To make California more affordable, improve the effectiveness and efficiency of social spending

The combination of high per-capita state GDP and a relatively progressive tax system allows the California state government to finance one of the highest levels of government spending per capita in the country.¹ Given high cost of living and unaffordability, strong state revenues could be used to provide resources to low- and moderate-income Californians to help mitigate the high cost of living. To an extent, this is exactly what California does. Some examples: California has a fairly generous Medicaid program that relies to a significant degree on state funding, spends above average per-child on public child care,² and offers a relatively high state earned income tax credit (EITC).

Yet, the California state government could be doing much more with the resources it has to help residents cope with high costs. Public programs in California are systematically plagued by complexity, fragmentation, and inefficiency. This contributes to unaffordability, as California fails to efficiently leverage government spending to mitigate high costs. Streamlining and simplifying state programs can increase the quality and quantity of services the state provides even without new revenues. This does not mean California should not try to raise more revenues — but revenue-raising efforts should be paired with reforms that increase the efficiency of state spending.

In this paper, we explore three areas of social spending in California in depth: affordable housing, child care, and healthcare. In each, we show that fragmentation of funding and administration makes it difficult for providers to perform critical work for Californians. In many cases, the administrative burdens borne by providers and beneficiaries are exacerbated by detailed rules and complicated procedures. What’s more, these systems are often partially or totally illegible to beneficiaries, providers, and even policymakers. This makes it difficult for Californians to navigate them and difficult for policymakers to improve them.

In a 2013 essay, political scientist Steve Teles identified the challenge of “kludgeocracy,” claiming that America governs itself through “more indirect and incoherent policy mechanisms than can be found in any comparable country.”³ Our analysis suggests that the problem of “kludge” — programs patched together in complex and incoherent ways — is endemic to social spending in California. Beyond the costs of kludge itself, the inability to even find out how various programs and policies are working is hugely damaging to democratic accountability.

The recommendations we offer for reforming affordable housing, child care, and healthcare systems target the buildup of kludge through standardizing and streamlining programs, simplifying rules and procedures, and leveraging technology to increase system legibility and demystify programs. Similar measures could be taken to improve effectiveness and efficiency across a number of other California state programs.

However, these sorts of reforms will not endure if the state does not respond to some of the upstream political drivers of kludge, including funding structures under federalism, misaligned political incentives, and vexing interest group politics. Based on our political analysis, we discuss several upstream institutional reforms that might help to change the politics and make it easier to streamline and simplify California’s public programs. These include building state capacity to knit together funding streams, taking measures to refocus political institutions on outcomes, and building effective and transparent data systems.

With looming structural budget deficits that will make it difficult to expand programs and federal policy changes that penalize states for high administrative costs, increasing the effectiveness and efficiency of state spending in California is more important than ever. This will allow public dollars to stretch further to help Californians navigate the state’s high costs. Additionally, improving residents’ experience of government and ensuring that public dollars are well-spent could generate positive downstream political effects like increasing trust in government. This could give the state a stronger case for raising revenues and expanding programs in the future.

Real progress is possible. Indeed, California has already vastly improved the administration of programs like CalFresh (the state’s SNAP program) to provide more food aid at very little state cost. In 2016, only 72 percent of eligible Californians were enrolled in CalFresh, the fifth-lowest rate in the country.⁴ Low enrollment kept federal dollars from flowing into the state, and kept families in need from receiving benefits. Thanks to a dedicated effort to boost enrollment, by 2022 (the latest year of available data) the estimated participation rate rose nearly 10 percentage points to 81 percent.⁵ Among several policy changes, the state built modernized web platforms to manage enrollment and track participation by county.⁶

But as the discussion of affordable housing, child care, and Medi-Cal in this paper demonstrates, there is still much work to do. This paper begins with an analysis of why, given economic and political factors, California cannot rely on revenue-raising alone to address unaffordability through public spending. We then discuss problems of kludge in affordable housing, child care, and healthcare, offering a number of recommendations to improve public programs in these critical areas. Next, we explore the stubborn politics of kludge and the institutional reforms California could take to facilitate helpful reforms despite political challenges. And finally, we provide a summary of recommendations and conclude.

As California’s unaffordability problem has worsened, advocates have increasingly called for the state government to respond by raising additional revenues from corporations and wealthy Californians. Certainly, more revenues could help. As the California Budget & Policy Center (CBPC) has pointed out, corporate tax reforms like revising the tax structure and removing certain tax credits would increase state revenues and potentially allow lawmakers to expand state programs.⁷ The Economic Security Project has called for similar tax reforms, and offered a number of recommendations for using additional revenues to provide direct cash support for low-income Californians.⁸ And most prominently, major California unions are sponsoring a ballot initiative in 2026 for a one-time wealth tax on billionaires residing in California, which would primarily fund health services.

We support measures to raise more revenues to directly support struggling Californians — so long as they are structured in ways that support continued economic growth. (We understand this is not a trivial question.) But several factors point against revenues as the key to making California more affordable.

First, the fiscal and political environment does not bode well for major new revenues. Borrowing costs are high, with interest rates well above levels in the 2010s. Facing greater debt service costs, the federal government has moved from sending states more aid to shifting costs onto them. Even given the state’s projected budget hole, Governor Newsom has opposed the SEIU’s 2026 wealth tax proposal, as have a number of other key California groups associated with the Democratic party.⁹ California has accumulated large structural deficits, meaning that revenues are projected to fall short of funding existing programs. In this landscape, policymakers are much more likely to consider policy options that improve state programs without requiring substantial new revenues.

Second, in a federal system where people and companies can move, raising revenues at the state level carries risks. Already, some wealthy Californians have reportedly responded to the wealth tax initiative by establishing residency elsewhere.¹⁰ The prospect of relocation means that the amount of revenue that can be raised at the state level is limited. For instance, one of the CBPC’s core revenue-raising recommendations is closing the “water’s edge” option, which allows companies to elect to exclude profits of foreign subsidiaries from being included in calculations that determine California corporate taxes. They estimate this reform would bring in an additional $3 billion annually. This is fairly small, considering that state government spending (excluding federal funds) was $321 billion in the 2025-26 fiscal year.

Third, even if progressive campaigners are able to achieve substantial revenue increases, the state does not have a strong track record of efficiently leveraging state spending to address unaffordability. Per capita General Fund spending grew by over 50 percent from $3,964 in 2015-16 to $6,014 in 2025-26 (inflation adjusted).¹¹ Spending as a share of the size of the economy also rose by about a percentage point. Over this period, California’s affordability problem has not markedly improved — and by some measures, it has worsened.

One reason is that new revenues are often used just to sustain increasingly expensive existing programs and services.¹² For instance, the substantial growth in Medi-Cal costs has mostly been driven by rising healthcare and pharmacy costs — not gains in access.¹³ Policymakers have also prioritized other programs outside of the sorts of assistance that would most directly mitigate unaffordability. Take state employment. From 2016-17 to 2025-26 authorized state positions grew over 20 percent from under 362,000 to nearly 437,000, while the population flatlined.¹⁴ Using the state’s own estimates of cost savings when it moved to eliminate vacant positions in 2024-25, the growth in positions over this period represents over $10 billion in annual budgetary costs.¹⁵

In sum, raising more state revenues could certainly help address California’s unaffordability woes, but effects are likely to be limited. And regardless of spending levels, we should strive to use public dollars more effectively and efficiently.

Housing costs are the largest contributor to unaffordability in California. As we discuss in our prior installment on fostering sustainable growth,¹⁶ high housing costs are mainly a supply problem. And given budget constraints, realistically, units financed privately and rented or sold at market rates will make up the bulk of new housing in the state. But this does not mean public programs are insignificant. California funds and implements a number of programs to both build publicly subsidized, deed-restricted affordable housing (subsequently referred to as “affordable housing”) and to provide vouchers that allow people to rent units at below-market rates. Effectively implementing these programs is a critical piece of addressing housing unaffordability in California.

The evidence suggests that the state could be doing much better on a number of fronts. Consider costs of producing state-subsidized affordable housing. Investigating the Low Income Housing Tax Credit (LIHTC) program, the state’s largest affordable housing fund, researchers found that the average deed-restricted multifamily unit costs $640 per net rentable square foot to produce in California, compared to just $249 in Colorado (and lower still in Texas).¹⁷ The discrepancy for market-rate housing, while still considerable, was significantly lower: $415 in California versus $303 in Colorado. In California, building publicly subsidized affordable units costs 54 percent more than market-rate, while in Colorado it costs 18 percent less.

Publicly available data is insufficient to rigorously decompose the drivers of high building costs in California. Worse, we do not even know how many deed-restricted affordable units various programs have delivered — and how many are missing due to high costs or poor implementation.¹⁸ Back-of-the-envelope calculation applying estimates from RAND indicates that the same public funding would generate more than double the units if California had Colorado’s per square foot building costs.

Streamline affordable housing financing

First and foremost, California should work to streamline affordable housing financing. Streamlining financing would allow the state to produce more affordable units with the same amount of funding.

California’s affordable housing finance system historically evolved piecemeal, with programs layered on over time to address specific policy goals. From 2020 to 2023, 92 percent of projects in California used at least one other public funding source in addition to LIHTC, and 76 percent used two or more.¹⁹ This is in part because of such high building costs — per-unit costs generally exceed what any one funding source could cover. Terner Center researchers estimate each stacked funding source adds four months to project timelines.²⁰

In addition to driving up costs through longer timelines, securing financing from multiple streams also drives up compliance, legal, and staffing costs.²¹ Different funding sources often have different timelines, eligibility rules, application requirements, and underwriting standards.

The gold standard for streamlining affordable housing financing is a “one-stop shop,” versions of which states like Massachusetts and Minnesota have already implemented. Under a “one-stop shop” system, instead of applying separately for funding from different state-administered pots of money, developers would apply directly to a single system, and a state coordinator would allocate funds from different public sources. For instance, in Minnesota, developers apply to the Minnesota Housing Finance Agency without specifying funding sources, and the agency allocates available state and federal funds to projects that score high on its established criteria.

California is moving in this direction. The state has already consolidated some applications for public funding within a single “SuperNOFA” application. In 2026, the state launched its first standalone housing agency — the California Housing and Homelessness Agency (CHHA) — which includes a new Housing Development and Finance Committee (HDFC) responsible for administering the state’s multifamily affordable housing subsidy programs. Most significantly, in July 2026 Governor Newsom signed AB 179, which adopts some key “one-stop shop” reforms.²² The bill consolidates several affordable housing programs within the HDFC so that it can make a single, integrated award. However, it is too early to know how the bill will be implemented. And even if the bill were fully implemented, many developers would still need to apply separately through the State Treasurer’s office.

Simplify labor and design standards for affordable housing

Beyond the costs of cobbling together sources of financing, labor and design standards are another major driver of California’s high costs to produce affordable housing. Different state, regional, and local sources of funding often carry different labor and design standards. This means that, as developers stack up sources of funding, additional standards are also layered on, often driving up project costs.

Considering labor first, public funding sources for affordable housing in California generally carry standards like requirements to pay prevailing wage or use “skilled and trained” (union) labor. These directly add costs, since there is a large gap between union and non-union wages in California. Analysis from the Terner Center suggests that affordable housing projects that require prevailing wages cost between $84,800 and $106,700 more per unit than similar projects without a prevailing wage requirement.²³ The overall finding that labor standards add cost is consistent with peer-reviewed research on California affordable housing development and more recent research from RAND,²⁴ though the magnitude of the cost increase is contested in the literature.²⁵

Some of this added cost is a direct result of higher wages. But research shows that labor standards can also trigger bureaucratic processes like payroll certification. Administrative burden can even discourage some contractors from accepting prevailing wage projects when demand and prices are high.²⁶

Considering design standards, every LIHTC project in California (which is, in practice, nearly every affordable housing project) must meet minimum construction standards set by the California Tax Credit Allocation Committee (TCAC). These cover energy efficiency, sustainability, landscaping, and other specifications. In determining how to allocate funding, TCAC also scores project applicants based on other criteria including on-site amenities and accessibility.

Local and regional sources of affordable housing finance layer on additional standards and criteria. Design standards are particularly impactful in the Los Angeles metro region, driving average architectural and engineering fees per unit twice as high as for market-rate projects.²⁷

There is nothing inherently wrong with attaching labor and design standards to public funding for deed-restricted affordable housing units. In theory, the policy is trading off fewer units (per a given budget allocation) for higher wages for construction workers and higher-quality, safer, more environmentally-friendly homes. This is a reasonable tradeoff to make — provided benefits exceed the costs.

However, we should know more about exactly what sorts of gains these standards are delivering, and at what cost. To what extent are the higher costs generated by labor standards driven by higher wages versus bureaucratic hurdles? Which prescriptive design standards are delivering real benefits at reasonable cost, and which are adding little value but imposing high costs? Through cost-benefit analysis, policymakers can determine if there are tweaks to standards that avoid bottlenecks and reduce costs of production while preserving benefits.

In addition to analyzing the costs and benefits of various standards attached to public funding, the state should take steps to reduce the complexity and variety of standards developers must meet if they receive funding from multiple sources. The state can start by harmonizing standards across state-administered funding sources. To further standardize across the whole system, the state could also require regional and local agencies that receive state money as part of their affordable housing funds to adopt those same standards.

Coordinate and centralize demand-side housing programs

On the demand side, systems for allocating affordable homes and vouchers are also difficult to use and understand. This imposes real costs on Californians in need of housing assistance. The time and energy they must spend navigating the system detracts from taking care of other critical needs, including work and care for family members. Uncertainty from illegible processes can inhibit a sense of security and ability to plan for the future. Inefficiencies in the system also mean fewer resources are available for beneficiaries in need. Finally, the people most in need of housing assistance are generally the least able to overcome administrative burdens and receive aid.

Housing units are allocated to low-income Californians primarily through two systems: project-based slots and vouchers (technically “Housing Choice Vouchers”). Vouchers are funded federally through Section 8 and allocated by local Public Housing Agencies (PHAs). Eligibility is restricted to families with incomes below 50 percent of the area median. Voucher recipients must find a unit on the private market, and the voucher funds a portion of the rent. Because the supply of federal subsidies greatly lags demand, voucher waitlists can remain closed for years.²⁸

Voucher administration is plagued by fragmentation. Large metropolitan areas like Los Angeles and the Bay Area have dozens of PHAs. Applicants for vouchers in these regions often apply separately to each PHA to increase their chances of securing aid. Each PHA maintains its own waitlist for applicants to track. What’s more, different PHAs may have different application requirements and eligibility criteria. In addition to imposing burdens during the application and waitlist process, fragmentation also imposes a burden on families moving from one PHA territory to another, since PHAs have different payment rates and policies.²⁹

To ease administrative burden, the state should take steps to coordinate and centralize. As a start, the state could fund and coordinate regional PHA consortia that standardize application requirements and eligibility criteria. The next step is developing shared data systems. As one example, Massachusetts now maintains a centralized voucher waitlist, with participation from nearly all its local housing authorities.

Project-based subsidies are also highly fragmented. The project-based system matches low-income California families with deed-restricted affordable housing units financed through public programs. In most parts of the state, potential beneficiaries must apply separately to each individual unit. Eligibility varies by the particular unit, depending in part on how it was financed. This imposes a huge administrative burden, which is particularly problematic for those without the resources to spend time seeking out openings and applying.

In recent years, administrators have set up portals where housing seekers can submit a general application for subsidized housing, determine eligibility for different units, and track the status of their applications. The Dahlia portal was launched in San Francisco in 2016, and the Doorway system, modeled on the Dahlia portal but scaled for the broader Bay Area, was launched in 2023. These systems are major improvements simplifying the provision of project-based slots, but they are limited at this point to the Bay Area, and Doorway is still in its early stages. The state should support the continued improvement and scaling of integrated regional systems for allocating project-based slots. California could also follow Massachusetts and New Jersey by developing a statewide public database of affordable housing listings.

Problems of kludge and complexity are long-standing in California’s child care system. In 2014, the LAO observed: “The [child care] system is complex, bifurcated, confusing, and inconsistent. We recommend undertaking a fundamental restructuring to create a simpler, more rational, and efficient system.”³⁰ Similarly, in 2017, the Learning Policy Institute (LPI) characterized the system as “a complex hodgepodge of programs.”³¹ Fast forward to 2025, when a recent report concluded that “locating and accessing child care is far more difficult than it should be, impacted by coordination problems across public agencies.”³²

Kludge and complexity exacerbate problems of high cost and under-supply. California is one of the most expensive states for child care in the country.³³ Supply took a major hit during the Covid-19 pandemic, and slots in centers have yet to recover. ³⁴ Despite high demand, as of 2024 total slots at centers were 3 percent below where they were when the pandemic took hold in March 2020.³⁵

Under Governor Newsom, California has greatly increased the state’s commitment to child care and early childhood education. As of the 2024-25 fiscal year, California spent almost $12 billion on child care (including preschool) programs, compared to around $7.5 billion in the 2019-20 fiscal year (inflation-adjusted). ³⁶ This translates to around $4,000 per young child for early education, far above the national average.³⁷ And yet, as we discuss below, funding increases have not consistently led to gains in access.

We support additional child care investment, which research shows can produce major long-run economic and societal benefits.³⁸ But policymakers must rationalize the system to ensure state dollars efficiently translate into the child care services families need.

Streamline and standardize funding programs

Most importantly, the state should work to streamline and standardize its various child care funding programs. California has 14 different funding streams for child care services split across two different state agencies: the California Department of Social Services (CDSS) and California Department of Education (CDE). Fragmentation adds burden for providers and families and generates inefficiencies, with the result that state dollars do not stretch as far as they should when it comes to mitigating high child care costs.

At a basic level, California’s child care system is split between programs that provide vouchers that families can use to pay for child care on the private market, and programs that offer contracts for providers offering child care and education services to low-income families at low- or no-cost. Since 2021, voucher programs have been administered by CDSS, but contract programs are split across CDSS and CDE.

Even within each of the voucher and contract systems, eligibility and process varies markedly across the state’s programs and funding streams. This variation can be highly arbitrary. Considering voucher programs, any family with income below 85 percent of the state median is eligible for a child care voucher. But families who have recently received CalWORKs cash assistance receive vouchers quickly through CalWORKs, whereas families who are not eligible for CalWORKs must receive their voucher through the Alternative Payment Program, which tends to have long waitlists.

Within the contract-based system, the state supports a variety of programs that serve different populations of children.³⁹ The largest is “General Child Care,” or CCTR, which pays for full-day and after-school care to children ages 0-12 in families with incomes under 85 percent of the state median, and is administered by CDSS. The state’s flagship California State Preschool Program (CSPP) is primarily for 3- and 4-year-olds in families with income under 100 percent of the state median, and is administered by CDE (the program has expanded to cover some 2-year-olds). As the figure below shows, the state funds several other smaller programs targeted to specific populations.

What is particularly striking is that the services being delivered under CCTR and CSPP are almost identical from the perspective of families — but they have different reimbursement rates, eligibility rules, and are administered by two separate agencies with parallel contracting systems that sometimes compete for providers.

Fragmentation of programs and funding sources has negative downstream consequences. Larger provider networks often have the in-house administrative capacity to blend and braid programs and funding streams to fill their classrooms. But for smaller providers, these costs are prohibitive, so some respond by only admitting children enrolled in particular programs — or even restricting admission to private-pay families. This inhibits the entry of smaller providers into the system, and also likely pushes some existing providers to close up shop.

In addition, child care providers operate on thin margins. The time and resources they spend on administration detracts from their ability to offer high-quality child care at affordable rates and pay their workers livable wages.

California should move towards a streamlined, simplified system with a reduced set of eligibility and prioritization criteria. The first step is to begin to pool sources of funding upstream. Currently, child care providers must do the work of qualifying for public funding, and then blending and braiding dollars based on the eligibility of the children they enroll. As child care researchers Jade Jenkins and Austin Land propose in a recent report, the state could handle much more of this process upstream.⁴⁰ Providers could enroll children using a much simplified set of criteria, such as family income under the state median. They could then report their enrollment to the state, and the state could assemble funding sources to reimburse them.

Other states are already using these sorts of approaches to simplify the process for providers and families. Louisiana organizes publicly funded child care through local agencies that run coordinated enrollment processes and coordinate funds across different state and federal programs.⁴¹

A second step California could take would be to consolidate child care programs within a single state agency rather than continuing to divide them across CDSS and CDE. In 2020, New Mexico created a cabinet-level Early Childhood Education and Care Department to consolidate programs that previously were scattered across multiple agencies.

Simplify major programs to reduce administrative burden

Navigating a fractured funding landscape is not the only challenge providers face. They also must deal with onerous rules and regulations within the state’s major programs. These rules and regulations force providers to devote scarce resources to compliance, which increases the overall cost of delivering child care service, and reduces the overall amount of affordable child care the state can support.

Regulatory burdens show up consistently across California’s child care program landscape. Within CSPP, for instance, providers face complex and detailed regulations regarding how to prioritize which children to serve. The parameters include: risk of neglect or abuse, family income, dual-language learners, and exceptional needs (disabilities). CSPP providers must set up rigorous protocols (which are also burdensome for parents) for assessing these parameters and documenting decision processes with respect to enrollment. The voucher system is also plagued by administrative burdens that add cost and detract from providers’ core mission. For instance, under the state’s core programs, providers must submit detailed attendance records each month documenting when each child entered and left care each day.

Regulatory burdens also interact negatively with the fractured funding landscape. Different regulations under different funding streams can prevent providers from enrolling mixed classrooms that include private-pay, contract-funded, and voucher-funded children.⁴² Even if some providers have the administrative capacity to enroll children funded under different funding streams in California’s fragmented system, regulatory barriers can keep them from doing so.

Finally, the burdens discussed here that apply to providers participating in publicly funded programs exist over and above the basic requirements providers must meet just to obtain and keep licensure and credentials. Applications for licensure include details on the center’s finances, a sketch of the physical location, details about employees, and many other items. Licenses are only provided after physical inspections from CDSS agents, which can be a cause of delay. Keeping the license then requires maintaining strict records of children and teachers, submitting annual forms, keeping logs of fire drills and disaster plans, recording curriculum, and other processes.

Some of the protocols California has in place exist to prevent fraud, which is clearly important. But given California’s child care cost and shortage of providers, regulators should work with providers to determine ways to modify burdensome protocols to reduce costs while retaining core benefits. More broadly, setting up a simpler system would make it easier to prevent fraud without resorting to burdensome procedure. The costs of fraud prevention should not be borne by child care providers and families — they should be minimized and borne by the state.

Demystify the system for families

Due to the complexity of the system, parents in need of assistance often do not know how to receive the assistance for which they are eligible. A 2024 study from the Child Care Resource Center based on listening sessions with 60 California participants concluded: “It is evident families seeking child care support face many complex struggles at multiple points in their journey to access child care financial assistance and find a provider that fits their needs.”⁴³

This matters for two main reasons. First, it means that, even as funding increases, take-up of subsidized child care programs may not increase proportionately, leaving state-funded services unused. Estimates from the California Budget & Policy Center indicate that, as of 2023, only 14 percent of children eligible for subsidized child care were enrolled (though this cannot be wholly attributed to administrative burdens).⁴⁴ Second, it means that many California families use scarce time and energy securing the state services they need. This time could be used for working, going to school, taking care of family members, or any number of other important things. Taking this time away imposes a real cost on families in need.

To demystify the system for families, the state should establish a one-stop-shop online marketplace that matches providers with available slots and parents in need.⁴⁵ California has traditionally relied heavily on state-funded non-profits called Resource & Referral (R&R) agencies to match providers with families. In 2022, the statewide network of R&R agencies launched a website aiming to provide families in need with information about child care providers in their area. But the state government should make this service much more comprehensive, allowing parents to fill out a common application online to quickly determine program eligibility, track positions on waitlists, and receive an online voucher. Based on program eligibility, the online marketplace could then show the out-of-pocket costs parents would incur at different providers.

In addition to reducing families’ administrative burden and potentially increasing program uptake, consolidation into a single marketplace can also mitigate some perverse incentives. Many R&R agencies also have state contracts to administer voucher payments as Alternative Payment agencies. This creates a potential incentives problem. R&R agencies that also operate as Alternative Payment agencies benefit from referring parents to voucher-based providers in their networks, since they administer the payment. They have less incentive to refer families to contract-based care.

Demystify the system for policymakers

For government officials, policy advocates, and researchers, complexity and illegibility make it difficult to determine what parts of the system are working, and what aren’t.

There are signs that the system is working poorly. We’ve discussed overly burdensome regulations, but in some cases evidence suggests overly lax regulatory oversight has led to increased state spending without corresponding growth in child care slots. Even as CSPP funding has grown significantly, enrollment has fallen. In the 2022-23 budget year, CSPP funding could have served 211,000 children, but program enrollment was just 100,080.⁴⁶ More starkly, an additional $3.1 billion entered the system for child care and state preschool between 2019 and 2023, without actually increasing the amount of licensed capacity.⁴⁷

How could this be? The uncomfortable truth is that researchers do not know for sure, because publicly available data on child care is so limited.

One potential culprit is a Covid-era policy known as “hold harmless” that allows providers to continue to be paid at or near full contract amounts despite low enrollment. This policy has been continually extended, potentially reducing providers’ financial incentive to recruit children. Even as it potentially reduces enrollment, many in the field consider “hold harmless” essential to maintaining the financial viability of centers offering contract-based care.⁴⁸ This highlights the complex challenges of balancing the preferences and needs of different stakeholders in the child care system.

Crafting policy and regulations to respond to tradeoffs and challenges requires system legibility. As a start, the state should build a data system that provides a clear picture of enrollment and provider participation across the state’s various programs.

California deserves credit for designing and funding one of the country’s most inclusive Medicaid programs, which primarily offers health insurance for low-income Californians. But at the same time, Medi-Cal suffers from similar issues of complexity, kludge, and inefficiency as the affordable housing and child care programs we have discussed.

This matters greatly since Medi-Cal is such a large program. Jointly funded by the state and by the federal government under Medicaid, Medi-Cal covers roughly one in every three Californians, and has a total budget allocation of nearly $200 billion split between state and federal spending. In 2025-26, nearly $45 billion in funding came directly from the state’s General Fund, comprising around 20 percent of California’s total General Fund spending.

Coverage has been expanded significantly over the past couple of decades through the Affordable Care Act and the Covid-19 response, but budget constraints are now leading to some rollbacks.⁴⁹ Reforming Medi-Cal for effectiveness and efficiency can protect Californians’ critical health benefits from federal policy threats and state budget cuts.

Expand automatic renewal to reduce administrative burden

The One Big Beautiful Bill (OBBB, enacted as H.R. 1) will impose new administrative burdens and barriers to care for Medi-Cal beneficiaries in California. Particularly impactful for California are the provisions that add work requirements and require renewal every six months for the nearly 5 million adults who receive Medi-Cal due to the Affordable Care Act (ACA) coverage expansion. These are slated to be implemented in January 2027. California can work to mitigate negative effects of federal policies like OBBB and ensure that residents are receiving the health benefits for which they are eligible.

Automatic (or “ex parte”) renewal is a critical tool. Traditionally, the onus was on beneficiaries to submit necessary paperwork to the state government to renew their Medi-Cal coverage. This led to frequent lapses and gaps in coverage. The ACA required states to implement automatic renewal, whereby the government uses system data to try to determine eligibility, and only requires paperwork from beneficiaries if existing system data is insufficient. But states varied markedly in the degree to which they built systems capable of actually implementing automatic renewals.

Before the Covid-19 pandemic, California was a laggard when it came to automatic renewal. Around a third of renewals were handled automatically, compared to over 70 percent in top states.⁵⁰ During the pandemic, the federal government discouraged states from disenrolling Medicaid beneficiaries. When that policy expired in 2023, around 2 million Californians lost their coverage — roughly two-thirds of them for procedural reasons. Some 15 percent of those people later had their benefits reinstated. This represents a lower bound on the number of people who lost coverage despite being eligible, because many procedurally disenrolled people did not complete the paperwork required to reinstate benefits.⁵¹

Later in 2023, California obtained a waiver from the federal government allowing it to use additional shortcuts to verify eligibility. This, alongside data system improvements, boosted automatic renewal significantly by mid-2025. However, rates fell back down to pre-unwinding levels that same year when federal waivers expired, and have not recovered.⁵² This leaves Medi-Cal beneficiaries extremely vulnerable to the new administrative burdens imposed by OBBB. With renewal required every six months, plus an added work verification, many eligible Californians will lose coverage simply because they do not submit the right paperwork.⁵³

California can protect these residents by passing legislation that re-establishes the automatic processes that were so successful in boosting automatic renewals in 2024 and 2025. Work requirements add a new obstacle, though. California should build new capacities to automatically verify that beneficiaries meet requirements by drawing on data collected through the Employment Development Department, CalFresh, CalWORKs, and other existing systems.

Consolidate and standardize Medi-Cal managed care

Managed care is the backbone of Medi-Cal. In the managed care system, the state contracts with health plans to coordinate and manage care on behalf of beneficiaries. In return, plans are paid a fixed monthly rate. The plans must develop adequate networks of providers, and negotiate provider payments. Managed care aims to control costs by giving plans a direct financial incentive in managing costs. They keep the difference between the fixed rate and what is spent on beneficiaries’ health services.

Analysts broadly agree that the system has become overly fragmented, complex, and administratively burdensome.⁵⁴ This negatively affects providers, patients, and the broader public. Plans often have different rules and procedures around billing, prior authorizations, and credentialing. This reduces providers’ incentive to accept Medi-Cal patients, especially given relatively low payment rates. This, in turn, harms Medi-Cal beneficiaries who can have a difficult time finding providers who will treat them — especially for specialty care. The disruption in patient-provider relationships also has negative effects on patients’ health.⁵⁵

The simplest solution is for the state to enforce greater standardization across managed care plans. The state could require one prior authorization process, one provider enrollment process, and one set of quality metrics. This would greatly reduce provider burdens and potentially increase their participation. It would also likely make the system easier for patients to navigate.

A second step would be to consolidate plans to reduce fragmentation in the managed care system. As it stands, some counties have several plans participating, while others have just one private and one public plan, and others only one option. Research shows that patients tend to experience better outcomes in counties with just one or two plans.⁵⁶ The state has already begun to promote consolidation over the past few years, but could progress towards a simpler system featuring just one or two plans per county.

The state could also pursue a more extensive restructuring of the system for greater simplicity and efficiency. In a recent paper, Naman Shah proposes dealing with fragmentation and complexity in the managed care system by creating a single statewide provider network.⁵⁷ This would mean Medi-Cal patients would be able to see any provider in the Medi-Cal system — versus only providers associated with their particular plan. Consolidating administrative functions from two dozen to one statewide administrative organization would improve efficiency. Providers would no longer have to interface with multiple different plans. Plans could compete on care management, not provider network design.

Integrate Medi-Cal and Covered California

Consolidating Medi-Cal into a single provider network can also facilitate greater integration across Medi-Cal and Covered California.⁵⁸ Currently, Californians with very low incomes are eligible for Medi-Cal, and Californians with slightly higher incomes are eligible for a highly subsidized private plan purchased through Covered California. This fragmentation means that when people’s incomes change, they can cross in and out of Medi-Cal and Covered California eligibility. Each crossing can mean a new plan, a new network, and a new doctor. When enrollees are forced to switch plans, hospital admissions rise the following year, prescription fills for chronic conditions drop, and primary care visits fall.⁵⁹

If California builds a statewide provider network, the integrated Medi-Cal product could then be offered on Covered California, and people could be defaulted into it when their incomes cross the eligibility threshold. California already auto-enrolls people leaving Medi-Cal into a marketplace plan. But integrating Medi-Cal and Covered California would allow people crossing the eligibility threshold to maintain their provider networks, which is hugely beneficial to health outcomes.

The fact that similar problems of fragmentation and complexity show up across public programs in California indicates a common underlying politics. Identifying and exploring political challenges can inform strategies for overcoming them.

The first underlying political driver is federalism. The federal government, states, and localities often jointly fund and implement public programs. This is a recipe for fragmentation and complexity. Federal and state funding sources can carry different rules and requirements. Funding sources may not blend well, necessitating separate programs entirely. For instance, as we discussed, the mix of federal and state funding contributes to the 14 different public funding streams for child care services in California — and the resulting complexity and illegibility for providers and beneficiaries.

Historically, the state has put the onus on service providers to blend and braid funding streams. Moving forward, the state government should make it much easier for providers to draw on multiple funding sources. It can do this by pooling funds upstream so that providers can access them through one process. This can absorb the complexity federalism produces rather than passing it down to providers and beneficiaries. Minnesota and Massachusetts are already putting this into practice with affordable housing funds.

Second, government officials’ incentives can also drive fragmentation and complexity in public programs. Legislators are more likely to be rewarded for launching a new program than for doing the hard work of cleaning up an existing one. In California, in particular, legislators tend to be evaluated based on the bills they champion — much less so whether those bills actually work on the ground. This has turned the California legislature into what some have characterized as a ‘bill factory’ — churning out numerous new bills, only a portion of which have strong impact. When new programs are constantly being layered upon existing ones, the result is fragmentation, complexity, and inefficiency.

These poor incentives are likely driven in part by lack of robust two-party competition in California.⁶⁰ In a competitive two-party system, majority party leaders have a strong electoral motivation to get members of the party to work together to improve the performance of government programs. If they don’t, the minority could win control of government. In California, Republicans do not pose a serious threat, so Democrats have much less to lose from public dissatisfaction with inefficient programs. As a result, they may be less likely to work together on cleaning up existing programs, and individual legislators are more likely to promote their own political brands by championing new policies.

The incentives problem is also relevant for officials at the agencies that implement California policy. Agencies are often constrained by the letter of the law, and in many cases focus more on correctly following procedure than on outcomes for the state. Fraud prevention adds another layer. Fraud is a real problem in California government programs. During the Covid-19 pandemic, for instance, up to $31 billion in unemployment benefits was paid to scammers.⁶¹ Republicans regularly criticize Democratic policymakers for allowing fraud, and use fraud as a rationale for spending cuts. Agencies often respond by making administrative hurdles increasingly burdensome, which in turn drives complexity and inefficiency.

California is currently experimenting with reforms to refocus governance on outcomes.⁶² The California state assembly is piloting a process in which legislators can work with policy committees and stakeholders to study the effectiveness of a bill they previously sponsored over the course of a year. At the end of the process, they announce what they have learned, and how they intend to respond. There are many outstanding questions about how this process will actually work, but these sorts of experiments are much-needed to figure out how to shift lawmaker attention to implementation.

A third political factor driving fragmentation and complexity is interest group politics. Organized interests wield significant influence over policies passed by the state government. This includes the non-profit organizations and businesses that contract with the government to deliver services. Even if systems are overly fragmented and complex, the organizations involved in service delivery may have little incentive to lobby to simplify and streamline if it means their role might be reduced or cut out. On the other hand, the recipients of public programs who might benefit from streamlining and simplifying are not well-represented in Sacramento. They are a diffuse interest, so are naturally difficult to organize. They also tend to lack the financial resources needed to lobby policymakers. And finally, having to deal with kludgey, complex policies can be disempowering, leaving recipients of public benefits with less capacity to mobilize and organize to improve the systems they must navigate.

One way to rebalance power between advocates seeking to improve the system and groups seeking to protect entrenched financial interests is to build more effective and transparent data systems. As the discussion of housing, child care, and healthcare above shows, too often the inner workings of complex state social programs are opaque to policymakers, researchers, citizens, and even regulators. Fixing a problem requires first being able to see and understand it. Without clear data, it is hard to know what is going on with California’s social programs, see where they are falling short, and determine how to improve them. Organized interests end up with a monopoly on information, which becomes a powerful lobbying tool.

Technological advances are making it ever easier to build data systems and public-facing websites that provide information on California’s social programs in real-time. Unfortunately, the U.S. federal and state governments have often struggled to build and deploy these types of tools.⁶³ It is not enough to just spend more money on web platforms. Among other things, the government needs to hire and foster in-house technical expertise, establish more flexible systems that allow for learning-by-doing, and, over the longer run, develop a culture of experimentation.

California has one of the highest cost-of-living-adjusted poverty rates in the country.⁶⁴ High living costs have been driving Californians out of state.⁶⁵ In this context, effectively leveraging the state’s relatively large budget to deliver assistance is critical. As we show, California could do much better in this regard. Taking the steps we have outlined in this report can allow the state to deliver more assistance with the same levels of spending. This does not preclude additional revenue-raising. If anything, demonstrating effective governance will strengthen the political case for more revenues.

At the same time, as we have outlined in prior installments of this white paper series on making California more affordable, state programs alone cannot resolve California’s unaffordability problem. Most fundamentally, reducing cost pressures in California will require fostering sustainable growth.⁶⁶ State policy has moved in this direction, but there is still much work to be done. The state can also address high costs by systematically reforming regressive regulations that unfairly burden the state’s low- and middle-income residents.⁶⁷

These steps, alongside the measures to improve the effectiveness and efficiency of state programs outlined in this paper, can significantly improve affordability in California. They are not the only affordability-enhancing policies the state could adopt — other measures could aim to boost low-end wages, or increase state revenues for social programs — but the measures we have discussed in this series are essential components of any serious effort to make California a more affordable place to live.

Thanks to Mark Brilliant, Ross Chanin, Jade Jenkins, Leif Haase, Austin Land, Ben Metcalf, Laura Pryor, Michael Reich, and participants at the November 2025 workshop on California unaffordability at UC Berkeley for helpful feedback. Any errors or omissions are the responsibility of the author.