Explore the Bay Area Monitor

August/September 2014

Budgetary Boost: Cap-and-Trade Revenue Tabbed for Transit

By Cecily O’Connor

Fed up with a lack of affordable housing options near public transit, or long bus headways during commutes? Your frustrations may soon ease, thanks to new investments in California’s aging transportation system.

The state’s recently signed budget for fiscal year 2014-15 earmarks $630 million of a total $872 million in cap-and-trade program funds for transportation-related projects. Accompanying legislation stipulates that, in future years, 60 percent of cap-and-trade funds will go to such projects. As a result of these developments, bus and rail operators will receive a chance to move forward with expansion plans that have been on the backburner.

Funding from the program — which collects fees from businesses that produce greenhouse gas emissions above a certain cap — is expected to strengthen and better connect the Bay Area’s transit network, while also providing the region with environmental and economic benefits.

However, there are a few concerns to be addressed. One is the potential for cap-and-trade to push gas prices higher. Another relates to the distribution of the program’s funds, as well as a need to fine-tune criteria for identifying disadvantaged communities ripe for transit projects.

“On the one hand, we are disappointed about the funding provided to transportation in the budget year, and we have some reservations about the structure, particularly the fact that the state has full discretion over which projects get funded,” said Rebecca Long, senior legislative analyst at the Metropolitan Transportation Commission. On the other hand, she noted that “over the long-term we are very happy transportation received as large a share of future year funding as it did, and we think it’s really important and terrific that the legislature did ultimately adopt a long-term framework.”

Overall, transit officials said they are encouraged by the prospect for change, and preliminary work is underway. Agencies in charge of administering and selecting projects for funding are establishing guidelines and timelines. Transit operators are planning upgrades, offering a glimpse into how the region’s transportation landscape will change over time.

The 2014-15 budget shifts cap-and-trade funds into five transit categories:

  • $250 million to the High-Speed Rail Authority for the initial construction segment in the Central Valley, as well as environmental and design work on the overall system.
  • $200 million to the Air Resources Board to speed up the transition to low-carbon freight and passenger transportation. This investment also supports the goal of deploying 1.5 million zero-emission vehicles in California by 2025.
  • $25 million to low-carbon transit operations that enable local agencies to support new or expanded bus and rail services.
  • $25 million for transit and intercity rail capital expenses. Caltrans will manage a competitive grant program for rail and bus operators planning improvements that link state and local rail with other systems. The state agency will prepare a list of recommended projects for funding, and then submit that to the California Transportation Commission for programming and allocation.
  • $130 million for affordable housing and sustainable communities (divided equally between the two). In addition to benefiting disadvantaged communities, projects will reduce greenhouse gas emissions several ways: increasing transit ridership, promoting walking and biking, providing affordable housing near transit stations, preserving agricultural land, and emphasizing local planning that promotes infill development and reduces the number of vehicle miles traveled.

The state’s Strategic Growth Council will coordinate allocations within the fifth category. “The overarching philosophy is that we really want to look toward the implementation of projects that can have a major impact and that are ready to move quickly,” said Mike McCoy, executive director at the council, which in July laid out a proposed timeframe that begins with public meetings on guideline development in August and ends with awards announced in June 2015.

Overall, the five transit categories will focus a percentage of funds on projects in disadvantaged communities, which are determined by the California Environmental Protection Agency’s CalEnviroScreen, a tool that pinpoints zip codes vulnerable to pollution. However, several sources such as MTC’s Long said they recommend the screen be revisited to take into account other income-related factors and establish a more comprehensive picture.

Long also emphasized that the biggest transportation investments have yet to come. Consider the low-carbon transit program, for example, which receives $25 million statewide in the fiscal 2014-15 budget year. That pot of funding will become more meaningful in future years, when it’s estimated to increase to $125 million or more.

For the cap-and-trade program as a whole, the legislature’s long-term spending plan begins in fiscal year 2015-16. At that point, about 25 percent of cap-and-trade proceeds are targeted to high-speed rail, while another 35 percent will be directed toward transit, affordable housing, and sustainable communities planning. The final 40 percent remains uncommitted, to be appropriated annually.

Specific dollar amounts for future years are hard to predict. This January, transportation fuels become subject to cap-and-trade, which would increase program revenue dramatically. Some legislators, however, have concerns about drivers getting pinched at the pump, and have amended Assembly Bill 69 (Perea) to postpone fuels inclusion until 2018, citing the potential for higher prices. Some analysts forecast an increase of 10 to 20 cents per gallon when the program is applied to vehicle fuels.

While the added cost will surely frustrate people, Long emphasized that the money the state collects is meant to be spent carefully. “The public will feel better knowing there is a plan and an investment strategy for how to use those funds,” she said.

Moreover, the per-gallon increase could be offset by improved public transportation options down the line, said Ryan Wiggins, state cap-and-trade campaign manager at TransForm, an Oakland-based transportation advocacy group.

“While the price of gas will rise, projections are that people will use less fuel overall as a result of having more transit and housing options,” Wiggins said.

Regardless, Bay Area transit operators are keen to drive improvements forward. Several have recently announced projects, or their intention to compete for future funding.

For example, Caltrain, which counts more than 50,000 weekday riders between San Francisco, San Jose, and South Santa Clara County, will use the money to upgrade to an electrified rail system. This will help accommodate an anticipated doubling of daily riders, as well as pave the way for the state’s planned high-speed rail system.

“The resources allocated to the Peninsula will be used for our most pressing and immediate needs: modernizing Caltrain service and continuing to improve SamTrans bus service,” said Michael Scanlon, executive director of the Peninsula Corridor Joint Powers Board, in a statement. “Through these efforts we will reduce greenhouse gas emissions and take vehicles off already congested roads.”

The Santa Clara Valley Transportation Authority said Phase II of its BART Silicon Valley extension is “well positioned” to compete for funding because the project contributes to a reduction in car trips and greenhouse gas emissions, according to a statement. The extension also integrates into the overall local, regional, and state transit network.

Meanwhile, Capitol Corridor, which operates a rail line between Placer County and San Jose, is in the midst of environmental studies as part of a planned $200 million track construction project intended to increase passenger service between Roseville and Sacramento.

“We have a source of funds that we can actually apply for [to fund] these capital projects that have been waiting in the wings,” said Jim Allison, manager of planning with the Capitol Corridor Joint Powers Authority.

Overall, it’s expected that more project proposals will follow, especially among those operators needing to accommodate swelling ridership. Since cap-and-trade funds are intended for projects that reduce greenhouse gases, as well as contribute to health improvements and job creation, it’s likely to result in “more ambitious, competitive, and high-value” transportation plans and proposals, Wiggins said.

Cecily O’Connor is a freelance journalist based in Corte Madera.