Capitol Alert Breaking

Budget deal spends cap-and-trade funds on high-speed rail

Two years after Gov. Jerry Brown first proposed using carbon-reduction revenue to prop up California’s beleaguered high-speed rail project, Brown and legislative leaders reached budget agreements Thursday that include the controversial funding plan, as well as money to pay overtime for in-home supportive services and increase welfare-to-work grants.

The agreements are part of an overall budget pact that came into sharper focus Thursday, with Brown and legislative leaders compromising on several “triggers” for more spending if revenue exceeds the governor’s expectations in the upcoming fiscal year. Many Democratic lawmakers had criticized him for projections they said were too conservative.

The Legislature’s budget conference committee met for a second straight night, acting on multiple spending items. Yet the Democratic governor continued to meet privately with Assembly and Senate leaders ahead of expected floor votes in both houses Sunday, the constitutional deadline to pass a budget bill.

“We are at this point prepared to bring the full budget to the floors of both houses,” Assemblywoman Nancy Skinner, D-Berkeley, who led the conference committee, said late Thursday as the panel finished voting, saying the package “has some very smart investments for California.”

In a key resolution, Brown and Democratic lawmakers agreed to use $250 million in cap-and-trade revenue – money polluters pay to offset carbon emissions – to fund construction of California’s $68 billion rail project this year, with 25 percent of carbon emission funds going to the project in future years.

The amount falls short of the 33 percent Brown initially wanted, but is more than Senate Democrats proposed. Environmentalists and Republicans immediately criticized the plan, which is almost certain to be challenged in court.

Overtime for workers in the In-Home Supportive Services program had been another budget sticking point.

Brown’s $107.8 billion general fund plan prohibited home-care providers from working overtime, with the goal of preventing payments required by federal regulations set to take effect next January. The administration warned in January that the overtime rule could increase home-care costs by more than $600 million by June 2016.

But in-home care workers, the unions that represent them and many of their Democratic allies in the Legislature criticized the governor’s proposal, saying it would sharply reduce their take-home income and disrupt their clients’ lives. Thursday evening, the conference committee and administration officials announced a compromise allowing the overtime payments, with still-to-be-crafted rules meant to prevent excessive overtime.

Democratic lawmakers praised the overtime agreement, which will cost $180 million in 2014-15 and $350 million in future years. “It does have costs, but for good reason,” state Sen. Mark Leno, D-San Francisco, who called the governor’s initial proposal to ban overtime “a nonstarter.”

The plan, though, leaves out another priority for caregivers and their supporters – eliminating a 7 percent reduction in home-care service hours in 2014-15. Talks continue on the issue, with a possible restoration later this year, Skinner said.

In other welfare items, the plan raises CalWORKs grants by 5 percent beginning next April. It also increases foster care payments for certain relative caregivers, at an estimated cost of $30 million. And there would be another $20 million for counties to spend to help prevent homelessness among CalWORKs recipients. But there is no cost-of-living increase for supplemental security payments.

Other parts of the agreement address growth in MediCal caseloads and costs as a result of the federal health care overhaul. Brown’s revised budget pegged the unanticipated cost at $1.2 billion, but the final pact will reflect the viewpoint of the nonpartisan Legislative Analyst’s Office, which has said the administration overstates the expense by about $300 million.

The agreement includes $3 million to bring the medical plan for thousands of unionized farmworkers into compliance with the Affordable Care Act.

In the broadest framing of the budget, Brown and legislative leaders debated for weeks how optimistic to be in their revenue estimates. Lawmakers wanted to use estimates by the analyst’s office, which showed $2.5 billion more in general fund revenue and $700 million more in local property-tax revenue through June 2015 than the governor’s revised plan. The governor insisted on using his revenue figures.

As a compromise, the agreement will trigger more spending if revenue comes in above the administration’s estimates. If there is higher-than-budgeted property tax revenue, there would be an extra $50 million apiece in one-time money for University of California and California State University and $100 million for state-deferred maintenance projects.

If general fund revenue beats the administration’s estimates, the state would pay down up to $800 million owed to local governments for pre-2004 mandated programs and $1 billion owed to schools for deferrals.

The budget also will contain $2.5 million to renovate Sacramento’s historic governor’s mansion, which has long-standing structural and maintenance problems.

The money will come from the proceeds of the sale of a Carmichael home built for then-Gov. Ronald Reagan. Ronald and Nancy Reagan were the last to live at the 137-year-old downtown mansion, before decamping for a home in the Fab 40s after Nancy Reagan deemed the mansion and surrounding area to be unsafe.

The Legislature’s budget-writing committee previously announced agreements to add thousands of additional transitional kindergarten and child-care slots and to increase reimbursement rates for early learning and child-care providers.

The high-speed rail funding, though insufficient alone to fund construction, holds the promise of a perpetual revenue stream – one not controlled by the federal government.

The allocation is a rare victory on rail for Brown, a third-term Democrat who has championed high-speed rail since taking office. The project has been beset by a fall-off in public approval and uncertainty about long-term financing, legal challenges have left state bond funding in doubt, and a more recent round of lawsuits challenge the project on environmental grounds.

Brown first proposed using cap-and-trade in 2012, but lawmakers at the time resisted the proposal. Many environmentalists, while generally supportive of high-speed rail, remain opposed to the cap-and-trade funding, saying the money should be used for projects with more immediate environmental benefits.

In addition, the nonpartisan Legislative Analyst’s Office has questioned the legality of the funding shift. Cap-and-trade revenue is supposed to be used to reduce greenhouse gas emissions, and the LAO, noting that the first phase of the rail project will not open until after 2020, said construction would generate emissions.

Kathryn Phillips, director of Sierra Club California, said that while her organization supports high-speed rail, the project “will not produce the near-term greenhouse gas reductions that are needed.”

The proposal was approved by the Legislature’s budget-writing committee Thursday, but Republicans blasted it in a statement and even some Democrats are hesitant.

“I think it’s a bad idea,” said Sen. Mark DeSaulnier, D-Concord. “I don’t support what we’re doing on high-speed rail. I don’t support the authority using the cap-and-trade funds.”

In addition to high-speed rail, the budget deal calls for 15 percent of cap-and-trade revenue to go to other transportation projects and 20 percent to go to affordable housing projects and other programs that help reduce greenhouse gases.

The remaining 40 percent of cap-and-trade revenue would go to various transportation, natural resources, energy and other projects.

California’s improving budget outlook rendered negotiations between Brown and lawmakers far less contentious than in previous years. The governor and lawmakers settled a major component of the budget plan last month, agreeing to put a rainy-day fund measure on the November ballot.