California Governor Gavin Newsom and Democratic state lawmakers have agreed to limit California’s important environmental rules through a last-minute budget deal. The decision came on Monday when lawmakers passed a new bill that will change how environmental reviews are done for many building projects.

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According to Politico, the new bill, known as AB 131, will remove many projects from needing to follow the California Environmental Quality Act (CEQA). These projects include wildfire prevention work, water system improvements, parts of the high-speed rail project, and factories that make semiconductors and electric vehicles.

“There’s less transparency and more at stake every year,” said Jennifer Fearing, who has long worked as an environmental lobbyist. She mentioned that she hasn’t had time to understand how this change might affect other environmental goals, like controlling greenhouse gas emissions and transportation costs.

Environmental groups and labor unions fight back against the changes

Environmental groups and workers’ unions tried hard to stop the bill over the weekend, continuing their fierce opposition to Newsom’s housing development agenda that has divided California Democrats. The Teamsters, United Auto Workers, and United Steelworkers warned that the change would let companies like Tesla grow their operations without checking how they affect the environment.

However, these groups didn’t have much power to stop the bill. Newsom made it clear that he would only sign the state’s $320 billion budget if this bill passed, employing the same controversial budget-hostage strategy that has already sparked fierce Democratic opposition to his housing agenda. The Senate approved it with a vote of 33-1, and the Assembly passed it 53-3, with support from both Democrats and Republicans.

Wow: Gavin Newsom actually forced California Democrats to roll back the state’s landmark environmental law, which is widely blamed for driving up the cost of building new housing. pic.twitter.com/xTKs7082B2 — Alexander C. Kaufman (@AlexCKaufman) July 1, 2025

This move by Newsom shows even more power than his previous effort to change CEQA in 2023, when he got lawmakers to reduce the time allowed for environmental lawsuits against major building projects.

Some lawmakers defended the changes. Senator Scott Wiener said the bill was a compromise, explaining that he removed some bigger changes he wanted because environmental groups didn’t agree with them. Business groups, like the California Chamber of Commerce and California YIMBY, are happy with the decision, calling it the biggest housing law change in many years.

Environmental and labor groups are now hoping they can make some changes later in the year. They’re especially worried about factories that make semiconductors and electric vehicles, which they say could release harmful waste into nearby neighborhoods. Senator Wiener has said the Senate will work on new rules about factory building, protecting endangered species, and talking with tribal groups in future laws.

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Politics & Government Newsom Pressures Lawmakers To Gut Landmark Environmental Law, Sparking Rift With Labor CA is poised to scale back landmark environmental protections from the 1970s that have long been seen as a barrier to housing development.

In a rare move, Gov. Gavin Newsom took a step this week to scale back landmark environmental protection rules, the California Environmental Quality Act (CEQA), which took effect in the 1970s. (AP Photo/Rich Pedroncelli)

Gov. Gavin Newsom on Monday signed a suite of new bills aimed at jumpstarting housing production in California, where a dire housing shortage has fueled the state’s homelessness crisis.

In a rare move, Newsom pushed to overhaul the California Environmental Quality Act (CEQA), a landmark environmental law enacted in the 1970s. CEQA requires a stringent examination of any new construction for its effects on the environment. The news comes as the nearly term-limited governor has faced increasing scrutiny for stalled housing construction, despite his previous promises to fix the housing shortage.

The governor had refused to sign the 2025-2026 state budget unless legislators modernized and pared back CEQA. Newsom says by limiting decades-old environmental requirements, the state will be able to pursue an “infrastructure reform.” “Today’s bill is a game changer, which will be felt for generations to come,” Newsom said Monday.

Democratic lawmakers ultimately agreed to Newsom’s demands, a dynamic that was criticized by Lorena Gonzalez, leader of the California Labor Federation. “We’ve seen multiple situations now where it’s clear that the Legislature is in one place and the governor is in another, whether that’s bills that have passed overwhelmingly and been vetoed, or it’s dragging the Legislature along on budget bills,” Gonzalez told the Los Angeles Times. “At some point, the Legislature needs to legislate.”

Despite the politics at play behind the scenes, mutual praise was on display Monday night as Newsom and the legislature shook hands in front of television news cameras, where the governor called the bills “most consequential housing reform that we’ve seen in modern history in the state of California.” Housing scarcity has become a growing factor in California’s worsening homelessness crisis. Housing advocates and some state lawmakers maintain that CEQA, while well-intentioned, has created roadblocks that have made it increasingly difficult to keep up with housing production over time.

“This is what we’ve all been waiting for — a long-overdue step to stop CEQA from being weaponized against housing,” Assemblymember Buffy Wicks wrote in a statement.

However, deciding to scale back CEQA was a much more complicated process than was apparent at Monday night’s press conference. Labor groups have long opposed reforming or repealing CEQA, arguing that its reviews force developers to improve project design in ways that often enhance worker safety and public welfare. For years, labor groups have argued that relief from CEQA offered to developers should come with wage and other benefits for workers. But the new budget bills ignore concerns from labor and environmental groups. “This was too urgent, too important, to allow the process to unfold as it has for the last generation,” Newsom said Monday.

Officials say two new budget trailer bills — AB 130 and SB 131 — will bring the most change to California’s housing and environmental review laws. Here are the main goals the two bills will attempt to accomplish, Newsom’s office says: Accelerate housing and infrastructure Permit and approve housing faster Create sustainable financing tools

Gov. Gavin Newsom on Monday signed legislation that would roll back that state’s landmark environmental law for urban residential developments in California.

In a news release, Newsom’s office said that the changes will “boost housing production and infrastructure statewide and improve affordability for all.”

The California Environmental Quality Act, enacted in 1970, requires public agencies in California to evaluate the potential environmental impacts of proposed projects and avoid those impacts, if possible.

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However, many argue that the law has been weaponized to block new housing projects and development.

“CEQA can be an expensive and lengthy process, especially for large or complicated projects. This is true even if there is no litigation. Preparation of an Environmental Impact Report under CEQA can take a year or longer and cost hundreds of thousands of dollars, or even, in some cases, more than $1 million,” a 2024 report from the bipartisan Little Hoover Commission said.

The new legislation, AB 130 and SB 131, creates 10 new CEQA exemptions to streamline approval for housing.

Before signing the legislation, Newsom voiced his support for reforms to CEQA.

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Improving California’s housing crisis has been a priority for Newsom since taking office.

In 2018, Newsom, in a Medium post, wrote, “As Governor, I will lead the effort to develop the 3.5 million new housing units we need by 2025 because our solutions must be as bold as the problem is.”

Newsom has since revised that goal, setting a new benchmark for cities to plan for 2.5 million homes by 2030.

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To get more housing built across the state, California lawmakers and Governor Gavin Newsom passed major changes to the 50-year-old California Environmental Quality Act on Monday. For these years, this law has enabled environmental advocates to delay suburban expansion and empowered local residents and other dissenters to block projects they opposed. It has also become a common tool for critics to challenge nearly all types of development initiatives.

What is a landmark environmental law?

The California Environmental Quality Act (CEQA) is one of the most significant environmental laws of the state. The Act sets up a state policy of sustainability in response to “create and maintain conditions under which man and nature can exist in harmony to fulfil the social and economic requirements of present and future generations.”

CEQA mandates that state and local authorities identify and assess the major environmental effects of proposed developments and implement all practical measures to minimise or eliminate those impacts.

Does Governor Newsom threaten to reject the state budget?

In a rare show of bipartisan agreement, Democratic Governor Gavin Newsom signed two bills that avoid rigorous environmental review requirements for certain housing and infrastructure projects, aiming to remove costly obstacles and speed up development.

Though CEQA has long been considered a pillar of California’s environmental policy, Democrats acknowledged that the state’s strict regulations had contributed to a severe housing crisis affecting its nearly 40 million residents. Environmental groups criticised the move, but lawmakers ultimately prioritised housing needs over procedural protections, marking a shift in the approach to development in California.

“If we can’t address this issue, we’re going to lose trust, and that’s just the truth,” Newsom, a Democrat, said in a news conference, the New York Times reported. “And so this is so much bigger in many ways than the issue itself. It is about the reputation of not just Sacramento and the legislative leadership and executive leadership, but the reputation of the state of California,” he added.

Over the past decades, discussions hovering over changing the law have repeatedly surfaced, thwarted only by opposition from environmentalists and local governments. In addition, Newsom also threatened to reject the state budget until lawmakers rolled back CEQA.

Meanwhile, survey director for the Public Policy Institute of California, Mark Baldassare, said, “This has created a different political environment.” “Voters have been telling us in our polling for quite a while that the cost of housing is a big problem, but maybe for the elected officials, the election itself was a wake-up call,” he added.

On Monday, environmentalists flooded a legislative hearing room, emphasising that the sweeping changes could hurt sensitive ecosystems and ease the process to build manufacturing sites that could result in more pollution. Some Democratic lawmakers also flagged concerns, highlighting that the legislation could pose a threat to the habitat of certain species of butterflies, bears and bighorn sheep. “Jeopardising those whole ecosystems, I think, is a risk that we don’t want to take,” said State Senator Catherine Blakespear, a Democrat.

CEQA lead to unforeseen consequences?

As governor, Republican Ronald Reagan signed the California Environmental Quality Act (CEQA) into law in 1970, during a period when his party was more in step with environmental priorities. The act emerged from a shared understanding among state leaders that California’s vast natural landscapes, its forests, coastlines, and mountains, needed protection from increasing smog, water pollution, traffic, and unchecked suburban development.

Over time, however, even some environmental advocates have acknowledged that CEQA, while well-intentioned, led to unforeseen consequences. Originally intended to apply mainly to government-led projects, a 1972 court ruling extended its reach to many private developments as well.

For years, Republicans have criticised CEQA for damaging California’s business environment. So it’s significant that Democrats, under Governor Gavin Newsom’s leadership, have now steered the party away from a law that once reflected core Democratic values.

From CalMatters Capitol reporter Alexei Koseff:

Newsom, ‘Yes In My Backyard’ lawmakers and the carpenters union took a victory lap Monday evening as Newsom signed a pair of bills that will streamline environmental reviews for many housing and infrastructure projects in California. The governor demanded that the state’s entire $321 billion budget — which he signed on Friday — could not take effect without the proposals.

They received his approval just hours before the start of the new fiscal year on July 1, at a signing conference where Newsom touted the changes as necessary to get California building again or risk losing the trust of the public: “We needed to go bold and big on this Holy Grail reform,” he said.

More budget news: As part of labor deal negotiations with some public employee unions this year, Newsom’s office is pausing state spending toward health care benefits these workers receive in retirement, reports CalMatters’ Adam Ashton.

With the price tag of $85 billion, retirement health care benefits serve as one of the state’s largest long-term debts. By pausing pre-funding payments for two years for current workers, the state would save more than $700 million in the new budget year, according to Newsom’s office.

Since workers in these unions also won’t have to contribute toward their retirement health care for that time period, the move would also boost their take home pay by as much as 4.5%.

Read more here.