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Lawmakers and analysts warn securitizing cap‑and‑trade revenue for high‑speed rail would be risky because of revenue volatility
Summary
Senators and witnesses discussed high‑speed rail financing and whether future cap‑and‑trade revenues can back long‑term borrowing. Analysts said revenue volatility and program contingencies make securitization expensive and uncertain without a reliable backstop.
SACRAMENTO — Multiple lawmakers asked whether cap‑and‑trade auction proceeds could be securitized to fund major capital projects such as high‑speed rail. Witnesses cautioned the approach carries financial risks given the program's revenue volatility and legal contingencies.
Danny Cullenward and other analysts told the committee the program's auction revenues have fluctuated and are sensitive to legal and regulatory developments. Helen Christian of the LAO and other witnesses said cap‑and‑trade revenue is difficult to treat like a stable bond repayment stream unless the state provides a reliable backstop or otherwise reduces volatility.
"Securitizing future GGRF flows presents borrowing risks because revenues have been volatile in the program's history," a CARB adviser and LAO staff said in separate testimony. Several senators noted that high‑speed rail currently faces multi‑billion‑dollar near‑term funding gaps and that cap‑and‑trade receipts do not align well with the capital needs and timing of such projects.
Speakers urged caution. If the Legislature wants to use GGRF for long‑term capital finance, panelists recommended first narrowing revenue volatility (through market design and a narrower price collar), identifying a stable backstop funding source, and considering whether the state wants to constrain future program changes in order to protect bondholder expectations.
The hearing did not produce an immediate policy change; senators told staff they will continue reviewing the financial and legal consequences before committing GGRF to large securitized projects.
