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Can California's Climate Bond Weather the Storm of State Deficits?

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A wind farm full of wind turbines sits near solar panels beneath a somewhat cloudy blue sky.
Wind turbines operate at a wind farm near solar panels on March 6, 2024, near Palm Springs, Riverside County.  (Mario Tama/Getty Images)

California lawmakers are negotiating the details of two major bills that would put what they intended to be a more than $15 billion climate bond in front of voters in November.

However, as the state’s deficit has ballooned, lawmakers say its bonding capacity is shrinking simultaneously. Voters have only tepidly approved a mental health bond in the form of Proposition 1.

Put all this together and it all but guarantees the efficacy of a climate bond will shrink as the Legislature negotiates the details over the coming months.

A group of 150 nature and environmental justice-oriented groups is pressing Gov. Gavin Newsom to consider a climate bond of at least $10 billion.

But key legislators like Assemblymember Diane Papan (D-San Mateo), a co-author of AB 1567, acknowledged in interviews with KQED that it might be much smaller.

“With limited bonding capacity, we must now carefully prioritize the types of investments to include within any such bond to ensure that Californians can weather the storm of climate change,” Papan said.

The two climate-related bond bills would fund similar projects and solutions, from infusing cash into equity-oriented programs to adding funds to clean energy projects to addressing wildfire risk, drought, flooding, sea-level rise and extreme heat.

The Legislative Analyst’s office projects California’s deficit is in the ballpark of $73 billion, and the state’s overall economy has limited its capacity to take out bonds. As a result, lawmakers told KQED California might have to limit its bonds in November to $16 billion.

California’s cash flow problems and limited borrowing potential present a funding puzzle for lawmakers who want not just to put climate bonds on the ballot. Other lawmakers are vying for the same funds to pay for investing in offshore wind infrastructure, housing and education bonds.


Lawmakers are negotiating behind closed doors, alongside the governor’s office, and could potentially combine the two bills into one climate bond. They maintain that climate spending remains a key priority.

“The data is clear: The impacts caused by climate change continue to worsen every year,” said state Sen. Ben Allen (D-Santa Monica) in an email. He is the lead author of SB 867.

But, lawmakers have yet to agree on how big the bond act could be. They could wait for Newsom to outline his spending priorities in the May revision of the state’s budget. The Legislature has a deadline of June 27 to put a bond on the November ballot.

The likely narrow passage of Proposition 1 — which would issue $6.38 billion in bonds to build supportive housing and residential treatment facilities — is a two-sided indicator of how a climate bond could go this fall, Papan said.

It could mean that Californians are willing to take on additional bonds, but it could also shrink the state’s funding capacity for new bonds even further.

Newsom asked lawmakers last year to develop a “climate resilience bond to increase and sustain investments in our climate initiatives.” However, the governor’s office said it would not comment on the current legislation that is pending.

A considerably smaller climate bond

Assemblymember Eduardo Garcia (D-Coachella), the lead author on AB 1567, said he is working with at least 25 lawmakers to back the idea of a climate bond over the next two months. He said the final bill would “look different” and that his team is working on two alternatives.

“A reduction in the bond would allow us to stay the course and make significant investments in some of these programs that we see are working with emission reductions and cleaning up pollution,” he said.

State Sen. Josh Becker (D-Menlo Park), co-author of SB 867, said a final bond would be “considerably” smaller and should focus on urgent priorities. Sea-level rise is one of the most prominent issues in his district, which runs from Daly City to Mountain View. San Mateo County, through its Flood and Sea Level Rise Resiliency District, is actively preparing for this.

“They’ve identified billions of dollars of projects that need to happen,” he said of designs for a Venice-like wall within the bay in Burlingame to protect a business corridor from sea-level rise and new levees in places like East Palo Alto.

“Not all of them could be funded through this bond, but this bond could be a start,” he said.

Josh Quigley, policy manager with the environmental nonprofit Save the Bay, said his group is working on sea-level rise and restoration projects up and down the Bay Area, like restoring 100,000 acres of tidal marsh across the region, that are waiting for funding to continue.

“It’s key that there is funding in the climate bond for coastal resilience,” he said. “Our infrastructure is likely to be overwhelmed in the coming years and is going to need upgrades.”

Even with competing bonds and the state deficits, Assemblymember Damon Connolly (D-San Rafael), co-author of AB 1567, said a $10 billion bond is possible. He said Californians will vote to support a climate bond because they “are living the consequences right now in our state.”

“In my district, we face the threats of that wildfire and significant flooding; virtually no corner of the state is now immune from the impacts of climate change,” he said.

A bond for environmental justice

Environmental groups want the state to focus on programs and funding directly benefiting human health and the environment. They also want at least 40% of the total investments to go toward disadvantaged communities in urban and rural areas.

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Assemblymember Garcia said he is working to incorporate the coalition’s requests, but he does not think that the amount they’ve asked for is realistic.

“I think where folks will be disappointed is that it won’t reflect $10 billion, but nonetheless, will see a significant investment to the policy and the programs that have been outlined [by] our friends in the environmental justice community,” he said.

Elle Chen, senior policy and campaign manager for the Asian Pacific Environmental Network, said the group is bracing for a lot less spending.

“We know that number might have to come down, but I think it is a negotiating point,” Chen said. “If that becomes a reality, we will have to go back to the drawing board.”

Sona Mohnot, director of climate resilience at the Greenlining Institute, said climate programs focused on supporting communities of color are often the first on the chopping block. For example, Newsom previously zeroed out funding for the Transformative Climate Communities program and did not allocate any funding to it in this year’s proposed budget.

That program is for community-led neighborhood projects to reduce greenhouse gas emissions and provide the community with health, environmental, and economic benefits. Mohnot said a dozen communities already have planning grants but need funding to make their “transformative climate visions a reality.”

“If we’re trying to create a more resilient, more equitable California, then we have to invest in our communities that need those resources the most, especially in budget deficit years,” she said.

Abraham Mendoza, policy manager with the Community Water Center, said he would like a climate bond to include funds for safe drinking water and flood protection.

“It’s really important to make sure the communities who are already feeling the brunt of climate change and the impacts of the changing environment are still being prioritized and getting the resources they need,” he said.

‘This is going to be a continuous challenge’

The Association of California Water Agencies has its own priorities, and has requested $8 billion from a climate bond to pay for a slew of water projects, including storage, flood protection, water recycling, dam safety, sustainable groundwater and water conservation.

“This funding is needed because California is experiencing weather whiplash because of climate change,” said Cindy Tuck, the group’s deputy executive director.

Organizations like Save the Redwoods League, run by Sam Hodder, would like to see the climate bond heavily focus on land conservation because “our most important ally in building climate resilience in California is going to grow from our nature-based solutions,” he said.

And even though a climate bond would help fill the gap in the budget deficit in the short term, it won’t fulfill the long-term investment needed to adapt to the changing climate, said Katelyn Roedner Sutter, California director of the Environmental Defense Fund.

“This is going to be a continuous challenge for us to act at the scale that scientists say is required to turn the tide on climate change,” she said. “Lawmakers need to understand that climate change is not waiting for us to decide when it is convenient to take action.”

Mary Creasman, chief executive officer at California Environmental Voters, said many Californians would vote for a climate bond, especially if it’s the only option for continuing projects that would directly protect their lives and homes.

“These are issues that poll high across demographics and party lines,” she said. “Folks care about clean air and water. They care about clean energy, and they care about being protected against these disasters.”


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