California’s Real Fiscal Crisis Isn’t Revenue—It’s Fraud, Mismanagement, and Regulatory Overreach
- Rex Ballard
- Apr 16
- 5 min read
Opinion Piece
As California lawmakers in Sacramento push forward with ambitious new tax proposals to plug budget holes created by federal cuts and runaway spending, one inconvenient truth stands out: the state isn’t broke because it taxes too little. It’s hemorrhaging money through fraud, waste, mismanagement, and a bloated regulatory apparatus that strangles businesses and drives residents away. If the California Legislature focused on eliminating fraud and corruption rather than raising taxes and driving more businesses and people out of the state, we might just be able to improve the quality of life and the economic climate of the State.
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Consider the headline-grabbing proposals now moving through the Legislature and onto the 2026 ballot. The so-called 2026 California Billionaire Tax Act would slap a one-time 5% excise tax on the net worth of roughly 200 of the state’s wealthiest residents, aiming to raise approximately $100 billion over five years—about $20 billion annually—mostly for Medi-Cal. The mere threat of this becoming law has caused over $1/2 trillion in investment to flee the state, with tech moguls from Apple, Google, and Facebook also fleeing. Meanwhile, AB 1790 seeks to close the “water’s-edge” corporate tax loophole, forcing multinational companies to pay California taxes on worldwide profits rather than just U.S. operations, with projections of $3–4 billion in new annual revenue. A third measure, AB 2729, would impose an “employer responsibility” charge on businesses whose workers rely heavily on public programs like Medi-Cal. It's not bad enough that the state has driven away the likes of Chevron, SpaceX, and countless others; they now have to get multinationals to leave.
Proponents frame these as fair ways to make the rich and corporations “pay their fair share” amid Medi-Cal shortfalls and other pressures. But this rush to tax more ignores a far larger, self-inflicted wound: an estimated $180 billion in losses from fraud and improper payments across taxpayer-funded programs. The state auditor has kept Medi-Cal eligibility on its high-risk list since 2007, and discrepancies continue to cause billions in questionable payments. The Employment Development Department (EDD) continues to bleed money, too: improper unemployment insurance payments totaled $1.5 billion in 2023–2024, and fraudulent payouts exceeded $500 million in 2024 alone. These systemic failures persist despite repeated warnings.
Yet fraud is only the beginning. Mismanagement of taxpayer dollars on grand-scale projects has become a Sacramento hallmark—and the price tag to Californians is staggering.
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The California High-Speed Rail project, originally pitched to voters at around $33 billion, has now ballooned to an estimated $126 billion for Phase 1 alone, saddling taxpayers with nearly $93 billion in overruns while producing zero miles of operational high-speed track.
Homelessness programs tell an even more tragic story: the state has poured $24 billion to $37 billion into the crisis over the past five to seven years, yet the unhoused population has grown by roughly 20 to 30,000 people amid dozens of overlapping, poorly tracked initiatives.
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The State's auditor flags eight “high-risk” agencies under Governor Newsom—including the Department of Social Services, where CalFresh eligibility errors could trigger $2.5 billion in annual federal penalties—highlighting smaller but infuriating wastes like the EDD’s $4.6 million spent on thousands of unused mobile phones and hotspots. Even critical infrastructure like dams and water systems is deteriorating amid poor oversight.
Compounding this fiscal disaster is a regulatory machine so bloated and conflicting that it imposes crushing burdens on businesses already reeling from high taxes and costs. California leads the nation with over 420,000 regulatory constraints—nearly three times the national median—meaning the average business faces roughly 3,737 individual “shall,” “must,” and “prohibited” rules.
Overlapping agencies enforce duplicative mandates: environmental rules from the California Air Resources Board clash with housing and energy needs. At the same time, the California Environmental Quality Act (CEQA) invites endless litigation that drives up project costs by millions per development and delays everything from new homes to infrastructure repairs.
Labor and climate regulations add further nightmares, with compliance costs for some new disclosure rules alone running $300,000 to over $1 million per company initially. The result? California suffers the nation’s lowest business start rate, with heavy regulation linked to the annual loss of roughly 1,200 small firms and 15,000 jobs, higher electricity rates (two to three times the national average), elevated prices for goods and housing, and companies fleeing to lower-regulation states. These burdens don’t just hit balance sheets—they get passed on to consumers and workers while shrinking the tax base that funds public services.
This toxic mix isn’t sustainable. California already boasts some of the nation’s highest taxes on income, sales, gas, and property. Layering on new levies—especially ones targeting wealth and business profits—accelerates the exodus we’ve already seen. Billionaires and corporations relocate, taking jobs, investment, and future tax revenue with them. Families feel the ripple effects through higher costs, fewer opportunities, and a shrinking tax base. The result? A downward spiral where quality of life erodes—longer commutes on crumbling roads, strained schools, and unaffordable housing—while Sacramento’s regulatory empire and mismanaged programs grow unchecked.
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Remarkably, among the candidates vying to become California’s next governor in 2026, only one—Republican Steve Hilton—has even talked about these core issues of fraud, mismanagement, and regulatory overreach. Hilton has laid out detailed, actionable plans to solve them, including his CAL DOGE initiative (California’s version of the Department of Government Efficiency). CAL DOGE is designed to expose and recover hundreds of billions in waste, halt suspicious payments, conduct aggressive audits, prosecute offenders, slash duplicative bureaucracy, and overhaul the conflicting regulations that are choking businesses and inflating costs for families.
Governor Newsom’s administration touts scattered anti-fraud and efficiency efforts, but they’re a drop in the ocean compared to the auditor’s persistent high-risk flags. Republicans are right to demand a special session for a full audit and recovery plan. Real leadership would treat these issues as the emergency they are: streamline eligibility verification, claw back improper payments, reform or eliminate duplicative agencies, repeal or overhaul CEQA and conflicting environmental-labor rules, and impose accountability on contractors for projects like high-speed rail and homelessness initiatives. Prioritize results over rhetoric.
California doesn’t need more ways to extract money from its productive citizens and enterprises. It needs to stop hemorrhaging what it already collects, slash the regulatory red tape choking job creators, and manage existing resources with competence and integrity.
Plug the leaks first. Root out the waste and contradictions. Only then can we have an honest conversation about spending priorities. If the California Legislature focused on eliminating fraud and corruption instead of raising taxes and driving more businesses and people out of the state, we might just be able to improve the quality of life and the economic climate of the State. Taxpayers deserve no less—and voters now have a clear choice in November 2026.
