California Is Broken. San Jose's Mayor Has a Plan to Fix It. (ft. Matt Mahan)

Why does it matter? Because California is spending $150 billion more per year and getting nothing for it — and one mayor has proof a different model works.

Matt Mahan, mayor of San Jose and long-shot Democratic gubernatorial candidate, walks in with receipts that most Sacramento politicians refuse to read. California's crisis isn't a funding problem — it's a structural incentives problem, and more revenue just makes it worse.

• California increased state spending by 75% — $150 billion more per year than six years ago — with zero measurable improvement in housing, homelessness, or crime
• San Jose cut unsheltered homelessness by a third using $85K sleeping cabins instead of the state's $1M-per-door model
• Driving refineries out of state made California's fuel dirtier AND more expensive simultaneously
• The proposed billionaire wealth tax will be paid by the middle class — over a trillion dollars of capital has already left the state

California doesn't have a money problem — it has an incentives problem, and $150 billion proves it

State spending up 75%. Population flat. Headcount in state employees up over 20%. Outcomes on housing, homelessness, crime, and schools flat or deteriorating. Mahan's verdict is blunt: "We don't have a money problem in Sacramento. We have an incentives problem."

The tell is in the audit data. Seventy-five percent of recommendations from California's own state auditor never get implemented. There's no feedback loop, no consequence for failure, and no mechanism that forces programs to justify their existence before getting refunded.

Mahan's opponent Eric Swalwell, asked for his top three priorities in a debate, answered: "revenue, revenue, revenue." That framing, Mahan argues, is precisely the mindset that produced the dysfunction in the first place. High-speed rail spent $14 billion over 20 years and delivered nothing — not because the money ran out, but because no one got fired for failing to deliver.

The fix isn't more money — it's outcome-linked accountability before any dollar moves. Mahan ran for mayor on public dashboards with explicit, measurable goals: reduce homelessness 10% year-over-year, reduce crime, speed up permits. The logic is almost insultingly simple by private-sector standards. The reason Sacramento doesn't operate this way is that public goals create public accountability — and incumbents have been politically rewarded for activity, not results.

San Jose sheltered the homeless for $85K a unit. The rest of California spent a million dollars a door and called it compassion.

Over 40% of the people living outside in tents in the entire country live in California — a state that holds roughly 12% of the national population. The scale of the failure is staggering. The cause, Mahan argues, is ideological capture masquerading as policy.

The dominant model — permanent supportive housing, built new, at roughly $1 million per unit — is not a necessity. It's a choice. San Jose proved the alternative: sleeping cabins deployed on publicly owned land, hooked up to utilities, all-in cost of $85,000 a unit. In Mahan's first three years as mayor, the city added over 2,000 shelter beds and led the state in reducing unsheltered homelessness by a third.

"We had to overcome an incredible amount of opposition from advocates, affordable housing developers" — some well-intentioned, some protecting their own business model. The "housing first only" orthodoxy isn't just expensive — it has a body count. Mahan is direct about this: 50,000 people have died on California's streets over the last decade, roughly half from overdose and suicide. These are people cycling endlessly between streets, emergency rooms, and jails.

Two-thirds of people offered shelter accept it. The remaining third are so deep in meth and fentanyl addiction that, in Mahan's framing, they cannot make rational decisions about their own self-care. His position: leaving them to die on the street in the name of protecting civil liberties is itself a moral failure. Involuntary treatment isn't a rights violation — abandonment is.

California regulated its cleanest refineries out of existence — and ended up with dirtier fuel from thousands of miles away

The refinery story is a perfect case study in California's capacity to achieve the worst of all outcomes simultaneously.

Over the last decade, the state intentionally regulated most of its refineries out of existence. The theory was climate progress. The result: California still imports the same oil and gas — it just comes from thousands of miles away now, with a larger carbon footprint, at higher cost, having shed some of the highest-paying jobs in the energy sector and the local tax base those companies generated.

"We've actually made the problem worse while hurting ourselves economically," Mahan says. Climate change is a global phenomenon; pushing production offshore doesn't reduce global emissions, it just moves them somewhere with worse regulations.

The solar irony compounds the absurdity: California sometimes pays Arizona to take its excess midday solar, then draws power back from Arizona at night to get through the 5 p.m. to 9 p.m. evening peak — firing up gas plants in the process. The grid policy is as broken as the refinery policy. Meanwhile, California gas sits at $5.50 a gallon versus $3.50 in the rest of the country, and the 70-cent-per-gallon state tax falls hardest on working people in towns like Watsonville — people who commute 50 miles each way and can't yet afford an EV.

San Jose's pension fix is a 20-year glide path — and it's the only proven legal blueprint other California cities have

Nineteen cents of every general-fund dollar in San Jose goes to paying an unfunded pension liability before a single service gets funded. One out of every five dollars, off the top, to obligations created by politicians who "didn't do the math, didn't recognize when the math wasn't working out, and swept it under the rug because they knew they'd be long gone by the time the bill came due."

The state picture is worse. CalPERS and CalSTERS manage roughly a trillion dollars for about 3 million California public workers, have returned around 7% annually against an S&P delivering 11%, and face unfunded liability estimates ranging from $250 billion to a full trillion dollars.

Mahan's San Jose model: negotiate a second tier for new employees, where the city and employee split downside risk 50-50 if returns fall short of targets. Legacy liabilities for tier-one employees get paid down on a fixed 20-year schedule. By the early 2040s, San Jose will have cleared the debt and its general fund will be, in Mahan's words, "flushed." The city is at peak pension cost right now — the glide path is already sloping down.

Defined-benefit reform through ballot initiative, litigation, and collective bargaining is achievable even in a union-dense environment. San Jose did it. The structural blueprint exists. What's missing everywhere else is the political will to use it.

Construction defect liability effectively banned condos in California — and eliminated the first rung of the homeownership ladder

Silicon Valley created eight jobs for every one new home built over the last 20 years. That ratio alone explains why working families are being displaced from the region that generates innovation for the entire country.

But the housing problem has a specific legal villain most people miss. California isn't building condos — not because of zoning or demand, but because construction defect liability lets a trial lawyer walk into a nine-year-old project, notice paint starting to bubble, and file a suit with no real exposure. The incentive for the lawyer is fees. The consequence for the market is that financing and insurance for new condo construction in California is nearly impossible to obtain.

Condos have historically been the first rung — the entry point where young people build equity for the first time, eventually trading up into a townhome or single-family home. California removed that rung. The trial lawyer lobby, one of the most organized and well-funded interests in Sacramento, has blocked every attempt to change the framework.

Mahan's read: construction defect liability reform may have more near-term impact on housing supply than any other single policy lever — more than zoning changes, more than fee reductions. It's the least-discussed and most consequential regulatory failure in the state's housing crisis.

The billionaire wealth tax will be paid by the middle class — a trillion dollars of capital has already left to prove it

Over a trillion dollars of capital has already fled California. Half the people Mahan knows have left the state. And yet the leading legislative proposal is a mark-to-market wealth tax on the state's wealthiest residents — the most mobile people in society.

Mahan calls it directly: "The dirty secret of this proposal is that it won't be the billionaires who pay higher taxes — it'll be middle class and working families who are left holding the bag." The wealthy leave. The immobile stay. The tax base shrinks further. Ongoing revenue goes lower. That's the actual outcome of a policy designed to tax the ultra-wealthy.

Mahan doesn't oppose taxing concentrated wealth on principle. He names specific mechanisms that are harder to evade: closing the loophole that lets very wealthy individuals borrow against appreciated assets to avoid capital gains; eliminating step-up in basis upon death. His example is pointed — Elon Musk passing $500 billion of appreciated, untaxed stock to his children, rebased at current market value at the moment of inheritance, with capital gains never paid. "There are a lot of things we can do to capture billions in revenue to close loopholes in the tax code." A mark-to-market state wealth tax is the worst of those options — least likely to work, most likely to accelerate the capital flight already underway.

The candidate nobody's heard of is the only one in the room saying the obvious thing

Every other leading Democratic gubernatorial candidate — Swalwell, Steyer, Porter — is competing for the same lane: more revenue, more programs, more of what produced the current failure. Mahan is running against the incentive structure itself, which is a harder sell and a more honest one.

What this episode reveals is that California's dysfunction is now severe enough that a sitting mayor with actual results can walk into a conversation and make Sacramento look genuinely indefensible. The question isn't whether the diagnosis is right — it's whether the political system can reward someone for delivering it. If it can't, the alternative Mahan keeps warning about — a MAGA-style populist backlash inside California — becomes the only remaining pressure valve.

The data is in. The model exists. The will is the variable.

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Topics: California politics, homelessness policy, housing affordability, pension reform, energy regulation, wealth tax, immigration, government accountability, public sector unions, San Jose