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Will unaffordable spending define Gavin Newsom’s fiscal legacy?

May 3, 2026

Personal financial advisors emphasize that it’s not how much you earn that matters. It’s how much you spend. You simply can’t out-earn an excessively profligate lifestyle. Just ask the one-third of lottery winners who eventually go bankrupt.

Gov. Newsom needs to heed this advice in the state’s upcoming budget negotiations.

California has raised $8.6 billion more in taxes than expected according to the latest financial release, which reports on the tax revenue data raised through March 2026. With only three months left in the current fiscal year, revenues will likely exceed expectations. Politicians’ inclinations will be to spend this windfall, and there is no shortage of ideas.

Due to President Trump’s termination of the federal electric vehicle tax credit, Governor Newsom is considering offering state tax rebates between $1,500 and $7,500 per vehicle to California consumers who buy EVs. Applied only to first-time buyers, the program could cost the state $250 million.

Education unions are always looking for more money. True to form, the California Teachers Association, in response to the governor’s January budget, claims the state should spend an additional $5.6 billion on schools. The Los Angeles Unified School District is seeking state help to fund the $1.2 billion in costs that the LAUSD promised three teachers labor unions to avoid an impending strike.

The High-Speed Rail Authority is always underfunded because the cost to build the high-speed rail continues to increase. Estimates now put the bill at $231 billion, which is nearly seven times higher than the original estimated cost of $33.5 billion. There is also the desire to backfill the federal cuts to Medi-Cal that could cost the state up to $30 billion.

Advocates will paint a convincing picture that all of these programs are worthwhile investments – government spending is always branded as an investment these days. These justifications for additional spending lack the necessary perspective.

Take education spending. Spending money on education is important, but how much should we spend? Are we spending this money wisely? California spends nearly $20,500 per pupil, which is well above the national average of $17,700. Yet, the state’s education performance is well below the national average. Add a little perspective and it becomes clear that the problem is with how education funds are spent, not with the amount of money allocated to schools.

This pattern of excessive state spending but Californians receiving sub-par outcomes is pervasive. California doesn’t have the largest unsheltered homeless problem in the country or the highest poverty rates in the country because the state spends too little money. The state has these problems because the state ineffectively spends too much money.

This problem has only worsened under Governor Newsom’s tenure. Under the Governor’s watch, total state spending has grown over 54% – the General Fund alone has increased by $100 billion. Personal income in the state has grown a much slower 41%. Since California’s state spending has outpaced the growth in the tax base, the state’s excessive government burden has worsened under Newsom’s stewardship.

Despite the growing unaffordability of the state’s ever-rising spending burden, advocates continue to push for more tax increases. These include two corporate tax increase proposals the legislature is considering plus the potential billionaires’ wealth tax initiative.

The constant push for more money demonstrates that the progressive politicians and activists fail to connect the rising government burden to the state’s diminishing economic growth prospects. As I document in a new Pacific Research Institute analysis, California’s relative share of the nation’s economy has fallen from its peak of 14.5% in 2021 to 13.8% in 2025. Perhaps worse, private sector jobs outside of health care have declined 2.7% since the start of the last recession, while these jobs grew at a 3.4% rate across the rest of the country.

These distressing signs are pertinent to the upcoming budget debates. It is unlikely that the nearly $9 billion revenue windfall will turn into a sustainable revenue base. More likely, this windfall is the typical unsustainable revenue surge created by California’s overly volatile income tax system and a frothy stock market – Nvidia’s current P/E ratio is arguably 76% higher than the long-term average after all. Should the market falter because these valuations prove too optimistic, so will the state’s income tax revenues.

California is metaphorically traveling the same reckless path of the flamboyant lottery winners who are spending themselves into bankruptcy. While the necessary fiscal discipline is unlikely in the Governor’s upcoming revision to the budget, at bare minimum it is imperative to hold firm against the calls to spend these unexpected revenues.

Instead, this money should be allocated to the Rainy Day Fund. Should the fund’s maximum contribution be met, then, as per the requirements of the Gann Limit, taxpayers deserve a refund.

The goal for the FY2026-27 budget should be to combine greater fiscal discipline with structural reforms that improve the quality of government services. Demanding better services at lower costs is the sine qua non for growing prosperity. It is a motto that California’s entrepreneurs have lived by for decades. It’s about time that the state government started.

Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute. He can be reached at wwinegarden@hotmail.com

Orange County Register

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Will unaffordable spending define Gavin Newsom’s fiscal legacy?

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