LOS ANGELES — The California Legislative Analyst's Office says restrictions on spending billions of dollars from the state's cap-and-trade program should be lifted.

California lawmakers passed AB32, the state's cap-and-trade law in 2006, in order to lower greenhouse gas emissions in California by 2020 to 1990 levels.

The regulation places a cap on greenhouse gas emissions from companies responsible for 85% of the state's emissions. The companies are permitted to sell or trade the unused portion of their allowances to other companies that are struggling to comply.

The LAO's office said in a report Thursday that restrictions in the law that require revenue the state receives from cap-and-trade to be spent only on projects that target greenhouse gas emissions aren't necessary for the state to reduce emission levels.

The auction process brought in $1.6 billion in revenues for the state in fiscal 2015-16.

The LAO looked at scenarios where the state spends the cap-and-trade revenue on greenhouse gas reductions or lawmakers remove the legal requirement to spend the money only on programs that specifically target greenhouse gas emissions. The latter would require lawmakers to reauthorize the cap-and-trade program with a two-thirds vote, according to the report. If lawmakers reauthorized the program, the LAO said they should also look at extending it beyond 2020.

"Reauthorizing cap–and trade with a two–thirds vote would provide greater flexibility to use the funds in a way that efficiently promotes its highest priorities whether those are climate change–related or not," the LAO said. "For example, the Legislature could use the revenue to fund the highest priority transportation infrastructure projects or increase rates for certain health care services."

The flexibility would allow lawmakers to fund programs that improve air quality and limit energy costs to low-income households, which were also stated goals of cap-and-trade.

Under current law, the state can only fund projects that provide those benefits if those projects also reduce greenhouse gas emissions.

This limits the state's flexibility to achieve non–greenhouse gas emission benefits as efficiently as possible, the LAO said.

If the law were changed to allow lawmakers to use the revenue to meet those priorities, it would still "meet its GHG emissions target from capped sources as long as a well–designed cap–and–trade regulation was in place."

The restrictions have resulted in a backlog of unspent cap-and-trade money.

The Governor included a $3.1 billion cap–and–trade expenditure plan in his 2016-17 budget proposal, but the LAO didn't analyze his proposal. That amount includes the $1.6 billion in auction revenue available at the end of 2015-16 and the money that will be collected in 2016-17.

Among the programs targeted with the money is $500 million of the $36 billion budgeted for highway and road improvements, $500 million to the Air Resources Board for low carbon freight and passenger car incentives, $100 million to the state Department of Transportation for bicycling and walking projects, and $400 million to provide local connections to the high-speed-rail project.

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