California’s Trillion-Dollar Warning - The Sustainable Budget Project
California didn’t run out of money. It ran out of restraint.
Hello friends,
California should be one of the most prosperous places on earth. It has world-class universities, abundant natural resources, extraordinary entrepreneurs, and some of the most talented workers anywhere.
For generations, California represented opportunity. People moved there to build businesses, buy homes, raise families, and pursue the American Dream.
Today, many are leaving.
Housing costs are among the highest in America. Businesses continue relocating. Budget deficits return despite enormous tax collections. And many Californians feel they’re paying more and getting less.
What happened?
California didn’t become unaffordable because it lacked resources. It became unaffordable because government grew faster than the people paying for it.
That’s the lesson from the latest data in my work on the Sustainable Budget Project for Americans for Tax Reform, which evaluates whether government spending grows faster than population growth plus inflation—the best measure of average taxpayer’s ability to support government over time.
California isn’t slightly above that benchmark. It’s far above it.
When Spending Grows Faster Than Families Can Afford
Politicians often talk as though budget problems are revenue problems. They aren’t.
Government can only spend what it first takes from the productive economy through taxes, fees, borrowing, or inflation.
Spending is the burden. Taxes are simply the bill.
Figure 1: California Budget Comparison
Figure 1. California’s spending has dramatically outpaced a Sustainable Budget path for more than a decade.
According to the California Sustainable Budget Project report, California’s all-funds budget more than doubled over the last decade, rising from roughly $250 billion to more than $500 billion annually.
Meanwhile, a Sustainable Budget path based on population growth plus inflation would have grown far more slowly. The result is stunning.
California accumulated nearly $1 trillion in excess all-funds spending above a Sustainable Budget path over the last decade. That’s not a one-year anomaly. That’s a decade-long pattern.
Government Grew Three Times Faster Than Californians
The second chart tells policymakers everything they need to know.
Figure 2: Average Budget Growth Per Period
Figure 2. California government spending grew roughly three times faster than population growth plus inflation.
From 2016 through 2025:
State-funds spending grew 7.9% annually.
All-funds spending grew 8.2% annually.
Population growth plus inflation grew just 2.7% annually.
Think about that.
Government grew about three times faster than the taxpayers and economy supporting it. No family can sustainably increase spending three times faster than its income forever. Neither can government.
Eventually, the costs show up somewhere. Higher taxes. Higher housing costs. More regulation. Less affordability. Slower economic growth.
California’s affordability crisis wasn’t created overnight. It was built one budget at a time.
People Are Responding Exactly As Economics Predicts
The consequences extend far beyond the budget.
As I’ve written before in my analysis of Responsible State Budgets Across the United States, states that consistently allow government to grow faster than their economies eventually weaken the conditions that create prosperity.
California now ranks near the bottom nationally in economic freedom, fiscal policy, and regulatory competitiveness. That’s not a coincidence.
When government expands faster than the private economy, economic freedom declines. When regulations multiply, housing becomes harder to build. When spending rises, taxes eventually follow. When affordability disappears, families and businesses look elsewhere.
People vote with their feet. And increasingly, they are.
California Can Still Be Great Again
The good news is that California’s future does not have to look like its recent past. The state still possesses enormous advantages. Its people remain innovative. Its businesses remain productive. Its universities remain world-class. Its potential remains extraordinary.
But prosperity will not return by expanding the same policies that created today’s challenges. It starts with restoring spending discipline.
Figure 3: California Budget Limits
Figure 3. A Sustainable Budget still allows spending growth while protecting taxpayers and economic growth.
One of the biggest misconceptions about spending restraint is that it requires budget cuts. It doesn’t. Under the Sustainable Budget framework, California’s budget would still increase, though it would decrease given overspending.
State-funds spending could grow from approximately $348 billion to $359 billion in FY2027. That’s not austerity. That’s sustainability.
A Better Path Forward
California doesn’t need more government programs. It needs more opportunity. That means limiting spending growth to less than population growth plus inflation. It means reducing barriers to housing construction so families can afford to live where they work. It means reforming regulations that make it harder to start businesses, hire workers, and invest. It means keeping more resources in the productive private sector where entrepreneurs, workers, and investors create prosperity.
Most importantly, it means trusting people more than politicians.
California became an economic powerhouse because people were free to build, innovate, invest, and create. The path forward is rediscovering those principles.
The Choice Is Between More Government and More Opportunity
California still has everything it needs to succeed. The question is whether policymakers will allow it. The Sustainable Budget Project offers a simple framework: Allow government to grow. Just don’t let it grow faster than taxpayers can afford.
That’s not radical. It’s responsible.
And it’s exactly the kind of fiscal discipline that helped make California the land of opportunity in the first place. California didn’t lose the plot overnight. But it can start writing a better chapter today.
What Do You Think?
Should states constitutionally limit spending growth to population growth plus inflation?
Leave a comment below and join the conversation.
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Together, we can advance economic freedom, fiscal responsibility, and human flourishing.
Let People Prosper,
Vance Ginn, Ph.D.
President, Ginn Economic Consulting