While the Legislature has yet to officially vote on the budget package, lawmakers and the Governor announced a deal yesterday that includes the Governor’s more conservative revenues estimates and limited spending increases. The deal also includes the Governor’s proposal to loan $500 million in Cap and Trade auction revenues to the State’s general fund. The proposal came as a surprise to many when the Governor included it in his May Revision of the budget where it was widely anticipated that he would release a detailed expenditure plan for auction revenues.  The loan is also somewhat contradictory to the Governor’s “prudence over exuberance” motto as it technically adds to the State’s “wall of debt” by constituting a special fund loan that will be required to be paid back with interest.

AB 32, California’s landmark global warming law, allows the State to use market mechanisms to help achieve the goal of reaching 1990 greenhouse gas (GHG) emissions levels by 2020. The State held the first Cap and Trade auction in November and has raised approximately $236 million to date after three auctions. Additional revenues will come in the 13/14 fiscal year and on into future years with several more auctions scheduled.  Cap and Trade revenues are required by law to be spent on actual projects and programs that result in GHG emissions reductions.

In the weeks leading up to the budget deal, the Legislature did express concern with the Governor’s loan proposal and the Assembly Budget Committee approved a limited $100 million appropriation for the 13/14 fiscal year, only to be voted down by the Budget Conference Committee on Monday night.  The Sacramento Bee reported that Senator Beall (D-San Jose) called the loan a, “hold my nose and cast my vote” type of action. CSAC supported the Assembly action and pushed lawmakers to move forward with a limited funding scheme this year. In a letter to Editor of the Sacramento Bee, CSAC’s Second Vice President Supervisor Efren Carrillo called on the State to act now and “invest Cap and Trade dollars in projects that reduce greenhouse gasses and lessen the impacts and effects of climate change on our communities, economy and environment.”

Auction revenues have been the focus of numerous advocacy efforts this year, including efforts undertaken by CSAC, as they constitute a significant new source of revenue earmarked for GHG reduction projects. CSAC co-sponsored AB 416 (Gordon) and AB 574 (Lowenthal), bills that would have directed auction revenues to projects at the local level focusing on investments in transportation, clean and renewable energy, water efficiency, open space and agricultural preservation and other key sectors. While the measures are both two-year bills at this point, the groundwork for a local government emissions reduction program is set.

CSAC will continue to work with the Legislature and the Administration next year to craft an expenditure plan for Cap and Trade revenue that includes our local government program structure and reflects the key role that local governments play in helping the State achieve its climate goals.