SB 7 expands project eligibility, provides additional guidance regarding GHG emissions, and changes some procedural requirements.

By Nikki Buffa and Brian McCall

On May 20, 2021, California Governor Gavin Newsom signed into law SB 7, the Jobs and Economic Improvement Through Environmental Leadership Act of 2021. SB 7 reinstates, with amendments, the Environmental Leadership Development Project (ELDP) provisions of the Public Resources Code — more commonly known as AB 900 — which expired on January 1, 2021. The basic premise of AB 900 and now SB 7 is to provide litigation streamlining under the California Environmental Quality Act (CEQA) for a certain class of projects that meet heightened environmental and labor standards. This blog post examines how SB 7 departs from AB 900 in a few key ways.

What Types of Projects Are Included Under SB 7?

AB 900 applied to residential, retail, commercial, sports, entertainment, recreational use, clean renewable energy, and clean energy manufacturing projects that would result in at least US$100 million investment in California.

SB 7 includes the same classes of projects as AB 900 in addition to certain housing development projects that would result in between US$15 million and US$100 million investment in California, essentially expanding the scope of the ELDP provisions to encompass smaller housing projects.

What Requirements Must Eligible Projects Meet to Qualify for Streamlining?

SB 7 carries forward from AB 900 the same requirements that large residential, retail, commercial, sports, entertainment, and recreational use projects must meet to qualify for streamlining, such as:

  • The project is certified as LEED Gold or better.
  • The project is located on an infill site.
  • The project provides at least 15% greater transportation efficiency than comparable projects.

If the project is located in an area where a metropolitan planning organization that has adopted a sustainable communities strategy or alternative planning strategy under SB 375:

  • The project is “consistent with the general use designation, density, building intensity, and applicable policies specified for the project area in either a sustainable communities strategy or an alternative planning strategy.”

The requirements for the new smaller-housing-development category include:

  • The project is located on an infill site.
  • At least 15% of the project is dedicated as affordable housing.
  • No part of the project shall be used for a rental unit for a term shorter than 30 days, or designated for a hotel, motel, bed and breakfast, or other transient lodging use.
  • No part of the project shall be used for manufacturing or industrial uses.
  • The project is for residential units only, mixed-use developments consisting of residential and nonresidential uses with at least two-thirds of the square footage designated for residential use, or transitional housing or supportive housing.

All projects must meet the following additional requirements:

  • The project does not result in any net additional emission of greenhouse gases (GHGs), including GHG emissions generated by employee transportation.
  • The project application provides information establishing that the project will comply with certain requirements for commercial and organic waste recycling.
  • The project applicant has entered into a binding agreement that all mitigation measures required to certify the project as an ELDP are conditions of approval and that those measures will be monitored and enforced.
  • The project applicant agrees to pay the costs of the Court of Appeal in hearing and deciding any case, including payment of costs to appoint a special master, if deemed appropriate by the Court, and the cost of the administrative record.

SB 7 also includes more detailed labor requirements than AB 900, dependent on whether a project is paid for with government funds.

How Will Eligible Projects Quantify and Mitigate Their GHG Emissions?

Importantly, SB 7 provides new guidance as to how a project must quantify and mitigate GHG emissions. First, it sets the “environmental baseline” for GHG emissions as the “physical environmental conditions in the vicinity of the project site at the time the application is submitted.” This provision limits the geographic reach of the project’s baseline, preventing project proponents from including emissions otherwise outside the project vicinity in the baseline.

Second, SB 7 provides a hierarchy of mitigation that a project must implement:

  1. Direct emission reductions from the project that also reduce criteria air pollutants
  2. Direct emission reductions that also reduce emissions of criteria air pollutants or toxic air contaminants within the same air pollution control district
  3. Offsets that originate within the same air pollution control district or air quality management district in which the project is located
  4. Offsets that originate from sources that provide a specific, quantifiable, and direct environmental and public health benefit to the region in which the project is located

Interestingly, these GHG calculation and mitigation requirements do not apply to the small housing class of projects. Instead, those projects must simply show that the project does not result in any net additional emission of GHGs, including GHG emissions from employee transportation.

What Is the ELDP Application Process?

For the CEQA litigation streamlining benefits to apply, a project must be certified by the governor after supplying evidence satisfactory to the governor to support the certification decision. Any evidence or materials related to certification must be made available to the public at least 15 days before the governor certifies a project.

There is no set timeline for the governor to act on a request for ELDP certification, but once the governor acts, the Joint Legislative Budget Committee has 30 days to decide whether it concurs with the governor’s certification. If the committee fails to act within 30 days, the project is deemed to be certified. The statute does not specify the legal effect of a committee’s determination that it does not concur with the governor’s certification. The governor’s certification is not subject to judicial review.

There are two notable procedural differences between SB 7 and AB 900. First, SB 7 provides that the Office of Planning and Research can charge applicants a fee for the costs incurred by the governor’s office in implementing the ELDP program. Second, SB 7 includes a provision that allows a project applicant to go back to the governor to request the certification of a project alternative if it has been described in the project’s environmental impact report.

What Benefits Will Eligible Projects Receive and When Will Those Benefits End?

The SB 7 CEQA streamlining benefits closely mirror those of AB 900. Under the law, CEQA lawsuits challenging an ELDP must be concluded, including appeals, within 270 days (about nine months), after the lead agency certifies and files the administrative record with the court.

SB 7 sunsets the ELDP provisions as follows:

  • The ELDP must be certified by the governor before January 1, 2024.
  • The ELDP must be approved by the lead agency before January 1, 2025.
  • The chapter expires January 1, 2026.

In a press release, Governor Newsom said he believes the bill can help remove “red tape to save time and remove barriers to production” of housing. The bill is expected to speed up development of ELDP projects while also preserving review under CEQA, both of which are critical priorities for environmental advocates and project developers in California.

Latham & Watkins will continue to monitor and report on developments in this area.

This post was prepared with the assistance of summer associate Lia Cattaneo.