Part two of a three-part series
Governor Gavin Newsom signed two major budget trailer bills, AB 130 and SB 131, into law on June 30, 2025, bringing significant amendments to the California Environmental Quality Act (CEQA) aimed at enhancing housing delivery while curbing CEQA litigation abuses. These bills, influenced by proposed housing bills AB 609 and SB 607, aim to accelerate housing development both within and outside urban areas.
In part one, we discussed infill and housing projects with minimal environmental impacts. AB 130 also seeks to implement limits on CEQA mitigation measures, including those aimed at reducing significant vehicle miles traveled (VMT) impacts and greenhouse gas emissions.
In this eAlert, we review AB 130 provisions relating to VMT and CEQA mitigation measures.
Recognition of Constitutional Limitations on CEQA Mitigation Measures
Effective immediately, AB 130 reaffirms that CEQA mitigation measures must be roughly proportional to the impacts of the project and be supported by substantial evidence demonstrating a “nexus” between the mitigation and the impact it is intended to address. This language mirrors the holdings of prior U.S. Supreme Court decisions addressing the legality of governmental exactions. The bill, however, also directs the development of regulatory guidelines implementing these legislative directives.
Statewide Transit-Oriented Development Implementation Program for VMT Impact Mitigation
Large residential projects in areas without a public transit system or substantial internal employment may result in increased VMT above the stringent CEQA mitigation standards. Achieving these standards through project-by-project mitigation can impose a very large cost on builders and the ultimate home-owner.
The absence of transit, pedestrian or multi-modal connections and nearby commercial and job centers means that the occupants of these developments will generally have to drive a longer distance than residents of a densely populated metro area.
Under CEQA-implementing regulations, a project that does not decrease the average distance that a person has to drive results in a significant environmental impact. In practice, projects that result in significant VMT have no feasible way to fully mitigate the impact because the vast majority of development projects cannot unilaterally finance the development of regional transit infrastructure and VMT mitigation banks are not widely available.
AB 130 aims to correct these unintended effects of VMT regulation under CEQA by offering developers, by or before July 1, 2026, the option to contribute to a state Transit-Oriented Development Implementation Fund as a form of VMT mitigation.
The funds contributed as VMT mitigation would, in turn, be made available to cities and counties, transit agencies, eligible tribal applicants and developers for the purpose of supporting the development of eligible projects and related infrastructure, as defined in the bill. AB 130 authorizes the Department of Housing and Community Development to develop guidelines governing the disbursement of program funds.
However, AB 130 does not ensure that the cost of VMT mitigation will not increase the cost of housing or inhibit housing development at the scale needed to address California’s housing shortage, particularly in lower income real estate markets. The bill also stops short of creating a meaningful subsidy for infrastructure needed to deliver new housing projects.
AB 130 requires the Governor’s Office of Land Use and Climate Innovation (“LCI”) to issue an initial administrative guidance within one year of the bill’s enactment (July 1, 2026) to implement the VMT mitigation program. The guidance shall address a methodology for determining the amount of the VMT mitigation fee, among other topics. LCI is required to update the guidance at least once every 3 years thereafter.
AB 130 further directs LCI to commence a formal VMT mitigation fund rulemaking on or before January 1, 2028.
