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By Dan Walters, CalMatters

This commentary was originally published by CalMatters. Sign up for their newsletters.

Two decades ago, when California got serious about reducing or even eliminating carbon dioxide and other greenhouse gases, its political leaders weighed two potential tactics about industrial emissions.

The state could impose direct facility-by-facility limits, generally favored by climate change advocates. Or it could set overall emission reduction goals that would gradually decrease and auction off emission allowances, assuming their costs would encourage reductions.

The latter, known as cap-and-trade, was favored by corporate interests as being less onerous and was adopted, finally taking effect in 2012.

Since then, the California Air Resources Board has conducted quarterly auctions of emission allowances, collecting a total of $35 billion dollars so far, which, in theory, is being spent on projects that would reduce emissions.

The revenues have varied from year to year, but they have generally increased as the emission caps have declined. Since reaching a peak of $8.1 billion in the 2023-24 fiscal year, however, auction proceeds have been declining.

Roughly half of the money has been given to utilities to minimize cap-and-trade’s impact on consumer costs. However, the program has been widely criticized as a de facto tax on gasoline and other fuels, which were already among the most expensive of any state.

The remaining revenues have been deposited into a Greenhouse Gas Reduction Fund that governors and legislators have tapped for various purposes, not all of them connected to emission reductions. In a sense, it’s been a slush fund.

Last year Gov. Gavin Newsom and the Legislature overhauled the program in two bills, Senate Bill 840 and Assembly Bill 1207. The program was extended, it was renamed as cap-and-invest and new priorities for spending auction proceeds were set.

Notably, the state’s cash-strapped and long-stalled bullet train project would get a flat $1 billion a year, rather than the 25% share it had been getting. Project managers hope that lenders will advance enough money to complete its first leg in the San Joacim Valley; the plan is to repay the loans from the $1 billion annual cap-and-invest allocation.

Early this year, the Air Resources Board released new regulations to implement the legislative changes but faced criticism that they would increase consumer costs. That led to a revision in April that softens the rules’ impact — most obviously on refiners who have been threatening to leave California — but environmental groups are very critical.

The April version would also sharply reduce net revenues from emission auctions, according to the Legislative Analyst’s Office, providing barely enough for the $1 billion allocation to the bullet train and another $1 billion for the governor and Legislature to spend. Other programs that have been receiving cap-and-invest support, such as wildfire protection and housing, would probably get nothing.

The program has been tapped in recent years to backfill programs that a deficit-ridden state budget could not cover, so the projected revenue drop would exacerbate efforts by Newsom and legislators to close the state budget’s yawning gap.

“The (Greenhouse Gas Reduction Fund) is a relatively small portion of the overall state budget, but it has been a noteworthy source of funding for environmental and other programs in recent years,” the state Assembly’s budget advisor, Jason Sisney, says in an email. “Collapse of its revenues would change the state budget process noticeably. The state’s cost-pressured general fund seemingly would be unable to make up much, if any, of a significant (Greenhouse Gas Reduction Fund) revenue decline at this time.”

When Newsom presents his revised budget this week, he may reveal how he intends to cover the cap-and-invest program’s shortfall, particularly whether he will maintain the $1 billion bullet train commitment that project leaders say is vital to continuing construction of its Merced-to-Bakersfield segment.

It could boil down to bullet train vs. wildfire protection.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.

Vice President JD Vance announced on Wednesday, May 13 that the Trump administration will be deferring $1.3 billion in Medicaid reimbursements from the state of California, as part of a new initiative to root out fraud in federal health programs.

The topic of California’s hospice care fraud has been a major focus of scrutiny by state leadership, members of President Donald Trump’s administration, and Gov. Gavin Newsom’s critics. In his announcement, Vance claimed that the administration was set on deferring these funds “because the state of California has not taken fraud very seriously.”

“There are California taxpayers and American taxpayers who are being defrauded because California isn’t taking its program seriously,” Vance said during a press conference.

Notably, this decision was part of Vance’s Anti-Fraud Task Force’s plan to implement a six-month nationwide, data-driven moratorium on new Medicare enrollment for hospices and home health agencies.

The Centers for Medicare and Medicaid Services, which is led by Dr. Mehmet Oz, is set to use this six-month moratorium to conduct investigations and review data on Medicare programs, with the hopes of removing hospice and home health agencies that are suspected of committing fraud.

“Today we’re shutting the door on fraud — preventing new bad actors from entering Medicare while we aggressively identify, investigate, and remove those already exploiting them,” Oz said. “This is about protecting patients, restoring integrity, and safeguarding taxpayer dollars.”

California Attorney General Rob Bonta called the administration’s action “unlawful” and noted that his office would be “carefully reviewing all available information” and may challenge the administration’s decision to threaten “Californians’ rights or access to critical services.”

“Once again, California appears to be targeted solely for political reasons,” Bonta said on X.

“The Trump Administration is planning to defer over $1 billion in Medicaid funding for vital programs that help seniors and people with disabilities remain safely in their homes.”

Bonta and his office have attempted to counteract criticism that the state does not take action against hospice fraud.

In April, Bonta announced that the California Department of Justice had arrested five people in connection with a major health care scheme in Southern California that defrauded taxpayers of nearly a quarter of a billion dollars.

“For years, California has led the charge to protect public programs from fraud and abuse,” Newsom said in the press release on April 10. “We hold accountable to the fullest extent of the law anyone who tries to rip off taxpayers and take advantage of public programs, particularly those as sensitive as hospice care.”

Newsom has yet to publicly respond to the administration’s decision to defer California’s Medicaid reimbursement.

However, shortly after Vance made the announcement, Newsom’s press office blasted the decision on X.

“We hate fraud. But that’s NOT what this is,” Newsom’s press office posted on X. “Vance and Oz are attacking programs that keep seniors and people with disabilities OUT of nursing homes. Pretty sick.”

Noe Padilla is a Northern California Reporter for USA Today. Contact him at npadilla@usatodayco.com, follow him on X @1NoePadilla or on Bluesky @noepadilla.bsky.social. Sign up for the TODAY Californian newsletter or follow us on Facebook at TODAY Californian.