The state budget deficit is playing a prominent role in the success of California’s transition to clean vehicles. This year incentive money for replacing gasoline and diesel engines has plummeted, offering little hope for farm groups that have long pushed for more support in meeting air quality goals. The state budget is shaping up to feature more of the same economic volatility in the years ahead.
Yet Gov. Gavin Newsom is pressing to counter the narrative of the fiscally conservative Trump administration. On Monday he vowed to replace any of the federal clean vehicle tax credits that now on the chopping block with new clean vehicle rebates.
“We’re not turning back on a clean transportation future,” said Newsom in a statement. “We’re going to make it more affordable for people to drive vehicles that don’t pollute.”
A solid majority of California voters agree with that approach, approving earlier this month $10 billion for climate programs through Proposition 4 — money that will help fill funding gaps from the budget shortfall. It sets aside $850 million for clean energy projects to bolster the electric grid for more vehicle chargers.
Tania Pacheco-Werner, CARBThe new spending initiatives launch as agencies tighten their belts. Last week the California Air Resources Board doled out $35 million for clean transportation incentives, the remnants of a $125 million state budget allocation approved in 2022, when the state was flush with record surpluses. No new funding was added to the incentive pot this year.
The board approved $15 million for Clean Cars 4 All, supporting low-income residents with upgrading older passenger vehicles to cleaner models. Another $15 million went to vouchers for upgrading to zero-emission forklifts and other off-road equipment.
When money is tight, CARB often celebrates the cumulative accomplishments with such programs. Since its inception in 2015, Clean Cars 4 All has invested $325 million into more than 20,000 vehicles. The program for clean off-road equipment, or CORE, has spent about $240 million for more than 1,400 vehicles, engines and other equipment. Both programs have benefited from $16 billion in federal funding awarded to California through the Biden administration’s inflation and infrastructure spending.
Yet the hearing was overshadowed by the scant amount of money still on the table and the bleak prospects ahead for any federal support.
“There has been a fundamental change in the United States recently, where we're not going to get any federal money that was going to support some of these transactions,” said board member Hector De La Torre. “We know, because we saw in [the state budget passed in] June, that there's no state money for this.”
De La Torre called for more aggressive changes to the incentive programs to spread the remaining dollars more evenly across communities. That prompted Chair Lianne Randolph to lower their expectations.
“Unfortunately, we are basically talking about scraps,” said Randolph. “I just want to make sure we all understand the reality we're dealing with.”
She explained that the agency has an unclear mandate from the Legislature requiring it to “take this cake of money and magically slice it up into slices that vastly exceed the available resources.”
Along with less incentive funding, CARB is grappling with a smaller operating budget to manage its programs. In response to the deficit, the Legislature agreed to Newsom’s 8% cut across agencies, an action the nonpartisan Legislative Analyst’s Office has said could take years to fully implement. At the same time, the LAO is warning of an increasing deficit ahead.
Last week the office issued its economic forecast based on the latest state tax revenues. It anticipates a minimal $2 billion for the coming fiscal year but expects the deficit to exceed $20 billion in each of the following three years, unless the state enacts deeper spending cuts.
In that time, CARB and the San Joaquin Valley Air Pollution Control District will be racing to meet more stringent federal air quality attainment standards and to convert diesel trucks and other vehicles to zero-emission engines to meet state climate goals. To those ends, farm groups have pressed the Newsom administration for more investment in clean tractors through the Funding Agricultural Replacement Measures for Emission Reductions, or FARMER. This year the Legislature approved just $2 million to keep the program running for another year.
CARB board members worried the boom and bust cycle for incentives will be deeply problematic for growing the ZEV markets. Some, however, were optimistic the state can stretch the remaining dollars for more years to come.
“Everybody has used the term scraps. For me, in the valley, we're scrappy,” said Tania Pacheco-Werner, who also serves on the valley air district. “It's a lot of money. I expect a lot of cars out the door with that money, and not a lot of overhead, because that's what I expect from a scrappy program.”
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