Cal. Supremes Resolve Long-Standing Uncertainty Over CEQA Categorical Exemptions

On March 2, 2015, the California Supreme Court resolved almost three years of uncertainty over how to apply the “unusual circumstances” exception to the use of categorical exemptions under CEQA. The decision creates a two-part test that, taken as a whole, will favor agencies more than project opponents.

The CEQA Guidelines include a series of “categorical exemptions” that exempt projects from CEQA review if they fall within one or more prescribed project categories, but only as long as certain exceptions do not apply.

The California Supreme Court’s decision, Berkeley Hillside Preservation et al. v. City of Berkeley et al., revolves almost entirely around how to parse the language of one of these exceptions: the “unusual circumstances” exception of CEQA Guideline 15300.2(c), which provides, “A categorical exemption shall not be used for any activity where there is a reasonable possibility that the activity will have a significant effect on the environment due to unusual circumstances.”

The Court of Appeal read the unusual circumstances exception to mean any project is “unusual” and triggers the exception if it may have a significant effect on the environment. The court also held that the phrase “reasonable possibility” meant the exception would apply if substantial evidence supported a fair argument that the project would result in a significant effect. Under this standard (which is the same for determining whether an EIR should be prepared), an opponent would succeed if it could point to well-founded evidence supporting a reasonable claim of a potential significant impact, regardless of the substantial evidence and arguments supplied by the decision-making agency.

The California Supreme Court’s majority opinion reversed the Court of Appeal, noting that it had essentially read the “unusual circumstances” clause out of the exception. According to the majority, such a reading would effectively render categorical exemptions useless; categorical exemptions exist precisely to resolve “fair arguments” as to the possible effects of certain projects, not to perpetuate them.

The majority’s different reading of the unusual circumstances exception resulted in a novel, two-part test for determining its application.

First, the agency must find as a factual matter whether unusual circumstances exist. That determination is subject to the deferential substantial evidence standard of review (the same standard for determining whether an EIR’s conclusions are correct): in effect, any substantial evidence in support of the agency’s determination controls over opposing arguments. In reaching this result, the Court also held that local agencies have discretion to consider conditions in the vicinity of a project as opposed to comparing the proposed activity against only the “typical”, archetypal project represented in the categorical exemption itself.

Second, if unusual circumstances do exist, the agency must determine whether they give rise to a reasonable possibility of causing a significant effect on the environment. This second determination is subject to the less deferential fair argument standard of review mentioned above: the exception would apply to invalidate use of the categorical exemption if substantial evidence supported a fair argument that the unusual circumstances would cause a significant impact, regardless of agency arguments to the contrary. The Court also held that a finding of potential impacts “must be based on the proposed project as it is actually approved and may not be based on unapproved activities that opponents assert will be necessary because the project, as approved, cannot be built.”

In light of its holding, the majority remanded the case back to the Court of Appeal to determine whether the categorical exemptions applied by the City of Berkeley survive the unusual circumstances exception under the new test.

A concurring opinion agreed (in a single paragraph) that significance determinations must be based on projects as they are actually approved. It then proceeded to explain for another seventeen pages why it disagreed with the rest of the majority opinion. The concurrence read the unusual circumstances exception in a more nuanced, but fundamentally similar, vein as the Court of Appeal.

On its face, at least, the majority’s two-part test appears to take a middle-of-the-road approach by requiring review of the unusual circumstances exception under both the deferential substantial evidence test and the less deferential fair argument test. However, in practice, the high degree of deference afforded to the agency’s initial determination of unusual circumstances will ultimately favor agencies’ assessments of the exception over those of project opponents.