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  • Writer's pictureStuart Cohen

Legislature's Landmark Budget Agreement on Cap-and-Trade

Updated: Sep 2, 2022

Yesterday, the Governor and Legislature reached an agreement for investing billions in cap-and-trade proceeds for this coming year, as well as a framework for future years. It reflects many of the core priorities of TransForm and our partners in the Sustainable Communities for All Coalition, though it falls short in a couple of key areas.

Despite heading into Conference Committee with three very different proposals, the Governor, Senate, and Assembly emerged with final allocations that reflect the broad strategy recommended by the California Air Resources Board’s final investment plan for cap-and-trade proceeds.

By Sunday, June 15, the Legislature will vote on this final plan, and until then there will be continued maneuvering to define exactly how, and through which agencies, the funding is distributed.

What is in the plan? And, now that we have the funding outline, how can we maximize the gains for climate protection, social equity, and California’s communities. Let’s start with the plan.

In the first year of the program’s funding (2014–15), transportation-related programs will receive over 70% of the $872 million allocated. This includes:

  • $250 million for High-Speed Rail

  • $25 million for Transit and Intercity Rail Capital Program

  • $25 million for Low Carbon Transit Operations

  • $65 million for Affordable Housing

  • $65 million for Sustainable Communities

  • $200 million for Low Carbon Transportation

In future years (beginning in 2015–16), 35% of cap-and-trade proceeds will go to the Sustainable Communities Program and transit on an annual basis. This breaks down as follows:

  • 10% for Transit and Intercity Rail Capital Program

  • 5% for Low Carbon Transit Operations

  • 20% for Affordable Housing and Sustainable Communities

The large remaining amount of funds will be distributed as follows:

  • 25% for High Speed Rail on an annual basis

  • 40% for a variety of projects, with specific amounts to be decided each year. These include Low-Carbon Transportation, Energy Efficiency, Urban Forestry, Forestry, Water, and Waste.

This final agreement represents a true compromise that can provide the resources our state and regions need to protect our climate, grow a sustainable economy, and improve public health.

A Victory for Affordable Homes

By locking in funding for public transit, affordable homes, and sustainable communities, this plan reflects the tremendous importance and long-term benefits of these strategies.

Over the past two years TransForm and our closest housing allies, Housing California and the California Housing Partnership Corporation, have worked to ensure that any final investment plan would include investment in affordable homes near transit.

This work reached its peak with the release of our report, Why Creating and Preserving Affordable Homes Near Transit is a Highly Effective Climate Protection Strategy. The report gave legs to the proposal from Senator Steinberg, which included funding for affordable homes in the final plan. This final agreement reserves 20% of annual cap-and-trade proceeds for investments in sustainable communities, and we believe it will be consistent with Steinberg’s proposal for at least half of this category’s funding to support affordable homes near transit. We want to ensure this grant program goes beyond a focus on location near transit and actually creates new models of super-low greenhouse gas (GHG) developments, as discussed below.

Biking and Walking Take a Hit

The most recent proposal from Senators Steinberg and de Leon included dedicated funding for bicycle and pedestrian projects. However, the budget compromise eliminated this category. As discussed below, there could still be tremendous bike/ped benefits if we demand programs focus on truly integrated projects, ensuring that transit, sustainable communities, or even conservation funding is prioritized for projects that include a bike/ped access component. Still, this is a big loss and TransForm is looking for any final bike/ped benefit we can get in the budget trailer bill.

Public Transit Funded, But...

Funding for transit capital, including inter-city rail, received 10%, and transit operations got 5%. While this is lower than TransForm and our allies requested, we are thrilled that operations are included. This will help deliver more transportation choices as early as next year, and will ensure that as new projects come on line they don’t cannibalize existing service. Working with great partners like Move LA and Public Advocates we will continue to press for operations to focus on benefiting disadvantaged communities and to include programs that increase ridership while providing direct financial benefits to riders, especially transit pass programs. It appears this operation funding will be given out by formula, but a plan for spending will have to go back to the state for approval, giving local advocates a strong chance to influence these dollars.

High-Speed Rail Moves Ahead

After years of legal, planning, and funding challenges, this plan provides High-Speed Rail (HSR) with potential funding certainty, at least through 2020. Though some lawsuits remain, and cap-and-trade expenditures on HSR will likely be contested, this gives Governor Brown a path forward for his top priority project. If it moves forward, it will be critical to ensure the project creates the infrastructure for a more sustainable Central Valley and California. It is HSR’s power to shape land use, as much as its role as a transportation project, that will determine its ultimate impact.

TransForm’s 2012 report on HSR, Moving Ahead with High Speed Rail, outlined key recommendations to getting the project right – from investing in local and regional transportation networks that connect into it, to establishing new value-capture mechanisms for community benefits, and conservation programs that protect the Valley’s farmland from growth pressures. Assuming plans to build HSR move ahead, TransForm will re-engage on the design of the project to ensure that it meets both equity and environmental goals, and we hope many others will join us.

State Agencies to Play a Pivotal Role

One of the primary debates has been whether the administration of many of these spending programs would devolve to regional agencies. While those details are being finalized now, all indications are that state agencies, especially the Strategic Growth Council (SCG), will play a major role. The SGC will certainly administer the 10% for the sustainable communities grant program, and may be the focal point for developing parameters for other programs.

While there are pros and cons of any approach, you can expect the SGC to start meeting in larger quarters as the funding battles moves out of the legislature.

How We Can Maximize the Benefits of Cap-and-Trade

Most of the battle over cap-and-trade has been about what categories to fund. With that (mostly) settled now, there are at least three key strategies that we need to layer on to maximize the benefits of cap-and-trade based investments. We need to recognize that if these investments are made through a climate and equity lens, they can be the basis for transformation, not just isolated climate protection projects.

Over the next two days, potential language in the Budget Trailer Bill that will define how some of the funds will be spent will be finalized. Over the next few years, TransForm will work with our partners in ClimatePlan and the Sustainable Communities for All Coalition to impact the design of these grant programs by focusing on three key themes: integration of strategies; leveraging investments for broader policy change; and maximizing benefits for disadvantaged communities.

Focusing on Integrated Strategies

The funding plan continues our propensity to break these issues into siloes – water, energy, transportation, housing, conservation, urban forestry, etc. – when we know we need to integrate these strategies to create new models of growing and using energy.

It will be critical for all of these grant programs to prioritize this integration. For example, the housing program should prioritize developments that give out free transit passes, have electric carsharing, and greatly exceed water and energy efficiency standards. These are all ways to save families money, reduce our need for new infrastructure, and move closer toward the 80% GHG reduction goal that we must reach as soon as possible.

Another successful example is how Senator de Leon and the Charge Ahead Campaign have integrated the opportunity to get transit passes or carsharing vouchers when you trade in your old, high-polluting clunker car. The Sustainable Communities grant program has the greatest potential to truly break down the siloes we have created.

Leveraging Funds for Broader Policy Change

The competition for investments from these different cap-and-trade programs will be intense. There will be too many great projects to choose from. That is why grants should prioritize cities and agencies that don’t just put forward good projects, but have complementary policies in place. For example, in addition to funding bike/ped infrastructure, Sustainable Communities could prioritize funding cities that request funding for grants that create bike networks, and require complete streets policies.

Reducing GHGs and Inequality

Nearly 25% of California’s population lives in poverty, and many of those communities are overburdened with pollution. This reality was the genesis for SB 535 which requires that at least 25% of all cap-and-trade proceeds benefit, and at least 10% be spent on projects located in, disadvantaged communities.

TransForm sees these levels as a foundation, but our goal should be much higher. We should be adding new transit options in the form of electric or hybrid buses, for example, in these communities first. The most important principle will be for each of these programs to meet or exceed these levels on their own. This is especially needed as High-Speed Rail will consume 25% of the funds, and should not count at all toward the levels required by SB 535.

California Continues to Lead the Way

While slogging away on the details, it is easy to forget that California is leading the global charge to protect against climate change.

With Obama’s executive order to reduce carbon from power plants and China’s commitment to an emissions cap, we are beginning to see the end of international paralysis on climate change. Perhaps more importantly, states like Washington and Oregon are committing to act from the bottom up in the absence of Congressional climate action. In all of these cases, California’s economy-wide emissions reductions plan is acting as an inspiration for similar plans and a catalyst for action.

While this agreement is not perfect, and the work to implement this plan has not yet begun, the Governor and leaders in both the Assembly and Senate – and especially Senators Steinberg and de Leon – deserve a great deal of credit for their leadership and determination.

California is now putting a price on carbon pollution. If we use these funds for integrated, high-impact strategies that prioritize benefiting disadvantaged communities, we can still create a future where we prevent the most destructive impacts of climate change, improve health (especially in disadvantaged communities), and spur innovation and efficiency that will be essential to strong 21st-century economies.


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