No sooner had Gov. Gavin Newsom spearheaded Proposition 50, the congressional redistricting measure that defuses the bomb tossed by President Donald Trump and Texas Gov. Greg Abbott, than he found himself dealing with two other explosive devices.
These were planted by two of the governor’s deep-pocketed supporters: the Service Employees International Union-United Healthcare Workers West and the California Teachers Association, which just filed, respectively, a (opens in new tab)wealth tax initiative (opens in new tab) that targets any Californian with assets of more than $1 billion and a (opens in new tab)ballot measure (opens in new tab) that would make a (opens in new tab)temporary income-tax increase (opens in new tab) permanent.
The governor must now decide whether he should retreat from or continue to support the tax-and-spend policies that have saddled California with the highest state income-tax rate (opens in new tab) and the nation’s highest rates of poverty (opens in new tab), (opens in new tab)unemployment (opens in new tab), and (opens in new tab)homelessness (opens in new tab), as well as the highest energy costs (opens in new tab) in the continental U.S., without producing better public services.
The totality of these policies has proved poisonous to California citizens. Since Gov. Arnold Schwarzenegger left office in 2011, California’s budget has grown two and a half times (opens in new tab) to almost $300 billion. But no rider of BART, parent of a California student, or renter or prospective homebuyer in the state would say their life is two and a half times better.
The sorry truth is that the extra tax revenue has flowed largely to government employees in the form of lavish compensation packages. Take the empty promises made before voters approved Prop. 30’s “temporary” tax increase in 2012: better schools and balanced budgets. Instead, they got a master class in how public unions steer tax revenue into their own wallets while providing minimal service improvements.
The temporary taxes have raised some $100 billion (opens in new tab) since 2012 — about $60 billion for the state, $36 billion for K-12 classrooms, and $4 billion for community colleges. But since 2012, (opens in new tab)California has spent $86 billion on higher retirement benefits (opens in new tab) for state employees. The same holds for K-12 and community colleges, where (opens in new tab)annual pension spending more than tripled (opens in new tab), from $2.3 billion to $7.3 billion, far exceeding the average annual revenue produced by the tax. (This excludes salary growth and other post-retirement benefits.)
The result? California spends (opens in new tab)$24,000 per K-12 student (opens in new tab) — well above the national average — but math and reading scores have declined (opens in new tab). Increasingly, California parents look with envy at public schools in Mississippi (opens in new tab) and other red states (opens in new tab). (opens in new tab)
The root of California’s tax-and-spend political economy was Gov. Gray Davis’ 1999 decision to grant a norm-shattering (opens in new tab)retroactive pension increase (opens in new tab) to state employees. Since then, (opens in new tab)annual state pension spending (opens in new tab) has risen more than tenfold — not due to state employees delivering exponentially better services but because benefit formulas were enhanced even as investment returns failed to keep pace with projected results.
Not even the most staunchly conservative California governor could undo these changes. Pension obligations are constitutionally protected in California, creating a one-way ratchet where benefits can only increase. When investment returns for CalPERS, the state’s pension fund, fall short, taxpayers must cover the difference. State employees and pensioners are California’s untouchables.
Since taking office in 2019, Newsom has boosted staffing in the executive branch by 20% (opens in new tab) and added $11 billion to annual spending on compensation and benefits. When faced with recent deficits, he tapped budget reserves rather than freeze hiring or compensation. This isn’t incompetence — it’s political self-preservation.
Meanwhile, Texas and Florida have absorbed massive population growth (opens in new tab) while keeping per-capita spending increases below the rate of inflation. The difference isn’t the cost of living; it’s the cost of elected officials in California giving in to public employee unions. Breaking that cycle requires citizen action. Real change will come only when voters reward politicians who serve them instead of special interests.
As Newsom eyes the White House in 2028, he faces a question that could define his candidacy: Should he roll over and endorse two new taxes and even higher spending? Or does he have the will to challenge the unions that have funded his campaigns (opens in new tab)?
At the same time, California voters should ask a simple question: If the last $104 billion in “temporary” taxes produced so little improvement while sending pension costs soaring, why would the next $100 billion be any different?
David Crane is a lecturer in public policy at Stanford University and president of Govern for California (opens in new tab).