On June 30, 2025, as part of the budget trailer bill (Assembly Bill 130), the Governor signed legislation that creates a new fee-based option to mitigate transportation impacts under the California Environmental Quality Act (CEQA). The new approach could lead to expensive mitigation requirements without creating much certainty for the regulated community.
As background, since July 1, 2020, the state has required all CEQA documents to measure transportation impacts using vehicle-miles-traveled (VMT) rather than level-of-service (LOS). Because VMT measures trip length and number rather than transportation delay, the change to VMT altered the type of mitigation required to mitigate transportation impacts. Rather than make intersection improvements and widen roads, which reduces LOS impacts, projects are required to construct sidewalks, bike lanes, and employ operational measures, such as free transit passes and shuttles, to reduce VMT impacts.
Many operational measures to reduce VMT are expensive and, particularly for smaller projects, infeasible. A California court of appeal recently compounded the difficulty of mitigating VMT impacts for smaller and infill projects when it questioned the ability of lead agencies to uniformly apply statewide VMT guidance to projects. (See Cleveland National Forest Foundation v. County of San Diego (2025) 109 Cal.App.5th 1257.)
The new law establishes a new fee-based option as an alternative means of mitigating for VMT impacts. But, as discussed below, without certainty that the fee provides full mitigation for a project's impacts or that the fee will be reasonable, the law threatens to add further complexity and uncertainty to VMT mitigation.
Key Proposed Changes
The proposed legislation introduces several key changes to the Health and Safety Code and the Public Resources Code:
- Creation of a VMT Mitigation Fund:The bill
establishes the "Transit-Oriented Development Implementation
Fund," which will be administered by the Department of Housing
and Community Development (HCD) and is funded by monetary
contributions from developers mitigating the VMT impacts of their
projects. This fund will be directed to affordable housing and
related infrastructure projects, in the following priority: (1) in
to-be-defined "location-efficient areas" in the same
region as the project, (2) in the same region as the project, and
(3) in location-efficient areas that are outside of the originating
region but in an adjacent region within a to-be-defined radius from
the project.
- Funding to Offset VMT Impacts:The new law adds
Section 21080.44 to the Public Resources Code, which allows lead
agencies to mitigate a project's VMT impact by having a
developer fund or otherwise facilitate affordable housing or
related infrastructure projects that reduce VMT, including by
contributing to the Transit-Oriented Development Implementation
Fund, if such funding meets CEQA's requirements for mitigation
measures. The lead agency's authority to require funding or
facilitating affordable housing for VMT mitigation went into effect
on June 30, 2025, when the governor signed the budget trailer bill.
The new law offers no guidance as to how a lead agency determines
that funding or facilitating affordable housing fully mitigates a
project's VMT impacts. The lead agency also can continue to
impose other VMT mitigation strategies.
- Guidance from the Office of Land Use and Climate Innovation:The Governor's Office of Land Use and Climate Innovation (LCI) is tasked with developing the methodology for calculating the required contribution to the Transit-Oriented Development Implementation Fund to mitigate VMT impacts. LCI also must define "location-efficient areas," the process for validating a project's VMT funding contribution, and a method for estimating the anticipated reduction in VMT associated with the funded affordable housing or related infrastructure projects. LCI has until July 1, 2026, to release its initial guidance and until January 1, 2028, to adopt its final rule.
Uncertain Implementation
Conceptually, creating a state-wide VMT impact fee to fund projects that mitigate VMT impacts is a good idea.
The state has a successful model it could have emulated, which is the fee developers pay to mitigate impacts from new projects on school facilities pursuant to the Greene School Facilities Act of 1998. Under that Act, a school impact fee is the exclusive method for considering and mitigating impacts on school facilities from development and provides full and complete school facilities mitigation.
By contrast, the new law requires that the VMT fee must be shown to meet CEQA's requirements for mitigation, which may be difficult to demonstrate. In addition, there is no certainty that payment of the VMT fee constitutes full mitigation for VMT impacts. A lead agency could require a developer to also implement costly operational VMT mitigation measures.
It will be important to monitor LCI's process in establishing its initial guidance and ultimate rule for implementation of the VMT fee. The methodology for calculating mitigation fund contributions will be a critical factor in evaluating whether this fee-based approach to VMT impacts is a useful option.
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