like to collect stories that subtly prove we live in a simulation. My favorite recent example only needed one line in the New York Times to suggest a deep irony in the arc of the universe:

Bristling at pressure to make room for escalating numbers of students, longtime Berkeley residents have leveraged state environmental law to accuse the oldest University of California campus of essentially polluting neighborhoods by admitting more students than the city can handle.

Phil Bokovoy, the president of Save Berkeley’s Neighborhoods, has been using the California Environmental Quality Act (CEQA) process as a weapon against the University of California, Berkeley, which is under pressure to admit more and more students.

One of my research goals this year is to understand our system of excessive veto points, our vetocracy. Since it is a tricky thing to measure, I have been breaking down the task by topic. The California Environmental Quality Act (CEQA) is often cited as a costly law, so I’ve been collecting some examples of it over the years. Given the recent news at UC Berkeley, I thought I’d relay what I’ve found.

My first experience with the cost of CEQA came in reviewing broadband grant programs in California a couple of years back. In one of the few times that I could remember, the California Public Utilities Commission gave a company a grant to go through the CEQA review process. The additional funding came to a cost of \$399,853.20 in the end, but it could have cost even more.

The filing document explains,

On May 12, 2016, the Commission adopted Resolution T-17517 conditionally approving additional CASF funding of $399,853.20 or $462,978 to TDS to complete the Olinda Last Mile Underserved Broadband Project CEQA review. The final cost was dependent on whether a full Environmental Impact Report or a Mitigated Negative Declaration (MND) was appropriate, which could not be determined until the Energy Division’s CEQA Team’s consultant, Ecology & Environment, Inc. (E&E) conducted an initial environmental review. After the approval of Resolution T-17517 and the completion of the initial environmental review it was determined that an MND was the appropriate review document, thus the appropriate additional funding for CEQA review is \$399,853.20

So I tracked down the rest of the program and found that “the project is economically feasible with the assistance of a CASF grant of \$ 1,833,689, or 60% of projects costs, to match Happy Valley’s funding of \$ 1,222,459. When completed, the project will reach an estimated 1,908 households at maximum advertised speeds of 25 Mbps/ 5 Mbps, which is above the served threshold of 6 Mbps/ 1.5 Mbps. Happy Valley estimates the project will initially yield 520 potential subscriber households in the proposed area.”

Putting it all together then, the cost of the project was \$ 3,056,148 for 520 potential subscriber households without the CEQA review. The review added about 13 percent in costs, but it could have been as much as 15 percent had it cost the full amount.

The development plans for the McNeal Bluffs in Shell Beach, California, also give a glimpse of the cost of the CEQA. I like finding these documents because they offer some real-world estimates in another industry, housing.

This development includes 21 units. In Chapter 6 on pdf page 61, the total cost per unit comes to \$2,133.33 for “CEQA and other Impact Studies” and another \$586.67 for “CEQA related fees” for a total of \$2720. The total hard costs come to 15 million and when divided by the 21 units, the total unit cost comes to \$719,761.90. In this case, the CEQA costs 0.3 percent of the hard costs.

There isn’t much empirical work on CEQA, but the survey work on the topic that does exist suggests new housing is far more impacted by other variables other than CEQA. As Janet Smith-Heimer and Jessica Hitchcock’s (2018) paper explains,

The survey, sent to all 541 of California’s cities and counties, yielded 46 responses (9% response rate). These participating jurisdictions accounted for 54% of all multi-family residential (5+ units) building permits issued between 2010 and 2017. Survey responses indicated the Streamlining/Exemptions category was the predominant category of environmental review followed by Mitigated Negative Declarations. Only 6% of projects were reviewed by Environmental Impact Reports. Respondents selected CEQA relatively infrequently among factors constraining new supply, with high development costs, neighborhood opposition, lack of sites, and lack of affordable housing funding as more common constraints to expanding supply.

On Twitter, however, Kurt Harris of Santa Barbara explained that CEQA was being used by the city against him,

My municipality told me I needed to change a window back to original style on my historic home. I was told I could challenge this but it would cost \$20,000 and take 18 months for a formal CEQA review.

The most extensive report on the CEQA comes from the Pacific Research Institute, titled “The CEQA Gauntlet: How the California Environmental Quality Act Caused the State’s Construction Crisis and How to Reform It.” After explaining the history of the law, it then illustrates some egregious examples of bottlenecks caused by CEQA. The report explains, “CEQA has thwarted the construction of new and expanded health care facilities, new housing and other facilities to help the homeless, the modernization of public-school campuses, efforts to reduce California’s wildfire risk and protect lives and property, and projects to ease traffic gridlock.”

As noted in the report,

  • In 1970, CEQA consisted of 13 separate code sections. More than 50 years later, CEQA now includes over 190 code sections and 250 implementing regulations (called “CEQA Guidelines”) with 14 appendices.

  • The second key distinction is that no single agency or body is responsible for reviewing and deciding administrative appeals of alleged CEQA violations. And in many instances, no administrative appeal exists at all. Under CEQA, any person or entity satisfying minimal procedural requirements can file a lawsuit in Superior Court to challenge an agency’s compliance with CEQA.

  • This amazing chart:

  • While it’s a cliché to observe that in the project development world “time is money,” sophisticated project opponents exploit this truism to maximum effect in CEQA litigation by seeking delay.

  • In 2014, Habitat for Humanity Greater San Francisco proposed a 20-unit affordable housing project in downtown Redwood City. Three years later in 2017, an attorney working out of a two-story home behind the proposed project filed a CEQA lawsuit, alleging that the City failed to evaluate the project’s impacts on traffic and scenic vistas – including the view from his home’s rear windows.

  • On January 21, 2021, the University of California, San Francisco (UCSF) approved an ambitious expansion of its iconic Parnassus campus. The project will replace and renovate various portions of the century-old campus, including construction of the new 560,000 square foot Helen Diller Medical Center. This new medical center will increase the campus’ in-patient bed capacity by almost 60 percent and allow UCSF to serve thousands of new patients every year, including many who would be turned away in the absence of any expansion. According to UCSF, the project will ensure that its oldest and largest campus can meet increasing demands for health care services and strengthen its position as a world-class clinical, research, and training hospital. In February 2021, three organizations filed separate lawsuits in an effort to stop the UCSF project.

  • Nolan Gray in the The Atlantic, “Across the Golden State, CEQA lawsuits have imperiled infill housing in Sacramento, solar farms in San Diego, and transit in San Francisco."

Again, from my travels around the interwebs, here is another example of CEQA being leveraged from Lee E. Ohanian, writing in “California Technology Business Exits: Why They Are Happening and What to Do,”

The most egregious abuse of CEQA that I am aware of occurred with the Newhall Ranch development, near Valencia. A host of CEQA lawsuits delayed final approval of Newhall Ranch for nearly 25 years, in which the developer agreed to install 20,000 EV charging ports for a city which will have about 20,000 autos. Given that only one percent of California cars are EV, this means that Newhall Ranch will have an excess supply of EV charging ports of about 100-fold. The approval legacy of Newhall Ranch highlights much of what is wrong with building in California.

Finally, this geothermal permitting paper from the Idaho National Laboratory models out the cost of developing a geothermal power plant and found that “The fastest CEQA/NEPA review timelines would have the project completed in six years.” It continues, “In contrast, the project would take 13 years to complete if it were located in an area with significant environmental resources or cultural issues that required permitting from various agencies. It is important to note that the longest project completion timeline considered is arbitrary and the permitting for any given project could take more than 13 years.”

These additional wait times increase the cost generating, which is measured in the simplified levelized cost of electricity (sLCOE). As the report explains, “In addition to the increasing project completion timelines, the sLCOE values with longer CEQA/NEPA review timelines are 4 to 11% higher when compared to the sLCOE value with the fastest CEQA/NEPA review timeline. A more prominent adverse economic impact from the increasing permitting timeline is the loss of \$64 million to \$227 million in potential revenue in present value that the developers could have otherwise generated if the project could be completed sooner with the fastest review scenario. The potential loss of such revenue could bar developers from enticing investors and result in a project failure.”

Combining the survey work alongside all of the anecdotes, it seems that CEQA can be used as a strategic weapon to slow development down. But on the whole, it doesn’t seem that CEQA adds all that much to housing costs. For large projects, however, I expect that this cost quickly rises, which explains why geothermal projects might be sunk by extensive CEQA review.

Research papers and other materials:

First published Mar 11, 2022