The California Supreme court determined the California State University ("CSU") could not rely solely on earmarked appropriations from the State Legislature for payment of "fair share" mitigation fees the CSU determined necessary for full mitigation of impacts, and the absence of specific legislative appropriations for mitigation fees did not render payment of mitigation fees infeasible. On August 3, 2015, the California Supreme Court filed its decision in City of San Diego v. Bd. of Trustees of the California State University, Case No. S199557, rejecting the notion that the contingent nature of State budgeting excused a failure to commit to enforceable mitigation for off-campus impacts resulting from on-campus development. Further, because the CSU relied on the purported infeasibility of paying mitigation fees as a basis for its Statement of Overriding Considerations, the Statement of Overriding Considerations was unsupported by substantial evidence as to that finding.

In this case, the CSU approved an Environmental Impact Report ("EIR") to expand the San Diego State University ("SDSU") campus to accommodate, among other significant components; a hotel, academic research, medical, social, administrative, and conference facilities; faculty and student housing; a 10,000-student enrollment increase; and associated increases in faculty and staff by 2030 school year. Among other impacts, the EIR determined the project would result in significant contributions to cumulative traffic impacts on off-campus roads in the City of San Diego and Caltrans jurisdictions. The EIR determined the specific improvements required to mitigate these impacts and calculated the "fair-share" fees necessary to construct those improvements.

However, the CSU refused to commit to paying those fees. Instead, CSU attempted to rely on dicta an earlier case, City of Marina v. Board of Trustees of the California State University, 39 Cal. 4th 341 (2006), which the CSU interpreted to require only that the CSU commit to request the necessary funds from the State Legislature. Because only a request for mitigation funds was required, the CSU reasoned, actually obtaining the funds was necessarily contingent, leaving CSU with some or no ability to mitigate by the time it constructed components of its project. Further, the CSU reasoned that Caltrans, as a State agency, was not entitled to funding from the CSU, but could obtain funding of its own through the same State legislative process as the CSU. On this reasoning, the CSU determined that because it could not guarantee the funding or implementation of off-campus traffic mitigation, off-campus traffic impacts were significant and unavoidable. The CSU adopted a Statement of Overriding Considerations as to traffic impacts, reasoning the project's benefits--including satisfaction of statewide educational demand--outweighed those impacts. Nevertheless, the CSU requested establishment of a mitigation fund by the Legislature for several consecutive years, though the Legislature took no action.

The City, San Diego Association of Governments ("SANDAG"), and the San Diego Metropolitan Transportation System ("MTS") challenged the EIR, claiming the CSU had an affirmative obligation to pay the "fair-share" fees it calculated, not merely to request funds to pay the fees. The trial court rejected all of the petitioners' claims, and the Court of Appeal reversed in part and affirmed in part, instructing the trial court to issue a writ of mandate ordering the CSU to vacate its certification of the 2007 EIR. The CSU petitioned for, and the Supreme Court granted, review.

The Supreme Court began with an examination of the earlier Marina case, in which the CSU refused to share the cost of mitigating off-campus impacts related to the expansion of its Monterey Bay campus, characterized the payment of such fees either as a gift of public funds or an illegal assessment of the CSU, and adopted a Statement of Overriding Considerations for the unmitigated impacts. The Court disagreed, rejecting the CSU's assumption that its duty to mitigate under CEQA ended at the campus boundary. The Court cited Section 21002.1(a) of CEQA, which requires avoidance or mitigation of impacts "on the environment," and Section 21060.5 of CEQA, which defines the environment as "the area which will be affected by a proposed project." Although CEQA permits an agency to find that mitigation is the responsibility and jurisdiction of another agency, and the other agency "can and should" adopt the necessary measures (CEQA §21081(a)(2)), that may occur only where the other agency has exclusivejurisdiction--not where concurrent jurisdiction exists. Further, while the Court recognized the CSU could not simply enter other jurisdictions and construct the mitigation, it could pay fees to ensure construction and had an obligation to budget for those fees. The CSU had not requested any mitigation funds from the State Legislature in its budget. In this discussion, the Court 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"

39 Cal. 4th at 367, which the CSU relied upon in the current case. However, the Court characterized this statement as dicta, as the original argument to which it responded was not properly presented (the CSU failed even to ask for the funds).

However, the Court determined that even if the statement was not dicta, it does not justify the CSU's position, based on the following primary reasons:

  1. No other agency appears to interpret Marina as does the CSU;
  2. The statement in Marina does not rely on earmarked appropriations and does not remove any of an agency's discretionary powers, such as changing a project, conditioning its approval, or spending appropriations;
  3. Neither CEQA nor any applicable case law prevents building mitigation costs into a project budget and paying for mitigation from that budget. All but one component of the project itself, including on-campus mitigation, would be financed with non-appropriated funds, and the CSU's power to use those funds necessarily implies the ability to budget and use non-appropriated funds for off-campus mitigation;
  4. The rule proposed by the CSU would permit any State agency to avoid mitigating any impact for which the State Legislature has not appropriated specific funds, forcing the State Legislature to "act as a standing environmental review board" to decide whether specific projects would proceed, despite their significant environmental effects, rather than the agency responsible for actually approving a project;
  5. CSU's argument implies its funding structure and mission warrant separate treatment from other agencies, an argument that has no basis in, and is specifically contradicted by, CEQA (§21080.09(b));
  6. The costs associated with mitigation of State agencies' projects would fall onto regional and local governments, imposing a tremendous financial burden, as this rule would incentivize agencies to adopt Statements of Overriding Considerations for all extra-jurisdictional impacts;

In addition to the arguments based on Marina, the CSU presented new arguments, all of which the Court rejected:

  1. The CSU claimed State Education Code section 67504 codified its understanding of Marina; however, the Court determined that because section 67504(d)(1) specifically provides for mitigation agreements with local agencies and reporting payments made for off-campus mitigation, off-campus mitigation is clearly authorized;
  2. The CSU also claimed Government Code section 13332.15 prohibits the use of appropriated funds for "any purpose which has been denied by any formal action of the Legislature." The Court determined that although "formal action" is not defined, the plain language of the statue appears to require an official enactment by the Legislature regarding a prohibition on off-campus mitigation, and no such action was evidenced; and
  3. The CSU finally claimed Education Code section 66202.5 implies an intent that CSU's "enrollment expansion" (including off-campus mitigation) may only be funded by "Budget Act appropriations." However, the Court rejected this argument, finding nothing in the language to mandate the exclusive use of appropriated funds and noting again the use of non-appropriated funds for the majority of the project at issue.

Based on all of the arguments above, the Court determined CSU's findings regarding mitigation for the project, as well as the reliance of the Statement of Overriding Considerations on those findings, constituted reliance on an erroneous legal standard. The use of an erroneous legal standard represents a failure to proceed in a manner required by law, and justified the decision of the Court of Appeal directing a vacation of CSU's certification of its EIR.

This case will have wide implications for the CSU's statewide campus expansion plans: the CSU (and other state agencies) will need to closely examine how they propose to mitigate impacts that occur off campus or otherwise outside their respective jurisdictions, and how they will pay for that mitigation. Cities and counties within which these campuses are located--who may have budgetary and infrastructure woes of their own--will benefit from this decision, as they cannot be forced to bear the costs of mitigating CSU's impacts.