Climate Funding Fight to Leave Lawmakers With Tough Spending Choices

Here are the morning’s top stories on Monday, August 3, 2026

• California lawmakers are returning to Sacramento from summer recess on Monday — and a fight is already brewing over the future of the state’s climate fund. Governor Gavin Newsom’s administration has changed environmental rules to prevent higher gas prices. And that could lead to less money for affordable housing, transit and other projects to reduce carbon emissions.  
• The executive board of the California Democratic Party threw its support behind Proposition 40, the so-called billionaire’s tax on the November ballot. If approved, the measure would impose a 5%, one-time tax on billionaires’ assets to pay for healthcare. 
• The CARE court mental health program has seen an increase in participation, according to officials in Los Angeles County.

As state lawmakers return to the Capitol from summer recess on Monday, Democrats are spoiling for a fight with Gov. Gavin Newsom over the future of California’s signature climate fund. 

Less than a year ago, Newsom and the Legislature extended the cap-and-trade program to 2045, renaming it cap-and-invest — a clear signal about lawmakers’ thoughts on the fiscal benefits of the system. By requiring major polluters to purchase permits to account for their emissions, it raises billions of dollars a year for programs ranging from high-speed rail to affordable housing. 

But the climate fund could shrink by as much as half due to new rules governing cap-and-invest, forcing lawmakers to make tough choices about how to spend the polluter proceeds — all while Newsom argues the program was never meant to be a permanent source of revenue. Their negotiations could come to a head in the next few weeks, before the final legislative session of the governor’s tenure comes to a close.

The cap-and-invest rules, approved by the California Air Resources Board this spring, are expected to drastically reduce the number of pollution permits, known as allowances, that are auctioned off to fill the Greenhouse Gas Reduction Fund over the next three years. Instead, more pollution allowances will be given away to companies covered by the cap, such as oil refineries and factories, to prevent them from leaving California. “There is tension here insofar as there was an effort to rebrand the program as cap-and-invest — and now there are some serious concerns about the magnitude of the investments that will be coming out of this program,” said Kyle Meng, a professor of environmental economics at UC Santa Barbara.

Newsom signed the reauthorization of cap-and-invest in September, as part of sweeping negotiations on climate and energy that included a bill meant to boost the state’s oil industry by making it easier to drill in Kern County. Air regulators at CARB got to work designing a cap that would allow the state to achieve its climate goals — including reaching net-zero greenhouse gas emissions by 2045 — while also addressing affordability, a top priority for lawmakers during last year’s reauthorization debate.

The first set of cap-and-invest rules unveiled in January drew fierce lobbying from the oil industry, which had already seen the closure of refineries in Los Angeles and Benicia in the last two years that supplied roughly 20% of the state’s refining capacity. A Chevron executive warned in a March letter that the regulations would “cripple the survivability of the state’s remaining refineries.” CARB’s final blueprint, approved in May, increased the free allowances granted to polluters over the next three years. It also created the Manufacturing Decarbonization Incentive, which could grant companies additional allowances above the cap if they make investments in clean air technologies. The initiative is still being developed, but critics worry it could increase emissions and depress demand for allowances.

The tradeoff is a decline in the allowances given to utilities (which help fund a Climate Credit on customers’ bills) and a significant drop in allowances auctioned off to fill the Greenhouse Gas Reduction Fund.  As a result, CARB projects $2 billion annually will be deposited into the fund, roughly half the amount in recent years.

The executive board of the California Democratic Party threw its support behind Proposition 40, the so-called billionaire’s tax on the November ballot. If approved, the measure would impose a 5%, one-time tax on billionaires’ assets to pay for healthcare.

Supporters argue that the people who would pay the tax are the ones who benefited the most financially from recent federal tax reforms. Congress also cut tens of billions from Medicaid, known as Medi-Cal in California, which provides health insurance to low-income people. SEIU-UHW argues those cuts will cause hospitals and clinics to close, costing thousands of jobs and worsening access for all patients.

Opponents include Silicon Valley entrepreneurs, business interests, and some health and labor organizations. They say the proposal will backfire, causing billionaires to leave California and decreasing tax revenue in the long run. Health groups say they weren’t consulted in designing the measure and that it does not solve the long-term fiscal challenges of funding healthcare. The same groups backed propositions 41 and 42, competing measures that would place limits on new special taxes.

The proposal has split the Democratic Party. Progressives like Vermont Senator Bernie Sanders and Bay Area Congressman Ro Khanna support the measure. But Governor Gavin Newsom, gubernatorial candidate Xavier Becerra and a growing list of labor unions have spoken out against it.

After a slow start, a program that aims to bring thousands of Angelenos living with serious mental illness under court-led care has seen a spike in petitions filed in recent months, Los Angeles County officials said.

CARE Court allows family members, first responders and others to ask a court — by way of a petition — to step in with a voluntary care agreement for someone living with serious, untreated mental illness, such as schizophrenia, to receive community-based mental health services. If the agreement fails, a judge could order the individual to sign on to a treatment plan.

Since launching in L.A. County in December 2023, the program saw thousands fewer petitions each year than were initially projected. But county officials said petitions filed in L.A. County jumped by about 85% between November 2025 and March 2026, with March seeing a total of 68 petitions.

Martin Jones, a program manager with the L.A. County Department of Mental Health, attributed the increase to working with hospitals, first responders and other groups to identify and refer people who might need help. “We’re doing quite a bit of work to put tools in their hands to also help them identify and refer folks to us who might benefit from the support,” Jones told LAist. “I think we’re approaching the project from several fronts and we’re seeing the results of that.”

Proponents of CARE Court say it provides a less restrictive and structured way to stabilize people living with a mental illness, and they say the recent increase in petitions shows that the program is gaining traction.

Some mental health and civil liberties advocates don’t see it as a positive development. “The number of petitions says nothing about outcomes, which is the real point of the program,” said Eve Garrow, policy analyst at the ACLU of Southern California. “Positive outcomes are really miniscule compared to the population in need.”

Analysis of the program statewide has shown that about half of the petitions end up getting dismissed, but L.A. County officials say more than 4,000 Californians statewide have been set up with alternative county services when a CARE agreement or plan is not appropriate.