Budget belt-tightening squeezes transportation, housing, resilience

Gov. Gavin Newsom’s newly proposed state budget for the 2023-24 fiscal year includes major cuts to funding for transportation, climate and housing that were included in last year’s budget. The cuts to transit funding could affect the funding plans for major Bay Area capital transit priorities.

The proposed budget issued Tuesday seeks to reduce the state’s projected $20 billion-plus deficit through spending cuts and/or deferrals of prior funding commitments rather than dipping into reserves. The plan does include a “trigger” mechanism for certain cuts — including certain reductions in transportation, housing and climate funding — that would be restored automatically if revenues return to a certain level in January 2024.

Key takeaways from the proposed 2023-24 budget:

• Pulling Back Earlier Appropriations: In an unusual move, the governor’s budget plan takes back previously appropriated funds from the fiscal year 2021 and 2022 transportation, climate and resilience funding packages.
• Major Cuts in Transit Funding: The budget would cut anticipated transit capital funding for fiscal year 2023-24 and 2024-25 in half to $2 billion from $4 billion over two years. This would include $1 billion for 2023-24 followed by $500 million in the following two fiscal years and would reduce the Bay Area’s estimated formula share to $400 million over the next three years ($200 million in 2023-24 and $100 million each of the following two years). These cuts put at risk funding plans for the BART extension from Berryessa through downtown San Jose to Santa Clara, BART Core Capacity and the zero emission bus transition, each of which were endorsed by MTC for a share of the Bay Area’s anticipated $800 million that would shrink by half under the Governor’s proposal.
• No Additional Funding for Transit Operations: The budget contains no funding to address a looming fiscal challenge threatening transit agencies that are spending down their federal COVID relief funds and expecting budget deficits beginning next year due to slow ridership recovery. MTC’s top state budget priority this year is to secure new operating funding to assist Bay Area transit agencies in sustaining existing service, rather than making service cuts, while also funding enhancements aimed at attracting new riders.
• Bike/Ped, Grade Crossing Projects Get Sliced: While the governor’s budget does not propose pulling back TIRCP awards made in the current 2022-23 fiscal year, that’s not the case for the Active Transportation and Rail Grade Crossings programs, which would be reduced by $200 million and $350 million, respectively. These proposed reductions come as the California State Transportation Agency has an active call for projects open for grade separation funds. The budget also proposes to swap $500 million in fiscal 2021-22 General Fund commitments for various programs in the transportation package with State Highway Account funds.
• Cap-and-Trade Helps Offset Zero-Emission Vehicle Cuts: California’s zero-emission vehicle (ZEV) transition for passenger vehicles, buses, other heavy-duty vehicles and boats received $10 billion in general funds in the fiscal 2021-22 and 2022-23 budgets. Gov. Newsom proposes to reduce the General Fund contribution by $2.5 billion but to partially offset these cuts with $1.4 billion from the Greenhouse Gas Reduction Fund. The budget plan directs any additional Cap-and-Trade auction proceeds toward ZEV programs. The proposed budget also directs $250 million in Cap-and-Trade funds to partially offset a proposed $300 million reduction in General Fund support for the Community Air Protection Program. In total, the budget proposes $1.65 billion in discretionary Cap-and-Trade expenditures.

• Climate Resilience & SF Bay Resilience Funds Slashed: The 2021 climate resilience package funded a new regional climate adaptation planning and implementation program housed at the Governor’s Office of Planning & Research. The program received $150 million over the past two years and originally was slated for an additional $100 million in fiscal 2023-24. Gov. Newsom’s budget proposes to pull back $25 million of previously appropriated funds and to eliminate fiscal 2023-24 investments. The budget also proposes to eliminate the $10.4 million dedicated in fiscal 2022-23 to support San Francisco Bay wetlands and to make major cuts to State Coastal Conservancy commitments for coastal protection and adaptation.
• Fewer Dollars for Housing and Homelessness: The 2022 state budget deal committed some $3 billion over two years for affordable housing programs identified by MTC and ABAG as priorities. The proposed 2023-24 budget maintains most of these commitments but rescinds $300 million from various homeownership programs and $50 million for a program to help finance accessory dwelling units. Regarding homelessness assistance, the governor’s budget proposes retaining $3.1 billion of the $3.35 billion in commitments previously made for the 2022-23 and 2023-24 fiscal years.

Gov. Newsom’s proposed budget is not set in stone. Budget subcommittee hearings will begin in a month or so, and revisions to the proposed budget are due in May, with the legislature making final decisions after that. The state Legislature must pass the final 2023-24 state budget and send it to the governor by June 15 for his action by July 1.