Newsom Catches Heat for Using Climate Funds on Drinking Water Plan

California lawmakers are poised to fund the cleanup of dirty drinking water in the state’s poorest communities — a problem most everyone agrees needs to be addressed.

Not everyone, however, agrees on where the money should come from to pay for it.

The issue? The Legislature wants to use revenue from California’s  cap-and-trade climate change program, which was created to reduce greenhouse gases in the atmosphere by making companies pay for the right to emit them.

The money the program generates is required by law to go toward programs that reduce the planet-warming gases. While that mandate hasn’t stopped lawmakers in the past from allocating funds to projects that are, arguably, only marginally related to greenhouse gas reduction, it could leave the funding for water cleanup open to a legal challenge.

State attorneys made that clear to the Legislature last year in a legal opinion asserting cap-and trade money can, for the time being, only be spent “for purposes that reasonably relate to the reduction of [greenhouse gas] emissions.”

The Legislative Counsel prepared the opinion for state Sen. Bob Wieckowski, the chair of the subcommittee that oversees the cap-and-trade program.

He voiced his frustration with the state’s plan to spend the funds on water cleanup on the Senate floor last week, saying it “further weakens the integrity of our Greenhouse Gas Reduction Fund.”

“AB 32 requires the Governor and the Legislature to only use revenues from the auctions of Cap and Trade for programs that reduce carbon emissions into our atmosphere,” Wieckowski said. AB 32 is California’s landmark climate change law, which sets targets for reductions in the state’s greenhouse gas emissions.

“Obviously, this does not bode well for future GGRF budgets,” he said.

While AB 32 was set to expire in 2020, the Legislature passed an extension through 2030 two years ago.

That bill, AB 398, also removes the limits on how cap-and-trade money is spent as of Jan. 1, 2021, according to the Legislative Counsel’s opinion. The analysis attributes the freeing of those funds to the way AB 398 was written and because of its passage by a supermajority, both of which transformed cap-and-trade revenue from a fee, designated for specific use, into a tax, available for general spending.

Wieckowski said on the Senate floor he was worried about how cap-and-trade money might be “broadened to include other uses” after 2021.

“I would caution that every worthy cause should not be financed through this fund,” he said. “We have been instructed by the scientific community that our window is closing, and we may even be at the point of no return on permanent, irreversible climate consequences.”

But the Newsom administration doesn’t see it that way.

Kate Gordon, director of the Governor’s Office of Planning and Research, said it’s time for California to stop thinking about climate issues in a “segregated budget box” with separate policies for reducing emissions and addressing climate impacts.

She said the administration is looking to integrate climate considerations into housing, fire management and water policy. “I don’t think that’s a bad thing,” she said.

“The governor’s focus on putting new funds into the infill infrastructure fund is a climate policy, because it’s about building housing in denser areas so people drive less,” she said. “That’s climate policy. How do we think about fire management as a climate policy? How do we think about water movement as a climate policy?”

Clean Drinking Water

Across California, about a million people lack access to safe drinking water, even though the state has spent $3 billion since 2010 to solve the problem.

For years, state lawmakers have fought over plans to address the issue.

Earlier this year, Gov. Gavin Newsom proposed a tax on water bills that would fund programs to rebuild broken drinking water infrastructure in some of the state’s poorest communities.

But the Legislature didn’t approve the plan, with some lawmakers worried that their constituents wouldn’t accept a new monthly tax given the state’s huge budget surplus. (The political peril entailed in voting for new taxes was driven home last June, when Orange County voters recalled Democratic state Sen. Josh Newman after his vote to increase the gas tax.)

So instead of the new water tax, lawmakers crafted a compromise that includes $100 million from cap-and-trade revenue and $33.4 million from the general fund. A trailer bill also seeks to use 5% of the cap-and-trade proceeds, up to $130 million annually, for clean water projects until 2030.

Danny Cullenward, an energy economist and a member of the cap-and-trade oversight committee, said the new plan marks a “real shift,” and not for the good.

“We are moving towards something that very clearly is not about climate,” he said. “It’s about water quality and it’s about water access. It’s not really about reducing greenhouse gas emissions.”

The Newsom administration originally argued the expenditure on the water plan is in compliance with the cap-and-trade directive because trucks will no longer have to deliver bottled water to people whose tap water is undrinkable, and so will reduce emissions.

Cullenward, who in addition to being on the cap-and-trade oversight committee is the policy director for the climate group Near Zero, said that’s a stretch.

“This is getting much closer to the line, if it’s not over the line,” he said.

But Gordon, who also advises Newsom on climate issues, said the water plan would also replace the existing water delivery system with one that’s more energy efficient.

“A massive amount of our energy goes into moving water, and making that more efficient would have a huge impact,” she said. “If you’re not resilient, then your systems  fall apart. We have a climate impact that’s creating this situation and we need to solve this situation in a way that reduces emissions.”

The water expenditure is just the latest appropriation to rile critics of the way cap-and-trade money is spent. Former Gov. Jerry Brown drew criticism when he spent more than $1 billion from the fund on the state’s beleaguered high-speed rail project. More questionable was Brown’s 2013 diversion of $500 million cap-and-trade dollars to help balance the state’s budget, although the money was eventually repaid. Last week the Los Angeles Times published an editorial saying that lawmakers are turning cap-and-trade revenue into a “slush fund.”

Enviro Groups Split

The debate over using cap-and-trade funds on clean drinking water has split the environmental community.

Some of the state’s largest environmental groups, such as the Sierra Club, argue that the program should primarily be used to stave off the worst impacts of climate change by curbing emissions. Kathryn Phillips, director of the Sierra Club California, told CALmatters that the money for the water project should have been taken out of the general fund instead of cap-and-trade.

But environmental justice groups have fought cap and trade for years, arguing that it allows industry to pay to pollute in communities already burdened with pollution. These groups have also advocated that any funds from the program be used to meet the needs of communities most impacted by dirty air.

“That includes places like Fresno and the Central Valley, where they are struggling not only with toxic drinking water, but also some of the worst air quality in the state,” said Marie Choi, spokesperson for Asian Pacific Environmental Network.  “For us, solutions aren’t about carbon counting, it’s about making our neighborhoods and people healthy and whole again.”

For the last three years, Leadership Counsel for Justice and Accountability, an advocacy group for lower-income communities, pushed state lawmakers to approve a water tax, with the money going to pay for clean water programs in the San Joaquin and Coachella valleys, among other areas.

These places are most impacted by the hot, dry conditions exacerbated by climate change, the group argues, and in light of the tax plan’s failure, the group wants to see the current proposal to use cap-and-trade money enacted.

“Drought in particular has impacted drinking water quantity and quality,” said Phoebe Seaton, the group’s co-director. “We have seen since the Greenhouse Gas Reduction Fund’s inception the link between drinking water and climate, from an adaptation side and from a climate mitigation side,”

When Newsom presented his May budget revision, he defended his proposed tax on water bills, saying it would be a “proud day, when the Legislature and the governor can align on providing a basic fundamental right. That’s clean and drinkable water at an affordable price for the most vulnerable Californians.”

But even then, he signaled an openness to alternatives. “I’m not consumed by process, but by outcome,” he said in answer to a reporter’s question. “But we will get to a solution.”