With a budget shortfall and a projected deficit looming, the Governor’s Administration has implemented a spending freeze on transit funds committed through SB 125 in 2023. Here’s what the Association is doing to get the funds allocated as promised, and how member agencies can get involved in the effort.
By Arianna Smith
Managing Editor
Transit California
With a current budget shortfall and a projected deficit looming, the Governor’s Administration has implemented a spending freeze on transit funds committed through SB 125 in 2023. Here’s what the Association is doing to get the funds allocated as promised, and how member agencies can get involved in the effort.
Association member agencies celebrated the passage of SB 125 in August 2023, which – thanks to the hard work of Association members and transit partners – included the proposed release of billions of dollars in flexible funds for capital and operations starting in 2024, as well as the establishment of the Transit Transformation Task Force to help articulate and plan for long-term transit rider and community needs.
But due to a state budget spending freeze by Governor Newsom’s administration in late April 2024, an ongoing state budget shortfall, and projected multi-billion dollar budget deficits in the coming years, those much-needed allocations – and some of the highly anticipated regional transit projects they are supposed to fund – are now in doubt.
Association staff and leadership are now working to advance the message that any uncertainty surrounding when or if the Administration will allocate these previously committed funds will jeopardize popular, much-needed, ready-to-go local transit projects. Member agencies have a critical role to play in this effort.
“The timely allocation of this funding remains essential for delivering a more robust, efficient, and cleaner public transit network for California that can significantly help advance the state’s landmark environmental, mobility, and equity goals,” said Sharon Cooney, CEO of San Diego Metropolitan Transit System (MTS) and Chair of the Association’s Executive Committee, at the Association’s annual Spring Legislative Conference in Sacramento on May 21, 2024.
How We Got Here: The 2023 Budget Adoption and an Anticipated Budget Deficit in 2024 and Beyond
In 2023, the Legislature approved and Governor’s Administration adopted SB 125 to guide $4 billion for the Transit and Intercity Rail Capital Program (TIRCP) and $1.1 billion for the Zero-Emission Transit Capital Program (ZETCP), a $5.1 billion commitment that originated during 2022 budget discussions amongst the Legislative Branch, Executive Branch, and the Association to secure capital funds and address the pandemic-induced fiscal cliff crisis. During Fall 2023, the California State Transportation Agency (CalSTA) released and adopted formal guidelines for eligible transit agencies to follow during the development of allocation package applications to access these funds. Agencies submitted their packages by December 31, 2023, and CalSTA promised that the requested funding would be allocated no later than April 30, 2024.
Some Association member agencies submitted allocation packages that leveraged these specific committed state dollars in order to access federal grants for major system expansions and improvement projects that are essential components to retaining and increasing ridership, and thereby advancing the state’s climate goals.
“Many of the agencies statewide were looking to finalize grant agreements with the federal government,” said Michael Pimentel, Executive Director of the Association, during a panel discussion about state budget and legislative updates at the recent annual Spring Legislative Conference. “We understand that there are terms that need to be finalized with the Federal Transit Administration in order to make sure that those funding agreements are in place.”
On January 10, 2024, Governor Newsom released an initial budget proposal that responded to a projected budget deficit of nearly $38 billion. That proposal recommended state program cuts and delays to multi-year funding commitments. At the time, the 2023 commitment to provide $5.1 billion in one-time funding to transit agencies remained intact, but the timeline for the full appropriation was proposed to be extended.
After the January release, the Budget subcommittees in the California State Assembly and Senate met throughout the spring to consider the Governor’s proposal, as well as the Legislature’s own budget concerns and priorities.
Spring 2024: The Governor’s Spending Freeze and the Association’s Rapid Response
On April 29, 2024, one day before the date by which CalSTA had promised that the initial SB 125 funds would be allocated to eligible agencies that had submitted allocation packages, the Governor’s Department of Finance (DOF) issued a letter that directed California State Agencies and Departments to freeze spending on one-time appropriation expenditures related to the Budget Act of 2023.
Transit agencies did not receive the initial round of committed SB 125 funds, and instead they were told that the release of funding was now frozen until budget negotiations concluded. The Association responded to the DOF’s directive with a letter requesting an immediate lift of the spending freeze.
“The current spending freeze on funds that were supposed to be appropriated for California’s transit agencies no later than April 30 could have a catastrophic ripple effect,” said Pimentel in a public statement released on May 3 that was widely circulated and covered in news outlets.
“This funding was part of a critical lifeline to keep public transit moving in our state. Agencies have made fiscal plans based on a prescribed timeline for when these funds would flow in order to keep their services running, operations funded, and major sustainable transportation and rail capital projects on track. Without the release of this funding, communities across the state will see delays in service restoration and the construction of major transit projects. Our state also risks jeopardizing billions of dollars in one-time federal funding, impacting our state’s climate goals.”
At the legislative conference, Pimentel further distilled this concern: “A pause of any length of time in allocating these funds brings about quite a lot of uncertainty and potentially leaves significant investments on the table.”
Pro-transit organizations, including environmental justice non-profits and clean air advocates, echoed these sentiments in a coalition letter to the Governor reiterating the Association’s request to lift the spending freeze. “Putting transit in peril will create a disastrous ‘death spiral’ that will further imperil the state’s budget as workers are left stranded . . . and unable to get to work, school, appointments, and more,” they wrote.
Where We are Now: May Revise and Joint Legislative Budget Agreement
On May 10, Governor Newsom’s administration released a revised budget proposal known as the May Revise, which took into consideration the state’s adjusted revenue projection for a remaining $27.6 billion budget shortfall this year and a $28.4 billion budget deficit projected for the 2025-26 fiscal year.
The May Revise maintains the $5.1 billion TIRCP and ZETCP investment, but it makes minor shifts in the appropriation timelines, taking the TIRCP from a two-year program to a three-year program and the ZETCP from a four-year program to a five-year program. Additionally, the May Revise shifts an additional $555.1 million in TIRCP from the General Fund to the Greenhouse Gas Reduction Fund (beyond the proposals included in the Governor’s January budget).
Executive Director Pimentel said in response to the Governor’s May 10 announcement, “As we acknowledge Governor Newsom’s continued commitment to public transit in the May Revise, we continue to voice our concerns that the $2.4 billion in transit funding for the FY 2023-24, a component of the $5.1 billion total investment, remains frozen by the Newsom Administration. The Association continues to urge the Governor and Legislature to direct that this funding, which was supposed to flow to agencies no later than April 30, 2024, be released immediately. Until it’s distributed, the spending freeze imposes significant uncertainty around billions of dollars in one-time federal funding, project delivery timelines, and operations planning.”
On the heels of the release of the May Revise, on May 29, 2024, Senate President pro Tempore Mike McGuire (D-North Coast) and Assembly Speaker Robert Rivas (D-Salinas) announced the Joint Legislative Budget Agreement, representing the Legislature’s budget framework for Fiscal Year 2024-25. The Joint Legislative Budget Agreement maintains the $5.1 billion TIRCP and ZETCP by accepting the delays and fund shifts included in the May Revise. However, the Joint Legislative Budget Agreement would further extend the appropriation timeline for the TIRCP, making this investment a five-year program. Once adopted by the Legislature, the agreement will serve as the legislative leaders’ starting positions as they enter into negotiations with Governor Newsom on the Budget Act of 2024.
As these negotiations get underway in the coming weeks, the Association is advocating for the preservation of the $5.1 billion committed by SB 125 in the final budget agreement.
How Member Agencies Can Help Reach These Goals
In the near term, Association member agencies can play a critical, effective role to advance these advocacy goals through three main objectives.
First, member agencies can support a common understanding amongst policymakers and the public regarding the origin of the funds promised in SB 125. These promised funds were the result of a budget agreement between the Legislature and the Governor in 2022, with input from local partners and the Association, that secured $8 billion for the High Speed Rail project – with the understanding that local and regional transit priorities would also be funded. Legislators, Administration officials, and local officials must be clear on the fact that SB 125 funds are the culmination of a long-term promise that agencies trusted and expected policymakers to honor, and agencies made plans for locally beneficial projects as a result of this promise.
Second, member agencies can help attest to and validate the benefits that local transit riders and communities are expected to receive as the direct result of projects that agencies are ready to begin – as soon as these promised funds are allocated by the Administration. The reverse is also true: agencies can explain the negative impacts that the current spending freeze and proposed funding delays are having on the continued viability of these projects. The public must know about specific transit benefits that could be lost if these funds continue to be delayed and shifted.
Third, member agencies can help identify and collaborate with potential coalition partners in their regions and communities who share the Association’s goals. Partners whose organizations and members would benefit from SB 125 transit projects can expand the reach of advocacy efforts while remaining consistent with messaging regarding the need to end the spending freeze.
What’s Next?
The Legislature is required to pass the State Budget Act by June 15, but trailer bills (like SB 125) that make statutory changes to implement the Budget Act’s policies may be passed as late as August.
As the Association advocates aggressively to meet these state budget goals, please keep an eye out for and respond to urgent calls to action as we engage in ongoing conversations with the Administration and Legislature.
Beverly Greene, Chair of the Association’s State Legislative Committee and the Executive Director of External Affairs, Marketing and Communications at the Alameda Contra Costa Transit Agency, summed up the ongoing hope for public transit funding, stating, “We will get through this. What we do is important. It looks a little bit challenging right now, but know that we will get through it.”