Jerry Brown plans to propose spending millions of dollars in fees paid by carbon producers to aid the state's controversial high-speed rail project, sources said.
The proposal - and the prospect of additional funding from the state's cap-and-trade program in future years - could provide a significant lift to a $68 billion rail project beleaguered by uncertainty about long-term financing.
Brown plans to propose allocating several hundred million dollars this year.
Though the state has acquired $3.4 billion in federal funding to start construction of the rail project in the Central Valley, legal challenges have left state bond funding in question.
Brown is expected to include the proposal in the annual budget plan he will release Friday. Brown has made high-speed rail a priority of his administration, and he suggested two years ago that cap-and-trade revenue, which is designed to reduce greenhouse gas emissions, would be a future source of funding for the project.
But the use of cap-and-trade money for high-speed rail could be problematic. The nonpartisan Legislative Analyst's Office said in 2012 that while the rail project could eventually help reduce greenhouse gas emissions, benefits would not be seen until after 2020, the year by which California is seeking to meet its greenhouse gas reduction goals.
Moreover, the Democratic governor and lawmakers infuriated environmentalists last year by approving a $500 million loan from the cap-and-trade program to the state general fund.
Brown said at the time that the state was not "quite ready yet" to start allocating money. The administration said state agencies needed more time to develop greenhouse gas-reduction programs and that the loan would be repaid with interest when those programs needed the money.
Brown's budget plans also include using general fund money to pay back part, but not all, of the loan, a source said.
The rail project, which is proposed to connect Los Angeles and San Francisco through the Central Valley, has been beset by legal challenges and opposition from Congressional Republicans. A Sacramento Superior Court judge in November ordered the California High-Speed Rail Authority to rescind its original funding plan, saying officials failed to comply with provisions of Proposition 1A, the initiative in which voters approved initial funding for the project in 2008.
Rail officials have been acquiring property in the Central Valley for the project. Construction, which was once expected to start last summer, is now expected to begin this year.
Brown's office declined to discuss the budget proposal ahead of its release.
Brown is also expected in his budget plan to support a proposal by Assembly Speaker John A. Pérez to put a rainy-day fund constitutional amendment on the November ballot. The measure would restrict spending in good years and offset cuts in bad years, with a goal of building billions of dollars in reserve.
In advance of his budget release, Brown has urged the Legislature to bolster reserves, cautioning that the budget's reliance on capital gains leaves it vulnerable to large revenue peaks and valleys.
"The question is, 'When do we get the next valley?'" he said at the Milken Institute California Summit in November. "And the only way to avoid that is to put it in a rainy day fund, to say no when necessary, along with saying yes when that's appropriate."
Brown may face resistance to the creation of a rainy-day fund by labor unions and other allies of the governor and Democratic-controlled Legislature. Liberal groups already are calling for increased spending after years of budget cuts in the recession.
The nonpartisan Legislative Analyst's Office projected last fall that the state could post a $5.6 billion surplus by June 2015, with annual surpluses reaching $8.3 billion by the 2016-17 budget year.