STAFF REPORT
Meeting Date:
July 21, 2026
BUSINESS
13 SUBJECT: STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE,
TENANT MIX AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY RECOMMENDATION: It is recommended that the City Council:
1. Receive and file this status update on the Downtown Specific Plan Phase II Update, and direct staff to pause further processing of the Downtown Specific Plan Phase II Update pending the General Plan Update and Seventh Cycle Housing Element process;
2. Direct staff to work with the Ad Hoc Economic Development Committee to evaluate Downtown tenant mix and land use regulations and return with recommendations; and
3. Provide direction regarding legislative advocacy related to wildfire resilience, State housing policy, and grant opportunities.
SUMMARY OF THE MATTER
The Downtown Specific Plan (DSP) Phase II Update was initiated to implement the City's certified Sixth Cycle Housing Element and has progressed to a screen check version of the Program Environmental Impact Report.1 In light of recent changes to State housing law and California Environmental Quality Act (CEQA), staff recommends pausing further processing of the DSP Phase II project while preserving the work completed to date and reevaluating the appropriate path forward in conjunction with the upcoming General Plan Update and Seventh Cycle Housing Element. This report also seeks City Council direction regarding legislative advocacy and future evaluation of Downtown tenant mix and economic diversity.
DISCUSSION
The Downtown Specific Plan study and update has been underway for several years and represents one of the City's primary implementation programs for the certified 2021–2029 Housing Element. In 2019, the City Council directed that the comprehensive DSP update be completed in two phases. Phase I focused primarily on streamlining business permitting and updating commercial development standards and was ultimately adopted. Housing related issues, including residential density, building heights, parking standards, and other land use changes necessary to facilitate additional housing opportunities, were intentionally deferred to Phase II due to their complexity and the need for comprehensive environmental review. Specifically, the City's Sixth Cycle Housing Element includes Program 5.2-4 (Downtown Specific Plan Phase 2), which commits the City to pursue Phase II of the DSP update and identifies incentives that could be implemented to increase housing supply.
As part of staff’s efforts during the current Housing Element cycle, the City secured grant funding from the Southern California Association of Governments (SCAG) relating to the DSP II CEQA effort, retained an environmental consultant team, completed the technical studies necessary to support a Program Environmental Impact Report (Program EIR), and conducted extensive policy discussions with the City 1 A screen check version is essentially an internal administrative draft circulated to City staff and the project team for review and comment before a public draft is released.
STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE, TENANT MIX
AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY
July 21, 2026
Council regarding the potential scope of Phase II amendments. Those discussions focused on balancing the City's obligation to implement its certified Housing Element while preserving the unique character and pedestrian oriented nature of Downtown Laguna Beach.
The project has now advanced to the point where the Program EIR is essentially at a screen check ready draft. Under normal circumstances, the next step would be to complete the administrative review, circulate the Draft EIR for public review, and continue processing the Downtown Specific Plan Phase II amendments.
Since work on the environmental document began, however, the State has enacted significant changes to CEQA. Most notably, Senate Bill 131 created a new statutory exemption for qualifying rezonings and zoning text amendments that implement commitments contained within a California Department of Housing and Community Development (HCD)-approved Housing Element. In May 2026, HCD issued formal implementation guidance confirming that the exemption extends beyond zoning map changes to include zoning text amendments such as increasing residential densities, modifying development standards, reducing parking requirements, allowing residential uses by right, and other zoning changes that directly implement Housing Element programs. The guidance also confirms that related General Plan amendments necessary to maintain consistency may likewise qualify for the exemption.
Because Program 5.2-4 (DSP Phase II) is part of the schedule of actions in the City's approved Housing Element, the rezoning actions that implement it — including zoning text amendments — qualify for the statutory CEQA exemption under Public Resources Code Section 21080.085 (SB 131), provided they are consistent with the Program. As HCD's May 2026 guidance confirms, the exemption reaches zoning text amendments, not just zoning map changes. The City may therefore adopt Phase II amendments in reliance on the SB 131 exemption and need not complete the Program EIR to do so.
Staff believes this new statutory framework warrants a strategic reassessment before additional resources are expended on completing the Program EIR.
First, the City has reached a point where continuing to invest significant time and financial resources in an environmental document may no longer be necessary if the underlying legislative actions qualify for a statutory CEQA exemption.
Second, although CEQA serves an important environmental purpose, environmental documents frequently become the subject of legal challenges that may extend well beyond environmental issues themselves. A statutory exemption provides substantially greater procedural certainty and reduces the potential for litigation over environmental review where the Legislature has expressly determined that CEQA does not apply.
Third, pausing the Program EIR does not place the City out of compliance with its Housing Element.
Program 5.2-4 commits the City to adopt Phase II amendments, not to prepare an EIR, and SB 131 now provides an exemption that satisfies CEQA for those amendments without one. The City therefore remains able to implement Program 5.2-4 on the timeline of the General Plan Update and looking towards the Seventh Cycle Housing Element, refining the appropriate densities and development standards through that process, and adopting the amendments when either of those efforts conclude. SB 131 also allows the City
STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE, TENANT MIX
AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY
July 21, 2026
to take smaller DSP II implementation actions more immediately, if it desires, without improper piecemealing (so long as consistent with the Housing Element Program).
Finally, and perhaps most importantly, staff believes the timing presents an opportunity for a broader community conversation regarding housing policy. Throughout the Downtown Specific Plan process, many community members have expressed understandable concerns regarding adding significant residential density to the cherished downtown core, including second and third story residential development. Staff also recognizes that many residents may not be fully aware of how many of these discussions are driven by State Housing Element law and the Regional Housing Needs Assessment (RHNA).
As the City prepares to begin its comprehensive General Plan Update while simultaneously approaching the Seventh Cycle Housing Element, staff believes it would be beneficial to pause the Downtown Specific Plan Phase II project in its current state while preserving the substantial work completed to date. Doing so would allow the City to engage the community in a broader discussion regarding ways to protect the downtown areas, State housing mandates, the City's legal obligations to zone sufficient capacity for assigned housing needs, the distinction between zoning for housing and actually constructing housing, and the significant consequences, including the potential loss of local land use authority, that may result from failing to maintain compliance with State Housing Element law.
It is important to emphasize that pausing the Downtown Specific Plan Phase II Update project should not be misconstrued as a policy decision that some level of additional residential density will not ultimately be accommodated within the Downtown. Rather, staff believes the Downtown should be evaluated as one component of a comprehensive citywide strategy during preparation of the Seventh Cycle Housing Element and General Plan Update.
Before determining the appropriate amount of residential capacity in the Downtown, the City should first holistically evaluate all potential opportunity sites throughout the community, including consideration of the former St. Catherine’s site. That broader planning effort may conclude that the Downtown remains an appropriate location for a significant portion of future housing capacity, that a portion of the allocation can be more appropriately accommodated elsewhere, or that a combination of locations across the community provides the best overall solution.
By evaluating the community as a whole first, the community will be better positioned to consider a level of downtown residential units and density that is proportional to the City's overall housing strategy rather than making that determination in isolation.
Ultimately, the fundamental policy question facing the City is not whether housing obligations exist, but where those obligations should be accommodated. The City's developable land is finite, while the State assigns a prescribed number of housing units that must be planned for through zoning. In many respects, this is analogous to squeezing a balloon. As pressure is applied in one location, it simply shifts somewhere else. Likewise, the City must identify sufficient zoning capacity somewhere within its boundaries, and every potential opportunity site presents its own set of tradeoffs and constraints.
STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE, TENANT MIX
AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY
July 21, 2026
Importantly, neither the City Council nor City staff seeks to fundamentally alter the character of Laguna Beach, especially of the Downtown. To the contrary, preserving the city's unique coastal character remains a core objective of all of our planning documents. The challenge before the City government is to determine where State mandated housing capacity can best be accommodated while minimizing impacts to neighborhood character, environmental resources, and quality of life.
Given the significance of these policy considerations and the new statutory CEQA framework, staff believes it is appropriate to pause further processing of the Downtown Specific Plan Phase II amendments, preserve the work product completed to date, and revisit the broader question of community-wide housing capacity as part of the upcoming General Plan Update and Seventh Cycle Housing Element process. This approach provides an opportunity to engage the community in a more comprehensive discussion regarding the City's long term land use vision while ensuring future zoning decisions are informed by evolving State law, community priorities, and a holistic evaluation of all potential housing opportunity sites.
Tenant Mix and Economic Diversity
At its June 23, 2026 meeting, the City Council expressed concern regarding the current tenant mix within the Downtown Specific Plan area and the City's ability to attract and retain a diverse mix of businesses that contribute to a vibrant, economically resilient downtown. During that discussion, the Council considered the concept of engaging a consultant to further evaluate the issue. While no formal direction was provided at that time, staff's understanding was that there was general interest from the Council in taking a more comprehensive look at the Downtown's land use regulations and whether they continue to reflect the community's economic development objectives.
Because this report recommends pausing the Downtown Specific Plan Phase II Update project, staff believes it is important that momentum on this separate policy issue not be lost. The question of tenant mix and economic diversity is largely independent of the broader housing and land use issues associated with the DSP Phase II update and could continue to be evaluated while the City undertakes the General Plan Update and prepares for the Seventh Cycle Housing Element.
Staff also believes there is heightened importance in evaluating this issue following the completion of the City's Promenade Project. The Promenade represents a significant public infrastructure investment intended to enhance the Downtown experience, improve walkability, and create a more inviting public realm. With that investment now complete, the City has a unique opportunity to thoughtfully evaluate whether the existing land use regulations continue to support the type and diversity of businesses that will best serve both the Downtown as a whole and the Promenade corridor specifically. Ensuring that the City's regulatory framework aligns with the community's economic development goals is an important next step in maximizing the long term public benefit of that investment.
Accordingly, staff recommends that the City Council provide direction for staff to work with the City Council's Ad Hoc Economic Development Committee, consisting of Council Member Sue Kempf and Mayor Mark Orgill, to evaluate the existing land use limitations contained within the Downtown Specific Plan and determine whether amendments should be considered to better promote a healthy and balanced mix of businesses.
STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE, TENANT MIX
AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY
July 21, 2026
As one example discussed by the Council on June 23, the Downtown Specific Plan currently limits dessert type businesses, including ice cream parlors, to a maximum of 15 establishments within the Specific Plan area. There are currently seven such businesses operating within the Downtown. While this category was specifically discussed, it represents only one example of several business classifications and numerical limitations that could be evaluated to determine whether they continue to reflect current market conditions, community preferences, and the City's long term economic development goals.
If directed by the City Council, staff would work collaboratively with the Ad Hoc Economic Development Committee to review the existing land use limitations, engage with the business community and other stakeholders as appropriate, and return to the City Council with recommendations regarding potential amendments, including the process, environmental review, and public hearing requirements necessary to implement any proposed changes. This effort would allow the City to continue advancing economic vitality initiatives within the Downtown while the broader housing and land use policy questions are considered through the General Plan Update and Seventh Cycle Housing Element process.
Legislative Advocacy
Laguna Beach faces a unique set of challenges that distinguish it from nearly every other coastal community in California and should be considered as the City continues to implement State housing mandates.
Approximately 75 percent of the City's land area is designated as a Very High Fire Hazard Severity Zone (VHFHSZ). While several other coastal communities, including Malibu, Rancho Palos Verdes, and portions of Santa Barbara, share similar wildfire challenges, very few incorporated coastal cities have as large a proportion of their land area designated as VHFHSZ as Laguna Beach.
As a result, roughly three out of every four acres within the City are subject to enhanced wildfire building standards, defensible space requirements, and ongoing vegetation management obligations. Beyond wildfire exposure, the City's ability to accommodate future housing is further constrained by steep topography, environmentally sensitive lands, limited infrastructure, and significant evacuation challenges.
The community is served by only three primary evacuation routes consisting of northbound and southbound Pacific Coast Highway and Laguna Canyon Road, each of which can be compromised during, for example, a wildfire incident. These routes are fed by an extensive network of narrow, winding hillside residential streets that present additional challenges during emergency evacuations.
Given these unique circumstances, staff recommends that the City Council ask our legislative advocacy consultant (Townsend Public Affairs or “TPA”) to represent these specific City interests before the State Legislature. Many recently enacted State housing laws have been developed using a one size fits all approach that does not fully account for the extraordinary wildfire risk, evacuation constraints, and physical limitations facing communities such as Laguna Beach. As the State continues to assign Regional Housing Needs Assessment allocations, greater consideration should be given to communities where a substantial majority of the land area is already significantly constrained by wildfire hazards and public safety considerations.
The City is already investing substantial financial resources each year to reduce wildfire risk associated with existing residential development through vegetation management, fuel modification, emergency
STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE, TENANT MIX
AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY
July 21, 2026
preparedness, and infrastructure improvements. As residential density increases, so too will the demands on evacuation planning, emergency response, infrastructure, and ongoing wildfire mitigation. These cumulative costs have the potential to create financial obligations that may exceed the City's long term ability to sustainably address while also creating unintended public safety consequences beyond those contemplated by well-intentioned State housing legislation.
In addition to advocating for greater legislative recognition of these unique circumstances, staff recommends that TPA also be directed to identify and pursue additional State and federal grant opportunities, funding programs, and technical resources to assist the City in reducing wildfire interface risks. Staff also recommends exploring partnerships with similarly situated jurisdictions facing comparable wildfire and housing challenges to collectively advocate for legislative reforms that better balance the State's housing objectives with public safety, wildfire resilience, and the realities confronting California's highest wildfire risk coastal communities.
FINANCIAL ANALYSIS
Suspending further processing of the Downtown Specific Plan Phase II Update is anticipated to avoid additional consultant costs associated with completion of the Program Environmental Impact Report and related environmental review beyond those already incurred. In addition, pausing the project will allow staff resources currently dedicated to the Downtown Specific Plan Phase II Update to be redirected toward other City priorities, including the upcoming General Plan Update and Seventh Cycle Housing Element.
The current contract with TPA includes both legislative advocacy and grant writing, so this section of the “ask” is covered within the current budgeted amount of $84,000 for these services.
ALIGNMENT WITH CITY COUNCIL GOALS AND PRIORITIES
This item supports the City Council's priorities related to long range planning, economic vitality, wildfire resilience, and organizational effectiveness by advancing implementation of State housing requirements, evaluating Downtown economic diversity, and exploring legislative advocacy opportunities that address Laguna Beach's unique planning constraints.
ENVIRONMENTAL ANALYSIS
The recommended action is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15306 (Class 6 – Information Collection) because the proposed action consists of research, planning, and evaluation activities that do not result in a serious or major disturbance to an environmental resource. The City Council's action is limited to receiving a status update, providing policy direction regarding the future processing of the Downtown Specific Plan Phase II Update, evaluating alternative implementation strategies in light of recent changes to State law, and providing direction regarding related legislative advocacy and tenant mix initiatives. No approval of amendments to the Downtown Specific Plan, General Plan, Zoning Code, or other land use entitlements is being considered at this time.
In addition, the recommended action is exempt pursuant to CEQA Guidelines Section 15061(b)(3), the Common Sense Exemption, because it can be seen with certainty that there is no possibility the action may
STATUS UPDATE ON THE DOWNTOWN SPECIFIC PLAN PHASE II UPDATE, TENANT MIX
AND ECONOMIC DIVERSITY, AND LEGISLATIVE ADVOCACY
July 21, 2026
have a significant effect on the environment. The recommended action does not approve any physical development, authorize any changes to land use or development standards, or commit the City to any future course of action that could result in a physical change to the environment. Any future legislative actions, including amendments to the Downtown Specific Plan or related land use regulations, will be evaluated for compliance with CEQA at the appropriate time.
ATTACHMENTS
1. May 19, 2026 HCD Memorandum – CEQA Reforms for Housing Element Rezoning (Pgs. 8-15)
2. Downtown Specific Plan Area Land Use Map and Table (Pgs. 16-18) Submitted By: Matthew Schneider Approved: Dave Kiff.
Matthew Schneider, Director of
Community Development
Dave Kiff, City Manager
Report Prepared By: Coordinated With:
Matthew Schneider, Director of Community
Development
Jane Abzug, Assistant City Attorney
Anthony Viera, Deputy Director of Community
Development
Kate Kazama, Senior Planner