In a significant policy win with far-reaching implications for housing and climate equity, California lawmakers reauthorized the state’s cap-and-trade program—now renamed cap and invest. The move not only extends the state’s signature climate policy but also guarantees a dedicated stream of funding for affordable housing and sustainable transportation.
The legislation ensures that a key program, Affordable Housing and Sustainable Communities (AHSC), will now receive $800 million annually through 2045. This long-term funding commitment provides stability for one of California’s most important housing and climate programs, which to date has invested $4 billion in affordable housing and transit and reduced greenhouse gas (GHG) emissions by 5.7 million metric tons.
The Legislature passed the reauthorization through Assembly Bill 1207 and Senate Bill 840 on September 13, both of which Gov. Gavin Newsom signed into law on September 19. AB 1207 extends and makes minor adjustments to the cap-and-invest program mechanism, including topics such as free allowances, offsets, price ceilings, climate credits, program administration, and oversight. Meanwhile, SB 840 focuses exclusively on the funding allocation plan for dollars generated by the cap-and-invest auctions, also known as the Greenhouse Gas Reduction Fund (GGRF).
Our team is proud to have worked with housing, transportation, and environmental partners up and down the state to advocate for AHSC funding, as well as for funding for two core sustainable transportation programs: the Transit and Intercity Rail Capital Program (TIRCP) and the Low Carbon Transit Operations Program (LCTOP), which will receive $400 and $200 million annually, respectively. Enterprise advocated fiercely for these programs, and our team was thrilled to stand with 50+ partners in support of this funding deal.
The Deal Details
The final deal struck by the Legislature and the Governor makes several changes to how the cap-and-invest dollars will be spent, detailed in Senate Bill 840, including how funds will flow to the AHSC program. Previously, proceeds from cap-and-trade auctions were allocated to programs through the Greenhouse Gas Reduction Fund (GGRF), and AHSC received a standing 20 percent of the GGRF each year, which fluctuated with annual cap-and-trade proceeds. With this new agreement, AHSC will instead receive a flat amount of $800 million annually, subject to a detailed waterfall of funding.
Specifically, beginning in the 2026–2027 fiscal year, the GGRF funds will be allocated in the following priority order.
- First, to fund a variety of prior legislative commitments related to fire prevention, manufacturing, and legislative oversight of the cap-and-invest program (estimated to be less than $250 million).
- Second, to provide $1 billion for high-speed rail.
- Third, to provide $1 billion for Legislature-determined priorities each year.
- Fourth, to provide specific dollar allocations for the following programs:
- $800 million for AHSC
- $400 million for TIRCP
- $250 million for community air protection programs
- $200 million for LCTOP
- $200 million for other fire prevention programs
- $130 million for safe drinking water
SB 840 also states that if there is a year when the cap-and-trade proceeds are insufficient to cover the full suite of programs, prior legislative commitments, high-speed rail, and legislature priorities – items (a), (b), and (c) – will be funded first, and the other programs – programs under (d) – will receive proportional reductions, as determined by the Department of Finance.
There are benefits and drawbacks to this funding structure as it pertains to the AHSC program. AHSC is now lower in the funding order and stands the risk of receiving less funding if the cap-and-invest auctions proceed poorly. Additionally, AHSC will not automatically benefit from a surge in cap-and-invest proceeds if the auctions perform especially well. However, AHSC has always been subject to fluctuations in auctions, and the $800 million allocation is more than AHSC has often received historically.
Telling the Story of AHSC
Winning substantial, sustained funding for AHSC was the result of persistent advocacy from Enterprise and a broad coalition of partners. The advocacy over the past nine months focused on telling the story of the AHSC program, highlighting its significant contributions to greenhouse gas emission reductions, and elevating its impacts on low-income communities across California. With a new cohort of legislators and staff, it was critical to educate members and their teams on the AHSC program, including its purpose, funding, and role in advancing the state’s climate, housing, and equity goals.
Each year, Enterprise and the California Housing Partnership release an annual AHSC impact report to quantify the program's impact. As discussed in the report, housing and transportation contribute around one-third of California’s GHG emissions. To help mitigate this, AHSC funds infill affordable housing development paired with sustainable transportation and climate investments.
These transformative developments encourage residents to take advantage of accessible public transit and bike and pedestrian infrastructure, minimizing the use of cars and reducing greenhouse gas emissions in the process. This shift in development and land use patterns decreases reliance on driving while connecting residents to amenities, services, and economic opportunities.
One powerful advocacy tool developed this year was AHSC profiles for specific legislative districts. These profiles showcased the program’s local impacts and were crucial for educating staff and cultivating champions within the Legislature. Profiles that highlighted completed AHSC developments helped to ground our advocacy by making program investments more tangible.
These district profiles also helped highlight how the program benefits communities across the state and is flexible enough to meet the needs of California’s diverse geography – from rural areas of the Central Valley to the urban centers of the Bay Area and Los Angeles.
Every meeting, phone call, email, site visit, and social media post from our partners across the state contributed to our mission to make the AHSC program undeniable — and we achieved that goal. We are deeply grateful to our partners who worked with us tirelessly in this effort.
What Comes Next
Alongside our partners, we will continue to stay engaged in Sacramento as the cap-and-invest agreement moves forward. We will track any potential follow-up legislation and how the cap-and-invest auctions perform once the legislation goes into effect. We will also advocate for any additional funding for AHSC, should that be necessary.
In the meantime, we join our partners in celebrating this important win for affordable housing, sustainable transportation, and our broader climate and equity goals for California.
