Dear friend,

Since launching our Climate 100 Project in the Spring of 2022, NextGen has been advocating for a state budget that puts the full force of every taxpayer dollar to work in the fight against climate change. We have also been tracking the California Climate Commitment – the historic $50+ billion pot of funding secured for climate in last year’s budget. This email contains some updates on the latest Climate Commitment developments in this year’s budget.

For a quick refresher on how the California Climate Commitment has evolved in light of the state’s growing budget deficit, check out our last publication: Climate 100 Issue Brief: The Governor’s 2023 May Revise.

Here is the current status of things: on Thursday, June 15th, the Legislature passed SB 101 (Skinner), sending the Budget Act of 2023 to the desk of Governor Gavin Newsom. But the budget fun isn’t over yet. This bill only represents a “two party deal” – in other words, it is an agreement between the two houses of the Legislature, but the Governor is not yet on board.

There are two topline takeaways about the Legislature’s budget deal:
One, in a win for climate, the Legislature’s package restores the Climate Commitment to a total of roughly $49 billion dollars – a $2 billion increase over the $47 billion proposed by the Newsom Administration last month, and
Two, the budget bill sent to the Governor is almost certainly not going to match the final budget deal when all is said and done.

A life raft for transit
The biggest climate news is that the Legislature’s package restores $2 billion in proposed cuts to the Transit and Intercity Rail Capital Program (TIRCP), protecting much-needed funding for public transit, which plays a crucial role in decarbonizing California’s most polluting sector.

Many of California’s transit agencies – along with transit agencies across the country – are facing a looming fiscal crisis when it comes to funding operations as federal pandemic aid expires. Allowing transit to fail as it adjusts to a post-pandemic reality would be a disaster for our climate goals as a state, as explained by my colleague Dave Weiskopf in an op-ed earlier this year.

The Legislature’s budget helps agencies bridge the gap by allowing them to “flex” up to $5.1 billion in funding for transit capital, including the $2 billion restored to TIRCP, on transit operations. But this plan comes with a catch. Many agencies have already planned capital improvements that rely on TIRCP funds – shifting those funds to operations would mean giving up billions of dollars in federal matching funds for those projects and, in some cases, also mean delaying the transition to zero-emission vehicle fleets.

Restoration of adaptation programs
In addition to transit funding, the Legislature’s plan upholds the current level of climate spending allocated for programs that will help California adapt to the ever-changing demands of a transforming climate. The Legislature restores roughly $1.75 billion in funding across programs for coastal resilience, urban greening, water recycling, watershed restoration, extreme heat and community resilience planning, state parks, and a number of related programs.

Finding cash on the margins
California’s budget shortfall has grown to over $31 billion, which places downward pressure on all areas of spending, but especially one-time General Fund investments that are easy to cut back (hint: most of the Climate Commitment is one-time General Fund spending.) Even so, the Legislature has been able to rustle up some extra cash to maintain and restore funding for the programs highlighted below:

• New Cap-and-Trade funds – The Legislature allocated an additional $595 million from the Greenhouse Gas Reduction Fund (GGRF) to a range of climate and air quality programs, citing higher-than-anticipated cap-and-trade auction revenues.
• Reverting unspent funds – With the explosion in climate funding over the last few years, a few programs have lagged in coming online or have yet to spend the money already appropriated to them. The Legislature’s budget reverts roughly $1 billion of this unspent cash to the General Fund, allowing it to be spent on other climate priorities.
• Clawback from the Strategic Energy Reserve – The Legislature’s budget shifts $937 million from the state’s Strategic Energy Reserve to other programs – citing increased stability in the state’s energy supply due to additional clean energy capacity since last summer and an increase in hydro power resources thanks to historic levels of winter rainfall.

A Climate Bond Commitment
Another way the Legislature’s budget differs from the Governor’s May Revise is that it does not settle on a specific set of programs for a future climate bond. There are however three climate bond proposals making their way through the Legislature right now, which are likely to end up converging into a single proposal. Those proposals range from $6 billion to $16 billion in total dollar amount, with a variety of overlapping priorities that include flood protection, natural resources and resilience, and clean energy infrastructure.

A bond is seen as a way to maintain funding for programs that ultimately get cut from the Climate Commitment. But keep in mind, passing a bond is no certainty – assuming lawmakers get a climate bond onto the ballot in 2024, voters will have to approve it in order for those funds to become available. The most sure way to fund climate initiatives is to put them in the budget.

Negotiations continue
In all, the Legislature’s budget reflects a higher prioritization of climate programs, with a total investment of roughly $49 billion (versus the Governor’s $47 billion proposed in May). Though SB 101 will likely be signed into law this month, budget negotiations are likely to continue for some time as the state’s revenue picture becomes clearer. Negotiations will also include a package of budget trailer bills, which contain the necessary policy changes to enact the budget. For practical reasons, policymakers usually want to pass those trailer bills before the end of the fiscal year – but they are not subject to the June 30th deadline.

In recent years, budget trailer bills for climate and natural resources have lagged behind, with final deals on spending not being struck until the last days of the legislative session. So, stay tuned!

Thanks for reading!
Jamie

Jamie Pew
Climate Policy Fellow
NextGen California