Governor Jerry Brown, seeking what some critics may regard as the killing of one bird with two stones, will reportedly propose Friday in his 2014-15 budget speech shifting $250 million in cap-and-trade revenues earmarked for combating greenhouse gases to high-speed rail.

The one endangered bird could be Brown’s reputation in an election year, as foes of the beleaguered high-speed rail project join with people already unhappy with the governor and the Legislature for borrowing $500 million last year from the cap and trade energy program to help balance the state budget. The market-oriented, pollution-credit-swapping program garnered the reluctant support of environmentalists, many of whom preferred a straight tax on polluters, in exchange for a promise that revenues would be used to mitigate greenhouse gases.

Brown is said to want nearly one-third of the expected $850 million in revenues redirected to the rail project, which had its funding sources crippled by a federal judge late last year. Although Brown had said he would pay back the $500 million loan in two big chunks when the state recovered, no timetable exists, and he reportedly will propose repaying $100 million with general fund money in the coming year even as the state scoops up new money from the program.

The $68-billion bullet-train received a heavy blow in November when Sacramento County Superior Court Judge Michael P. Kenny barred the state from selling nearly $9 billion in rail bonds approved by voters in November 2008 because the California High-Speed Rail Authority’s finance committee failed to explain its reasons for authorizing the offering.

He also ordered the state to come up with a new strategy for raising the estimated $68 billion needed to complete the system. The law required that the state know where it was going to get a significant amount of the money before it started, but the present plan is already tens of millions of dollars shy of financing just the first leg. Kenny wants the old plan rescinded and a new one drawn up.

That could take years, and in the interim Brown is looking for a revenue stream that will keep the project afloat and help liberate $3.3 billion in matching federal funds.   

Cap and trade is eventually expected to generate billions of dollars a year in state revenue, but, as the state Legislative Analyst’s Office pointed out in a 2012 report (pdf), “There are legal constraints regarding the eligible use of auction revenues.”

Proposition 26, passed in November 2010, redefined what constitutes a tax and a tax increase (as opposed to fees, etc.) requiring approval by two-thirds of the Legislature in some cases or voter approval. The analyst said the funds have to be related to greenhouse gas mitigation in some fashion even for the Legislature to redirect them. However, with a two-thirds vote, it could issue dividends to Californians to offset higher fuel costs caused by cap and trade, or apply it to the deficit. The analyst did not anticipate the money being shifted to high-speed rail.

“If the Legislature wished to consider the option of using such auction revenues for purposes unrelated to GHG emissions mitigation, it would need to enact a new statute for this purpose that would supersede AB 32 as the authority for the collection of these revenues,” the analyst wrote. “However, in taking such action, the Legislature would now need to consider the potential application of both Proposition 26 and Proposition 98.”

–Ken Broder

To Learn More:

Jerry Brown's Cap-and-Trade Proposal for High-Speed Rail Said to be $250 Million (by David Siders, Sacramento Bee)

High-Speed Train in California Is Caught in a Political Storm (by Adam Nagourney, New York Times)

Funding for Bullet Train Draws Controversy (by Chris Megerian, Los Angeles Times)

Cap-and-Trade Funds to Boost High-Speed Rail (by Melody Gutierrez, San Francisco Chronicle)

Judge Puts Two Roadblocks in the Way of High-Speed Rail Project (by Ken Broder, AllGov California)

Evaluating the Policy Trade-Offs in ARB’s Cap-and-Trade Program (by Mac Taylor, California Legislative Analyst's Office) (pdf)