Team Newsom Just Created a Massive Transit Funding Crisis. Now the Legislature Needs to Fix It. Again.
California’s leaders have spent years telling the public that fighting climate change requires giving people alternatives to driving.
They were right.
The transportation sector remains California’s largest source of greenhouse gas emissions. If California hopes to meet its climate goals, it must give people realistic alternatives to getting behind the wheel. That means better transit, more homes near jobs and transit stations, safer streets for walking and bicycling, and communities designed around choices instead of traffic.
Unfortunately, Sacramento just made that job much harder.
Last month, the California Air Resources Board approved sweeping changes to the state’s cap-and-trade program, which the state insists on calling cap-and-invest. State officials argued the changes would reduce costs for consumers and provide relief to industries facing increasingly stringent climate regulations.
The changes will significantly reduce the amount of money generated through emissions allowance auctions that will go into the state’s Greenhouse Gas Reduction Fund, the same fund the state uses to support public transit, affordable housing near transit, active transportation projects, and other programs designed to reduce driving and greenhouse gas emissions. Some estimates say they will reduce available transit funding by hundreds of millions of dollars. Others put the estimates even higher.
As we noted last week, for transit agencies, the decision could not have come at a worse time.
And for California’s climate goals, it raises an uncomfortable question: How does the state expect to meet its emissions targets while cutting funding for the programs that are supposed to help achieve them?
After slashing funding for the state’s Greenhouse Gas Reduction Fund, regulators with the Air Resources Board who oversee the cap-and-trade program gave us the answer: lobby your legislator.
“Nothing that we’re doing here is setting the priority for how the legislature may decide to appropriate funds,” Rajinder Sahota, deputy executive officer for climate change and research at the Air Resources Board, told KQED.
Climate Goals and Policy Changes
California’s self-created climate mandate is to reduce statewide greenhouse gas (GHG) emissions to 40% below 1990 levels by 2030, in accordance with Senate Bill 32. Furthermore, the 2022 Scoping Plan maps an aggressive trajectory aiming for an even deeper 48% reduction by 2030 to eventually reach carbon neutrality by 2045.
These are great goals, and California is making some progress. Emissions are dropping, but at an average annual pace of roughly 2.8%, whereas a 4.4% year-over-year reduction is required to meet the 2030 deadline. The state would need to double the decrease in emissions every year between now and 2030 to make its own goals.
The Legislature and Governor Gavin Newsom reauthorized the cap-and-trade program last year but changed how revenues are distributed. High-speed rail now receives guaranteed funding. A substantial portion is also directed toward broader state budget priorities. Transit and many other climate programs were left to compete for whatever money remains.
That may have seemed manageable when policymakers assumed auction revenues would remain robust. As we’re seeing, that is no longer a safe assumption.
But as noted above, it’s the legislature and governor that ultimately decides how funds are spent. If there’s less money to spend, then the elected leaders have choices to make.
California’s budget year goes from July 1 until the following June 30. The state has a habit of passing budgets at the last possible moment, and this year is no exception. Last month, Newsom unveiled his final proposed budget and it did not include increased funding for transit to offset the changes to the cap-and-trade system. However, in recent years the legislature has acted to fix the governor’s shortcomings on transit funding.
In 2024, lawmakers rejected Newsom’s proposal to slash funding for the Active Transportation Program and intercity rail projects, arguing that California could not afford to abandon climate and mobility investments simply because they were politically easier targets than highway spending. While the final budget did not fully restore every dollar, legislators significantly softened the proposed cuts and preserved funding for programs that had been slated for the chopping block.
The same thing happened last year. Newsom’s May Revision proposed deep reductions to transit funding and declined requests for additional emergency operating support. After weeks of negotiations, legislative leaders restored much of the threatened funding and approved a package designed to prevent devastating service cuts at transit agencies across the state. The lesson from the past two budget cycles is clear: the governor’s May budget proposal is often the opening bid, not the final word.
So in 2026, as lawmakers negotiate the final state budget, they should be asking a simple question: if cap-and-trade revenues decline as expected, where will the replacement funding come from?
The answer cannot be nowhere.
Otherwise, the state is effectively admitting that its climate goals are aspirational rather than operational.
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