California’s budget shell game is driving our cost-of-living crisis | Opinion

The state budget signed by Gov. Gavin Newsom last month continues years of massive overspending. Over the past eight fiscal years, general fund spending has grown at an average annual rate of 7.9%, while revenues grew by only 5.5%. That gap represents poor fiscal discipline as well as a dangerous imbalance that’s been papered over by shifting costs to California’s little-known and rarely reported special funds.

This “special fund” spending masks the true cost of government and contributes to California’s status as the most expensive state to live in.

What are special funds, and why are they driving up the cost of living so rapidly? The traditional taxes that people are most familiar with — income, corporate and sales taxes — primarily go into the general fund. Because these revenue sources also drive economic forecasting, they are usually the focus of news coverage of the state budget. But given Californians’ strong opposition to raising taxes and politicians’ habit of overspending, the state has had to find revenue elsewhere.

Enter special funds and the explosion of regulatory and service-related fees, which often drive up costs the same way taxes do but are hidden from voters since revenue raised into special funds is imposed without direct voter oversight or transparency.

These fees are everywhere: Gas taxes, which increased to 61 cents per gallon on July 1, fund transportation projects through special funds. These taxes have pushed California’s fuel prices to the highest in the nation, raising costs for commuters and for goods transported across the state.

Environmental and energy-related fees also feed into special funds, including the Greenhouse Gas Reduction Fund, where polluters finance climate-related programs. These fees are embedded in electricity and fuel prices — largely without public awareness — raising monthly household energy costs. In fact, over the past year, California’s residential ratepayers paid an average of $14 billion more than residents in other states for the same amount of energy, according to the California Center for Jobs & The Economy.

Similarly, professional licensing fees that support regulatory boards are paid by businesses and independent workers, which are factored into service prices in industries like healthcare, construction and cosmetology. While fees are meant to cover the cost of specific services or regulations, the distinction has become murky thanks to a series of court cases.

In practice, many of these fees are collected into special funds, which then funnel into the state general fund. This allows the Legislature to expand spending without raising broad-based taxes, fueling a stealthy but insidious increase in the cost of living for all Californians.

Special fund spending has exploded under this administration, growing by nearly $31 billion over the past six fiscal years. That’s a 53% jump in just six years — and it comes with almost no transparency or accountability.

This is not a one-time problem. It’s structural and it’s unsustainable. California is now on track for cumulative deficits of more than $40 billion in the next four years. Yet, instead of confronting this reality, the state is raiding its rainy-day fund and delaying payments to schools to pretend the books are balanced. These “solutions” are neither new nor effective. They are the same tricks that brought us into this crisis.

The effects are real and being felt as costs go up on everyday essential items. When the state uses special fund fees to subsidize growth in Medi-Cal or prop up failing projects like high-speed rail, Californians pay more for gas, groceries, housing and health care. Every shifted dollar becomes another embedded tax on working families — and another reason why California ranks dead last in cost of living.

It’s time to shine a light on the state’s largely overlooked budget maneuvers and hold legislators and the governor accountable for the massive increase in special fund spending — fueled by a cascade of special fund fees — that will continue to drive up the cost of living. Simply opposing general fund tax increases isn’t enough, and it certainly isn’t going to make this state more affordable. Californians can no longer afford the special funds shell game.

This story was originally published July 25, 2025 at 5:00 AM with the headline "California’s budget shell game is driving our cost-of-living crisis | Opinion."