In an August 3, 2015 decision that impacts the California State University’s (CSU) plans to expand its campuses across the state, the California Supreme Court has rejected CSU’s arguments that mitigation of its projects’ off-site impacts through the payment of “fair share” fees is legally infeasible unless the Legislature appropriates funding specifically earmarked for that purpose. City of San Diego, et al. v. Board of Trustees of the California State University(2015) ___ Cal.4th ___, 2015 WL 4605356 (Case No. S199557). The Supreme Court thus affirmed the court of appeal’s judgment decertifying CSU’s 2007 EIR and related findings of infeasibility and statement of overriding considerations for its San Diego State University (SDSU) campus expansion project.

The decision represents a significant victory for cash-strapped local and regional governments whose transportation infrastructure is significantly impacted by CSU’s campus expansions; if such agencies are unable to compel “fair share” mitigation fee payments for the necessary transportation system improvements from CSU (which has analyzed its own projects’ “fair-share” contributions to average about 12% of the needed improvements’ total cost), they would be forced to suffer significant congestion or bear the additional mitigation costs themselves as they could not constitutionally recover CSU’s share from other developers.

Key points and takeaways from the Supreme Court’s 28-page opinion include:

  • “The Board’s finding that mitigation is not feasible without an earmarked appropriation” presented a question of law subject to the Court’s de novo review, since “[a]n EIR … incorrectly disclaim[ing] the power and duty to mitigate identified environmental effects based on erroneous legal assumptions is not sufficient as an informative document” and “use of an erroneous legal standard constitutes a failure to proceed in a manner required by law[.]”
  • The Court’s prior decision in City of Marina v. Board of Trustees of California State University (2006) 39 Cal.4th 341 explained that CSU’s duty to mitigate extended beyond the geographic boundaries of its CSUMB campus, and to the entire “environment” impacted by its project to expand that campus; it also rejected CSU’s arguments that paying “fair share” fees to mitigate such off-site impacts would be an unlawful “assessment” of CSU or gift of public funds.
  • In the instant case, CSU misplaced reliance on dictum in City of Marina (at page 367) that stated: “[A] state agency’s power to mitigate its project’s effects through voluntary mitigation payments is ultimately subject to legislative control; if the Legislature does not appropriate the money, the power does not exist.” Upon “reexamining” the “Marinadictum” upon review of this case, the Court held it was, indeed, “dictum rather than a principle necessary to our decision that the [CSU] Board had erroneously disclaimed responsibility for mitigation.” In addition to Justice Chin’s concurring opinion in Marinaexpressly stating the discussion was dictum, the Marina majority “opinion unmistakably identifies the sentence as dictum by describing the argument to which it responded as “premature at the very least.”” Per the Court, this “indicate[d] the argument might lack merit even if properly presented.”
  • Reexamined, the Marina dictum says nothing about earmarked funds, offers no useful guidance about a public agency’s power to mitigate, and in pertinent part “is simply an overstatement.” Per the Court: “In mitigating the effects of its projects, a public agency has access to all of its discretionary powers and not just the power to spend appropriations.” (Citing Pub. Resources Code, § 21004 [“… public agency may use discretionary powers provided by such other law for the purpose of mitigating or avoiding a significant effect on the environment subject to the express or implied constraints or limitations that may be provided by law.”].) Such discretionary powers include adopting project changes, imposing conditions of approval, adopting plans or ordinances controlling a broad class of projects, and choosing alternative projects; moreover, agencies like CSU “enjoy some discretion over the use of appropriations … and access to non-state funds[.]”
  • “Neither CEQA … nor any other decision suggests that mitigation costs for a project funded by the Legislature cannot appropriately be included in the project’s budget and paid with the [appropriated] funds…. Indeed, such a procedure would appear to represent the most natural interpretation of CEQA, which directs that “[a]ll state agencies … shall request in their budgets the funds necessary to protect the environment in relation to problems caused by their activities.” (Citing, inter alia, Pub. Resources Code, § 21106.) In this connection, the Court noted that all but one of the physical facilities for the SDSU expansion – including the proposed Abobe Falls Housing, Alvarado Campus, Alvarado Hotel, Campus Conference Center and Student Union expansion – were planned to be financed with non-appropriated Per the Court: “The Board’s power to participate in such projects logically embraces the power to ensure that mitigation costs attributable to those projects are included in the projects’ budgets. (Citations omitted)”
  • Further, “mitigation is the rule [under CEQA]” (citing Pub. Resources Code § 21002.1(b)), and “no provision of CEQA conditions the duty of a state agency to mitigate its projects’ environmental effects on the Legislature’s grant of an earmarked appropriation.”
  • Adopting CSU’s contrary proposed rule, which would apply to all state agencies, would have numerous unreasonable consequences, including tasking the Legislature to sit case-by-case as a standing environmental review board in place of the lead agency under CEQA’s scheme. Local and regional agencies would unfairly have to bear the costs of a state agency project’s contribution to cumulative impacts on local infrastructure – costs that could not constitutionally be recovered from other developers under applicable reasonable relationship/rough proportionality constraints on mitigation fees and measures. Accepting CSU’s proposed rule that off-site mitigation could only be funded through earmarked legislative appropriations “would substantially impair [CEQA’s] … fundamental statutory directive that “[e]ach public agency shall mitigate or avoid the significant effects on the environment of projects that it carries out or approves whenever it is feasible to do so.”” (Quoting Pub. Resources Code, § 21002.1(b).)
  • The Court also rejected a number of newly raised arguments by CSU as untenable interpretations of various Education and Government Code statutory provisions. In one instance, the Court found CSU’s proposed construction of Education Code § 66202.4 (as meaning that “only appropriated funds may be used for campus expansion”) to be “very difficult to reconcile with the Board’s decision to use non-appropriated funds for five of the six construction projects proposed in the 2007 EIR.” In fact, “Education Code section 90064…expressly authorizes the Board to use non-appropriated funds for capital projects.”

In sum, the Supreme Court’s message to CSU is loud and clear: CEQA requires you to budget in good faith to mitigate the off-site impacts of your campus expansion projects using available funds from all sources, not just the narrow (and non-existent) source of legislative appropriations specifically earmarked for that purpose. As indicated above, the “big winners” under the Supreme Court’s decision are the local and regional agencies who would be otherwise stuck with unmitigated cumulative traffic impacts or an unfair share of the cost to mitigate them under CSU’s contrary position.