California Assembly Bill 98 Bringing Changes to Logistics Facility Regulations

A California bill that expands design and siting requirements for logistics facilities and restricts truck routes to and from such facilities has passed the legislature and is now on Governor Gavin Newsom’s desk. Newsom has until September 30 to sign Assembly Bill 98, which has both advocates (labor unions, public health organizations, environmental advocates) and opponents (real estate developers, chambers of commerce, local municipalities). Similar measures are pending in state legislatures across the country, as communities continue to grapple with the side effects of a distributed economy, last-mile distribution systems, and substantial industrial and logistics development in recent years. Prior state-level efforts in California to impose a ban on new warehousing and logistics facilities have failed (though some are pending). AB 98 does not go that far, but likely will make it more difficult to develop such facilities.

Key Features of Assembly Bill 98

Under AB 98:

1. Design and setback elements will be required for logistics facilities near certain sensitive land uses (including residential uses, schools, daycare facilities, publicly owned parks, playgrounds and recreational areas or facilities used by children, live-in facilities such as nursing homes, and hospitals). For example, the bill requires that certain proposed new or expanded logistics facilities (a) meet energy efficiency standards, (b) locate truck bays a specified distance from the property line of the nearest sensitive use, (c) have a separate entrance for heavy-duty trucks accessible via truck routes, (d) locate truck entry, exit, and circulation away from sensitive uses, and (e) include buffering and screening for light and noise.
2. Developers will be required to replace any demolished housing units on the site with two affordable housing units within the jurisdiction.
3. Logistics facilities will be required to use zero-emission forklifts and small off-road engines and install electric vehicle charging stations.
4. Cities and counties will be required to establish truck routes to keep trucks on major commercial thoroughfares (and away from sensitive uses). Those new routes will have to be added to updated circulation elements by January 1, 2028 (or by January 1, 2026, for warehouse concentration regions). The penalty for a jurisdiction not complying with these provisions is a US$50,000 fine every six months.

If adopted, AB 98 will go into effect January 1, 2026. Importantly, the bill grandfathers in existing logistics facilities and those that were subject to the entitlement process prior to September 30, 2024.

Implications of and Response to AB 98

While the full impacts of AB 98’s new development requirements remain uncertain, many expect the bill to have the following practical implications:

1. The focus on zero-emission vehicles and buffer zones is intended to reduce pollution and improve air quality, thereby benefiting public health and the environment.
2. The implementation of new standards and requirements, such as zero-emission vehicles and solar installations, is expected to raise the overall cost of developing logistics facilities.
3. Stricter regulations and higher costs may discourage developers, resulting in fewer new logistics facilities being constructed in California.
4. The potential decrease in development projects could lead to a reduction in job opportunities within the construction and logistics sectors.
5. Businesses might consider relocating to states with less stringent regulations, which could negatively impact California’s economy while potentially benefiting neighboring states.

For these reasons and others, various groups and stakeholders have expressed their support for and objections to AB 98.

In favor of the bill:

1. Certain labor unions, because AB 98 calls for job safety and health standards that would improve working conditions for union members.
2. Public health organizations, due to the bill’s effort to mitigate pollution-related health risks, such as respiratory issues and other chronic conditions.
3. Environmental advocacy groups, which favor decreased pollution and improved air quality in communities affected by logistics operations.
4. Local community groups support AB 98 for the buffer zones imposed between logistics facilities and nearby schools, parks, and residential areas, mitigations intended to protect vulnerable populations from environmental hazards.

Not in favor of the bill:

1. Various real estate associations and developers, due to concerns about increased development costs and the potential for reduced investment in new logistics facilities.
2. Certain economic development organizations, concerned that the bill would hinder economic growth and lead to job losses in regions heavily dependent on warehousing and logistics.
3. Municipalities and local governments, which contend that AB 98 undercuts local control over development requirements and imposes a one-size-fits-all mandate that may not be appropriate for all communities.
4. Business and industry groups have shared concerns that the bill’s regulations may drive businesses away from California, hurting the state’s economy and job market.

Legislative History of AB 98

AB 98’s journey to the Governor’s desk has been oddly circuitous. The legislation was first introduced in January 2023 as an agricultural bill aimed at removing Orange, San Diego, and Ventura counties from a list of counties granted the authority to establish cotton pest abatement districts. The Senate substantially amended AB 98’s original language on August 28, 2024, when lawmakers replaced the agricultural bill with the current text. Despite the opposition the revised bill faced, AB 98 passed in both the Senate and Assembly on August 31, 2024, right at the end of California’s legislative session.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Kathryn E. Turner, an O’Melveny counsel licensed to practice law in California; Brian Kenyon, an O’Melveny counsel licensed to practice law in California, District of Columbia, and Florida; Emma Byrd, an O’Melveny associate licensed to practice law in New York; and Michael D. Hamilton, an O’Melveny partner licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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