Misinformation about a Mitigation Bank for Affordable Housing Persists
On June 30, 2026, the California Governor’s Office of Land Use and Climate Innovation (“LCI”) issued its guidance for implementing measures to reduce vehicle miles traveled (“VMT”) resulting from projects that have a significant transportation impact under the California Environmental Quality Act (“CEQA”). One way to reduce VMT, according to LCI’s guidance and AB 130, a housing bill out of the Assembly’s budget committee, which was approved by the governor on June 30, 2025, is to fund development of affordable housing near transit centers. The funding’s source is revenue from project developers who purchase VMT credits to offset their project’s VMT impact. Unfortunately, opponents of this mitigation program misunderstand how the system works and wrongly promote the concept that there is a “VMT tax.” This is not the case.
The Republican Party candidate for California governor, Steve Hilton, calls it “Newsom’s VMT Bombshell,” which adds a charge of “up to $1,350 per month for 20 years for a single home or apartment.” State Senator Tony Strickland (R-Huntington Beach), proclaims that Democrats “snuck a Vehicle Miles Traveled (VMT) mandate into a budget bill” which is a “de facto tax[ ] [that] could potentially add $16,000 per [housing] unit.” And in an opinion article for the Orange County Register, Dan Dunmoyer, president and CEO of the California Building Industry Association, wrote that, “the VMT housing tax could cost $16,200 per home or apartment every year for 20 years, a total of $324,000 per unit,” citing “a Caltrans-funded study.”
These figures have also popped up in a press release by the Coalition for Affordable, Reliable, and Equitable (CARE) Housing and in a news report by KRON 4 (SF Bay Area).
A massive hidden tax on housing, in a bill intended to alleviate the housing crisis, would certainly be cause for alarm. But there is no such tax. There isn’t even a study that supports Hilton, Strickland, and Dunmoyer’s valuation of the so-called tax.
The “study” that Dunmoyer cited is a March 2024 planning document by the Los Angeles County Metropolitan Transit Authority (“Metro”) for mitigating VMT from highway expansion projects in the county through the purchase of VMT credits, the revenues from which would fund development of “VMT-efficient” housing. The plan was not related to AB 130 or assessing a “VMT tax” on housing projects.
In fact, the VMT credits under Metro’s plan are not purchased by home developers; they are purchased by developers of highway expansion projects. While it is true that VMT credits cost $16,200 annually for 20 years per dwelling unit, which are the figures Dunmoyer and others have cited as a “VMT tax” under AB 130, that money goes to home builders. In other words, the Metro plan assists homebuilding; it does not disincentivize homebuilding or make it more expensive.
The Metro plan provides a good case study of how AB 130’s VMT mitigation fund might work, not as a tax on home builders, but as a funding mechanism for them. Metro calculated that if about 7,500 dwelling units were built on 20 sites it owns, which are typically near a transit hub, there would be a reduction of 60.8 million annual VMT or 1,217,685,797 VMT over a 20-year period. To build these homes, Metro also calculated that over that same 20-year period the cost of supplemental funding for the development would be approximately $1,864,250,000. Thus, the cost for reducing one VMT is $1.99.
This is also the way that the VMT mitigation fund under AB 130 works.
If a project triggers review under CEQA and the lead agency determines that the project will have “a significant transportation impact,” the project applicant can “mitigate that impact to a less-than-significant level, or to the extent feasible, by contributing to the Transit-Oriented Development Implementation Fund,” according to the Statewide VMT Mitigation Program Guidance by the LCI. These contributions would flow though the state Department of Housing and Community Development to fund “VMT-efficient affordable housing and related infrastructure projects[.]” (Id.)
Projects that are not subject to VMT mitigation measures, such as contributions to Transit-Oriented Development Implementation Fund, are AB 130 housing projects. AB 130 exempts housing development projects from CEQA review, provided they satisfy certain criteria. (Gov. Code, § 65589.5(h)(2)(A).) The criteria relate to, among other things, “size, density, location, and use, including specific requirements for any housing on the project site located within 500 feet of a freeway.” Other criteria include that formal notification is received by California Native American tribes affiliated with the project site. (Id.)
Beyond AB 130, many types of housing projects are also exempt from CEQA review. For example, multifamily residential projects in urbanized, unincorporated county areas [Pub. Res. Code, § 21159.25] and infill housing developments in cities and urban areas [id., § 21080.66] are exempt from CEQA review provided that they satisfy certain criteria. And, more generally, housing projects that do not require any entitlements or discretionary review would not be subject to CEQA review. (See Pub. Res. Code, § 21080(a).) A housing project that is not subject to CEQA would not trigger AB 130’s mitigation option to purchase VMT credits, or, for that matter, any VMT mitigation measures.
It might be the case, of course, that a developer of a housing project, that triggers CEQA review, would externalize the cost of VMT credits, if purchasing them was required to reduce a transportation impact to less than significant. Such a developer might pass along some or all the mitigation costs to a home buyer or renter. But an outlier case is not a reason to launch a wholesale attack against AB 130’s VMT mitigation plan.
The contention that AB 130 includes a hidden “VMT Tax” is not only faulty, but also, by voicing such inaccuracies in an alarmist register, it confuses the conversation about solving the housing crisis in California. “California has accumulated an unmet housing backlog of nearly 2,000,000 units and must provide for at least 180,000 new units annually to keep pace with growth through 2025.” (Gov. Code, § 65589.5(a)(2).) AB 130 may not be the perfect vehicle to turn around these statistics, but it’s certainly not a tax on homeowners and renters.
By Phillip Babich
Phillip Babich is a real estate and land use attorney based in the San Francisco Bay Area. He also teaches California land use law as an adjunct professor at the University of San Francisco School of Law.
Research assistance from Diego Hernandez.