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- Unpacking the Trump Administration’s Rescission of the Harm Definition
In this episode of Digging Into Land Use Law, Brooke Marcus and Paul Weiland discuss the Trump administration’s rescission of the regulatory definition of “harm” under the Endangered Species Act (ESA), which impacts how habitat modifications are viewed in relation to the prohibited “take” of protected species.
Brooke and Paul explain the historical context of the definition through the Supreme Court’s Sweet Homedecision and its reliance on Chevron deference, noting that the recent Loper Bright ruling, which overruled Chevron, introduces uncertainty by shifting interpretive authority from agencies to courts. They also discuss the continued habitat protections under ESA Section 7, potential future regulatory and legislative responses, and how agencies, courts and Congress might redefine habitat and species protections in the future.
Transcript: Unpacking the Trump Administration’s Rescission of the Harm Definition
0:00:00.4 Brooke Marcus: The Endangered Species Act is widely regarded as one of the nation's most powerful environmental laws. A key reason is that the act broadly prohibits actions that, "take" species protected under the law. The act defines the word take to include actions such as pursue, capture, kill, and also includes the term harm. The act itself, Congress declined to separately define the word harm. But the Fish and Wildlife Service and the National Marine Fisheries Service, the two agencies that administer the Endangered Species Act, did define harm decades ago through regulation. And since then, courts, including the Supreme Court, have been refining the scope of the definition as they address allegations of harm of endangered species in a wide range of circumstances. Recently, and the reason we're here to talk to you today, the Trump administration decided to rescind that regulatory definition of harm. This action has caused quite a stir in the conservation community. Today we will explore why this action is causing so much controversy, as well as its potential implications.
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0:01:07.3 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.
0:01:23.9 BM: Hi all. Thanks for joining us for another episode of Digging Into Land Use Law. Today you've got Paul Weiland in Nossaman's Orange County office and myself, Brooke Marcus, in Nossaman's Austin office, two members of the environmental and land use group. We're gonna talk to you about a major development in the Endangered Species Act that happened this past week. So before we get into the implications of the rescission of the harm definition, I want to set the stage a bit for those listeners that may not be as familiar. The crux of the Endangered Species Act is this ESA Section 9 Take Prohibition, which prohibits unauthorized take of endangered wildlife. The reason that you want to abide by the take prohibition is that unauthorized take can result in civil and criminal penalties and increased exposure to a citizen suit. As we already mentioned, the text of the statute to include actions such as pursue, capture, kill, and also harm. When the services defined harm through regulation, the piece that folks are focusing on is really the harm definition, which extends to habitat modification. And so when defining the term harm, the agencies said habitat modification can result in unauthorized take where such take results in significant impairment of breeding, sheltering, or feeding, such that death or injury to an individual member of the species occurs.
0:02:45.2 BM: Now, this definition was challenged and made it all the way up to the Supreme Court in the seminal Sweet Home case. In that case, the Supreme Court relied significantly on Chevron, and the plurality opinion emphasized that not all habitat modification equals take, but habitat modification meeting this significant impairment threshold that I just mentioned can rise to the level of take. And for nearly 50 years, this definition has been applied by the agency and continually refined by the courts. I'll say whether or not habitat modification rises to the level of take at a particular project has been the multimillion-dollar question and often the focal point of discussions between the regulated community and the agencies. But notably in Sweet Home, Scalia wrote a dissent which took a much narrower view of the scope of take, which brings us to where we are today. And Paul, I don't know if you wanted to elaborate on Scalia's position now. I know it'll come up when we're talking about the approach that they've taken in the defense of why the definition of harm was rescinded.
0:03:47.5 Paul Weiland: Yeah, I could talk a little bit about the Sweet Home decision itself. So the issue in the case, as Brooke's already described, was whether or not the harm definition that was set forth in a rule that was adopted by the Fish and Wildlife Service was permissible, essentially. So that was subject to a challenge. The trial court upheld the definition, relying on the Chevron doctrine, which provided a process to... A two-step process to evaluate agency interpretation of statutes that agencies administer, and provided that so long as the statute is ambiguous and the agency interpretation is permissible, the agency interpretation should be upheld. The D.C. Circuit actually reversed the lower court finding and struck down the decision on the grounds that it was an impermissible interpretation of the term in the statute. And so it was in that context that the case went up to the Supreme Court, and we had a fractured Supreme Court with Justice O'Connor issuing a lone concurrence, three justices led by Justice Scalia, joined by Chief Justice Rehnquist and Thomas, dissenting, and the remainder of the court in the majority and upholding the interpretation put forward by the Fish and Wildlife Service, relying on the Chevron doctrine that, one, the statute was ambiguous, and then going to Chevron step two and interpreting the Fish and Wildlife Service's interpretation as a permissible interpretation of the statute.
0:05:45.3 PW: In his dissent, Justice Scalia interpreted the term "harm" in the context of the other terms in the statute that Brooke mentioned, capture, kill, pursue, hunt. And he interpreted it to be a term that should be looked at in a manner that was consistent with those other terms, all of which suggested a degree of intent associated with the word "take." And he further went on to point out, looking to some historical precedent and support, that "take" in history, when interpreted in the context of animals, was purposeful. And so for Justice Scalia, the issue was that the Fish and Wildlife Service had overextended the plain meaning of the statute. And this remained in the dissent for a long time. And then when we had the Trump administration come on board in January 2025, not long after, they issued a proposed rule to rescind the definition of harm. Now, it's important to note that the rule itself, which is now final, just rescinds the regulatory definition of harm. It does not replace that definition with another definition. And so while the administration's view is that the Scalia definition or the Scalia interpretation of both "take" and "harm" carries the day from the view of the Trump administration, the administration has not put in place an alternative interpretation of either "take" or "harm." They have just rescinded the definition of harm.
0:07:32.8 PW: So what does this mean for us going forward? Well, on the day that the regulation was published in the Federal Register, two challenges were already filed to the regulation, we may see more on the horizon. What it means for the time being is that there's some uncertainty and that we don't know whether the regulation itself will withstand those challenges. And even if it does, it's not necessarily the case that the interpretation advanced by the federal government of the word harm will prevail, because ultimately, as the court in Loper Bright, which reversed the Chevron case, pointed out, the courts, rather than the agencies or anyone else, are the final arbiters of statutory construction. And so when we're talking about what does a statute mean, the ultimate province to decide that lies with the federal courts.
0:08:33.8 BM: I'll just add from a legal nerd perspective, last year, when Loper Bright... Last year, a couple years ago, when Chevron doctrine was overturned and the Loper Bright decision came down, there was a lot of speculating and theorizing about what this could mean for various environmental laws. And I think this is a good example of one of those scenarios. The final rule discusses Loper Bright. It discusses the original Sweet Home decision, which was in 1995, its reliance on Chevron. And so this is an example of how we're seeing the Loper Bright overturning of the Chevron doctrine play out when it comes to some agency decisions. Now, to Paul's point, how that actually continues when the courts are evaluating is a different question, because ultimately, that's their decision when applying those doctrines.
0:09:27.6 PW: So as to the significance of the rule, Brooke, do you want to talk a little bit about what we are looking at now in terms of the landscape for the regulated community?
0:09:39.7 BM: Yeah, I think we're looking at a lot of uncertainty for the foreseeable future, right? You've got kind of three different buckets of people when I'm thinking about it, probably more than that as we start talking and my stream of consciousness catches up. But we've got folks that are trying to assess whether or not they have a risk of take. Typically, when that involves habitat modification, that's a question of: Will my habitat modification rise to a level of significantly impairing breeding, sheltering, or feeding such that death or injury will occur? That was the definition that was in place. That's what the courts have looked at. That's what Justice O'Connor's opinion emphasized. And that's usually been the key analysis when you are undertaking activity that impacts protected species habitat, whether or not you're at risk of take such that you should be pursuing an incidental take permit under Section 10. For folks that are looking at that right now, this final rule and the preamble to it certainly suggests that take via habitat modification is, to put it casually, not a thing. Paul and I have been talking about instances where can you really say that if you have habitat where you know there's species there and you're going in and crushing or knocking down that habitat, at that point, are you really getting into places where it seems pretty clear there's some sort of injury or death that's happening to protected species by virtue of your habitat modification? How does that really square with some of the language that we see in the preamble that suggests it needs to be affirmative action, more in line with the other words in the definition of take? And so I think for folks that are undertaking... That's a lot of "take" in one sentence, undertaking take assessments from habitat modification, I think there's uncertainty about how comfortable they can feel with this rescission of the definition, because the rescission of the definition does not preclude a third party from bringing a citizen suit and alleging that unauthorized take has occurred. And then you're at the mercy of the court to make their determination of whether prohibited take has occurred. For some folks, that uncertainty be comfortable for you, or it might be that your project timeline, with the backing of the preamble, you have a little bit more support that the activities you're undertaking aren't gonna result in unauthorized take. But I think, in short, it brings a lot of uncertainty to those folks. I think also you have folks that are pursuing incidental take permits under Section 10 for impacts, take that they think is reasonably certain to occur due to habitat modification.
0:12:13.9 BM: For folks that are working on those habitat conservation plans, those are lengthy negotiations with the Fish and Wildlife Service, a lot of resources and time and coordination with the agencies. I think as of today, it's unclear whether or not the agency will continue expending resources, negotiating habitat conservation plans and incidental take permit applications for folks seeking coverage for take that's arising primarily out of habitat modification. I think that's something that we're going to see unfold in the next few months, maybe see some guidance from the service. Then I think the other bucket is folks that are already operating under incidental take permit and habitat conservation plan, where they received take authorization and made commitments in their habitat conservation plan based on take that's arising out of habitat modification. And here, the preamble to the rule does provide some guidance that existing incidental take permits and HCPs still remain valid and in place with those commitments. And so I think that of the three buckets we just talked about, that one is probably the most certain because of the language that they included in the preamble. And Paul, I know you've been having some thoughts on this as well, so please add, supplement, refine.
0:13:27.3 PW: Yeah, I think one of the issues that all of the groups that you're suggesting have to think about is who is their audience. So, for example, if they're thinking about whether they can obtain a permit or whether they can obtain a permit amendment, or whether they should continue to implement requirements under an existing incidental take permit, are they focused on the Fish and Wildlife Service's perspective on whether that's necessary or appropriate, or are they focused on whether a citizen group's perspective is, whether that's necessary or appropriate, or a court? And right now, we have more room for those different perspectives to be misaligned than typically. Even before this rule change, there were certainly citizen groups that would push the envelope when bringing claims under Section 9 for unauthorized take by alleging harm that the service might not interpret to be harm. And so there is always some level of uncertainty, but the opportunity for uncertainty is greater now because of the rule and also because of the uncertain status of the rule itself. One of the issues that you raised, Brooke, earlier, that I think is worth thinking about when we're thinking about how the term take and harm both are interpreted over time, is what is the level of knowledge that is necessary? Because the interpretation put forward by Justice O'Connor, who, even though she was writing on her own in Sweet Home, in some ways really has been the most cited of the three decisions, talked about the potential for take to occur if the conduct involved was essentially negligent, that is, if it was the proximate cause of the take.
0:15:19.5 PW: And so one of the questions is, and this goes to a legal question that we all study in law school when we take torts, is what is the level of intent that's necessary? On the one hand of the spectrum, you have strict liability. And that's the idea that even if you have no intent, even if you didn't know what you were doing or didn't know it was illegal, if you take an action that causes a consequence, you could be liable for it. On the other end of the spectrum, you can have essentially a mens rea standard, which is that you have to have intent. So that's the type of standard we use. For example, we're talking about premeditated murder, that you have to demonstrate that the person who is alleged to be violating the criminal law is purposely intending to do so. And so where are we on the spectrum with the Endangered Species Act? And I think that that's part of what's put in play here. And I don't know, Brooke, if you want to talk a little bit about how that's complicated in the context of development projects, for example.
0:16:29.2 BM: Yeah, I wanted to touch on something with the knowing. We just had the occasion to look back at the case law on this before this final rule came out, and so I always think of the grizzly bear example, right? If you are shooting a protected grizzly bear, and you meant to be shooting another type of bear or something else, the fact that you knew you were shooting something or shooting an animal is enough to establish knowing in many of the court cases that have looked at this. It didn't matter that you didn't know it was a protected grizzly bear. It was the fact that you knowingly were shooting something. And so I think that's interesting with some of the language in the preamble that suggests that it has to be more of an affirmative action against a protected species. Many of the courts haven't come out that way. And so how that aspect of the preamble language squares with this whole concept of taking out habitat that you may know has species in it, how all of those things square, I think, are gonna be a hotly debated topic and fodder for litigation, quite frankly, whether it's litigation against the rule or the rescission of the rules we're seeing unfold, or whether it's an uptick in citizen suits alleging unauthorized take to get the courts to take some initiative in shaping the definition absent a regulatory definition.
0:17:43.4 PW: And one of the challenges with creating bright-line rules is that the facts often make them messy. So, for example, you have a circumstance where someone doesn't know whether they have endangered species on their property, but their property is in an area where the endangered species could occur. Do they have incentive to not look for the endangered species before they develop the property, for example? And is that enough to arise to take? Does it have to be something that they have affirmative knowledge of? And if they don't, do they have some obligation to find out, to do their due diligence, essentially? And that's one of the questions. And just to Brooke's point, with the bear example, there are other species that may be even more difficult to discern, for example, bumblebees. The differences in the characteristics of different species of bumblebees for most laypeople are very difficult to discern unless you perhaps have the bumblebee in hand, which itself would be a take. And so the notion that capturing or harming one species is equivalent to capturing or harming the protected species could become difficult in many circumstances if it's applied too broadly.
0:19:12.4 BM: Paul, you asked me earlier about implications for the development community. You alluded to a lot of them, I just had a couple of other points I wanted to add. In addition to the threat of community opposition and citizen suits, you also have your construction timelines, right? If you're on a long-lead development project and you're not planning to go to construction for four or five years, and there's seasonal surveys to figure out whether you have species there, you have to start planning for your permit now because the permits take several years. I think that's a tough place to be because of the uncertainty with this definition and the lack of knowledge, at least today, on how much traction you'll get with the agencies to try to work with you to determine to either work with you on a permit or help provide technical assistance to avoid take. I think all of that's an unknown. The other party that factors into a lot of these risk assessments are where projects need financing. Financing parties typically tolerate very little risk. And so where you may have a risk of take, and maybe you have a different comfort level with that risk, if you are thinking ahead to securing financing and know that the financing parties may take a more conservative view of risk, even if you don't have community opposition, even if some of these other factors that we've talked about aren't present.
0:20:27.6 BM: Sometimes a lot of your compliance strategy planning is keyed to making sure that you can secure financing when it's time to go to construction. So I think those are additional challenges, and I think for folks with longer lead projects, the uncertainty is the hardest to plan for right now. On the other hand, the service may be issuing some guidance on how they're going to apply the take definition going forward and how they're going to deal with habitat modification for folks seeking incidental take permits. We may see case law play out a little bit both on this rule and maybe on specific instances where folks are alleging unauthorized take that may provide more clarity. And then I think the next place to be thinking is what's going to happen next. We've got litigation that's challenging the rescission of the rule itself. We have maybe some citizen suit litigation that may follow, depending on how things go. If there's a new administration in a few years, will they choose to promulgate a new definition of harm? And then what's that going to look like going through the courts in this post-Chevron Loper Bright scenario? How are the courts going to take that? Is that going to go all the way up to the Supreme Court, which may take a few years? And then, Paul, I know you've been thinking about this quite a bit. What action could Congress take that really nips this issue in the bud?
0:21:53.8 PW: Ultimately, the issue here is one of statutory interpretation as opposed to constitutional authority. And so Congress could step in, and even if the Supreme Court were to uphold the definition of take that's been advanced by the federal government in this circumstance, Congress could ultimately change that definition itself, and that would not run afoul of any issue. The challenge, of course, as any follower of Congress knows, is that there has been a lot of difficulty in Congress enacting laws generally, but in the Endangered Species and other environmental law contexts, the types of regular reauthorization that we saw occurring in the '70s, '80s, and into the '90s are no longer occurring. And so the chances that Congress is going to step in is really anybody's guess, but their recent track record shouldn't give anyone a lot of confidence that they will do so. And so in that circumstance, we are left with ultimately what's the executive branch doing and what are the courts doing in response to that?
0:23:06.2 PW: And in this particular context, we are now in a place where probably for at least the next couple of years, this is going to be in the courts, and the question is going to be how quickly does it progress through the courts before we get clarity, assuming Congress does not step in in the meantime. That is going to lead to a period of continued uncertainty. But in terms of the longer-term horizon, if we do see a change of administration, there's any number of ways a new administration could change course, both through regulation, through less formal practices and guidance, also through its own enforcement preferences and priorities. And obviously both Congress and the administration have the power of the purse, which will have impacts on the ability of the services to carry out the act. And we've already seen that with the changes in workforce at both agencies, it is likely to be the case that they are very substantially challenged. Even before those reductions in workforce that have occurred since the Trump administration came in, the agencies were overtaxed to do the jobs that they were expected to do, and now that's even more the case. And so one question is, are we right-sizing, as I think the Trump administration is trying to do, the obligations of the agency, or if we're not doing so and ultimately a more expansive Endangered Species Act prevails, do the agencies have the personnel to do what they're asked to do? One of the things we talked about a little bit, Brooke, earlier too, that I think would be worth hitting on is a lot of the commentary that we've seen just in this past week raising concerns about this has been very focused on habitat and the potential for habitat to be inadequately protected under the Endangered Species Act. But maybe you want to talk about the Endangered Species Act, which isn't called the Endangered Habitats Act.
0:25:13.7 BM: You read my mind, Paul, because that's been on my mind as well. It's not the Endangered Habitat Act, it's the Endangered Species Act. And I think a popular misunderstanding of the Endangered Species Act is that for non-federal actions, the focus of the take prohibition and the restraints on or constraints on the regulated community is really focused on individual members of the species, death or injury, wound, capture, kill of individualized members, not habitat. Truly, the habitat protections you see arise in Section 7. ESA Section 7 is a federal agency section that focuses where you have either federal lands, federal rulemaking, federal permitting, federal approvals, where you have a federal nexus, then there's protection for habitat. That's where you see the protections for critical habitat arise, for instance. So the first thing I wanted to also make sure we say is that the rescission of the harm rulemaking doesn't affect ESA Section 7. ESA Section 7 and all the consultation process and everything that happens where there's a federal action or federal nexus, that isn't impacted by this rulemaking, except to the extent when you are writing an incidental take statement that might be based on habitat modification, consideration of this may occur.
0:26:36.8 BM: But the protections of critical habitat, the effects analysis for impacts to habitat, all of that remains where you still have a federal action or federal nexus. But where you're talking about private actors, private lands, those sorts of things, the Act has never actually protected habitat except to the extent that it rose to the level of significant impairment of breeding, sheltering, or feeding that resulted in death or injury to an individual member of the species. That was the whole definition. That was the emphasis of the O'Connor opinion. And so I think it's interesting, and I think one of the challenges with administration of the Endangered Species Act and with administration of the take prohibition is the fact that the outright habitat protections in the statutory language itself for non-federal actors, private actors on private lands, are honestly fairly limited.
0:27:28.2 PW: One response to that has been to try and stretch the Act. But perhaps a better response, and one that one would hope to have if Congress was more functional, is to have Congress reauthorize the Act in ways that address these sorts of priorities to the extent that ultimately they are the priorities that Congress thinks are important. And I think in some ways this is analogous to what we're seeing with some other federal environmental statutes like the Clean Air Act, where the EPA has done its best to think about how to regulate climate change contributing gases, greenhouse gases, and there's been a lot of controversy over that in part, because Congress has never stepped in and clarified that those are regulated. If Congress did, then the court's role would be much more limited. Because Congress hasn't, and instead the courts have stretched, we find ourselves in a circumstance where there's been a lot of litigation and obviously a number of recent Supreme Court decisions in the last decade that have gone directly to the scope of agency authority in that context, that have implications also for the scope of agency authority in the context of the Endangered Species Act.
0:28:47.8 BM: And to your point earlier, a more expansive Endangered Species Act might look like an amendment to the Act itself that more expressly provides for protection of habitat, right? That's one of the ways in which it could more expressly expand and put this question to bed. I want to go back to habitat too in the context of ESA Section 7. A question that's come up is, well, what about for all those HCPs where the way you measure your impacts and take, even if you're seeking take because you think there's gonna be injury or death of a protected species, but you're using habitat as a surrogate because there's no easy way to count the species? So you talked about this earlier, thinking about bumblebees, thinking about cave bugs, thinking about fairy shrimp, thinking about cryptic species that are hard to count. Habitat surrogacy, counting acres impacted as a surrogate or proxy for understanding your impacts, is a common tool. And so I think that goes to one of the things we were talking about in the beginning. Where you know there's a species and you're gonna be impacting that habitat and you think there's a risk of take, it's take via habitat modification, but there's a pretty clear line to death or injury, or one could argue that. And then in those cases, it's much easier to count in acres than it is to count individuals.
0:30:09.8 PW: Yeah, and I think that it's pretty clear that while the rule talks about habitat modification in a bright line sort of manner, that even the folks crafting the rule would likely give the latitude that habitat modification can be take in certain circumstances. I think one of the examples that Justice Scalia actually uses is draining a pond so that the fish in the pond no longer have water. If you dry out a river that has endangered species in it and so there's no more water for the species, I do think that that could constitute take. Again, you may have to know that the species is there. It may have to be viewed as there is a proximate causation issue. So if it's a question of whether the drying out occurred as a consequence of the conduct of the person that's subject to regulation or entity that's subject to regulation, but ultimately that sort of habitat modification could amount to take. But when it comes to other much more attenuated sorts of habitat modification that have constituted take in the past, I think we could see a contraction as a consequence of the rule.
0:31:32.5 BM: This rule rescission just happened. We've already seen a number of lawsuits filed, how far they'll make it, where they'll go from that, whether the Service is going to issue guidance, there's a lot of uncertainty that's going to happen over the next few months. Paul, if you had your crystal ball, how do you think these next few months will play out?
0:31:51.0 PW: I will say that I think the administration is going to be motivated to try and address and resolve the lawsuits before the current term ends. And so I expect that we'll see them trying to move the litigation along. In addition, the issues that are raised in the lawsuits are essentially purely legal issues, and as a consequence, the lawsuits should be amenable to being moved along in a relatively expeditious way. Now, we've already seen lawsuits filed in multiple venues, and so there will be some venue questions that maybe need to be sorted out, and there's a question of whether they will be consolidated in a single venue, which would make them more efficient to process. I expect that in the next 24 months, we will see a lot of activity in those cases. And then the question's gonna be whether there are other cases that arise, for example, in the context of Section 9 liability that's been alleged by plaintiff groups against individual entities that also raise this issue. And as you alluded to, Brooke, we're also gonna have to see what kind of guidance we see out of the agencies. It's foreseeable that they will be less interested in processing the types of HCP applications and ITP applications that they have in the past and that they will take a narrower view, but that's unclear. And they will have to weigh their stridency in their view of the scope of the term take with the value for the regulated community of getting authorization that is gonna be durable over time so that those folks don't have to go back in, let's say, in a new administration and seek take for a whole other class of activities that the current administration refused to cover. So that's what I see in my crystal ball.
0:33:54.5 BM: I do think that this administration, when they've taken action, whether it be via rulemaking or executive orders or policies, has made a point to provide guidance to its field offices. Sometimes it takes a bit for that guidance to get disseminated across the field offices for consistent application. So I think there will be some guidance issued, how quickly and how quickly it gets broadly disseminated will be a question. I think to the extent there are significant developments in this space with the litigation and application of the take prohibition now that the harm definition has been rescinded, we will come back to you to touch base and update you all on the developments that have happened here given the uncertainty that exists today. Thank you for listening to us today. We appreciate you joining us for this episode of Digging Into Land Use Law. For additional information on this topic or other environmental and land use matters, please visit our website at nossaman.com. And don't forget to subscribe to Digging Into Land Use Law wherever you listen to podcasts so you don't miss an episode. Until next time.
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0:35:09.9 S2: Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice, and does not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.
- Mitigation Fees: Where Are We?
In this episode of Digging Into Land Use Law, Joseph Haney and Ben Rubin dive into the pivotal case of Sheetz v. County of El Dorado and discuss its far-reaching implications on the affordability of homes, not just in California, but nationwide. Listen as they unravel how a major legal decision could reshape housing costs through the lens of development, impact fees and local government constraints.
Transcript: Mitigation Fees: Where Are We?
0:00:00.1 Joseph Haney: Today, we're diving into the pivotal case of Sheetz v. County of El Dorado and its far-reaching implications on the affordability of homes, not just in California, but nationwide. My name is Joseph Haney, and I am a partner in Nossaman's Real Estate Practice Group. Please join me and my colleague, Ben Rubin, a partner in the firm's Environment and Land Use Practice Group, as we unravel how a major legal decision could reshape housing costs through the lens of development impact fees and local government constraints.
0:00:29.1 Speaker 2: Welcome to Digging into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.
0:00:45.6 JH: So Ben, why should we care about the decisions in Sheetz v. County of El Dorado?
0:00:51.9 Ben Rubin: It really goes to the affordability of homes in California and more generally across the nation, but because we're looking at a California Court of Appeal decision that was appealed to the U.S. Supreme Court, it really has potential significant implications for California home pricing. And that's because a big component, and it seems to be getting bigger each year, is the fees that are associated with home pricing. So it's not just the land, it's not just the construction costs. There are a number of fees that both local jurisdictions and others impose, which increase the cost of a home. And when you're dealing with affordability issues, like you are in California up and down the coast, anything that perhaps reduces those fees could make that housing more affordable.
0:02:03.9 JH: And what is the authority for cities, counties, and other municipal bodies to charge these fees? And are there any limits on them statutorily?
0:02:21.2 BR: So California has the Mitigation Fee Act, which is a process that a jurisdiction has to go through in order to impose certain types of fees. There are other things that can be charged that are not considered fees subject to the Mitigation Fee Act. Taxes, for example, aren't considered fees subject to the Mitigation Fee Act. There are other things that, based upon open questions with the U.S. Supreme Court, may or may not qualify as fees subject to the Mitigation Fee Act, which we may discuss later, including things like inclusionary housing. But for purposes of California, there is a Mitigation Fee Act. And for the longest time, there was a differentiation between what was considered a project-specific fee and a legislatively enacted fee, which would apply to a class of properties as opposed to a specific project. The difference there being that under the Mitigation Fee Act, when it was a project-specific fee, there were requirements to establish both that there was a nexus and rough proportionality between the fee and the project-specific impacts. However, for purposes of those legislatively enacted fees, up until the Supreme Court's decision in Sheetz, the Mitigation Fee Act allowed for just a demonstration of a nexus. So there was not the same requirement to demonstrate a rough proportionality between that legislatively enacted fee and a project.
0:04:09.7 JH: So it's probably worth taking a step back at this point and talking about those limitations of nexus and rough proportionality. If you were a law student for the last 30 plus years or you worked in real estate, you've heard the cases Nollan and Dolan. But can you describe the test that those cases set forth?
0:04:32.7 BR: Yeah, absolutely. So those are two Supreme Court cases, one of which came out of California dealing with imposition of an exaction associated with a development project in the coastal zone. That case, Nollan, required a demonstration of an essential nexus between the project, the project impact, and the impact fee or the exaction that the public agency, in that case the California Coastal Commission, was requiring for purposes of allowing that project to proceed. So a project approval, it's a condition of approval is what was in that case. And so the Supreme Court said that you can't just condition approval of a project on anything. You need to have a nexus between the impact of the project and what you're trying to mitigate. So it could be a fee or it could be an actual physical exaction, such as in that case, public access. So the other case, the Dolan case, took it a step further and said, yes, there is this essential nexus requirement, but there is also this requirement of rough proportionality. That is, not only must you demonstrate a nexus between the project, the project impact, and that condition of approval that is going to mitigate for that impact, but that mitigation can only be roughly proportional to the project's impact. In other words, you can't force that one project to mitigate for all of the impacts associated with a similar type of project. It's only that specific project's impact that you can require mitigation for. Rough proportionality is a key term there because it does not say proportional. So it does not need to be one-to-one. There is more discretion for a public agency to impose a fee that is accounting for some vagaries in the numbers. And so roughly proportional is all that is required. If it is beyond rough proportionality, and if the public agency can't demonstrate rough proportionality for that project-specific impact, then you can have a takings claim. So that condition goes beyond what the Constitution will actually allow.
0:07:09.8 JH: So Dolan was decided in 1994. So you've got this 30-year period where you've got these two tests. What comes along in Sheetz that changes it? What's different or unique about that case that was not already covered over literally decades of Supreme Court precedent?
0:07:38.4 BR: And the Supreme Court had never addressed to what extent when you have legislatively enacted mitigation requirements or fees, what is the standard? Does Nollan-Dolan apply in that situation? Every jurisdiction had applied Nollan, but the question was, does Dolan rough proportionality apply to those legislatively enacted requirements, or do they not?
0:08:06.1 BR: Various states had come to differing conclusions, and the Supreme Court decided that they would finally resolve that issue in Sheetz. So, it's often the case that the Supreme Court will want to allow the state courts or lower federal courts to deal with an issue in order there can be a robust body of law for them to consider. Again, Sheetz provided them that specific opportunity to address what is the requirement. Is rough proportionality, that Dolan standard, required for all mitigation fees, or is it only for those project-specific fees? And the Supreme Court said, yes, it is required for all mitigation fees. But it also didn't address some very important issues associated with that. For example, it didn't tell us what the standard is or what that test is to determine rough proportionality in the context of these legislatively enacted fees. It decided that it would remand that issue back to the California courts so they could take a stab at that in the first instance. And again, this goes back to how the Supreme Court doesn't really want to decide things where there hasn't been an opportunity for the lower courts to deal with the issue so that they can consider all potential sides.
0:09:47.2 JH: And Ben, just because you've been using the phrase or the term legislatively enacted fees, could you explain what is a legislatively enacted fee, give some examples of it, and how that might be different from other fees?
0:10:03.5 BR: Absolutely. So a project-specific fee would be something that is not generally applied to all classes of development or particular classes of development. It would be a jurisdiction looking at this specific project, determine that there are these specific impacts, and so they will require mitigation for those specific impacts. So it could be things such as this project will result in the removal of two oak trees, and so they need to pay this mitigation in order for the planting of oak trees in some other area. The legislatively enacted fees are dealing with a larger class of project. So it will apply in the typical sense to all classes of a particular type. So for example, what was at issue in the County of El Dorado case, Sheetz v. County of El Dorado, was a transportation impact fee that was applied to single-family residential developments. And it was the same impact fee for each single-family residential development in a specific zone. So there were more gradations in the County of El Dorado case. It was actually eight different zones and 11, I believe, different classes of projects. But for a residential development in a particular zone, all of those residences had to pay the same impact fee.
0:11:48.2 BR: So that's dealing with a class of projects. It's not dealing with just one specific project. And in that case, in the Sheetz case, you had that transportation impact fee that was being imposed on a small home project when that same transportation impact fee would be imposed on a 7,000 square foot home. So it's that the size of the home didn't matter. And she brought that issue to the court and said, "Well, it should matter. There should be a difference." Again, the Supreme Court didn't actually say that there should or shouldn't be a difference. All it said is that the rough proportionality requirement would apply. But that's a demonstration of how you can have a class of development that is subject to rough proportionality, and then you can have a project-specific determination that is subject to rough proportionality.
0:12:49.7 JH: So is this a big shift for development impact fees, particularly in California?
0:12:59.6 BR: It's a very big shift, although we don't know how big it is just yet. And that is because of the open question as to what is the standard for determining rough proportionality. In that Sheetz decision, the U.S. Supreme Court said we're gonna kick that issue back to the Court of Appeal, the California Court of Appeal. But there was a concurrence by Justice Gorsuch that advocated for the same project-specific inquiry that would be required for those project-specific impact requirements. So saying that it should be treated exactly the same as any other impact fee or impact requirement, whether it is a project-specific impact or this legislatively enacted impact fee, the same analysis should apply. Now you had a competing concurring decision authored by Justice Kavanaugh and joined by Justices Kagan and Jackson that said there was nothing in the Sheetz majority that questioned the ability to continue to use schedules or formulas for determining those legislatively enacted fees and rough proportionality. So what often happens in California is you'll do these nexus studies for public agencies, and public agencies will both demonstrate that essential nexus, or at least they'll try to, I should say.
0:14:44.1 BR: The purpose of that nexus study is to demonstrate an essential nexus in that the impacts through substantial evidence is roughly proportional to this class of development. So they'll assign, for example, residential development generally has X number of trips, or between X and Y number of trips. That generally results in this amount of impact, and therefore this compensation is appropriate. So that kind of sort of schedule on a class-wide basis as opposed to a project-by-project specific inquiry, which is what Justice Gorsuch advocated for versus what Justice Kavanaugh, Justice Kagan, and Justice Jackson advocated for. If the Supreme Court were to say that no, the same analysis that applies to a project-specific mitigation measure applies to legislatively enacted mitigation measures, that would be a gigantic shift. And that would require essentially the end of legislatively enacted fees because you cannot do a project-specific inquiry without knowing what the project is, and legislatively enacted fees are established based upon project types, not any specific project. So if that's the way that the Supreme Court were to eventually decide, that would be a major shift. If the Supreme Court decides and the lower courts decide that the use of schedules and reasonable formulas are still permitted, there would likely be a number of jurisdictions that are required to update their nexus studies, but very well could result in the same exact fees being imposed in the future, just they now provide more evidence to support those fees.
0:16:48.4 JH: So we've talked a lot about this from a legal perspective, but if we were to try to get more practical, has anything changed for developers?
0:16:59.3 BR: There's definitely a change for developers in the sense that they are in a much better position now than they were just a couple of years ago for purposes of challenging fees. The open question of what Sheetz means can cause some public agencies to decide that they don't want to take the risk of having their development impact fees invalidated if they were enacted through some legislative program. And a housing developer can then go in, maybe push on that Sheetz issue and get a significant reduction in fees. So I think what it is is a tool through which developers can now go into the various public agencies, the local jurisdictions and say, "Let's go ahead and reduce the fees that you were originally gonna impose." That is a going-forward type situation because under the Mitigation Fee Act, in order to challenge a fee, you had to pay the fee under protest. And so the Sheetz decision doesn't really change what happened in the past. It only allows for a change going forward.
0:18:22.4 JH: With regards to your statement that developers are in a better position to challenge fees, have you seen a good amount of activity in that area? And are you seeing developers being successful?
0:18:36.5 BR: I think we've definitely seen developers sending more letters into jurisdictions saying that the fees should be reduced. We've seen some success associated with that strategy. There are some jurisdictions that feel very confident in their position and the adequacy of their nexus study and so have decided to force the developer to make a decision. We've also seen jurisdictions that have decided that the cost associated with a potential Mitigation Fee Act challenge versus the reduction in fees weigh in favor of just simply reducing the fees. So there's that analysis that can take place. It's interesting in that the use of these challenges have actually gone beyond mitigation fees as they are traditionally understood. As I mentioned earlier, there has been a push to try to use the Sheetz decision to go after inclusionary housing requirements. So in 2015, you had the California Building Industry Association v. City of San Jose case, the California Supreme Court case, that essentially concluded that inclusionary housing requirements were not exactions or fee mitigation requirements that were subject to Nollan and Dolan.
0:20:14.2 BR: And after Sheetz, you've seen a resurgence of cases trying to challenge that determination. A lot of those challenges that I'm aware of have been filed in federal court because they feel like the federal forum is more friendly to them, which makes sense because if you are in a California state court and the California Supreme Court has spoken on an issue, that court is required to follow the California Supreme Court's case decision on the issue. So filing in federal court makes sense. I've yet to see that that argument actually prevail, but I think it's still early on. And what I anticipate happening is that there will be various challenges in various federal courts sort of up and down the California coast until they get a favorable decision or until the Ninth Circuit says that inclusionary housing is not subject to Nollan and Dolan.
0:21:18.2 JH: What about... You talk about this bleeding into other areas, what about VMT? Does Sheetz have some potential impact on VMT?
0:21:33.9 BR: Sheetz itself doesn't necessarily have an impact directly on VMT, although as a result of AB 130 from last year, Assembly Bill 130, I should say, the Public Resources Code was modified to expressly require or reference that mitigation measures should be roughly proportional and that there should be substantial evidence demonstrating a nexus between a mitigation measure and a project impact. So those are essentially the Nollan and Dolan standards, which Sheetz reinforced. Recently, LCI issued the technical guidance for the proposed VMT program. In May, they closed public comment on that. Part of what they focused on and reinforced in that technical guidance was the need to demonstrate both a nexus and rough proportionality for the mitigation measures associated with VMT reduction. Those concepts have worked their way into CEQA expressly now, and they're at least acknowledged by LCI in their latest technical guidance. For the longest time, it was considered for purposes of CEQA, it was not a violation of CEQA to have a public agency require a project proponent to over-mitigate for a potential impact or perceived impact. Now with this change and with the reinforcements of Sheetz, you are more likely to see pushback on those types of over-mitigation requirements that public agencies might have done in the past.
0:23:35.8 JH: Just then as developers and builders are getting more aggressive and using Sheetz to challenge fees, are public agencies reading Sheetz and responding with either more robust studies or seeking to have more measured fees when approving projects or enacting standards?
0:24:03.8 BR: I think your question is right. And what we've seen since Sheetz is, depending upon how confident a public agency feels about its studies, They will either stick with them and not make modifications to their programs, their fee programs, or they have decided that there is perhaps some vulnerability and they are in the process of or have already updated those nexus studies to try to conform better to those concurring opinions by Justice Kavanaugh and saying what is permitted, reasonable use of formulas and schedules to a sufficient class of projects as opposed to being more generic, as all residential shall pay this. Maybe they will divide it by multi-family of some size, residential of some size, single-family of some size. Office space is often done by square foot, so it's already pretty discrete. But that's what we've seen since Sheetz. There have not been as many new nexus studies as I would have anticipated, but that was probably because when on remand from the Supreme Court, the Court of Appeal upheld the County of El Dorado's transportation impact program. That decision was appealed to the California Supreme Court. They denied the appeal, but they depublished the decision afterwards, which under the California Rules of Court doesn't necessarily mean that they disagree with a decision, although it's more often the case that that is what it means. What they disagree with, no one really knows.
0:26:21.8 BR: For example, in the remand, the Court of Appeal decided to set up a sort of burden-shifting regime where if the public agency demonstrated that the use of schedules and formulas was appropriate, the burden would then shift in that case to Sheetz to demonstrate that the fee that was imposed was not roughly proportional. So initial burden is on public agency. Once they meet their burden, it then shifts to the developer to say, "Even so, their fee program fails and fee in this case fails because it's not roughly proportional." So we don't know if when the California Supreme Court depublished, they disagreed with the standard that was set up, they disagreed with the conclusion that was reached, or they disagreed with burden-shifting or some other aspect of the decision. That's all to say that again, once you have that Court of Appeal come down in favor of the public agency, a lot of public agencies felt reaffirmed or confident in their belief that their existing nexus studies were adequate.
0:27:40.7 JH: So Ben, as we draw to a close, the Sheetz decision came down two years ago. Where are we and what should people be looking for?
0:27:51.3 BR: Yeah, the Sheetz decision came down two years ago. And right now there's another cert petition to the U.S. Supreme Court by Sheetz. As we discussed, the Supreme Court did not decide that standard, how to tell whether or not something is roughly proportionate. The Court of Appeal established this burden-shifting regime and concluded that the County of El Dorado's program satisfied that Dolan standard, it was roughly proportional. Sheetz has now filed that cert petition. It has been fully briefed, and it is possible that the Supreme Court will decide to grant that petition and tell the various jurisdictions as to what standard should be applied when looking at legislatively enacted fees. For purposes of granting a cert petition, four justices need to vote to take the case. In this scenario, we already have four justices who are on opposite sides of things. Remember, we have Justice Gorsuch, who thinks that there should be a specific project inquiry, and then you had Justices Kavanaugh, Kagan, and Jackson, who believe that you can use schedules and reasonable formulas. So if those four decide that it's worth taking the case now and providing some clarity, it could be that Sheetz is heard by the Supreme Court and we do get that clarity. It is not often that the Supreme Court will take a case so close to when it's previously heard, but it is not unheard of. There are some examples of that, like the Sackett versus EPA decision and some other handful of cases. So it's possible, but if I were gonna bet on it, I would say it's unlikely because, as I discussed before, the Supreme Court really likes to let the lower courts struggle through with some issues, build up the case law so that they can see all sides. They just decided this issue two years ago. There are a number of courts still, particularly lower courts, federal courts, dealing with the issue. And I think that is more likely than not that they will deny the cert petition. So it'll probably be at least a handful of years before we get some real clarity, at least from the Ninth Circuit in California, as to whether or not a standard should be project-specific or it can be these formulas and schedules.
0:30:42.9 JH: So with that in mind, we'll keep our eyes open, focused on the courts. And maybe we have you back in another month, and maybe we have you back in a period of years when we finally have greater clarity on what Sheetz means with more authority going forward.
0:30:58.3 BR: Sounds good. Appreciate the time. Thanks, Joseph.
0:31:01.1 JH: Thanks, Ben. Thank you to our listeners for joining us for this episode of Digging into Land Use Law. For additional information on this topic or other environment and land use matters, please visit our website at nossaman.com. And don't forget to subscribe to Digging into Land Use Law wherever you listen to podcasts so you don't miss an episode. Until next time.
0:31:23.7 S2: Digging into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice, and does not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.
- From Permits to Penalties: A Deep Dive Into Coastal Development Law
The California Coastal Act (The Act) is a critical piece of legislation impacting countless developers and homeowners within the coastal zones of California. Understanding the intricacies of The Act is pivotal for anyone engaged in coastal property or development.
In the latest episode of Digging Into Land Use Law, John Erskine and Patrick Richard explore the challenges faced by developers and homeowners under The Act. John and Patrick discuss the permitting process, the broad definition of “development,” enforcement actions with significant penalties and hot-button issues like seawalls. With practical tips on navigating regulations and responding to violations, this episode, part of a new series on The Act, is a must-listen for anyone involved in coastal zone property or development.
Transcript: From Permits to Penalties: A Deep Dive Into Coastal Development Law
0:00:03.6 Patrick Richard: Since Californians passed Prop 20 in 1972 and the legislature passed the Coastal Act in 1976, which made the Coastal Commission a permanent agency with broad authority, anyone seeking to undertake development in the coastal zone needs to understand the requirements of the Act and the regulations and the penalties for failing to do so.
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0:00:31.5 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.
0:00:47.9 PR: Welcome to Digging Into Land Use Law. I'm Patrick Richard, a partner in our San Francisco office specializing in civil litigation and dispute resolution. Today I have with me my colleague John Erskine, one of the preeminent land use and coastal lawyers in the state. John, why don't we start with you telling me a little bit about yourself?
0:01:09.8 John Erskine: Sure, Patrick. Thanks a lot. I had a background in government, worked for a couple of Orange County supervisors in the late 70s, early 80s. I actually got appointed as a full-time alternate on the then South Coast Regional Coastal Commission while I was going to law school, became a land use lawyer, joined this firm, joined Nossaman in 1989, and immediately started representing property owners and developers in the coastal zone. And I've been a land use and coastal lawyer since that time, the last 35 years.
0:02:00.2 PR: Okay. Well, let's get right to it. Let me ask you, if I'm a property owner, a developer, or maybe someone looking to buy property to develop near the coast in California, when should I be thinking about the California Coastal Commission and their permit process?
0:02:19.2 JE: You should be thinking about it if you know or find out from your local government, assuming that you are planning to do something with the property, either renovate it, remodel it, demolish it, you should know where the coastal zone is. So the coastal zone is basically 1,000 yards inland from the mean high tide line, although that varies. The coastline is 1,100 miles. The Coastal Commission has jurisdiction over that entire 1,100 miles. The jurisdiction extends out three miles off the beach, and it goes inland further than 1,000 yards in some cases. So if you're in the coastal zone, you're gonna need to think about getting a permit not only from the local government for whatever you want to do, but a permit from the Coastal Commission.
0:03:18.7 PR: Well, let me ask you, you gave us some examples. Surely not everything that I want to do at my home, if I just want to renovate a little bit, stuff that's already there, that's not development, is it?
0:03:38.0 JE: It can be. The definition of development, which is in the Coastal Act, it's 30106 of the Public Resources Code, is one of the broadest definitions of development that exists. It includes anything you want to do in terms of construction, renovation, demolition, dredging, modifying property lines, subdividing property. Anything in the coastal zone that would change the overall density or intensity of the use of the property needs to get either a coastal development permit or a waiver or an exemption from the coastal development permit process. In some cases, the local city or the county has what's called a certified local coastal program. And in that case, you go to the coastal city or county to get a permit or a waiver of permit or an exemption. But that's subject in many cases to appeals. And the appeals can be filed by two members of the Coastal Commission or aggrieved environmental activists or others in the area. And then you have a subsequent appeal hearing before the full 12-member Coastal Commission.
0:05:16.6 PR: Wow, that sounds involved. What if I'm buying a property, a home or some other property that has some outbuildings on it? If the building's already there, could I get hit for violating this development rule if it's already built?
0:05:35.4 JE: Yes, you could. The Coastal Act, as you mentioned in the intro, came into being in 1976, effective January 1, 1977. So in some cases, if the outbuilding you're describing in your example was developed prior to the Coastal Act's effective date, you may be able to keep it. But if you modify that outbuilding, or the outbuilding was built after '77 without a permit, then you absolutely are gonna have to deal with again the local coastal jurisdiction, the city or county, and potentially on appeal with the 12 members of the commission in order to get approval to do anything with that outbuilding or to accomplish what's called an after-the-fact permit process.
0:06:41.9 PR: Before we get into some of those procedural issues, you mentioned appeal, etc., I wanted to ask you about something that has been in the news and up and down the coast, and that has to do with seawalls and people either wanting to repair an existing seawall or build a seawall to protect their home, their yard, other infrastructure. What are some of the concerns one should have about either building a seawall or repairing an existing seawall?
0:07:14.5 JE: Great question. Seawalls are an area of great controversy because most of the Coastal commissioners, certainly the Coastal Commission staff and many of the environmental activists, whether it's Surfrider Foundation, Audubon Society, others, Coastkeeper, have an antipathy towards shoreline protection of all forms. The struggle, though, is that when the Coastal Act was passed back in '76, there was... And by the way, the Coastal Act passed by one vote. It was a different kind of legislature, as we both know, back in 1976, the Coastal Act was somewhat controversial. And so there were a lot of protections put in for property owners, including people on the beach or bayfront. So Section 30235 of the Public Resources Code, or the Coastal Act, 30235 deals with revetments, breakwaters, seawalls, other shoreline protective devices, as they're called, and says that they shall be permitted when required to serve coastal dependent uses or to protect existing structures. So that's the controversy. The Coastal Act provides for seawalls. The commission doesn't want them anymore. The activists who are focused more on maintaining surf breaks and the such don't want them. And so there's a constant struggle to limit the use of seawalls and other forms of shoreline protection.
0:09:13.0 PR: Wow, great overview. Thank you. So what if I engage in development or I buy a home and, unbeknownst to me, there's buildings that were unpermitted, and I get hit with something called a notice of violation or a letter threatening penalties? What should I be doing at that point?
0:09:38.6 JE: Well, at that point, you ought to be checking your bank account because you're gonna be paying some lawyer, hopefully an experienced coastal lawyer, and then probably someone like yourself, because there's very little recourse unless you've got super good facts, you've got a good history of the property, you can prove that the alleged unpermitted development or whatever the violation is alleged to be, particularly if it's what we call an access violation and we can get into more detail on the types of Coastal Act violations but assuming you have unpermitted development or alleged unpermitted development that is blocking coastal access, you can stand to face fines upwards of $11,150 a day. And the state legislature gave the Coastal Commission the authority to levy these types of fines administratively through a very limited administrative process limited in the sense of, and we'll talk about that in a minute, but limited in the sense of due process protections. So you're gonna need to have a coastal lawyer, coastal expert, and then you're gonna need an experienced trial lawyer because of the nature of the negotiations over the violations. And I would probably at this point ask you, since you've worked with me and others in our firm on enforcement actions, what you would recommend in terms of how to prepare for that kind of enforcement action?
0:11:40.0 PR: Well, I was told that I simply had to ask questions today, but I will answer that one. And that is, first, if you can try to resolve it, and that's negotiating from a position of strength and information is your best bet. So one, yeah, work with a coastal expert, because just in this short conversation, you've tossed out various regulations and aspects of the act and nuances. But two, what you learn from doing the trial work on these things is you need to build your best evidentiary record. You can do that in a number of ways. You can serve a Public Records Act request. You can hire a historical expert. You can have your own folks go down to the planning department to pull all the old permits. Building a factual record with the assumption that if you need to go to a hearing, if you're unable to resolve it with staff and you need to go to a hearing with the full commission, they are not equipped to be an independent fact finder. They will generally follow the recommendations of staff. They're not there to review the evidence in detail like a judge would or a lot of other administrative agencies that have an independent hearing officer make judicial determinations.
0:13:11.0 PR: So the best working assumption, if you're in a dispute situation that you cannot resolve, you need to assume that you're gonna end up in court and that you need to have created the best administrative record possible because then that becomes your record with the court. You also need to be aware of and we can touch on this perhaps in our next podcast in greater detail there is a body of law, a growing body of law on due process violations by the Coastal Commission arising out of the Nollan/Dolan line of cases, and being familiar with those upfront so you can build a record that draws you into those standards is also important. So that would be my overall advice, John, is matching up a coastal expert with a civil litigation expert.
0:14:09.3 JE: So one of the things that perhaps I skipped over, but assuming we've got time, the administrative civil penalty and fining provision that I mentioned that was passed by the legislature and authorized the Coastal Commission to pursue that without going to court, pursue these major fines and I think I mentioned earlier, they can be $11,150 a day. They have assessed against both individual beachfront property owners and homeowner associations fines upwards of five, six million dollars. There is a provision that allows for these penalties to not be assessed if the property owner corrects the violation consistent with the Coastal Act provisions within 30 days of receiving written notification of the notice of violation. The problem with that in practice that we've experienced is the notice of violation can often be very vague. It can be unspecific. I think sometimes the Coastal Commission enforcement staff deliberately makes it less than specific. And so then you're in the situation, a property owner's in the situation of trying to uncover evidence that they're not violating the Coastal Act, that they don't have unpermitted development.
0:15:51.8 JE: We find that many homeowners, particularly if they've got a home that, let's say, it predates the Coastal Act, they don't have their permits anymore. So then you gotta go dredging for property assessments, property tax worksheets, and the like to try to find out when certain structures that the commission is alleging are unpermitted were actually constructed. The other part of it is the coastal enforcement staff. And I want to say just parenthetically, we process and work with lots of developers and property owners to process coastal development permits. And the permit staff in general, from San Diego to upwards to Humboldt County we've worked in just about every coastal county coastal staff in general is very good.
0:16:53.2 JE: They work hard. It's, they're under a lot of pressure. It's very complex. And so they're doing the best job they can. I think where, in my experience, where the problem lies is with the enforcement staff. And they've developed this methodology where they put pressure on you to say, "Well, the fines are building. This has taken us three or four months. And if we don't get X, Y, and Z in terms of monetary payments or constructing some new structure or installing electrical vehicle charging stations in one case," which has nothing to do with coastal access, "then we may have to take this to an even higher penalty." And so that in practice is where a lot of excitement and a lot of the controversy about the Coastal Commission has arisen.
0:17:59.1 PR: That's a great summary, John. And it sounds like you're saying what a client told me many years ago: "Patrick, I try to avoid" this was an in-house counsel for a major corporation "I try to avoid litigation at all costs. But if I'm in it, I'm in it to win." And it sounds like you're saying you're better off to avoid the enforcement folks, but if you do get into a donnybrook with them, make sure you have your documents lined up and your arguments ready to go.
0:18:32.6 JE: Absolutely.
0:18:34.1 PR: Well, why don't we leave it there? There's a lot more we can cover, and in our next podcast we can go into greater detail. You mentioned public access. I think that would be a good jumping-off point for our next discussion. I want to thank you and the folks who helped put together this podcast today. And I want to thank our listeners for joining us for this episode of Digging Into Land Use Law. For additional information on this topic or other environmental and land use matters, please visit our website at nossaman.com. And don't forget to subscribe to Digging Into Land Use Law wherever you listen to podcasts so you don't miss an episode. Until next time.
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0:19:25.9 S2: Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice, and does not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.
- Rewriting the Rules: The Supreme Court's Landmark Decision on Clean Water Act Permits
In this episode of Digging Into Land Use Law, Byron Gee and Willis Hon review in detail the recent Supreme Court opinion in City and County of San Francisco vs. EPA and its implications for Clean Water Act permittees. They discuss both the immediate fallout of this recent opinion and what may come next from the Environmental Protection Agency (EPA) in the world of Clean Water Act discharge permits. As EPA and states conform their permitting regimes with this new case, there will almost certainly be significant impacts to the manner in which wastewater and stormwater permittees must comply with the Clean Water Act across the county.
Transcript: Rewriting the Rules - The Supreme Court's Landmark Decision on Clean Water Act Permits
0:00:00.4 Byron Gee: In March 2025, the United States Supreme Court issued a landmark decision in the City and County of San Francisco versus the Environmental Protection Agency. This pivotal ruling struck down the so-called end result requirements commonly imposed by the EPA and Clean Water Act permits, fundamentally reshaping how permits under the National Pollution Discharge Elimination System are administered across the country. With the potential to alter water quality compliance for permit holders nationwide, this decision raises key questions about the future of environmental regulations and the interplay between federal and state oversight. In this episode of Digging Into Land Use Law, we break down the Supreme Court decision, unravel the main issues at stake in the case, and explore the immediate and long-term impacts for stakeholders from individual permit holders to state and federal regulators. If you're navigating Clean Water Act compliance, interested in regulatory shifts, or simply curious about how this ruling will influence water quality standards, this podcast will provide insight and guidance for the road ahead.
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0:01:28.4 Speaker 2: Welcome to Digging Into Land Use Law, Nossaman's podcast covering the development of all things in, on, or above the ground.
0:01:44.5 Byron Gee: I am Byron Gee, a partner in Nossaman's Water Practice Group, and I'm joined today by fellow partners Willis Hon, also in the Water Practice Group. Let's start by discussing the Supreme Court case. Willis, can you summarize the pivotal issues at stake in the City and County of San Francisco versus EPA case?
0:02:12.5 Willis Hon: Thanks, Byron. Well, so this was a case in which the U.S. Supreme Court decided it in March of 2025, and in that case, they analyzed the permit requirements that the EPA had been routinely using in many of its discharge permits issued under the Clean Water Act. Under that act, dischargers need a permit under the National Pollution Discharge Elimination System, or NPDES program, in order to discharge contaminants into waters of the United States. Then these permits often include specific numeric effluent limitations or may contain narrative limitations, such as having permittees implement certain best practices. The case here dealt with another type of permit requirement commonly known as end result provisions. Specifically, this case involved an action by EPA against the city and county of San Francisco to enforce these end result permit requirements for the city's oceanside combined waste water system. The permit at issue in this case involved the prohibition against discharges that, quote, contribute to a violation of any applicable water quality standard, end quote, for receiving waters, as well as a second prohibition against performing any treatments or making any discharges that, quote, create pollution, contamination, or nuisance as defined by California Water Code Section 13050, end quote.
0:03:37.4 Willis Hon: Now, these limitations, as you see here, don't direct the city to take any specific steps on how to comply, but instead rely on the city to reach the end result being required. So after this lengthy case, the Supreme Court sided with the city holding that the Clean Water Act does not authorize EPA to include such vague end result provisions in its NPDES permits. The majority opinion explained that the enforcement responsibility for determining and implementing steps to achieve water quality standards falls within the EPA's mandate and cannot be shifted onto permittees through general outcome-based language like this. Specifically, the majority opinion found that the Clean Water Act does not authorize EPA to impose requirements that condition the permittees' compliance on whether, you know, the receiving waters meet applicable water quality standards, holding that such end result limitations neither fit the statutory interpretation envisioned by the Clean Water Act, nor was it supported by the legislative history behind the Clean Water Act's adoption in 1972. Since the time of the decision about two months ago now, the case has been remanded down to the Ninth Circuit to figure out how the EPA is going to administer the permit with this new guidance, and that's the big question that a lot of people are trying to figure out right now.
0:05:03.3 SJ: Thanks, Willis, and thanks, Byron. Good to be joining you guys for this discussion. There's a lot of speculation in different directions and stakeholders viewing this opinion from different opportunities. And just looking again at the case, so we have EPA, SCOTUS directing EPA to be more specific about what permit holders can and cannot do, what actions they can take. So EPA needs to propose specific options in those conditions. And EPA also needs to be able to demonstrate that those options have a nexus to water quality. And so several of the companies that I work with, they are offset providers. They sponsor and establish ecological restoration offsets, which essentially, for anyone that's working in the environmental space, are doing something offsite to provide ecological uplift that compensates for or mitigates offsets, permitted actions and impacts elsewhere. But you have a nexus back to the permitted action based on a certain service area. So in the water quality space, that's typically a specific watershed or a HUC within a watershed. And so we're viewing this decision where EPA is needing to come up with a menu of different options that are specific actions a permittee could take.
0:06:33.8 SJ: And we're seeing water quality offsets as a really attractive option. It allows the permittee to not have to perform actions and minimize pollutants to the maximum degree at their facility, but gives them some flexibility to find a more cost effective option that maybe is even more impactful for the watershed as well by turning to some of these offsite solutions. So we see this as a real opportunity. Of course we'll need EPA to come out with guidance that clearly outlines where trading is an option. And I think several of these companies are hoping that this second Trump administration would be open to that. We saw during the first Trump administration issuance of a water quality trading memo that came out in February 2019. It outlined a bit of a roadmap on actions that EPA could take as well as ways to support the states to embrace water quality trading as a more efficient method to achieve their NPDES targets. And really, besides the memo coming out, we didn't see much action on the part of EPA to implement that or states necessarily reacting to it. And so the second Trump administration presents an opportunity to pick that work back up. And maybe it's the confluence, this decision, that interest from the first administration that results in water quality trading emerging as a real option coming out of the decision. So still though waiting, back to that first question we were talking about, still waiting though for final direction and guidance from EPA. And that's definitely what's going to be needed in the short term here for us to know what to expect and for stakeholders to really understand what this decision means.
0:08:34.3 Willis Hon: I'm totally in agreement. For a lot of the clients that we have that hold these NPDES permits and are trying to figure out what to do next, we've been recommending that they do try to continue to comply with the terms of the existing permit. As you mentioned, there's a lot of uncertainty what's going to happen. But these end result permits are only one set of provisions within the overall permit. There's still the effluent limitations, still the narrative and best practice requirements. And so those are still in place, which is important to keep in mind that we're only talking about one aspect of the NPDES program. In the long term, the permittees might find that as they're renewing these permits or as these are evolving or when EPA can get to them, you might see some more long term changes on how the types of limitations are being placed and what they are. So it might get easier, but it also might be fashioned in a way that makes it harder to comply with or more expensive. So it's really going to be wait and see for the long term.
0:09:42.9 Byron Gee: And a lot of these permits, I mean, when we're talking about industry sector permits, they have to be renewed once every five years. And so I guess EPA can't just sit on their hands or the states can't sit on their hands and just hope that something new comes along. Evidently I think they will have to come up with something fairly quickly if they are to follow their schedule of renewing these permits every five years.
0:10:16.0 Willis Hon: Right. And one of the, you know, one of the arguments made during the case is that, you know, by EPA in the case is that these end result limitations are really necessary because a lot of the times they don't have the science completed to support a specific, a more specific requirement in that context. And so a large part of it is that you need to do the work, put in research, the science to develop and craft limitations that are more specific. And so now that we have this decision, the challenge is really on EPA to now do the science and craft these, which is much easier said than done.
0:10:58.7 SJ: Yeah, and again, goes back to just some of the challenges they're facing with this reduced workforce, you know, are there other cooperative approaches or partnerships they can pursue to get that data? But definitely need more data to have defensible permit conditions that would replace those end result provisions.
0:11:23.7 Byron Gee: Okay. Thank you. That was very helpful. Let's focus in on maybe some of the broader impacts of this Supreme Court decision. How are different stakeholders viewing the long term impacts of this decision? Sara, that might be one for you to start with.
0:11:45.6 SJ: Yeah, thanks. And I'll caveat this with, this is some speculation. And coming from the perspective of several of the companies that I work with who are in the business of providing ecological offsets, essentially offsets for compliance with Clean Water Act and other state and natural resources laws, and where they have found success is working with permit holders to provide these offsite water quality projects that are still within a certain watershed. They're still within a defined service area. Typically it's a HUC. So there would be a nexus to the facility that's holding the permit. And they're seeing an opportunity with this decision and the Supreme Court's direction to EPA to do their job and to come up with what are the specific permit conditions a permittee has to comply with to show they're meeting the terms of the NPDES program and reducing pollutants overall in the receiving waters. And we're looking at these offsite offsets as a specific action that could be pursued where you can demonstrate, okay, permittee, you've checked the box on your liability. You've pursued a specific permit action. And EPA and the states can say, we're also holding up our obligations under the act because we can demonstrate that these offsets are measurable towards improving water quality by reducing certain nutrients. So we're seeing this as a potential opportunity. You know, offsets would be just one option of many, but we're feeling that they should be one that's really considered as a menu of options to try to achieve compliance. So that's just one perspective. And I'll add that the first Trump administration actually issued a guidance memo in February of 2019 where they really were trying to incentivize and outline actions EPA could take as well as ways to incentivize the states to embrace this water quality trading approach as a way to more efficiently achieve some of these pollutant goals. So there is some precedent from the first Trump administration offering support, and this is just an item, you know, we'd love to see if there was that guidance from EPA in response to the decision.
0:14:28.6 Willis Hon: Yeah, totally agree. One of the other major stakeholders that are impacted by this beyond permit holders, is, as you mentioned, the states. Now, in this specific case between San Francisco and EPA, there's also concurrently oversight from the State Water Resources Control Board that has their own permitting authority that's not only concurrent with that of EPA under the Clean Water Act, but California has its own water quality control laws. And so there's a state regime as well. Now, it's a bit complex to figure out how that's going to be implemented. While the case has come down from the Supreme Court as being remanded to the Ninth Circuit, there's also concurrently a state action challenging similar end result requirements found in the state permit as well, but that case has been on hold until the federal side of the House is resolved at the Ninth Circuit. And so we'll see what happens there. One of the things that we've seen in California from the State Water Resources Control Board is that they've been focusing a lot on these numeric limitations where there's adequate data and support for them. And so in light of this decision, maybe that sort of furthers that shift towards that strategy. One other piece of thing that I'd want to note to take a look at is Senate Bill 601 that's currently in legislature. This is a bill introduced a few weeks ago that would sort of revamp the state authority and approach on clean water quality and sort of fill in the gaps where the federal government has pulled back. And so that bill is currently making its rounds through the different committees in the state Senate and something to keep an eye on.
0:16:25.2 SJ: Yeah, definitely. I know I've been working with some folks also tracking that bill and understanding the intent where it's trying to fill the gap and further bolster water quality oversight, but I know it also has some concerns just about practical implementation challenges. And so what are the lessons learned from this case that could be avoided by states also trying to work on writing their own water quality permits? And I think one of those big lessons, and you touched on this too, Willis, is there seems to be this shift from the narrative provisions to numeric and having that focus on any water quality trading requirements linking back to numeric limitations. And that's been critical for where we have seen trading flourish as a model, particularly in the Chesapeake Bay. You've seen that success because you have these total maximum daily loads that are based on specific pollutant targets. And so, again, you've got to have through state and federal partnership and EPA staff working together to come up with the data to support that. You also need to have states that are willing to embrace trading. Again, in the Bay area, the state that's been most successful, Virginia, they had a state law that also clearly authorized this trading between point source, so your permit holders, and non-point source offsets and reductions. And so you need a couple different factors to come together, but if you can get those factors to come together, it's a really defensible option for EPA to be able to point their permittee holders towards.
0:18:21.5 Willis Hon: Yeah, so it sounds like there's a number of approaches that EPA and other stakeholders can be taking here. I think the Supreme Court case is really interesting in that it says what EPA cannot do, but it doesn't actually give much hint as to what it should be doing instead. And so with that sort of uncertainty, this is the world we're stepping into now.
0:18:47.3 SJ: The theme of the moment is that nothing is certain. You can be certain nothing is certain.
0:18:53.5 Byron Gee: And you have to address that uncertainty without any resources, which also complicates Clean Water Act compliance and the shape of permits in the future. Well, those were some very interesting insights. And I want to thank you for sharing your insight with us. And I'd also like to thank our listeners for joining us on this episode of Digging Into Land Use Law. For additional information on this topic or other environmental and land use matters, please visit our website at nossaman.com, N-O-S-S-A-M-A-N.com. And don't forget to subscribe to Digging Into Land Use Law whenever you listen to a podcast so you don't miss an episode. Until next time.
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0:19:55.7 Speaker 2: Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice, and does not create an attorney-client relationship. Listeners should not act solely upon this information without seeking professional legal counsel. - Making Conservation a California Way of Life Framework – Details on the Regulations that May Revolutionize the Way Water is Used and Projects are Developed in California
In the latest episode of Digging Into Land Use Law, Lori Anne Dolqueist and Alex Van Roekel discuss in detail the "Making Conservation a California Way of Life Framework" regulations and the impact they may have throughout California. Regulations went into effect at the beginning of 2025 and compliance is required by 2027. Lori and Alex detail this framework that will impact all urban retail water suppliers throughout the state – a category that covers about 95% of California residents.
Transcript: Making Conservation a California Way of Life Framework
0:00:00.2 Lori Anne Dolquiest: In 2024, after years of deliberation, California Water officials adopted landmark rules that will guide future water use and conservation in the state. This sweeping Making Conservation a California Way of Life framework went into effect on January 1st, 2025. And this framework is intended to help preserve water supplies as climate change drives hotter, drier conditions as and droughts become more frequent and longer lasting. For those interested in water and climate issues or how these new regulations will impact water suppliers and communities throughout the state, this podcast explains the purpose behind the new regulations, the intricacies of the regulations, including variances and incentives, and what this will mean for water in California going forward.
0:00:52.2 Speaker 2: Welcome to Digging Into Land Use Law Nossaman's podcast covering the development of all things in, on or above the ground.
0:01:08.5 LD: Welcome to Digging Into Land Use Law. I'm Lori Anne Dolquiest, a partner in Nossaman's Water Practice Group based in the San Francisco office. My practice focuses on the California Public Utilities Commission, with a particular focus on water utilities. Today I have with me my colleague Alex Van Roekel. Alex, why don't you tell us a little bit about yourself.
0:01:29.9 Alex Van Roekel: Hi everyone, my name is Alex Van Roekel. I'm an attorney in Nossaman's Los Angeles office in the Water Practice Group. My practice focuses on all things water from public agencies such as cities, counties and special districts to invest our own utilities as well as private individuals and companies that have water disputes.
0:01:48.2 LD: All right, Alex, well, I'm really excited to talk to you about these new water conservation regulations today. Why don't you give me a little bit of background how, you know, sort of where these came from?
0:01:56.5 AVR: Making Conservation a California Way of Life framework, which I'm just going to call the framework developed from Senate Bill 606 and Assembly Bill 1668, which were both bills passed by the California legislature in 2018. And they're focused on urban water use objectives, which are essentially budgets for water providers. Additionally, the State Water Resources Control Board was tasked with developing the regulations for instituting the framework. And after the whole process, the framework went into effect in 2025 with compliance required starting in 2027.
0:02:35.8 LD: You mentioned the Senate bill and the assembly bill that sort of got these started. But can you give me a little context for when they were passed and what the thinking was at that point?
0:02:45.2 AVR: The bills were passed just off of the 2011 to 2017 severe drought that the state faced, and the bills were designed with a core goal of reducing urban water usage.
0:02:56.6 LD: All right, now I'm familiar with some of the earlier legislation like the Water Conservation Act of 2009, which is also known as the 20 by 2020. Can you give me some information on that? Because I do believe that informed the passage of this latter legislation.
0:03:11.6 AVR: The Water Conservation Act of 2009, often called the 20 by 2020 framework, was the state's first attempt to tackle water, urban water usage on a broader scale. And so it set standards for all water providers to reduce their usage by 20% by 2020. And all of the providers throughout the state met those standards far ahead of time. And so the practical impact of this history is that a lot of what would be the easier ways to reduce urban water usage have already been done. Examples include adding meters, introducing tiered conservation rates, which essentially means that if you use over a certain amount of water, you get charged a higher rate, replacing non functional turf, and then including rebates for things such as replacing the lawns and installing more efficient showerheads and toilets.
0:04:05.3 LD: And I've seen in my two decades of practicing here in California the real difference that those have made. In particular, even something as simple as adding meters, which we think is very routine now, made a huge difference in allowing for conservation. But as you mentioned, these are the easy things. So what is left now to increase more efficient use of water here in California?
0:04:29.3 AVR: So there's no question that what's left is going to be a lot more difficult to achieve than what was done under the 20 by 2020 framework. Some of the areas left include some of the people that were not reached by the initial outreach and rebates, and people could not have been reached either due to lack of interest or of lack of the ability to put money down pre rebate. And either way, it's going to likely take a different strategy to reach each of those groups of people than the people that were met under the 20 by 2020 framework. Additionally, we're likely to see some changes in land use policies, including a focus on how to design projects or developments to minimize water usage and take advantage of things such as stormwater capture or water reuse. And potentially the most exciting part about this framework is that it really opens the door for substantial innovation. We saw the innovation of drip irrigation revolutionize water usage in the agricultural industry, and it is likely we're going to see some of those kind of innovations to affect urban water usage.
0:05:31.6 LD: Now, I've definitely experienced some of the issues related to the challenges in getting large water infrastructure projects approved and built, and they still likely will be necessary moving forward. But anything we can do in addition to those in the meantime while they're pending, we need to look at all of our options. But what I wanted to talk to you a little about is we mentioned the legislation from 2018, but it's now 2025. Our regulations are just going into effect, whereas there's some legislative work after that. I'm particularly interested in non functional turf and whether any actions have been taken with respect to that?
0:06:09.7 AVR: Yes. So there's two primary bills that have impacted the framework since it was originally passed in 2018. The first bill was Senate Bill 1157 from 2022 and that lowered the indoor standard, essentially making that more difficult to meet and requiring that places use less water for indoor residential uses. And additionally there was Assembly Bill 1572, which was passed in 2023. Part of the design around AB 1572 was because there was some inconsistent legislation about how non functional turf was going to be treated under the framework as well as under some other bills that have been passed. And so AB 1572 created one centralized area for a non functional turf. And so what that bill did is it banned the usage of potable water. So drinkable water on non functional turf. And so for public agency property, that ban generally goes into effect at the beginning of 2027, unless the property is in a disadvantaged community and then it goes into effect starting in 2031.
0:07:17.7 LD: And so non functional turf, that's, you know what it sounds like, this is turf that may be say like a lawn and a traffic median. You don't necessarily want to be using precious potable water for something like that. And also you mentioned the indoor water standard. Indoor water is generally considered what's non discretionary, what people need for hygiene, bathing, cooking, things like that. Then outdoor water is generally considered, although there are variances with this, is water that people have more control over. This might be water used for gardening, for things like lawns, things like that, pools. So that's why it's important to have kind of an indoor water standard and then to differentiate that from outdoor water use. I'd like to talk to you a little bit about the history of these new regulations and how they got started and the process by which they were developed and eventually adopted. Could you give me some information on that?
0:08:08.6 AVR: As I mentioned earlier, the State Water Resources Control Board was tasked with developing and implementing regulations for the framework. And so before the State Water Board developed those regulations, the Department of Water Resources drafted guidelines and recommendations for the State Water Board. The State Water Board came out with their first draft of the regulations in August of 2023, and those regulations across the board were stricter than the Department of Water Resource's recommendations.
0:08:37.3 LD: Was there an assessment regarding the impact of these regulations?
0:08:42.0 AVR: The State Water Resources Control Board issued what is called a standardized regulatory impact assessment and issued that to the office administrative law on May 19th, 2023. And according to that assessment, the framework with the regulations would create $16 billion in benefits and $13.5 billion in costs, with higher benefits going to residential customers.
0:09:07.6 LD: What were some of the reactions to that assessment? I remember hearing at the time that it was a little bit controversial.
0:09:14.8 AVR: So the reactions to the initial regulations were overall fairly negative. There was a study commissioned by the Mesa Water District that was completed by the firm mCubed that was issued in September of 2023. And contrary to the State Water Board's assessment, that analysis held that the benefit to cost ratio was 0.53, whereas the standard regulatory impact assessments was 1.24. And for reference, anything above a 1 means that the benefits are higher than the cost, whereas anything below 1 means that the costs are higher than the benefits. Additionally, the Public Policy Institute of California issued its analysis in November of 2023, and that was fairly critical as well. The highlight of the analysis was that the regulations would lead to a very high cost for very little benefit, noting that the regulations would result in a net cost of $7.4 billion to save less than 1.5% of annual water used by urban and water agricultural users and farms statewide. And last, the Legislative Analyst Office was required by the framework to develop its own analysis and then issued that on January 4th of 2024. And that was also fairly critical.
0:10:33.3 LD: It's my understanding that the regulations were subsequently updated in, I believe it was March of 2024, is that right?
0:10:41.0 AVR: That is correct. The primary update to the regulations was issued on March 12, 2024, and the press release that accompanied those noted that the goal of the update was to simplify compliance and increase flexibility.
0:10:55.9 LD: All right, and how did it do this?
0:10:58.1 AVR: So it changed the compliance states from starting in 2025 to 2027. That was largely because of COVID related delays to the Department of Water Resources and the State Water Resource Control Board's work. It also made it easier to qualify for variances, added a bonus incentive for water from direct potable reuse projects, and created two new alternative compliance pathways. One is for suppliers with households below median household incomes that needed at least an overall 20% reduction to meet their goals. And those parties have to show a reduction of 1% per year. And then there's an additional alternate compliance pathway. If a provider needs to cut at least 30% of their usage, they just need to show a reduction of at least 2% per year.
0:11:48.5 LD: Were there anything else that they changed other than these sort of incentives and alternative compliance pathways?
0:11:56.0 AVR: Apart from the primary update, there were a total of four other updates that the state water board issued to their regulations. Some of the most notable changes to those were that they changed the details on the standard if a provider is already meeting their budget. They also addressed the urban tree canopy issue, which is a concern raised based on the outdoor residential budget. To address that issue, they added a variance for irrigating existing residential trees starting in July of 2040, and they increased the size of the variant for planting climate ready trees.
0:12:32.1 LD: So what you call the urban tree canopy issue, was this a concern that water conservation regulations would lead communities to clear out or plant fewer trees, which can also have issues related to climate and heat and the impact of high temperatures? Is that correct?
0:12:49.6 AVR: Yes, that was the goal of addressing this issue was that there would be trees that would not receive enough water or that new trees would not be planted, and that agencies and water providers would have to make difficult choices to be able to meet their budgets. These additions were to try to avoid some of those difficult choices, recognizing the benefits of urban trees, including areas like avoiding hotspots.
0:13:12.3 LD: So ultimately, it's my understanding these were approved July 3rd, 2024. What was the updated analysis regarding the benefits and costs?
0:13:22.6 AVR: So the updated standardized regulatory impact assessment issued by the State Water Board in June of 2024 stated that based on the new regulations, there would be $6.2 billion in benefits and $4.7 billion in costs.
0:13:38.6 LD: That's certainly improvements from some of the critical analyses that were done earlier, to the earlier versions of the regulations. Let's talk now though about the regulations themselves. It's my understanding these apply to water suppliers, not necessarily individual customers, although they will likely impact, or customers will sort of feel the impact of them eventually.
0:14:00.8 AVR: That is correct. The regulations target urban water suppliers, which are defined as a supplier that has at least 3,000 end users or provides at least 3,000 acre feet of potable water. And so in total, the regulations apply to about 405 suppliers across the state which provide water for roughly 95% of California residents.
0:14:22.2 LD: These are set as water budgets, is that right?
0:14:25.5 AVR: Yes. So the core focus of the regulations is on these urban water use objectives, which are essentially budgets. And the budgets are set up to get tougher over time with the most stringent requirements starting in the mid 2040s.
0:14:41.3 LD: And are these budgets differentiated as far as different uses? You've got residential, you've got commercial, industrial. Is that right?
0:14:49.3 AVR: Yes. So the budget is split into four categories. Indoor residential usage, outdoor residential usage, commercial industrial, and institutional uses, which we're going to call CII uses, with dedicated irrigation meters and water loss.
0:15:06.5 LD: So the statute sets the indoor residential use standards. What about the CII?
0:15:13.3 AVR: So the CII is focused on meters that measure only the amount of water used outdoors, as opposed to a mixed use meter, which measures both indoor and outdoor water usage together. That's what makes it a dedicated meter. And so the CII uses apply to commercial water users, industrial water users, and institutional water users.
0:15:36.6 LD: Alex, talk to me a little bit about water loss. I've often heard the word every drop of water in California is precious. And it looks like these statutes want to deal with the issue of water loss and minimizing the amount of water loss as part of the process of transmitting water to end users. Could you talk to me a little bit about that?
0:15:57.0 AVR: Water loss is defined as the amount of leakage and other water that water suppliers lose, but does not end up with its customers. So the water usage in the framework is based on Senate Bill 555 from 2015, which includes its own reporting requirements and water law standards. Additionally, the State Water Board has a model that it is issued to calculate the supplier's individual standards, and at this point in time, it is released standards for all providers.
0:16:24.1 LD: And what are these different standards?
0:16:27.5 AVR: So the two different standards include one, if the benefit from fixing the water loss is greater than its cost, then the standard is the average baseline real loss. Whereas if the benefit from fixing the water loss is the same or less than its cost, then the standard is the sum of the background reported and unreported leakage.
0:16:46.7 LD: And it appears to be this sets an incentive for identifying and fixing water loss sources as the best course of action to address water loss issues. Certainly that gets onto the issue of other incentives or variances that I believe are baked into the new regulations. Can you give us some information regarding these variances and incentives, which it's my understanding they're designed to address the fact that water use varies due to a variety of factors. The customer, makeup of the customer base, the region, the technology needed to provide water service. And earlier, water conservation regulations were criticized for being too blunt. And I believe that the new regulations tried to address this issue.
0:17:30.2 AVR: Yes. So in order to kind of help providers to meet their budgets, the regulations offer alternative compliance pathways which we discussed earlier. Variances, temporary provisions, and bonus incentives. So variances are based on structural factors that cause some areas that have higher water usage, and they're defined as a unique use that has a material effect on a supplier's urban water use objective. The temporary provisions are distinguished from variances because they only apply for a limited time. They are available for challenges within wastewater collection, treatment and reuse system, the planting of new climate ready trees and the establishment of qualifying landscapes, which are those that require temporary irrigation and are associated with particular kinds of development. The bonus incentives are based on potable reuse and there's also extensions that are available based on having a disadvantaged community designation based on household income, a low benefit to cost ratio, or the need for substantial improvements.
0:18:34.0 LD: Alex, can you give me an actual example of what some variances might be?
0:18:39.9 AVR: Yes. So, examples of variances include populations of horses or other livestock, responding to non drought emergencies, and irrigating existing residential trees. So for emergency events, there are variances related to both outdoor residential and CII uses and they apply to declared state and local emergencies. An example of this would be the recent wildfires in Southern California for which Governor Newsom declared a state of emergency. As a result, urban water suppliers may be able to obtain a variance based on these recent wildfires.
0:19:13.5 LD: That's interesting. I know the recent wildfires have really put a focus on water issues both in Southern California and throughout the state. It's interesting that these regulations sort of anticipated that. And it'll be interesting also to see whether there are any new regulations to address those issues going forward. But what about, also, you mentioned bonus incentives. Could you provide me some examples of those?
0:19:40.4 AVR: Yeah. So the bonus incentives are designed around potable reuse, which is the recycling of water that turns previously used water into drinking water quality. And there are two forms of potable reuse, direct and indirect. Indirect potable reuse has been around for a while in California. And so what that is is the taking of used water, cleaning it, and then injecting it into an environmental buffer, such as a groundwater or aquifer, where it can mix with other water. Some estimates put the current indirect potable reuse as 750,000 acre feet, which Governor Newsom hopes to raise by 800,000 by 2030 and 1.8 million by 2040. One notable example is the Orange County Water District Groundwater Replenishment System, which is the world's largest water purification system for indirect potable reuse. It recycles 130 million gallons of water a day. And involved a $900 million investment to expand water reuse. A second example is pure water San Diego, which is currently partially built, but will provide nearly half of San Diego's water supply by the end of 2035. And phase one is designed to tackle 30 million gallons per day. And then there's also direct reuse, which is the cleaning of water and then piping it directly to customers without using any buffer.
0:21:02.8 AVR: The regulations were just passed to allow direct potable reuse at the end of 2023 with an effective date of August of 2024. And so projects are still being developed to take advantage of those regulations.
0:21:15.9 LD: I'll be interested to see what happens in the world with direct reuse. As you mentioned, we have several notable examples of indirect potable reuse, and it will be interesting to see what movement there is made towards direct reuse. But I also, moving on, I wanted to talk a little bit about reporting with respect to these regulations. If you could provide some information to our listeners regarding the recording and also the enforcement requirements, which are always top of mind for water suppliers that need to comply.
0:21:48.2 AVR: Yes, so the reporting to the Department of Water Resources is required every year starting on November 1st of 2023. And the reporting includes details on what needs to be reported for variances. And then in terms of enforcement, the state is authorized to issue informational orders starting on November 1st of 2023, written notices on November 1st of 2024, and conservation orders on November 1st of 2025. The regulation provide for fines of up to $1,000 per day under normal conditions and $10,000 per day under drought conditions. And the failure to provide the requested information in the reporting is also a violation subject to civil liability. So suppliers who violate the framework could be subject to actions or even fines. But at least initially, officials have said the emphasis will be on progress and compliance at the outset.
0:22:42.4 LD: Well, that's good to hear as everyone learns how to work with these regulations and we see what happens when they're actually put into effect. Now, I remember when these regulations were implemented, the reactions did vary. I know there was some concern by the public interest groups that the regulations don't go far enough. And also I know there were some concerns from smaller and disadvantaged communities. These conservation regulations, there is a cost to compliance. And I do know that there were some changes made, like you mentioned, to address those concerns. But I think those concerns will still continue going forward. And I think you also mentioned, I was glad to hear you talked particularly about the issue related to the trees, which I know got a lot of spotlight when it was first brought up because that's an issue particularly in urban environments and in particularly in disadvantaged urban environments may not have as much tree coverage. So I do know that the groups that raised that concern were police that that variance was put in. As you know, Nossaman represents many water providers, both publicly owned and investor owned. And based on my discussions with water suppliers, I think that regulations, the reaction to the regulations is generally positive.
0:23:53.2 LD: All Californians know that we need to take steps to increase the efficiency of water use. And the water suppliers are, have been working towards this for decades. I do know though that there are concerns about reporting requirements and the costs and sort of the scale, you know, will these decreases actually be achievable? So as I mentioned, I think it will be interesting to see how this actually plays out going forward. But I'd like you to discuss a little bit about the impact of these regulations. The forecasts that we see, how these will impact the state of California both with respect to water saved and also with respect to the costs.
0:24:35.9 AVR: Yes. So the regulations were initially tasked as costing $13.5 billion through 2040, and the update is now $4.7 billion through 2050. Obviously substantially less with the updated regulations. But $4.7 billion is still a substantial cost for water providers. Regulations are also projected to save roughly 500,000 acre feet of water annually by 2040, which should be enough to supply roughly 1.4 million households per year.
0:25:07.4 LD: Those figures are interesting and I will be looking at these to see if we actually do achieve these savings at this cost. But Alex, I think that regardless of the water saved, it's likely that these regulations will impact the way we think about water usage in this state. Do you agree?
0:25:26.7 AVR: Yeah, I think there's no question. As I mentioned before, this is a possibility for substantial innovation going forward. We're likely to see land use policies that will have to really consider their water source and how to design projects to operate as efficiently as possible. We're likely to see increases in areas such as water recycling and water reuse and stormwater capture. We're likely to see more water reuse projects through both larger recycling plants as well as smaller project specific developments. And it is likely we will see some substantial innovations that will change water usage in the state out of necessity to meet these regulations.
0:26:02.0 LD: I agree. I think we are going to see probably all of that and more. And we here at Nossaman will likely be both involved and watching all of these developments.
0:26:11.6 AVR: So we've covered a lot of ground here today. Starting with the basis for the regulations, reporting and enforcement and the potential impacts of regulations on California communities. And I hope you found this informative and it's been a joy to talk with you as always, Lori.
0:26:26.0 LD: You too, Alex. Thank you to our listeners for joining us for this episode of Digging Into Land Use Law. For additional information on this topic or other environmental land use matters, please visit our website @nossaman.com and don't forget to subscribe to Digging Into Land Use Law wherever you listen to podcasts so you don't miss an episode. Until next time.
0:26:52.8 Speaker 2: Digging Into Land Use Law is presented by Nossaman LLP and cannot be copied or rebroadcast without consent. Content reflects the personal views and opinions of the participants. The information provided in this podcast is for informational purposes only, is not intended as legal advice, and does not create an attorney client relationship. Listeners should not act solely upon this information without seeking professional legal counsel.
