7.4 California Environmental Quality Act

The California Environmental Quality Act (CEQA), California Public Resources Code Sections 21050 et seq.), is applicable to all local public agencies that “approve” or carry out “projects” where such projects “may have significant effects on the environment.” See California Public Resources Code Section 21151. The California Supreme Court has stated that the fundamental purpose of CEQA is to ensure that environmental considerations play a significant role in governmental decision making (see Fullerton Joint Union High School District v. State Board of Education, 32 Cal. 3d 779 (1982)).

Consistent with that purpose, the Implementation Guidelines for the California Environmental Quality Act, California Code of Regulations Section 15000 et seq., and case law interpret the statutory requirements broadly. A “project,” for example, includes not only construction or development activity but the “whole of an action, which has the potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect change in the environment,” and an “approval,” although limited to discretionary actions, includes any decision by a public agency “which commits the agency to a definite course of action in regard to a project” and may include permits for activities by private parties. Actions taken in violation of CEQA may be voided, and “actions” for this purpose may include the adoption of a resolution authorizing the sale and issuance of bonds. Should such a resolution be voided, the validity of the sale and issuance would be undermined.

Proceeds of municipal debt issuance are generally spent on “projects” as defined in CEQA and financing for a “project” can, and generally does, constitute an “approval” for CEQA purposes. Before adopting a resolution authorizing the issuance of debt, therefore, it is important for the public agency to determine that it has taken any actions required by CEQA to be taken before the authorization (often referred to as “CEQA regulatory compliance”). CEQA regulatory compliance can be based upon one or some combination of the following:

A determination by the public agency that the proposed action is entirely ministerial (i.e., that there is no discretion exercised by the public agency, rarely the case in a municipal debt transaction)
A determination by the public agency that a specific CEQA exemption is available (for example, the exemption for the issuance of conduit revenue bonds by certain state agencies)
Subject to certain exceptions generally relating to cumulative environmental effects and special environmental conditions, a determination by the public agency that the proceeds will be used to finance minor additions or alterations to or replacement of existing facilities that involve negligible or no expansion of use
A determination that the proceeds will be used for feasibility and planning studies (which may include the cost of environmental review)
A determination by the public agency, evidenced by a “negative declaration,” that the project will have no significant adverse impact (this may be based upon mitigation measures)
Review and approval of the findings by the public agency of an environmental impact report

If not all projects on a list of potential expenditures have CEQA regulatory compliance, it is important that projects on the list with CEQA regulatory compliance have needs sufficient to allow the public agency to use all of the debt proceeds (i.e., that the public agency will not have “over issued” even if, however unlikely, the public agency elects following environmental review to abandon all projects without current CEQA regulatory compliance). When a bond resolution must be adopted early in the issuance process, some public agencies qualify approval on CEQA regulatory compliance before debt issuance. Whether the qualification is sufficient for the adoption of the resolution to not constitute an “approval” for CEQA purposes depends upon the particular circumstances. See Save Tara v. City of West Hollywood, 45 Cal. 4th 116 (2008).