Last week, transit advocates raised alarm bells that Gov. Gavin Newsom was dragging his feet on finalizing a $750 million loan included in the state budget to prevent serious service cuts to Bay Area transit.
But just as advocates were gathering in San Francisco’s Civic Center Plaza for a rally to push Newsom to authorize the loan on Monday morning, the governor’s office released a statement saying that the loan isn’t dead — yet.
“We are working closely with all stakeholders on the parameters of a funding deal,” the statement read. “Our shared goal is to agree on the terms of a deal by this fall.”
That could mean that Newsom is holding out on the loan as a bargaining chip over lawmakers before the end of the session, a tactic he has used before.
The budget is one of the only areas where the governor has leverage to advance his policy priorities. This year, they include a controversial plan to renew the state’s cap-and-trade program, as well as the expensive Delta water tunnel that Newsom says is an essential part of California’s drought mitigation strategy.
Sen. Scott Wiener, who has been in talks with the governor’s office over the terms of the loan, said during the Monday morning rally that he is “a little bit more optimistic” about the funding coming through. He said he couldn’t comment on the specific conversations he’d had with the governor’s office over the weekend.
BART, AC Transit and Muni, among other agencies, have been counting on the $750 million to help cover their operations until a long-term source of revenue — like a proposed regional sales tax — comes together to help fill the funding gap beginning in fiscal year 2027. Without the loan, BART has said it might have to cancel two of its five lines, and reduce service from every 20 minutes to every 60 minutes. Other agencies also anticipate ending service earlier or increasing the time between buses.
The terms of the loan, such as the interest rate, or oversight into how the funds are spent, may come together after the Legislative session.
Wiener said the governor’s office indicated it may extend talks through January. Asked to comment, Newsom’s office did not provide any further information beyond its statement.
Transit agencies are eager to know as soon as possible whether they can count on the loan, or if they need to begin cutting services now, said Laura Tolkoff, transportation policy director for the urban policy group SPUR, which has been leading the charge to fund transit.
“If you lose your job, you don’t wait six months to start cutting back your expenses,” she said.
Ahead of the Legislative deadline, Newsom wants to see lawmakers reauthorize the cap-and-trade program, which sets a ceiling on how much pollution California companies can emit and allows them to buy credits to exceed that limit. In recent years, cap-and-trade has brought in some $4 billion annually to the state, but it is set to end in 2030. Newsom wants to see the program renewed through 2045.
The issue is how future revenues should be spent. Newsom wants to put $1 billion annually toward California High-Speed Rail, which is looking for a stable stream of state funding to lure private investment, and $1.54 billion to pay for Cal Fire’s firefighting and prevention.
But dedicating funds to firefighting and high-speed rail could leave fewer dollars for other programs that rely on cap-and-trade revenue, such as conservation or clean air and water programs, and — crucially — transit.
Of the $33 billion that cap-and-trade has brought in since 2013, Bay Area transit agencies have received $5 billion, nearly 15% of the program’s revenues. Most of this money has been required to go toward capital expenditures — like the Caltrain electrification project, or designing the BART extension to San Jose.
But with ridership still far lower than pre-pandemic levels, Bay Area transit agencies want to use cap-and-trade dollars to pay for more of their operating funds, too. As pandemic emergency funds dry up, BART is looking at an operating deficit of $376 million. AC Transit faces a shortfall of $72 million.
The debate over cap-and-trade is the rare issue that has managed to pit public transit advocates against high-speed rail promoters — groups that would typically be on the same side, if they were not fighting over the same pot of money.
So far, Newsom’s office and legislators have not discussed publicly how the negotiations over cap-and-trade are progressing.
The governor has used transit funding as a bargaining tool before. In 2023, he proposed eliminating $2 billion from his budget that had been previously slotted for transit.
But following negotiations with the Legislature, Newsom approved a $5.1 billion lifeline to transit agencies, in return for a pared-down version of his infrastructure plan, which relaxed environmental reviews for solar, wind, water, and transportation projects.
To announce the deal, the governor’s office released a video of Newsom sitting on a BART train, signing the thick budget package.