The Cap-and-Trade deal includes money for major city priorities — with more funding fights ahead

By Melissa Sparks-Kranz, legislative advocate (environmental quality)

The Legislature passed a sweeping update to the Cap-and-Trade Program (now Cap-and-Invest) with a two-thirds majority on Saturday. Gov. Gavin Newsom has until Oct. 13 to sign or veto the two measures, AB 1207 (Irwin) and SB 840 (Limón).

The Cap-and-Trade Program generated roughly $30 billion over the last decade, often distributed to cities and others as grants for transportation, air quality, affordable housing, safe drinking water, and organic waste. Cities should submit a letter encouraging the Governor to sign these bills, which will guide investment priorities in future budget years.

"Cal Cities applauds the Legislature and the Governor for extending the Cap and Invest program, which invests in local projects that reduce greenhouse gas emissions, make our communities more climate resilient, and support good-paying jobs," said Cal Cities Executive Director and CEO Carolyn Coleman. "The package is a worthy start, but there's more work to be done.

"Cal Cities looks forward to working with the Legislature and Governor next session to establish greater funding certainty for transportation, infrastructure, and housing programs and prioritize investments in local priorities that were not included in this plan, such as organic waste recycling, climate adaptation infrastructure, and advanced clean fleets programs."

What's included in Cap-and-Invest?

Cap-and-Invest would fund some, but not all, of Cal Cities' priorities. However, the new framework provides flexibility for key funding areas in budget discussions going forward.

AB 1207 would create structural changes to the program, including reauthorizing it through 2045. SB 840 would provide a framework for funding distribution that would take effect next fiscal year. As part of that framework, the Legislature could allocate $1 billion annually at its discretion to areas not explicitly funded by SB 840 - including, but not limited to, Cal Cities' remaining priorities on local clean transportation, organic waste infrastructure, and sea level rise and flood infrastructure improvements.

Below is the full breakdown of how the funding will be distributed, which falls into three tiers and is contingent upon how much money is available in the Greenhouse Gas Reduction Fund (GGRF):

Tier 1

First, the GGRF will set aside approximately $500 million to offset the homeowner fire prevention fees in the state responsibility areas, manufacturing product credits, and $3 million for the Legislative Counsel Climate Bureau.

Tier 2

Next, the GRRF will fund the following priorities:

• $1 billion high-speed rail
• $1 billion for the Legislature's discretion as part of the annual budget, similar to the program's previous discretionary funding

Tier 3

After the first and second tiers are fully allocated, the remaining money (for a total of $1.9 million) would be continuously appropriated as follows:

• $800 million for the Affordable Housing and Sustainable Communities Program
• $400 million for the Transit and Intercity Rail Capital Program
• $250 million for community air protection programs and for financial incentives to reduce mobile and stationary sources of criteria air pollutants or toxic air contaminants
• $200 million for the Low Carbon Transit Operations Program
• $200 million for CalFire for healthy forest and fire prevention programs
• $130 million to the Safe and Affordable Drinking Water Fund

Funding to the Tier 3 areas would be proportionately reduced if the state's carbon allowance auctions do not generate enough money. In future budget years, Cal Cities will fight for key priorities that were not identified in this framework. For more information about the investments to date, please visit the California Climate Investments webpage.