The second year of the 2025-26 Legislative Session may bring new fiscal challenges for the state and funding uncertainty for California transit agencies. The Association is fighting for certainty and security on the state’s funding commitments.
By Arianna Smith
Managing Editor
Transit California
Budget negotiations, legislative efforts, and federal policies will all shape the concerns of transit agencies in 2026, but one overarching goal underpins the Association’s work: to defend state transit funds.
With signs pointing to a potentially weakening economy, predictions for lower-than-expected General Fund and Special Fund revenues, and reduced options for stabilizing next year’s budget, the Legislature and the Governor’s Administration are likely to face difficult decisions in the coming year. In such a budget climate, the Association is already hard at work securing the remaining balance of the SB 125 funds originally committed to transit agencies in 2023.
From this foundation, the Association is building out a robust legislative program that helps solve transit agency problems while acknowledging the reality of reduced revenues in the coming years.
Six months to the next state budget: here’s where it stands
In November, the Legislative Analyst’s Office (LAO) released a report that suggested an even bleaker-than-previously-estimated state budget picture for the coming year: “Under our revenue and spending estimates, the Legislature faces an almost $18 billion budget problem in 2026‑27. This is about $5 billion larger than the budget problem anticipated by the administration in June, despite improvements in revenue” due to those gains being offset by educational and budget stabilization constitutional spending requirements approved by voters in previous decades. The LAO continued, “Moreover, we estimate costs in other programs to be about $6 billion higher than anticipated. Starting in 2027‑28, we estimate structural deficits to grow to about $35 billion annually due to spending growth continuing to outstrip revenue growth.”
The LAO advises that lawmakers build into the 2026-27 budget the possibility of an economic downturn that could further strain state resources, not only due to the possible rapid decline in revenues that a poor economy could produce, but because the state has already exhausted several budget resiliency measures to address previous budget deficits, including reductions to one‑time spending, over $20 billion in borrowing, using budget reserves, and temporarily increasing revenues. The state still has about $14 billion in reserves available, which is half of its highest level.
Beyond the General Fund, there is potentially bad news for other sources of funding that transit agencies rely on.
Under the renamed Cap-and-Invest program, per the Legislature’s 2025 extension and recasting agreement to the cap-and-trade program, at least $1 billion in revenues will go to California’s High-Speed Rail project and $1 billion will be set aside for legislative discretionary purposes, which will include provisions for $125 million for free transit passes and $85 million for climate-focused technologies. The most recent auction, which was the first to be held under the new rules with flat dollar amounts allocated to these purposes, raised about the same amount of revenues as the previous year’s, but, as the LAO points out in its November 2025 analysis, could result in a need for midyear adjustments in the tens of millions of dollars to programs receiving discretionary allocations for the current budget year. More ominously, the LAO warns that current auction revenue trends could be indicating that the Legislature will not be able to fully fund existing statutorily required allocations starting in 2026-27, and that previous commitments could exceed the Greenhouse Gas Reduction Fund (GGRF) by $1.8 billion, which could result in cuts or delays and impact the state’s General Fund.
Association members should anticipate the possibility that the Governor’s January 10 Budget, as well as the Legislature’s initial budget negotiations, could start from the position that some GGRF commitments go unfunded.
As a result, the Association’s budget requests in 2026 will be guided by the need to protect the state’s renewed commitments to the Transit and Intercity Rail Capital Program, Low Carbon Transit Operations Program, and the SB 125 program, which anticipates appropriations from the GGRF, totaling $690 million in Fiscal Years 2026-27 and 2027-28. Our budget advocacy will also focus on the need to restore funding for the Clean Truck and Bus Voucher Incentive Project (HVIP), and advising on implementation of the $125 million appropriation for transit passes included in the Cap-and-Invest discretionary funding plan.
The Association’s state legislative program: stay tuned!
In 2025, the Governor signed two Association-sponsored bills, both of which will take effect on January 1, 2026. Additionally, several legislators introduced measures with provisions that could have negatively impacted transit agency operations; many such provisions were reduced in scope or removed entirely thanks to the Association’s engagement.
While much of the Association’s work in the Legislature in the coming year will be appropriately focused on securing committed budget funds, the work will also include next steps for responding to – and expanding upon – the recommendations in the Transit Transformation Task Force’s final report (see Transit California’s feature story in this issue for more details), including a review of the Transportation Development Act (TDA) .
In addition to these areas, the State Legislative Committee voted to monitor and support a variety of Zero-Emission Transit activities. These include the ongoing implementation of the Innovative Clean Transit regulation, the Commercial Harbor Craft regulation, the Low-Carbon Fuel Standard, the Clean Truck Check, and the Advanced Clean Fleets regulation. This effort will further include the Association’s long-term work to address the cost impacts associated with deploying ZEVs. It will also include an attempt to reinstate the zero-emission bus partial sales and use tax exemption, which is currently set to expire at the end of 2025, as well as a possible new legislative effort to change bus axle weight limits that reflect the shift to zero-emission buses.
Finally, the Association will consider updating safety measures in 2026. Under 2021 legislation, forward-facing cameras were authorized for parking enforcement in bus only lanes; the Association will work to extend the statutory authorization for these cameras, as well as to work with agencies to potentially use the enforcement mechanism for additional violations.
While these subjects have been identified as priority legislative areas for the Association, only some of the subjects may ultimately become sponsored bills introduced by legislators. Others are likely to become components of budget negotiations and get included in state budget trailer bills, while others still may ultimately not be acted upon by the Legislature this session.
The State and Federal Legislative Programs were developed and approved by their respective committees, with guidance and input from the Executive Committee, subject matter committees, and Association staff. Find the full text of the approved State Legislative Program and Federal Legislative Program here.
PEPRA concerns resurface
In the twelve years since the state’s 2013 implementation of the Public Employees’ Pension Reform Act (PEPRA), California transit agencies and their employees have been plagued by project funding uncertainty as a lengthy, complex legal battle has unfolded amidst changing federal administrations and back-and-forth court rulings. Agencies have contended with threatened or actual delays of major public transit project grants and other federal funds for ready-to-go or ongoing projects. In 2019, transit agencies received good news when the first Trump Administration’s issued a determination that PEPRA does not preclude the United States Department of Labor’s certification of federal transit grants, ensuring that grants could continue to flow to California transit agencies. In 2024, the second Trump Administration reaffirmed this determination. For a detailed play-by-play of the court rulings, administration actions, and effects on transit agencies, see Transit California’s 2024 article on the topic.
In 2026, the Association will continue to monitor the second Trump Administration’s adherence to its 2019 Determination. The Association will also monitor the latest round of litigation on this matter. The Association is actively urging the courts and the Administration to hold fast to the Determination, and raising awareness of this effort amongst Members of Congress and new appointees in the Trump Administration will be a key component of the 2026 Federal Lobby Day in Washington, D.C.
Opportunities for a strong year ahead
The Legislature reconvenes on January 5, 2026, and the Governor must release his initial budget by January 10. During the second year of session, January is punctuated by a rapid monthlong consideration of bills that did not die during the first year of session, but which must be approved by the house in which they were introduced to move forward for further consideration. Bills must be introduced by February 20, and the main budget bill must be approved by June 15, with additional trailer bills moving through the process throughout summer and early fall. Bills must be sent to the Governor by August 31, and the Governor must sign the remaining bills on his desk by September 30. Overlaying the entire process is the statewide election that will take place on November 3.
During this time, there will be important moments when transit agencies can advocate for themselves and show support for and the Association’s comprehensive work at all levels: The Association’s Spring Legislative Conference in Sacramento will return to the Kimpton Sawyer Hotel on May 21, 2026 (register here), and the 61st Annual Fall Conference and Expo is traveling this year to Monterey at the Portola Hotel & Spa and Monterey Conference Center from October 28-30.
Every year brings both long-standing and new challenges for California transit agencies. In 2026 – and in every year – the Association will strive to secure the resources that agencies need to continue connecting their communities.