Funding Alternative #4

Funding Alternative #4 to the Proposed Tax on Drinking Water in the Budget Trailer Bill

Cap-and-Trade Allocation for Safe Drinking Water

In 2017, the Legislature passed, and Governor Brown signed into law, AB 398 (Garcia) which extended the State’s authority to operate a Cap-and-Trade program through 2030. AB 398 passed by a two-thirds vote which was significant in the context of Proposition 26 requirements.

The Cap-and-Trade program generates revenue annually from the sale of allowances to entities which emit greenhouse gas (GHG) emissions and which need the allowances to continue to emit GHG emissions. By reducing the number of allowances issued over time, the State limits the ability of emission sources to continue emitting. The Legislative Analyst’s Office (LAO) has estimated that the program will bring in anywhere from $2 to $7 billion annually between 2018 and 2030.

The Governor’s Proposed Budget for Fiscal Year 2018-19 includes a $2.8 billion Cap-and-Trade expenditure plan. $1.3 billion of this amount is “discretionary” spending which is not subject to continuous appropriation. A small portion of this revenue could be appropriated with a majority vote to fund drinking water solutions for disadvantaged communities and low-incomes residents who do not have access to safe drinking water. Revenue from the program could also be used to supplement or backstop any other alternative proposal.

Providing clean drinking water to disadvantaged communities is consistent with the historic emphasis on using Cap-and-Trade revenue to benefit these communities. It would also help eliminate the need for some of these communities to rely on the transportation of bottled water or shipped water in order to have access to safe drinking water – thereby resulting in a reduction of GHG emissions.