Can California afford costly climate change programs in a grim budget year? | Opinion

It was not supposed to be this way. In the throes of last year’s budget turmoil, California’s spending plan at that time was supposed to bring stability. Yet here we are. Another May Revision, another budget deficit — this time for $12 billion.

While Gov. Gavin Newsom is right — the Trump tariffs are harming California’s economy and reducing tax revenues — the state’s current deficit and ongoing budget challenges are largely state-created. They result from years of poor spending choices and California’s excessively volatile revenue system. Consequently, resolving the current crisis and stabilizing the budget for the long-term requires responsible fiscal choices from Sacramento.

Starting with California’s spending profligacy, relative to personal income, total government spending is the country’s fourth highest. It is 25% higher than the national average and nearly 80% higher than Florida, according to the U.S. Census and other government data.

Since excessive spending is a primary cause of California’s $12 billion deficit, enacting reforms and cutting ineffective spending is the solution. Yet Newsom’s proposal focuses on temporary fund shifts and budget gimmicks that do not sustainably address the root causes of the state’s fiscal problems.

Instead, Newsom and the California Legislature must face the difficult budget choices that lie ahead. The goal should be to create an affordable and efficient public sector that serves Californians well. There are many potential savings.

For instance, the state is spending billions on alternative energy infrastructure and energy transition programs. These include building electric vehicle (EV) charging stations, funding the ever-delayed always over-budget high-speed rail and subsidizing the purchases of electric vehicles.

The problem of global climate change is serious, but these programs are expensive and ineffective. They subsidize higher-income people with subsidies for EV charging stations while imposing high energy costs on lower-income and working-class households. Owners of EVs skew wealthy, so this program is an example of spending subsidizing the wealthy. Another example is the clean vehicle rebate funds that tend to go to the wealthy.

A similar problem plagues our approach to homelessness — a difficult problem that requires effective programs. Toward this goal, the governor’s announcement that localities should remove homeless encampments is welcome news. Yet, despite spending more than $24 billion since 2019, the problem only continues to worsen.

The reason is the expensive yet ineffective “Housing First” approach California has relied on. The state should jettison this approach and prioritize lower-cost temporary housing and effective private charities that can address the problem more effectively and for less.

Then there is the expansion of Medi-Cal to the undocumented. Newsom’s proposal to limit enrollment of the undocumented is a nod to the reality that this expansion, estimated at $8.5 billion, is unaffordable. Reining in this expansion and broadly imposing strict work requirements on working-age adults can reduce costs while safeguarding the program for the truly needy.

The state’s excessive revenue volatility is also a problem, as the governor acknowledges, but his response is to raise the cap on how much the state can save in the rainy-day fund. This solution would make sense if the state’s revenue volatility was normal, but it’s not.

A 2025 Pew Trusts study shows that California’s revenues are the nation’s fifth most volatile; the most volatile excluding the states that rely on volatile taxes on minerals. The state’s revenue volatility is neither normal nor inevitable. Through tax reform, the state can dampen this volatility, which will help minimize future budget crises.

The current crisis also has a federal component due to the Trump Administration’s ever-changing stance on tariffs, the proposed Medicaid changes including the provider tax freeze and the broader budget reconciliation negotiations over Trump’s “one big, beautiful bill.” These actions, which will continue throughout California’s budget process, add to the state’s uncertainty. However, the best way California can manage these turbulent waters is to improve the underlying soundness of the state’s budget.

The reality that another fiscal crisis is hanging over the Fiscal Year 2025-26 budget confirms that California’s budget is structurally unstable. The ideal response is short-term fiscal discipline to address the crisis and long-term tax and spending reforms to forge a fiscally sound path for the state.