LEGISLATIVE ANALYST REPORT

To: Members of the Board of Supervisors

From: Adam Lynch, with Adam Van de Water and Andrew Murray, Office of the Legislative Analyst

Date: March 2, 2005

RE: The Role of Private Environmental Consulting Firms in CEQA Review (File No. 040414) (OLA No. 010-04)

Summary of Requested Action

Supervisor Maxwell sponsored a motion requesting that the Office of the Legislative Analyst (OLA) examine the role that private environmental consulting firms play in preparing CEQA documents for the City’s environmental review process. This examination should include an overview of the current process and analyze alternative processes utilized by other municipalities, with special focus on the role of the City’s Planning Department, project applicant, and interested members of the community.

Executive Summary

The Planning Department is the lead agency in San Francisco responsible for implementing the California Environmental Quality Act (CEQA). CEQA requires the department to assess whether projects will have significant adverse environmental impact. It lays out a rigid process by which municipalities assess impact that requires preparing an initial study, and in many cases fuller impact reports. Municipalities can either prepare these studies and reports in house, or allow that work to be performed by private environmental consulting firms. Some jurisdictions routinely rely on the services of these firms as outsourcing is seen as more efficient and providing access to more specialized expertise than is available in house.

CEQA is a key mechanism used by interested stakeholders, including those concerned about the negative environmental and other impacts, to modify or stop projects. Because the studies and reports required by CEQA are somewhat subjective, the public is concerned about the possibility of bias by consulting firms involved. In San Francisco consulting firms preparing assessment documents are selected and paid directly by the project applicant, raising particular concern over objectivity.

The Planning Department provides guidelines to consultants, works with them to prepare documents, and reviews materials submitted in an effort to safeguard the delivery of quality, objective products. The Department's efforts are backstopped by a public participation and review process. However, the Planning Department asserts that staffing levels and increased workload have made it difficult for the Department to devote resources to needed guideline updates and slowed the document review process.¹

To address concerns of real or perceived bias and quality lapses, the Board of Supervisors and the Planning Department can consider implementing a range of measures used by other municipalities, including the following:

• Hiring a separate consulting firm to conduct peer review of documents;
• Facilitating an expanded (earlier and more accommodating) public participation process;
• Pre-qualifying consultants that applicants can hire based on strict requirements;
• Selecting the consultant; and
• Hiring the consultant directly (using funds paid to the municipality by the applicant).

Background

In 1970, the California State Legislature passed the California Environmental Quality Act (CEQA) to require local government agencies to consider the environmental impact of projects that they undertake or approve. CEQA requires that municipalities research the impact of projects (those that have the potential for resulting in substantial changes to the environment and that require a discretionary decision by the city) and prepare documents that the public can review and appeal. The objectives of CEQA are to provide:

• Detailed, public information regarding the environmental consequences of projects;
• Research on avoidance or mitigation measures;
• A process of public involvement; and
• Early consideration of environmental impacts.

CEQA does not prohibit projects that have negative environmental impacts though an unfavorable CEQA assessment can greatly endanger a project. Projects found through CEQA to have negative environmental impacts are less likely to receive required permits from the municipality unless the impacts are mitigated or the municipality concludes (by issuing a "Statement of Overriding Considerations") that the negative environmental impacts are outweighed by other benefits of the project.

CEQA granted local jurisdictions flexibility in how they implement the law, including which local agency would serve as a municipality’s lead agency. Although municipalities are ultimately responsible for conducting environmental review under CEQA, per a ruling in 1991 (Friends of La Vina v. County of Los Angeles)² either the lead agency or private environmental consulting firms can legally produce required documents on behalf of project applicants. In 2000, at least 160 California cities and counties allowed project applicants to hire their own consultants to prepare draft CEQA documents.^3, 4

The lead agency is entitled to collect fees from project applicants to cover the costs associated with administering CEQA. In addition, the lead agency is allowed to collect fees to offset the cost of in-house preparation of required documents. In jurisdictions where most documents are prepared by private consultants, the lead agency can either allow the project applicant to pay the consultant directly or assert additional oversight by collecting a fee from the applicant, then in turn contracting with and paying the consultant.

In all cases, the lead agency is responsible for reviewing and approving documents. In addition, most jurisdictions require certification of documents by an appropriate elected or appointed board, such as a planning commission or city council. The certification of CEQA documents can ultimately be appealed in California Superior Court. This, in addition to the required public participation process, ensures some level of integrity in the documents, whether prepared in-house by the lead agency or not. However, undertaking these appeals requires resources that may not be available to project opponents.

As noted, CEQA is a key mechanism by which those concerned about negative impacts seek to modify or stop projects. Because the studies and reports required by CEQA are somewhat subjective, the public is concerned about the possibility of bias by consulting firms that are selected and paid directly by the project sponsor, which could manifest itself in understating the environmental impact of a proposed project, thereby increasing its likelihood of receiving approval. Applicants could attempt to exert influence over consultants in many steps of the process. For example, applicants could:

• Select a consultant known to have a perspective likely to produce a preferential assessment of the applicant’s project; and
• Attempt to influence the consultant’s work by making payment or the lure of future work contingent upon favorable findings.

This does not mean that all applicants, given the chance, would seek to influence consultants in their favor. Many applicants are greatly concerned about the environmental and other impacts of their projects. Yet the perception that the current arrangement may create bias is a concern for some stakeholders.

To ensure objectivity in the documents and maintain public trust in the process, municipalities have instituted a variety of formal and informal safeguards, particularly regarding the work of private consultants. Generally, those mechanisms that guide consultants to correct errors earlier in the process are less costly than those that do so later. To safeguard the process, the lead agency can:

• Critically review materials submitted by the consultant;
• Work closely with the consultant during the preparation of the materials, including providing strict guidelines;
• Hire a separate consulting firm to conduct peer review of documents;
• Facilitate an expanded (earlier and more accommodating) public participation process;
• Pre-qualify consultants that applicants may hire based on strict requirements;
• Select the consultant;
• Hire the consultant directly (using funds paid to the municipality by the applicant);
• Disallow the applicant from communicating with the consultant regarding the project; and
• Prepare additional documents in-house.

Each of these mechanisms alone could provide sufficient protection. Their success depends largely on how well they are implemented. It should be noted that these measures are geared to address bias in the consultants. Other measures would be needed to address bias in other areas of the process.

San Francisco’s CEQA Process

The City and County of San Francisco designated the Planning Department to be the lead agency responsible for carrying out CEQA. It in turn established the Major Environmental Analysis (MEA) Division (formerly the Office of Environmental Review) to review project proposals. The City’s CEQA compliance process is outlined in Chapter 31 of the Administrative Code. In San Francisco, the project applicant submits an Environmental Evaluation Application and pays an accompanying fee. MEA reviews the application to determine whether an environmental impact report (EIR) is needed. (San Francisco, like most other jurisdictions, uses the industry standard State CEQA Guidelines, which provide criteria to lead agencies in determining whether a project may have significant effects.) If not, MEA uses funds from the fee to prepare an initial study with an accompanying negative declaration for the project.

According to MEA, it rarely prepares EIRs in house. If MEA determines that an EIR is needed, MEA advises the applicant to retain a consulting firm, which the applicant pays directly, to prepare the draft and final EIR. In some cases, special studies (such as a shadow study, geo-technical analysis, or biological resources study) are needed to complement the basic EIR. Like most EIRs, these studies are conducted by consulting firms (which may or may not be the same firm preparing the basic EIR for the applicant) selected and paid directly by the project applicant.

Some municipalities produce all CEQA required documents in house. Since initial implementation in the 1970’s, San Francisco’s CEQA program has always relied to some extent on the use of outside consultants. That reliance has grown over time. In 2000 CEQA was modified to require an additional section on historical resources, increasing the burden on staff preparing initial studies and reviewing EIRs. MEA staff has increasingly suggested to project applicants that they employ the use of consultants rather than wait for backlogged MEA staff to prepare initial studies. The Budget Analyst’s 2002 Management Audit of the San Francisco Planning Department determined that the department was not processing applications within the state deadlines,⁵ although MEA staff thinks that the analysis is faulty. Applicants are not entitled to a fee refund even if MEA directs the applicant to use a private consultant rather than produce the initial study in house.

The only occasion on which the Planning Department hires an environmental consulting firm directly for CEQA compliance is when it needs to prepare, as a project applicant, CEQA compliance documents for its internal activities. These activities primarily include the preparation of regional land use and development plans. Other City departments, such as Public Works, also hire private consultants directly to prepare required CEQA documents related to projects that they are undertaking.

MEA Oversight of Consultants

Some of the mechanisms employed by lead agencies to ensure quality documents from consultants were discussed above. MEA employs the following:

• Reviews the original Environmental Evaluation Application and materials;
• Works with the consultant during the preparation of the materials;
• Plays a major role in the public participation process; and
• Critically reviews materials submitted by the consultant (normally reviews preliminary draft EIRs 2-4 times).

Once it has been determined that an EIR is needed, MEA hosts an initial meeting with the applicant and the applicant’s chosen consultant. At this meeting MEA scopes the EIR, which includes determining any special studies needed and the depth of analysis required. They also provide written general guidance to the consultants on how to prepare environmental review documents (the EIR Instructions and Guidelines, and accompanying consultant instructions). The EIR Instructions and Guidelines also contain instructions to MEA staff on working with consultants and instructions for MEA reviewers of consultant-prepared documents. MEA has long hoped to expand its written policies regarding consultants.

It should be noted that most San Francisco project applicants, although free to choose, make use of one of just four environmental consulting firms.⁶ This distinguishes the City from other jurisdictions, and it is unknown why this situation persists. Presumably competition for the large number of projects taking place in San Francisco would attract the interest of many firms. However, these four firms’ familiarity with the San Francisco process might make them more efficient at meeting the demands of MEA, and therefore less expensive to applicants. The existence of a large or small number of firms in the market does not foster or assuage bias. A small number of objective firms protects against bias to some degree as applicants cannot shop around much to find a consulting firm that is likely to make a preferential determination. Also, because each of the firms enjoys substantial business, they are not beholden to the business of a single applicant. However, if there is a lack of public confidence that the Planning Department is sufficiently strict in reviewing the work of these firms, or these firms have identified opportunities to exploit the City’s review to the benefit of applicants, having a small number of firms might foster bias.

Public Review and Input

By law, the Negative Declaration and EIR must be submitted to multiple stages of public review and ultimately approved by either the Planning Commission or the Board of Supervisors. Briefly, once prepared, MEA makes the initial study and preliminary negative declaration available to the public and accepts comment. Any person may appeal the proposed negative declaration, which obligates the Planning Commission to hold a public hearing. Following the hearing, the Planning Commission can adopt the negative declaration, return it for revisions, or reject it and require a full EIR. If the negative declaration is not appealed, it is considered approved and final. The City can also adopt a mitigated negative declaration.

If MEA determines that an EIR is needed, it will publish notification that its preparation is underway and will post notice and solicit comment on the draft EIR through a public hearing. The final EIR is constructed based on the draft and must contain a list of people consulted and the comments received on the draft. Comments that raise significant points not addressed in the draft must be addressed in the final EIR. The Planning Commission must certify the completion of the EIR. Any person or entity that has submitted comments on the draft EIR may appeal the Planning Commission’s certification to the Board of Supervisors. In the case of such an appeal, the Board of Supervisors either affirms or rejects the EIR. Members of the public who feel that a project’s impacts are not fairly represented in an approved EIR can resort to suing the municipality in California Superior Court.

There is concern among project opponents that the time limits to review documents and appeal decisions under San Francisco’s current process are too tight to effectively enable public participation. Similarly, there is a sense that few grassroots, community groups have sufficient expertise and financial resources to effectively participate in the process, such as the ability to hire its own independent consultants.

Other Jurisdictions

State Regulation

CEQA itself does not address the use of consultants in preparation of environmental review documents other than to say that the local lead agency is entitled to "prepare, or cause to be prepared" (implying preparation by another organization) environmental review documents. California Assembly Bill 406, introduced in 2003 and currently being considered in the Senate Environmental Quality Committee, would make it illegal for project applicants (both public and private) to enforce confidentiality agreements on their consultants with regards to any data or information gathered in the course of the review process. An earlier version of the bill would have required that any draft EIR, EIR, or negative declaration be prepared directly by, or under contract to, a public agency, thereby disallowing project applicants to hire consultants directly. This would nullify the Friends of La Vina v. County of Los Angeles ruling,⁷ but was dropped as it lacked support.

Other Jurisdictions

California jurisdictions employ a variety of the measures described above to regulate the role of environmental consultants in preparing CEQA documents. Because the success of any measure critically depends on how it is implemented, it is hard to compare the effectiveness of different programs, even if they employ the same measures. It should be noted that San Francisco, like most jurisdictions, does use the industry standard State CEQA Guideline.

A number of jurisdictions, in addition to San Francisco, allow project applicants to hire their own environmental consultants to prepare draft CEQA documents, including the counties of Los Angeles, San Diego, and Santa Cruz and the cities of Oakland and San Diego.⁸ However, a larger (and increasing) number prohibit this practice, including Santa Clara County and numerous cities.⁹ For example, Cupertino, Palo Alto, Pasadena, San Bernardino County, and San Luis Obispo County allowed this practice in 2000 but now prohibit it.¹⁰

Regarding project applicants hiring consultants directly, Orange County’s approach is nearly identical to San Francisco’s. The City of Sacramento’s approach is also the same as San Francisco’s, except that Sacramento provides a list of qualified consultants that applicants may (but are not required to) choose from. San Diego County maintains a list of consultants the firms must work with, but allows the applicant to contract with the consultant directly. Santa Clara County represents the extreme in that it selects the consultants and contracts with them directly.

Conclusion

San Francisco relies on private environmental consulting firms, selected and paid directly by project applicants, to play a critical role in the CEQA environmental review process, a practice that is somewhat common but diminishing among California municipalities. The use of private consultants raises the specter that without sufficient oversight the documents provided by consultants could be biased in favor of project applicants.

The San Francisco Planning Department’s Major Environmental Analysis (MEA) Division is responsible for the City’s CEQA compliance. As such, it reviews all environmental assessment documents. To ensure the objectivity of materials prepared by consultants, MEA provides written guidelines to the consultants on how to prepare materials, works with the consultants during the preparation of the materials, and reviews materials submitted. In addition, MEA’s efforts to ensure objective findings are backstopped by a public participation and review process that involves the Planning Commission and occasionally the Board of Supervisors and California Superior Court.

San Francisco could expand its oversight by implementing measures used by other jurisdictions, discussed above. Or, San Francisco could safeguard against perceived or actual bias by strengthening existing measures and improving their implementation. Any change to current policy should be considered relative to resulting changes in the cost to the City and project applicant, the quality of the resulting product, and the public perception of the integrity of the process.

The key issues involved (controversial projects, public perception, and the quality of the process and resulting products) are complex. Although there is a general movement among municipalities towards more oversight and direct municipal control in producing CEQA documents, the fact that there has not been uniform convergence on a single approach underscores the complexity. Additional research would help identify an appropriate course of action for the City,¹¹ hopefully answering these pressing questions:

• To what extent are there actual and perceived biases and quality shortcomings in the current approach;
• Can shortcomings be attributed to and overcome by resource allocations;
• Can improved program management overcome shortcomings;
• Is the current approach inherently flawed, apart from resource and management considerations;
• Are there obstacles outside of the Planning Department that would limit the adoption of new approaches (such as City contracting and procurement procedures); and
• What are the tradeoffs of various alternatives?

Recommendation

The OLA recommends that the Board of Supervisors and the Planning Department consider implementing one or more of the following practices:

• Strengthen measures already in place and improve their implementation;
  
• Facilitate an expanded (earlier and more accommodating) public participation process;
  
• Pre-qualify consultants that applicants may hire based on strict requirements;
  
• Select the consultant; and
  
• Hire the consultant directly (using funds paid to the municipality by the applicant).

Acknowledgement

The following individuals were information sources for this report:

Eve Bach, Arc Ecology

Rick Cooper, San Francisco Planning Department Major Environmental Affairs

Karen Douglas, Planning and Conservation League

Vivian Kahn, Dyett and Bhatia, American Planning Association

Joan Kugler, San Francisco Planning Department Major Environmental Affairs

Paul Maltzer, San Francisco Planning Department Major Environmental Affairs

Romel Pascual, U.S. Environmental Protection Agency

Karen Pierce, Bayview Hunters Point Community Advocates

Mark Rhoades, City of Berkeley

Terry Rivasplata, Jones and Stokes, California Chapter of the American Planning Association

Terry Roberts, California Governor's Office of Planning and Research State Clearinghouse

Manuel Valencia, California State Assembly Committee on Natural Resources

¹ The Planning Department asserts that they have experienced a net loss of 5.5 MEA FTE over the past four years. However, the Annual Salary Ordinance 03/04 shows a net increase of four Planner III - Environmental Review and one Planner IV - Environmental Review since 00/01.

²  California State Assembly Natural Resources Committee legislative analysis of AB406, June 4, 2003

³ California State Assembly Natural Resources Committee legislative analysis of AB406, June 4, 2003

⁴ The California Planners’ Book of Lists 2000, California Governor’s Office of Planning and Research

⁵  "Median processing time for a sample of 56 environmental review cases was 211 days, or 31 more than the 180 day maximum allowed by State law. Even if staff took the full 30 days allowed by State law to determine application completeness on all these cases before beginning their evaluation, 28 cases, or half of the cases reviewed, still exceeded the State time limits."

⁶ EIP Associates, Environmental Science Associates, Turnstone Environmental Consultants Inc., and During Associates, per conversation with MEA staff 11/19/04

⁷ California State Assembly Natural Resources Committee legislative analysis of AB406, June 4, 2003

⁸ The California Planners’ Book of Lists 2004, California Governor’s Office of Planning and Research

⁹  The California Planners’ Book of Lists 2004, California Governor’s Office of Planning and Research

¹⁰ The California Planners’ Book of Lists 2000, California Governor’s Office of Planning and Research and The California Planners’ Book of Lists 2004, California Governor’s Office of Planning and Research

¹¹ Convened to examine the independent Capital Improvement Program Review prepared by the PUC’s private consultant