California Lt. Gov. Eleni Kounalakis announced Friday she is dropping out of the 2026 gubernatorial race and will instead seek the state treasurer position, reshuffling a crowded Democratic field and reflecting larger state and national shifts.
Kounalakis, a San Francisco resident who made history as California’s first woman lieutenant governor, announced her campaign in April 2023.
But in a statement late Thursday, she said she believes she can make the greatest impact on “California’s financial future” in the treasurer’s office.
“This decision was not made lightly,” Kounalakis said. “Over the course of my campaign for governor, I have had the opportunity to engage with Californians across the state — listening to their concerns, hopes, and ideas for a stronger, more equitable future. At this moment, I believe I can make the greatest impact by focusing on California’s financial future.”
The departure marks the second major shake-up in the gubernatorial race within a month. In July, former Vice President Kamala Harris announced she would not seek the governor’s office, though she left open the possibility of another presidential run. Kounalakis had previously indicated she would not run for governor if Harris entered the race.
Kounalakis had raised approximately $9 million in her state campaign accounts, the majority of which can be transferred to the treasurer’s race. Despite her fundraising success, polling showed her trailing former Rep. Katie Porter, who is also seeking the Democratic nomination for governor.
The timing of Kounalakis’ exit is curious, coming just days after House Speaker Emerita Nancy Pelosi appeared to endorse her during a CNN interview. “We have many great candidates, one in particular, Eleni Tsakopoulos, whom I support,” Pelosi said, referring to Kounalakis by her maiden name.
The 2026 gubernatorial contest is wide open since Gov. Gavin Newsom cannot seek reelection due to California’s two-term limit. Newsom, who took office in 2019, survived a recall election in 2021 and won a second term in 2022.
Democrats remaining in the gubernatorial race include Porter and former Department of Health and Human Services Secretary Xavier Becerra. The race could also attract self-funding candidates like developer Rick Caruso, who previously ran for L.A. mayor.
Kounalakis, 58, has served as lieutenant governor since 2019 and worked as U.S. ambassador to Hungary under President Barack Obama from 2010 to 2013. Before entering public service, she was president of AKT Development, a Sacramento-area housing development firm.
Her pivot to the treasurer’s race, first reported by Politico, had been under discussion with political allies as early as March, according to sources familiar with the deliberations.
The treasurer serves as the state’s primary banker and investment manager, overseeing California’s massive pension funds and bond programs.
Kounalakis’ exit could benefit other gubernatorial candidates by opening access to San Francisco donors who had supported her campaign and potentially clearing the path for Pelosi to endorse another candidate. It would also pit her against other declared candidates for state treasurer, including current state Board of Equalization member Tony Vasquez.
Former Oakland Mayor Libby Schaaf, who had previously announced her own state treasurer run, posted Friday to X that she would suspend her campaign and support Kounalakis.