In a decision filed April 29, and ordered published on May 28, 2014, the First District Court of Appeal reversed the trial court’s judgment granting a writ petition and upheld the decision of the San Francisco Bay Conservation and Development Commission (“BCDC”) permitting expansion of the Potrero Hills Landfill within the Secondary Management Area of the Suisun Marsh.  SPRAWLDEF v. San Francisco Bay Conservation and Development Commission (Waste Connections, Inc., RPI) (1st Dist., Div. 1, 2014) 226 Cal.App. 4th 905.

After years of environmental review and CEQA litigation, SPRAWLDEF filed a writ petition challenging BCDC’s decision rejecting administrative appeals and upholding (as modified) Solano County’s landfill expansion permits issued pursuant to the Suisun Marsh Preservation Act (“SMPA”).  SPRAWLDEF claimed the permits violated local land use regulations, enacted pursuant to the SMPA, that prohibited filling watercourses in the Marsh area unless no reasonable alternatives were available.  More specifically, it alleged no substantial evidence supported BCDC’s rejection (as economically infeasible) of a reduced-size alternative which would have protected the Spring Branch watercourse from alteration.  The trial court granted the writ petition on that sole ground.

In reversing the judgment, Court of Appeal analyzed SPRAWLDEF’s arguments as to the “no reasonable alternative” ordinance provision by “employing CEQA’s definition of ‘feasible,’ and the CEQA case law concerning economic infeasibility, [concluding this was] an appropriate [analytical] approach since the term embraces the concept of reasonableness.”  The most significant part of the court’s decision was its elaboration of economic infeasibility analysis under CEQA.  Key takeaways in this regard include:

• A showing of economic infeasibility “require[s] … evidence that the additional costs or lost profitability [associated with the alternative] are sufficiently severe as to render it impracticable to proceed with the project …. [W]hen the cost of an alternative exceeds the cost of the proposed project, ‘it is the magnitude of the difference that will determine the feasibility of th[e] alternative.’”  “Ultimately the ‘question is … whether the marginal costs of the alternative as compared to cost of the proposed project are so great that a reasonably prudent [person] would not proceed with the [altered project].”
• The CEQA case law “does not require any particular economic analysis or any particular kind of economic data, but requires generally ‘some context’ that allows for economic comparison.”  The courts have “declined to limit the ways in which economic infeasibility could be shown, noting they could be numerous and vary depending on the circumstances.”
• “[R]eal party did not simply baldly assert the [reduced-size] alternative was not economically feasible” but, rather, provided comparative figures and explained why an expansion that did not have 54 to 59 million cubic yards of capacity was not financially viable and thus “provided the Commission with ‘some context’ to permit” its assessment of the alternative’s economic feasibility.
• Further relevant administrative record evidence included a “2009 report real party prepared for the Army Corps of Engineers” which “examined in considerable detail, four … on-site alternatives involving lesser changes to the Spring Branch watercourse” and making side-by-side comparisons of “the per unit cost, capacity, and life of the landfill, for the proposed expansion and the alternatives.  The costs per ton of the alternatives ranged from $3.04 to $11.53, compared to $2.66 for the project as proposed.  The capacities ranged from 10.1 million cubic yards to 15 million cubic yards, compared to 61 million cubic yards for the project as proposed.  And the life of the landfill ranged from 5.9 to 8.7 years, compared to 35 years for the project as proposed.”  Per the Court: “The disparity in these figures is so great it amply supports the [BCDC’s] conclusion a reduced-size alternative of the magnitude necessary to avoid implicating Spring Branch was not economically feasible.”
• Because the record evidence allowed for an economic comparison between the project and proposed alternatives, and “a reasonable person could have reached the conclusion the [BCDC] reached[,]” the court found its inquiry was effectively ended.  It stated: “there is no basis for the trial court’s view that real party had to produce significantly more detailed economic data showing net profit figures.  As we have discussed, the courts have eschewed requiring any particular economic showing and have, instead, recognized that what is sufficient will depend on the particular context.  In this case, the Commission had an adequate record before it to fairly determine the smaller alternatives were not economically reasonable.”
• Finally, the court found “no merit to petitioners’ assertion the economic information in the record about the landfill expansion as proposed and the alternatives, should be discounted or ignored because it was provided by real party.  The Commission could have, of course, rejected the evidence had it found it not credible.  It was also within the province of the Commission, however, to accept the information as accurate and relevant.”

Because CEQA does not require analysis of a proposed project’s economic or social impacts unless they will lead to adverse physical changes in the existing environment (i.e., urban decay), an EIR generally need not contain economic analysis.  However, at the project approval stage, if an environmentally superior project alternative discussed in the EIR is rejected by the lead agency as economically infeasible, there needs to be substantial evidence somewhere in the record to support that conclusion if it is challenged.  Project proponents are understandably reluctant to divulge extensive or confidential financial information so as to make it part of the public record, but when relying on economic (as opposed to legal, environmental, social or technological) infeasibility to rule out an alternative, they will need to provide sufficiently detailed factual information to provide the lead agency with “some context” to enable the assessment.  SPRAWLDEF teaches that detailed financials showing net profits are not necessary for this purpose, and that the showing can be made with diverse types of economic data, so long as it enables the necessary comparisons to determine the magnitude of cost differential between the proposed project and each alternative that is ruled out as economically infeasible.  Finally, while the lead agency retains its usual discretion to determine the credibility of evidence in determining whether it is “substantial,” the mere fact that the evidence relating to economic infeasibility comes from project developer does not disqualify it from consideration; that said, a prudent project proponent would be well advised to provide the lead agency with an independent expert’s report where possible when relying on economic infeasibility to rule out an alternative.

Questions?  Please contact Arthur F. Coon of Miller Starr Regalia.  Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for fifty years.  For nearly all that time, the firm also has written Miller & Starr, California Real Estate 3d, a 12-volume treatise on California real estate law.  “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state.  The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, construction, management, title insurance, environmental law, and redevelopment and land use.  For more information, visit www.msrlegal.com.