LAO Urges Legislators to Reject Newsom’s Climate Loan Proposal

Published On: February 18, 2020

Governor Newsom’s proposed budget plan includes a four-year, revolving loan program meant to help grow small- and medium-sized, climate-friendly businesses. The program is intended to jumpstart businesses like electric vehicle charging stations, climate-friendly farming initiatives and other sustainability projects that have a hard time attracting private capital. In a report released on February 13, the Legislative Analyst’s Office (LAO), a nonpartisan advisory agency for the state Legislature, said the loan program would be problematic and questioned the State’s ability to even identify the right projects.

The Climate Loan

The Climate Catalyst Loan Fund would offer low-interest loans to public and private projects that would otherwise struggle to attract venture capital money or bank loans — particularly those intended to combat climate impacts of recycling, transportation, agriculture, and forestry sectors.

The LAO said investing in businesses that could potentially provide the most benefit in terms of reducing emissions can be risky because many may not be feasible. They could also fail to get regulatory approval or be unable to repay the loan.

While the program is designed to be self-sustaining, with borrowers repaying loans and the State cycling the money to issue more, the LAO said that the administration hasn’t identified projects that are unable to find financing elsewhere, but would still be able to repay the loan.

The LAO also said that the governor had not documented the demand for this kind of loan. “We acknowledge that appropriate projects could benefit from access to the low-cost financing this fund would provide. However, the administration has not demonstrated the actual size of this need.”

The LAO added that helping to finance these kinds of businesses would be “inappropriate” given the risks.

The Climate Bond

The LAO’s report also looked at Newsom’s other major climate change proposals, including his recommended $4.75 billion climate bond. On this, the LAO was lukewarm, suggesting that the governor’s proposal is one approach to designing the bond, “but the legislature has other options.”

The LAO recommended that the State focus on its top climate priorities, and consider how much to spend on immediate effects of climate change as compared to longer-term impacts.

Senate Reaction to Newsom’s Proposals

Reacting to the Governor’s climate bond proposal, Senate President Pro Tempore Toni G. Atkins and Senators Ben Allen, Anthony Portantino, and Henry Stern issued the following statement:

“We are pleased that the governor shares our sense of urgency to invest in climate resilience through a statewide bond initiative. The Senate has proposed Senate Bill 45 – a comprehensive approach to protect our vital water resources, reduce risks from flooding and sea level rise, and strengthen our wildfire prevention efforts, among other priorities. We look forward to working with the governor and our Assembly partners to shape this bond measure to save lives and money in our most vulnerable communities, and ensure California’s infrastructure is built to last through the climate emergency.”

Clearly, much work lies ahead for both the governor and the Legislature.

About the Author: Jesus Arredondo

Jesus Arredondo is an Energy Industry Analyst and former State of California official. He can be reached at jesus at govreport.org