May 7, 2004 - From the April, 2002 issue

After Contentious Debate, Litigation & Legislation State's Water Policy Still Leaves Questions Unanswered

Water is a central theme to the "California Experience." Yet despite over 150 years of discussion, litigation and legislation, the issue is still as murky as ever. Ed Casey, Head of Weston, Benshoof, Rochefort, Rubalcava, MacCuish's Water Resources Practice Group, addresses the history of water issues in California-from the Colorado River Accord to the State Water Project. In that analysis he explains the complexities inherent in dealing with water and looks to the present and future to see where the next roadblocks and hurdles will be.

By: Ed Casey, Weston Benshoof

Introduction

Some say that the story of California is the story of water. Without the construction of such large water projects as the Colorado River Aqueduct, the State Water Project and the Owens Valley Aqueduct, Southern California would simply be a barren, semi-arid dessert. Instead, California hosts one of the largest populations and economies in the country.

However, the demands of that population will place new strains on the State's complex water system. California faces an estimated population growth of 15 million people in the next 20 years. During that span, the supply of water available from the Colorado River and the State Water Project, two primary sources of Southern California's water allotment, will likely decrease significantly as a result of the "4.4 Plan" and the Bay-Delta accord. Under the 4.4 Plan, which is aimed at resolving California's water disputes with neighboring Western states, California's apportionment of Colorado River water will be reduced from approximately 5.1 million acre-feet per year to 4.4 million acre-feet. (Generally, one acre foot is sufficient to supply the water supply needs of two Southern California households for one year.) Attempting to resolve certain environmental issues, the Bay-Delta accord is expected to further reduce the amount of water reaching Southern California. In short, Southern California faces an increased demand for water and a reduction in its current supplies of water.

CEQA Court Decisions Impose Stringent Requirements Concerning Water Supply

In light of that potential disparity between demand and supply, the Courts and the Legislature have imposed new requirements on developers of larger projects that are aimed at ensuring that there will be adequate water supplies to serve such projects. These requirements originally evolved from a series of court decisions handed down over the past few years. For example, in a lawsuit challenging the Los Angeles County's approval of the Newhall Ranch Project, an approximately 22,000 unit residential development project located in northeast Los Angeles County near Santa Clarita, a trial court ruled on May 31, 2000 that the project's Environmental Impact Report (EIR) did not adequately address the issue of a firm water supply for the project. While the Court found that the EIR correctly determined the amount of water needed by the project and identified three specific sources of water available to the project, the Court concluded that there was insufficient evidence proving that those water sources could, in fact, supply all of the water needed by the project. Indeed, the Court looked beyond the "theoretical" supplies of water and scrutinized the facts as to whether those sources could actually fulfill the project's water needs. For example, the EIR stated that the project would receive water from Castiac Lake Water Agency (CLWA), which is one the "State Contractors" entitled to receive water from the State Water Project. However, the Court held that CLWA's "theoretical" entitlement had to be reduced by 50% based on historical data showing that the State Water Project has only delivered that percentage of water to the State Contractors, including CLWA.

Another lawsuit concerned the "State Water Project" itself, which is a system of aqueducts, dams, reservoirs, pumping plants and other facilities that are operated by the Department of Water Resources (DWR) and provides over 2 million "acre feet" of water annually to 29 water agencies and other entities throughout California. DWR's delivery of water is governed by a series of contracts between DWR and the 29 "Contractors" that establish the amount of water that each Contractor can receive (commonly known as the Contractor's "entitlement"). However, due to numerous factors, including the inability to construct necessary infrastructure, DWR has not delivered water sufficient to meet the full amount of the Contractors' entitlements.

In 1994 and 1995, the Contractors and DWR entered into negotiations, which produced the so-called "Monterey Amendments" to the State Water Contracts. The five major components of the Monterey Amendments are aimed at creating greater flexibility into the State water system.

Despite its laudable goals, legal challenges were brought to the Monterey Agreement under the California Environmental Quality Act (CEQA). On September 15, 2000, the Court of Appeal found that the EIR prepared for the Monterey Agreement failed to comply with CEQA. In particular, the Court held that DWR should have acted as the "lead agency" for CEQA purposes and that the EIR failed to properly analyze the "no project alternative," namely, the consequences of enforcing the State Water Contract's provisions regarding reduction in entitlements due to shortages in supply. The Court found the last issue particularly important since such entitlements often form the basis for land use and planning decisions, and such planning decisions should not be premised on "paper water," as the Court characterized the Contractors' entitlements.

This trend toward the critical nexus between land use decisions and the availability of water continued with a February 2001 decision concerning a residential project of 109 on agricultural land in Carmel Valley. The Court of Appeal invalidated the project EIR and approvals on the ground, among others, that EIR improperly established the CEQA "baseline" on the developer's permitted water usage instead of actual usage. Just six months later in August 2001, another appellate court invalidated a project EIR and approval regarding a plan for a large industrial project near an airport in Napa County on the ground that the CEQA document did not contain sufficient evidence of an adequate water supply.

New 2002 Legislation

These cases and other water supply issues lead to the enactment of Senate Bill 221 (Kuehl) and Senate Bill 610 (Costa). Effective January 1, 2002, SB 221 prohibits a city or county from approving development agreements, parcel maps or tentative tract maps for any subdivision with more than 500 dwelling units unless a sufficient water supply is, or will be, available for the subdivision prior to its completion. SB 610 requires cities and counties to consider water supply assessments when considering approval of certain development projects to determine whether projected water supplies can meet the project's anticipated water demand. Together, these new laws are the tightest banding between land development and water supply availability that our state and, for that matter, the nation has ever seen.

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SB 221 – The General Overview

SB 221 requires any city, county, or local agency to include as a condition in any tentative map for a subdivision a requirement that a sufficient water supply shall be available to serve the subdivision. The availability of a "sufficient water supply" is based on written verification from a water supplier with more than 3,000 service connections (prior to or as a result of serving a subdivision) which may provide water to the proposed project. "Sufficient water supply" is defined as the total water supplies available during normal, single-dry, and multiple-dry years within a 20-year projection that will meet the projected demand of a proposed subdivision. Moreover, and apparently as an attempt to arrest reliance on "paper water" entitlements from the State Water Project, SB 221 further requires any verification of "projected" water supplies to be based on entitlement contracts, capital outlay programs, and regulatory permits and approvals regarding the right to and capability of delivering the projected supply. Taken together, these requirements appear to have transformed the once simple "will serve" letter into a pre-formulated administrative record.

SB 221 places the initial burden of establishing a sufficient water supply on the public water system. Within five days after a development application is complete, the local agency must request from the water supplier a written verification for water availability. It appears that an affirmative duty is then imposed on the water supplier, since SB 221 subjects public water systems to a judicial writ proceeding for failure to provide the verification within 90 days of the initial request. Each verification must be based on several forms of substantial evidence, including, but not limited to: (a) the reasonably foreseeable impacts of the proposed subdivision on water availability for agricultural and industrial uses within the supplier's service area; and (b) an evaluation of the legal rights of the water supplier and the overlying landowners to any groundwater that will be used to supply the project.

In the event that a water supplier either fails to provide the requested verification or verifies that it is unable to provide a sufficient water supply for a proposed subdivision, the approving agency may still make a finding that additional water supplies not accounted for by the water provider are, or will be, available prior to the project's completion. That is, the local agency can approve a tentative map or development agreement, notwithstanding conclusions made by a water provider concerning the availability and reliability of water supplies. This apparent veto power, however, is not unfettered. Any such overriding decision must be made on the record and supported by substantial evidence, which may be problematic without the water provider's contribution.

Pursuant to one of the last amendments made to SB 221, certain residential projects are excepted from its reach, including: (a) those within an urbanized area previously developed for urban uses; (b) those surrounded by immediately contiguous properties that are or have been developed for urban uses; and (c) those developed exclusively for very low and low-income housing.

SB 610 – The General Overview

SB 610 requires a city or county to consider a water supply assessment to determine whether adequate water supplies available to certain categories of proposed projects. The covered projects are: (a) a residential development of more than 500 dwelling units; (b) a shopping center or business employing more than 1,000 persons or having more than 500,000 square feet of floor space; (c) a commercial office building employing more than 1,000 persons or having more than 250,000 square feet; (d) a hotel or motel with more than 500 rooms; (e) an industrial or manufacturing establishment housing more than 1,000 persons or having more than 650,000 square feet or 40 acres; (f) a mixed use project containing any of the foregoing; or (g) any other project that would have a water demand at least equal to a 500 dwelling unit project.

For such projects, a city or county is required to consider information contained in a water supply assessment as part of the CEQA review process. If a water supplier cannot be identified to serve the project, the city or county must prepare the assessment in consultation with any agency providing water service in or adjacent to the project area and the local agency formation commission. If the water demand for the proposed development has been accounted for in a recently adopted urban water management plan, the water supplier may incorporate information contained in that plan to satisfy certain requirements of a water supply assessment. SB 610 adds many factors that must be considered in a water supply assessment, including the same types of information required for urban water management plans under SB 610 (Water Code § 10631, as amended) and water supply verifications under SB 221 (Water Code § 10910, as amended).

As with SB 221, a water supplier is subject to a writ of mandamus for failing to provide a water supply assessment to a city or county within 90 days of the initial request. Unlike SB 221, however, SB 610 allows a water supplier to request a maximum 30 day extension of time to prepare and adopt an assessment.

Unanswered Questions

Despite the best intentions of the Legislature in trying to ensure that local land use agencies carefully examine the adequacy of water supplies for future projects, a number of questions remain unanswered: Who will absorb the cost of compliance with SB 221? Will SB 221/610 encourage residential piecemealing (i.e., 499 unit projects)? Will a 10,000 unit project be exempt simply because it lies "immediately contiguous" to an existing urbanized area? Will public water systems be more prone to suit than they were prior to SB 221/610? Does compliance with SB 221/610 necessarily mean that CEQA compliance has been achieved? How well will water agencies cooperate with land use agencies? In the end, one thing is certain-water supply issues have returned to the forefront of California's planning decisions.

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