September 17, 2013

Landmark Decision Issued on Proper Environmental Baseline under CEQA

California Supreme Court Makes Smart Law with Smart Rail
Holland & Knight Alert
Jennifer L. Hernandez | Bradley B. Brownlow

In a recent landmark California Environmental Quality Act ("CEQA") decision, Neighbors for Smart Rail v. Exposition Metro Line Construction Authority (2013) 57 Cal.4th 439 (Smart Rail), the California Supreme Court issued its most significant new interpretation of CEQA since Friends of Mammoth v. Board of Supervisors of Mono County (1972) 8 Cal.3rd 247 (Friends of Mammoth).

Key Aspects of the Ruling

The following are important takeaways from the Smart Rail ruling:

  • The court confirmed that a lead agency's selection of an analytical methodology and its determination regarding the adequacy of mitigation measures are primarily factual assessments appropriately considered under the highly deferential "substantial evidence" standard of review; they are not questions of law subject to de novo review or the court's independent judgment.
  • The court's opinion creates some welcome room for lead agencies to rely on mitigation measures outside of their jurisdiction when those measures "can and should" be implemented by another agency, even in the absence of any agreement by such other agencies to actually implement such measures.
  • The court provided much-needed clarity that an Environmental Impact Report (EIR) can always appropriately consider as an "existing conditions baseline" the physical condition existing at the time the EIR is prepared and/or the physical condition projected to exist when a project becomes operational. In a welcome nod to common sense, the court accepted that environmental conditions evolve over time and agreed that it was a reasonable exercise of lead agency discretion to predict environmental conditions that would exist when a project actually began operations. The court also left open the potential for analyzing only a "future conditions baseline" comprised solely of environmental conditions projected to exist well after a project becomes operational and ignoring the existing conditions baseline — but declined to establish clear guidance on when such an analytical approach may be relevant.
  • The court's decision is most remarkable for its conclusion as to the appropriate remedy. Although CEQA itself has long recognized that minor, non-prejudicial errors in CEQA documents may not warrant vacating project approvals and repeating the CEQA process, for decades lower courts have cited the Friends of Mammoth standard that CEQA should be broadly interpreted to ensure the fullest possible environmental protection. (Disapproved on other grounds in Kowis v. Howard (1992) 3 Cal.4th 888, 896-97. "[W]e conclude that the Legislature intended [CEQA] to be interpreted in such a manner as to afford the fullest possible protection to the environment within the reasonable scope of the statutory language.") Although four of the court's seven justices found that the Smart Rail EIR was legally flawed for evaluating and mitigating only against a future conditions baseline for CEQA's most litigated topics (traffic, parking, and related vehicular emissions), a plurality determined that the EIR nevertheless served its informational purposes and thus declined to require more CEQA process or vacate the project's approval. In fact, of the thirty-eight Supreme Court CEQA decisions on record, this was the rare opinion that did not cite to this Friends of Mammoth directive.

With this remedy decision, the court may have joined the growing chorus of public and private sector CEQA skeptics in viewing this NIMBY lawsuit — against a transit project that would re-use existing rail to reduce traffic congestion and air pollution in Los Angeles — as CEQA litigation abuse, and thus declined to engage in the "gotcha" judicial review that sends half of challenged EIRs back to agency drawing boards for "more study" and project delays.

The petitioner, Neighbors for Smart Rail, recently filed a petition for rehearing. The court is due to decide whether to grant the petition by November 1, 2013.

Factual Background

In Smart Rail, lead agency Exposition Metro Line Construction Authority (the Authority) prepared an EIR for the second phase of a light-rail passenger transit line to be operated by the Los Angeles County Metropolitan Transportation Authority (MTA). In most impact areas, the EIR compared the project's likely adverse environmental effects against the environmental conditions existing at the time the EIR was prepared. With respect to air quality and traffic, however, the EIR compared project impacts against an environmental "baseline" comprised solely of future environmental conditions projected to occur in 2030, fifteen years after the rail line is to become operational.

The rail project also did not include new parking facilities at several of the proposed rail stations. Recognizing that transit riders would likely attempt to park along public streets near those stations, the EIR determined that the project could cause a significant "spillover" parking impact. To mitigate this potential off-site impact, the lead agency adopted a mitigation measure requiring MTA to monitor potentially impacted streets before and for six months after the opening of the transit line. If monitoring reveals a parking shortage, MTA must work with affected municipal agencies to establish a permit parking program to be paid for by MTA. If a permit parking program is deemed inappropriate, however, MTA must work with local jurisdictions to identify alternative mitigation options, such as time-restricted, metered or shared parking arrangements.

The Smart Rail plaintiffs challenged the EIR's use of a "future conditions" environmental baseline, arguing that as a matter of law, the EIR must measure a project's potential impacts against an environmental baseline comprised of physical conditions existing at the time the EIR was prepared. The plaintiffs also challenged the EIR's proposed measures to mitigate off-site parking impacts, claiming they were insufficiently enforceable and thus illusory. The superior court and the Court of Appeal both rejected these claims outright.

Lead Agency's Selection of Analytical Methodologies

The Smart Rail decision is significant because it reaffirms that a lead agency's selection of analytical methodologies is subject to the substantial evidence standard of review. Previous opinions from California's fifth and sixth districts held that, as a matter of law, an EIR cannot rely on an environmental baseline that takes into account environmental conditions predicted to occur following project approval. Madera Oversight Coalition, Inc. v. County of Madera (2011) 199 Cal.App.4th 48; Sunnyvale West Neighborhood Assn. v. City of Sunnyvale City Council (2010) 190 Cal.App.4th 1351.

The California Supreme Court's Smart Rail decision disavows these cases on this point and affirms its prior opinion in Communities for a Better Environment v. South Coast Air Quality Management Dist. (2010) 48 Cal.4th 310, holding that "an agency enjoys the discretion to decide, in the first instance, exactly how the existing physical conditions without the project can most realistically be measured.” Indeed, as explained below, the Smart Rail decision goes beyond Communities for a Better Environment by holding that, in appropriate circumstances, "an agency preparing an EIR does have discretion to omit an analysis of the project's significant impacts on existing environmental conditions and substitute a baseline consisting of conditions projected to exist in the future."

According to the Smart Rail court, a lead agency's selection of an environmental baseline "involves a primarily factual assessment" and, therefore, "the agency's determination is reviewed only for substantial evidence supporting it." Similarly, the court reaffirmed that a lead agency's findings pursuant to Public Resources Code 21081 regarding the adequacy of mitigation measures will not be upset so long as they are supported by substantial evidence in the record.

Mitigation That "Can and Should" be Adopted by Another Agency

The Smart Rail decision is also significant because the court unanimously agreed that a mitigation measure adopted by a lead agency is not impermissibly unenforceable simply because its implementation falls within another agency's jurisdiction and therefore cannot be guaranteed by the lead agency. In Smart Rail, the plaintiffs argued that the EIR's spillover parking mitigation measure was insufficiently enforceable because it proposed parking restrictions dependent on the cooperation of municipal agencies with parking jurisdiction close to the project's rail stations, which cooperation the lead agency could not guarantee. In an apparent recognition that lead agencies often lack authority to undertake mitigating actions that are within another agency's jurisdiction, the court unanimously rejected this challenge, finding that CEQA allows an agency to approve or carry out a project with potential adverse impacts if binding mitigation measures have been "required in, or incorporated into" the project or if such measures "are within the responsibility and jurisdiction of another public agency and have been, or can and should be, adopted by that other agency."1According to the court, substantial evidence in the record demonstrated that the affected municipalities "can and should" adopt the parking restrictions at issue. It held that "speculation a municipality might not agree to a permit parking program — which MTA would pay for and which would benefit the municipality's own residents — is not sufficient to show the agency violated CEQA by adopting this mitigation measure."

Going forward, this holding should be useful to lead agencies considering projects that create impacts that can be mitigated, but only with the cooperation of third-party agencies.

Relying on an "Adjusted Existing Conditions" Baseline

As noted, the Smart Rail EIR compared project impacts against an environmental "baseline" comprised solely of future environmental conditions projected to occur in 2030, fifteen years after the rail line is to become operational. To justify its analytical method, the EIR placed great weight on future traffic and growth projections adopted by regional agencies. Explaining that projected regional increases in population would increase traffic congestion and vehicle emissions, the EIR concluded that using an "existing conditions" environmental baseline would be "absurd" because "2007 conditions will no longer exist when the project is fully operational." Instead, the EIR compared the project's likely traffic and air quality impacts against a 2030 "future conditions" baseline that assumed planned growth (jobs and employment) and funded, planned transportation improvements. According to the EIR, the "future conditions" baseline provided the public and decision makers "with a realistic evaluation of the significance of air quality and traffic impacts over the life of the [P]roject." The Second District Court of Appeal agreed with the lead agency and upheld the EIR, deferring to the lead agency's broad discretion to deviate from the existing conditions baseline "normally"2 required by CEQA, provided such deviation is supported by substantial evidence.3

In affirming the lower court's decision to uphold the EIR, the court clarified "potentially confusing" aspects of what it calls the "standard" CEQA analysis, in which a project's impacts are compared against existing environmental conditions. In sweeping and unambiguous language, it affirmed a lead agency's discretion, when supported by substantial evidence, to adjust its existing conditions baseline to account for environmental conditions that will exist at the time the project is implemented. Recognizing that CEQA analysis generally predates project implementation, and thus must predict impacts of a not yet operational project, the court clarified that "an existing conditions analysis may take account of environmental conditions that will exist when the project begins operations; the agency is not strictly limited to those prevailing during the period of EIR preparation."

This interpretation marks a major development in CEQA baseline case law because it makes clear that "existing environmental conditions" may include environmental conditions predicted to occur during the period between project approval and project implementation, a period that often extends several years.

Analyzing Environmental Impacts against a "Future Conditions" Baseline

The Smart Rail opinion also clarifies when it is appropriate for a lead agency to analyze a project’s environmental impacts against a "future conditions" environmental baseline, to the exclusion of an "existing conditions" baseline. The court held that a lead agency does have discretion under CEQA to compare a project's impacts to an environmental baseline that consists solely of environmental conditions projected to exist in the distant future, well after project implementation. However, the Smart Rail court did not go as far as the lower court in deferring to the lead agency and instead created a new rule limiting the circumstances under which a lead agency's exclusive use of a future baseline is appropriate.

According to the court, the EIR may use solely a future baseline only when the lead agency (1) is faced with "unusual circumstances," and (2) has expressly justified its decision "by showing an existing conditions analysis would be misleading or without informational value." In this case, however, the court held that the administrative record did not contain substantial evidence to satisfy its new test. Nevertheless, as we discuss below, the court upheld the EIR on the basis that its faulty baseline did not constitute prejudicial error.

Practical Implications of New Baseline Rules

In terms of environmental baseline considerations, the most useful aspect of the Smart Rail decision is the court’s clarification that a lead agency has discretion to rely on an "existing conditions" baseline that takes into account environmental conditions predicted to occur between project approval and project implementation. This clarification provides comfort to lead agencies that, if supported by substantial evidence, an analysis of a project's long-term impacts can account for changes affecting environmental conditions — such as foreseeable regulatory changes, projected demographic changes, planned traffic improvements or vehicle fleet turnover — anticipated to occur prior to project implementation. There is some ambiguity regarding the precise definitions of "project implementation" and the date "when the project begins operations," two phrases used interchangeably by the Smart Rail court, however. Does a multi-phased master-planned community project, for example, "begin operations" when the first phase of construction is built-out or when the entire project is built-out, or at some other point? This question is unanswered by Smart Rail.

With respect to the court's new rule authorizing an agency to exclusively rely on a "future conditions" environmental baseline only in the face of unusual circumstances and only when substantial evidence demonstrates that an "existing conditions" baseline would be uninformative or misleading, ambiguity remains about what exactly constitutes "unusual circumstances" or "uninformative" or "misleading" analysis. Indeed, this new rule arguably requires the lead agency to prove a negative before foregoing an "existing conditions" environmental baseline analysis, at best an uncertain proposition. As a result of these ambiguities, lead agencies are unlikely to casually forego "existing conditions" environmental baselines for fear of risking a CEQA challenge. Instead, cautious agencies will likely compare a project’s potential impacts to both "existing conditions" and "future conditions" baselines when such an augmented analysis would provide useful and relevant information to decision makers and the public. This dual approach avoids the need to meet the higher bar of the court's new rule, and creates less opportunity for challenges to the EIR’s baseline analysis.

Somewhat helpfully, the court provides a footnoted hypothetical project scenario that would presumably support exclusive use of an environmental baseline comprised solely of predicted future environmental conditions. This hypothetical assumes a facility that currently emits 1,000 pounds of an air pollutant per day. However, due to the enforcement of regulations already in place and anticipated turnover of the facility's vehicle fleet, the facility’s emission rate is projected to decline to 500 pounds per day by 2020. The facility operator subsequently proposes to use the facility for a new project that will emit 750 pounds per day of the pollutant upon implementation. In this situation, the court concludes, using an "existing conditions" baseline that assumes an emission rate of 1,000 pounds per day, rather than the 500 pounds per day emission rate projected to occur in the future without the new project, would mislead decision makers and the public into concluding that the project would reduce, rather than increase, air emissions over time, thereby "mask[ing] potentially significant project impacts that would be revealed by using a future conditions baseline." While this hypothetical does not resolve all ambiguities regarding the court’s use of the terms "misleading" and "uninformative," it does open the door to analysis that compares a project's air quality impacts against future environmental conditions, including implementation of foreseeable regulations expected to reduce air quality emissions, to the exclusion of existing conditions.

EIR Upheld Despite Ruling that EIR’s "Future Conditions" Baseline Violates CEQA

Although four of the Supreme Court’s seven justices held that, on the facts, the Smart Rail EIR’s "future conditions" baseline was in clear violation of CEQA, the court nevertheless upheld the EIR, a result of an interesting split of opinion among the justices. Four agreed that the EIR’s baseline calculation violated CEQA’s baseline rules but three (justices Werdegar, Kennard and Corrigan) determined that EIR adequately served its informational purpose and thus did not require EIR invalidation. The fourth, Justice Liu, disagreed and would have overturned the EIR. The court’s remaining three justices (Baxter, Cantil-Sakauye and Chin) would not have overturned the EIR because they were of the opinion that the EIR was not flawed. Rather, they would have deferred to the lead agency’s "future conditions" baseline outright. Accordingly, six of the court’s seven justices agreed that the Smart Rail EIR should stand, but they were evenly split in their reasoning. What, if anything, does this split opinion tell us about the court’s current disposition toward CEQA litigation?

Clues to Future CEQA Interpretation

Predicting how a court might act in the future on the basis of a single case decided against a unique factual background is an inherently speculative and uncertain exercise, particularly when the case is decided by split opinion. Nevertheless, the Smart Rail decision arguably provides clues about how the court may interpret and apply CEQA going forward.

Again, three of the justices found that the lead agency's exclusive use of a "future conditions" baseline was reasonable under the circumstances and supported by substantial evidence. Indeed, these justices are of the opinion that a reviewing court "must defer to an agency's baseline selection when it is supported by the record, even if a different baseline would be equally reasonable — or perhaps even more reasonable — than the one selected" (emphasis in original). These justices also found the majority's new "future conditions" baseline test inconsistent with "the Legislature’s intent that courts shall not interpret the statutory and regulatory requirements of CEQA in a manner which imposes procedural or substantive requirements beyond those explicitly stated in CEQA or the [CEQA] guidelines" (internal quotations omitted). This reasoning suggests that, in the future, this block of the court is inclined to narrowly construe CEQA while simultaneously giving broad deference to a lead agency’s factual determinations.

Although Justices Werdegar, Kennard and Corrigan did not defer to the lead agency and instead found the EIR in violation of CEQA’s baseline rules, they were unwilling to declare this legal error prejudicial and thus upheld the EIR. Despite expressly finding that "the EIR neglects to inform the public and decision makers explicitly of any operational impacts that could occur in the project’s first 15 years of operation[,]" these three justices determined that this omission "did not deprive agency decision makers or the public of substantial information relevant to approve the project, and is therefore not a ground for setting that decision aside." If not deferential, this plurality opinion arguably implies a willingness by this block of the court to uphold a lead agency’s imperfect CEQA analysis unless there is a clear showing that such imperfection plainly precludes informed decision making and public participation.

Although its impact on future CEQA litigation is unclear, Smart Rail does suggest that six of the court's seven members are inclined to give lead agency's the benefit of the doubt in close cases, particularly when considering NIMBY challenges to public improvements designed to alleviate existing environmental degradation, such as the rail project at issue here. Three justices appear to narrowly construe CEQA's procedural and substantive requirements while giving great deference to the lead agency's findings of fact, a position arguably at odds with Friends of Mammoth's instruction that CEQA should broadly construed. Three more justices, while less deferential, seem inclined to uphold flawed CEQA documents absent a strong showing of clear prejudicial error, a position that also arguably contravenes Friends of Mammoth. Taken together, these six justices appear unwilling to casually engage in "gotcha" jurisprudence that would upset years of environmental study and public participation when faced with a technically flawed, but more or less complete, CEQA document for a regionally significant public improvement. Nonetheless, since the court's refusal to overturn the Smart Rail EIR in the face of clear legal error is the result of a plurality opinion, practitioners should be cautious not to read too much into this aspect of the case. It will be interesting, however, to see how the court addresses future CEQA cases in light of Smart Rail's remedy discussion.



1 The Court here is citing Public Resources Code §21081(a) and CEQA Guidelines §15091(a).

2 CEQA Guideline §15125(a) provides: "An EIR must include a description of the physical environmental conditions in the vicinity of the project, as they exist at the time the notice of preparation is published, or if no notice of preparation is published, at the time environmental analysis is commenced, from both a local and regional perspective. This environmental setting will normally constitute the baseline physical conditions by which a lead agency determines whether an impact is significant. (emphasis added)."

3 For a review of the appellate court decision and other prior case law, see our previous client alert, No One Can Stop Change: Second District Court of Appeal Rejects Sunnyvale West in Latest Decision on 'Baseline' for Evaluation of Traffic and Air Quality Impacts Under CEQA, April 2012, at:


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