The nonpartisan California Legislative Analyst’s Office, or LAO, is recommending state lawmakers reject Governor Gavin Newsom’s proposed $200 million zero-emission vehicle incentive program.
The reason? The state is facing an $18 billion budget shortfall next fiscal year and should prioritize more urgent needs, according to the budget watchdog’s estimate.
Newsom’s plan would create a state-funded rebate to help offset the loss of a now-expired federal electric vehicle tax credit, which previously offered up to $7,500 for qualifying new vehicles.
The Trump administration’s budget bill cut the program, which was meant to last several more years. It’s unclear how many state rebates the one-time funding would ultimately pay for or how large the incentives would be. If vouchers averaged $5,000, for instance, 40,000 could be distributed.
The debate over Newsom’s plan comes after the state surpassed 2.5 million zero-emission vehicles — which includes electric and hydrogen-powered vehicles — sales last year. Still, gas-powered vehicles make up more than half of new car sales, according to the California New Car Dealers Association.
Cost concerns
Helen Kerstein, a policy analyst with the LAO, questioned whether a relatively modest, one-time funding would meaningfully influence consumer behavior.
“It would probably not be a particularly large incentive,” Kerstein said. “So really thinking about how much would that move the needle in terms of incentivizing additional ZEV sales I think would be an important thing to consider.”
Newsom’s proposal calls for using transit money to pay for the rebates. Kerstein said that could strip funds from local governments responsible for bus and rail services.
“They’re [funding] that agencies had expected to receive,” she emphasized. “In many cases, they had planned to use [them] to match federal funds.”
The LAO is recommending lawmakers instead focus on maintaining funds for programs related to health care, public safety and other core services.
Industry and Republican response
Brian Maas, president of the California New Car Dealers Association, said incentives can help boost EV sales, which have slowed since the federal credits expired..
“We’re supportive of the idea of incentivizing these vehicles,” Maas said. “But it’s ultimately going to be up to the legislature.”
California has become a national leader in the adoption of zero-emission vehicles. Roughly a fifth of new cars sold statewide during the last quarter of 2025 were ZEVs, according to the California Energy Commission. That’s only a slight dip after the federal tax credit expired.
Republican State Senator Tony Strickland, vice chair of the Senate Transportation Committee, criticized Newsom’s proposal. He called it an example of the state’s “wasteful spending problem.”
“Like every California family, we should live within our means and make hard decisions like every family across the state has to do,” Strickland stressed.
Strickland said lawmakers should instead lower the gas tax and invest in oil refineries. He introduced a bill earlier this week that would create a one-year gas tax holiday, which he said would deliver immediate relief to California’s affordability crisis.
What about e-bikes?
The proposal comes months after a popular state e-bike incentive program was suddenly scrapped, with its remaining $18 million redirected to a clean car initiative.
More than 100,000 people applied during the program’s first round. Only 2,100 vouchers were ultimately distributed across two rounds of funding.
Jared Sanchez, a policy advocate with CalBike, said the e-bike program’s popularity showed strong demand for lower-cost clean transportation options.
“It was extremely popular,” he said. “I think it was within a few hours that there was over a thousand people trying to receive a voucher and it was completely filled up.”
Sanchez said the governor has historically supported active transportation programs, which include infrastructure projects that improve bicyclist and pedestrian safety by adding protected bike lanes or high-visibility crosswalks, among other things.
“But at the same time it was always countered by either more money for freeway expansion or for zero emission vehicles while giving very little to bike and [pedestrian] improvements,” he said.
Kerstein with the LAO said the analyst’s office would likely take a similar position on e-bike incentives given the state’s fiscal outlook.
“That’s certainly a worthy goal,” she said. “Does it actually have to happen this year? Is this sort of an urgent health and safety type of issue? I think in our assessment, the answer is no.”
Lawmakers will weigh the LAO’s recommendations as they negotiate the state budget in the coming months.
