Five years ago, developer Brent Gaulke was ready to start construction on a project to transform the Old Spaghetti Factory restaurant in Hollywood into a sleek condo and office tower.

But then a Hollywood neighborhood group filed suit under the California Environmental Quality Act. It took Gaulke’s firm, Gerding Edlen Development Co. LLC in Portland, Ore., almost three years to win the case. But by then, the exhausted firm had defaulted on its real estate loan and had to walk away. CIM Group took over the project in 2011 and construction began recently.

Gaulke, now working in San Francisco, places a good deal of the blame for the debacle on the state’s environmental law.

“CEQA was absolutely a factor,” Gaulke said.

This case is a cause celebre among local business groups seeking to reform CEQA, the state’s major environmental law. The groups say the law stifles development and job creation, and makes projects more expensive. They acknowledge that some challenges might be legitimate, but believe others are simply a means for competitors to kill projects or for opponents to extract greenmail-like payoffs.

Now, sensing the best opportunity in years, the Los Angeles Area Chamber of Commerce is heading a coalition for reform of the law, along with the Silicon Valley Leadership Group.

“We don’t agree with the use of CEQA as the justification for filing lawsuits that don’t deal directly with environmental issues and that serve to delay and drive up costs for projects,” said L.A. chamber Chief Executive Gary Toebben.

What’s new this year: Business groups have the support of Gov. Jerry Brown, who called for CEQA reform during his State of the State address last month. What’s more, Darrell Steinberg, D-Sacramento, president of the state Senate, has declared CEQA reform his top priority of 2013.

But there’s another new wrinkle this year: The state’s construction and building trade unions have begun opposing changes to CEQA. With other unions and environmental groups already opposed, this sets up a big battle in the Legislature this summer.

These groups say there is little evidence that CEQA is delaying projects and that reforming the act will harm the health and quality of life of residents in the state.

“We have not seen large cases of litigation that resulted in lengthy delays,” said Robbie Hunter, president of the state Building and Construction Trades Council, which recently joined the opposition to CEQA reform. “What we have seen is that through CEQA, the project proposers come back with better projects.”

Nearly all the major local business groups have joined the statewide business coalition, or CEQA Working Group. These include the Long Beach Area Chamber of Commerce, the Hollywood Chamber of Commerce, the Valley Industry and Commerce Association, the Los Angeles County Business Federation and the Central City Association.

Leron Gubler, chief executive of the Hollywood chamber, said the combination of increased business mobilization and a more receptive political leadership has improved the odds for reform.

“I believe we have the best chance in a generation to get meaningful reforms this year,” Gubler said.

The coalition points to scores of projects up and down the state that have faced CEQA-related delays.

One of the biggest examples: the long-stalled USC Gateway, first proposed a decade ago by USC and L.A. developer Urban Partners LLC to replace an aging shopping center near the campus with housing for 1,600 students and 83,000 square feet of retail space.

After a two-year environmental review process, another housing developer, Conquest Housing, filed suit. In 2008, a Superior Court judge threw out Conquest’s suit, saying Conquest’s actions were abusive. The City Council gave final approval to the Gateway project last fall; construction is set to start this year.

Union opposition

But environmental groups and unions opposing reform see it as a power grab by developers.

“For decades, CEQA has been a firewall for California communities, protecting our environment and promoting cleaner, more sustainable development,” said Art Pulaski, executive secretary-treasurer of the California Labor Federation. “Efforts by big corporations to roll back this important law put California families, workers and our natural resources at risk.”

Some business leaders and nonunion construction contractors believe that unions are opposing reform because they sometimes use CEQA to get developers to grant project labor agreements that favor union hiring.

“Backed by millions of dollars of construction union money, law firms are using the California Environmental Quality Act daily to hold up construction projects until the owners agree to build them using a union-crafted Project Labor Agreement,” according to a newsletter published last week by the Coalition for Fair Employment in Construction in Sacramento. The group of nonunion contractors opposes PLAs and says the unions use CEQA to greenmail developers.

Trades council President Hunter said his union conducted a review of the issue and supports CEQA because he now believes the law has not cost construction jobs.

“We found that going back several years, only two projects in the Los Angeles area that my members worked on had CEQA issues,” he said. “So this is hardly an epidemic of project delays.”