The Sacramento region’s transportation planning agency is developing a marketplace that could allow highway agencies, local governments and developers to satisfy state-required transportation mitigation by directly funding housing and infrastructure projects in parts of the region where residents are expected to drive less.

Under a plan discussed Sept. 3 by the Sacramento Area Council of Governments’ Transportation Committee, SACOG would solicit eligible housing and housing-related infrastructure projects, calculate how much each could reduce vehicle miles traveled, or VMT, and publish them with a price. Sponsors of projects that generate additional driving could then choose from the list and fund a project directly.

The exchange would not create a new VMT requirement. California law already requires agencies to evaluate vehicle miles traveled when reviewing transportation impacts under the California Environmental Quality Act and mitigate significant impacts where feasible. The SACOG exchange would instead give project sponsors another way to meet that existing obligation.

Vehicle miles traveled measures the amount of driving associated with a project. A highway project that leads to more or longer driving, or a housing development far from jobs and services, can increase VMT, requiring the project sponsor to identify measures that offset some of that additional driving.

Until recently, most project sponsors had to find and negotiate their own VMT mitigation. Dov Kadin, SACOG’s Green Means Go program manager, told the committee that sponsors were “essentially cold calling different entities trying to find ways to mitigate their project.”

That could mean approaching transit agencies, local governments, bicycle programs or affordable housing developers one at a time, then determining how much VMT each option could reduce and preparing agreements capable of withstanding a legal challenge. Kadin told the committee that the process has added time, expense and legal uncertainty to delivering projects.

Another option became available this year that reduces that hurdle. A statewide VMT mitigation bank became available to publicly funded projects July 1. For projects in the SACOG region, the bank’s current price is 21 cents per VMT, allowing sponsors to pay into the state-run program rather than arrange that mitigation independently.

The money is deposited into a statewide fund and used to support VMT-efficient affordable housing and related infrastructure. State rules give first priority to eligible projects in the same region where the money originated. If no eligible projects are available there, funding can move to qualifying projects in an adjacent region.

SACOG’s concern is that the system still does not guarantee that all mitigation money generated by Sacramento-area projects will remain in the region.

“You could have a highway project that’s mitigating in Sacramento County, and that could be funding an affordable housing project in San Francisco,” Kadin said.

SACOG’s regional exchange would offer a competing option that keeps mitigation money within its six-county region. The initial marketplace would focus on housing and housing-related infrastructure in locally designated green zones, areas identified by local jurisdictions for infill development and infrastructure investment through SACOG’s Green Means Go program.

Green Means Go was launched in 2020 and has attracted more than $62 million in state and federal grants for housing and related infrastructure. SACOG is now looking for a more stable source of funding as state and federal grants become less predictable.

Stay ahead of what’s being built with unlimited access to local project updates, in-depth reporting and subscriber-only insights.

Subscribe

SACOG estimates projects listed on the regional exchange could range from roughly 10 cents to $1.50 per VMT, depending on their location and the amount of money needed to make the housing project viable. Each transaction would also carry a 3% administrative fee to pay for SACOG’s operation of the program, matching the 3% administrative fee charged by the state bank.

Unlike a mitigation bank, SACOG would not collect the money into a central account or decide how to distribute it. Instead, the agency would essentially act as a matchmaker.

A developer, Caltrans or a local government needing mitigation could examine the available projects and decide which one to fund. A sponsor interested primarily in cost could choose the cheapest option, while another could pay somewhat more to keep its mitigation closer to the community where the original project is being built.

There would be no requirement that money generated in one county return to that same county. The funding would remain within the SACOG region, but individual sponsors would decide how to balance price against location.

Cost could determine whether the program attracts users. “Project sponsors are going to choose by and large the cheapest mitigation option out there,” Kadin said. SACOG has therefore designed the exchange around competing with the state’s 21-cent benchmark.

One potential user of the exchange is Caltrans. District 3 Director Sergio Aceves told the committee that the agency could consider the SACOG exchange when seeking mitigation for future projects, including the planned Interstate 5 managed-lanes project in Sacramento County. Caltrans would compare the regional exchange with the statewide bank and other available mitigation options and look for the best value, Aceves said.

Committee members raised questions about how SACOG would operate the marketplace, how much staff time it would require and whether the agency should have more influence over which housing projects ultimately receive money.

Some questioned whether VMT mitigation could increase housing costs and asked staff to provide clearer examples showing how the system would work for actual developments.

SACOG staff said the exchange is deliberately structured as a relatively low-risk first step. Instead of immediately creating a regional mitigation bank, which would require SACOG to collect money and decide where to spend it, the agency could first determine whether enough project sponsors are interested to justify a larger program.

The agency is operating in largely untested territory. Kadin said the state bank had not yet processed a payment as of Thursday and that a VMT mitigation exchange established by the Western Riverside Council of Governments — the only other such exchange in California — had not yet completed a transaction either.

“We are very much on the frontier here statewide,” Kadin said.

SACOG’s Land Use and Natural Resources Committee previously supported moving forward with the exchange while preserving the option of expanding into a more actively managed regional bank later if demand warrants it. A bank would allow SACOG to pool payments and exert greater control over which projects receive funding, but it would also require more administrative, financial and legal work.

Thursday’s discussion was informational, and the Transportation Committee did not approve the program. Staff could bring an action item to the full SACOG board as early as October. Before then, committee members asked for more information about operating costs, potential revenue, the board’s role in the funding process and how an exchange could eventually evolve into a regional mitigation bank.