To make California more affordable, reform regressive regulations

1. Introduction

Democratic dominance has allowed California lawmakers to pass liberal policies on environmental protection and clean energy, health and welfare, social issues like gay marriage, and other important concerns. These efforts have done a lot of good. Yet, there is a particular variety of progressive-coded policy that, we argue, has exacerbated California’s affordability problem. These are policies aiming to promote safety, sustainability, or quality that, over the long run, increase the cost of essentials like energy, transportation, housing, and child care.

These policies generally take the form of regulations or standards specifying how things are done and who does them. Their side effects on costs are mostly hidden from public view. When you buy gas or pay the electric bill, for instance, you do not get an itemized list showing how much regulatory policies contribute to California’s high energy costs. These policies are also regressive, since spending on the basics makes up a greater share of the budget for lower-income Californians.

Some of California’s regulations aiming to promote safety, sustainability, and quality produce strong benefits that may justify the costs. But too often, implementation goes awry, leading to policy costs that outweigh the benefits. Sometimes the benefits are minimal or accrue mostly to some powerful organized interest.

California has a myriad of regressive regulations that function as implicit cost-of-living taxes and produce minimal benefits. And these individual rules add up. Together, they constitute a broader system of regressively funded progressivism, and severely worsen our affordability problem.

Here, we discuss three policy areas — energy (including transportation fuels), housing, and child care — where regulations related to sustainability, safety, or quality drive up the cost of essentials. We also show how California’s stringent occupational licensing drives up the cost of services more generally, in addition to restricting opportunities for career growth for young workers.

Where possible, California’s progressive policies should be progressively funded. They should also be effective. In each area, we suggest policy and governance reforms to improve effectiveness and affordability.

Regressively funded progressivism has an underlying political logic. These policies tend to be hidden from public view, have a clear rationale aligned with California’s liberal-leaning politics, and generate benefits for powerful special interests. These political factors make reform challenging. They also mean that dynamics of regressively funded progressivism are likely common across a wider swath of policy areas in California than we are able to cover here.

We start with a discussion of how California should adapt its approach to environmental governance to promote energy affordability. We then move to the state’s building codes, providing evidence-based recommendations for reducing the costs to build housing without compromising on safety and quality. Similarly, our discussion of occupational licensing — with a particular focus on the child care sector — highlights persistent gaps between the at-best modest demonstrated benefits of these policies and their substantial negative effects on affordability and opportunity. Finally, we explore the vexing politics of reforming regressive regulations and identify upstream institutional measures that could help policymakers overcome these political barriers.

2. Reform environmental regulations to promote energy affordability

California has long pioneered clean air and clean energy policy. It was the first state to adopt statewide air quality standards, the first to adopt vehicle emissions standards, and the first to adopt appliance energy efficiency standards. California has had one of the nation’s most ambitious Renewable Portfolio Standards since 2002 and was the first state to launch an economy-wide cap-and-trade program for greenhouse gas emissions in 2013.

California’s efforts to protect the environment and promote clean energy have produced significant benefits for the state and for the country. Air quality has improved dramatically, and California is one of the nation’s leaders in renewable energy deployment. In addition, standards for vehicles or appliances first adopted in California have often become de facto federal standards, with other states following California’s lead and businesses adapting to continue selling in California and other major markets.

California’s ambitious environmental policies have also generated costs, especially higher prices for gasoline, electricity, and natural gas. For some policies, unfortunately, the environmental benefits are minimal. In this section, we propose policy and governance reforms that can reduce energy costs without compromising key environmental goals.

Reform the Low Carbon Fuel Standard

As of 2025, California had the most expensive gasoline in the country, with prices approximately $1.50 higher than the U.S. average. The California gasoline premium has grown markedly since the turn of the century, when gas was approximately 35 cents more expensive (in today’s dollars) than in other states, largely due to a higher gas tax.

California still has a steep gas tax but has also layered on other policies that produce higher fuel costs. Three in particular have had pronounced effects on gasoline prices. First, in 2003, the California Air Resources Board (CARB) mandated that California drivers use a special ultra-low-sulfur gasoline blend known as CARBOB in an effort to improve air quality. This added costs directly, since CARBOB is more expensive for refineries to produce. It also isolated California’s gasoline market. Few refineries outside of the state produce CARBOB, so California depends largely on in-state refineries for gasoline. This means that refinery outages can generate supply shocks that spike prices.

Second, California implemented a “Low Carbon Fuel Standard” (LCFS) in 2011. LCFS is a market-based program that sets a declining annual carbon-intensity target for transportation fuels and allows companies to buy and sell credits to meet compliance obligations. LCFS produces higher costs directly, since producers pass their compliance costs through to customers. It has also reduced the supply of the CARBOB gasoline that California drivers need. LCFS, combined with federal subsidies, has incentivized refiners to switch from producing CARBOB to producing “renewable diesel,” which is made largely from waste fats and residual industrial oils. LCFS has thus narrowed and concentrated California’s gasoline market. Just three companies — Chevron, Marathon, and PBF — are expected to control more than 90 percent of California’s refining capacity in 2026.¹

Third, California implemented economy-wide cap-and-trade in 2013 and extended the system to cover transportation in 2015. Under cap-and-trade, refiners and fuel importers are required to buy credits to account for the greenhouse gas emissions from the fuels they produce. They pass those costs on to consumers. Researchers estimated initial pass-through costs to consumers of around 10 cents per gallon, but these have risen to closer to 25 cents.²

These policies all have clear rationales related to clean air and emissions reductions. They are also all funded regressively. Compliance costs are passed through to consumers, and lower-income Californians spend more of their incomes on gasoline than higher-income Californians. As wealthier Californians increasingly invest in electric vehicles, environmental policies funded via de facto gasoline taxes become more regressive.

Researchers have also called into question the environmental benefits of the LCFS, in particular. A large portion of LCFS credits are going towards biofuels produced outside of the state.³ Fuel sellers are required by national law to sell a certain amount of biofuels, and they are increasingly directing those sales to California in order to benefit from the LCFS. What this means is that California drivers are paying for biofuel companies to shift their sales to California, with potentially no net displacement of fossil fuels.⁴

Even if LCFS encouraged greater biofuel use rather than simply shifting where biofuels are consumed, the broader environmental benefits of biofuels are questionable. The LCFS is designed to encourage the use of more sustainable biofuels like those made from used cooking oil, but in recent years a greater percentage of biofuels consumed in California have come from soybean oil.⁵ The production of oil from soybeans and other crops can lead to deforestation and also lead to higher food prices by reducing cropland available for growing food.

In 2025, CARB implemented steeper carbon intensity reduction targets in addition to new safeguards limiting credits generated from biofuels.⁶ Over the next several years, these are likely to increase program costs for consumers significantly from 2024 levels of around 10 cents per gallon. CARB has not publicly estimated how the 2025 reforms will affect the price of gasoline, nor has it produced a rigorous analysis of the environmental benefits of the program.⁷

Moving forward, CARB should produce a rigorous, clear, and comprehensive analysis of the benefits and costs of the LCFS, and the data and methods should be made available to outside researchers. The state should not be asking California drivers to pay more for transportation without clearly demonstrating the costs and public benefits. If CARB will not produce a clear analysis, the legislature should get involved and perform its oversight duties.

Clear and transparent accounting is the first step. With this analysis in hand, California lawmakers can determine whether to retain the 2025 updates or reform the policy to promote greater transportation affordability. In addition, with a clearer idea of the benefits LCFS is producing, policymakers can explore ways to achieve those benefits in a less regressive manner.

Remove rooftop solar subsidies and wildfire hardening from electricity rates

Electricity costs in California were relatively low until recent years. Per-kilowatt-hour prices in California have long been marginally higher than the national average, but consumption is generally much lower due to California’s temperate climate and energy efficiency investments. Not anymore. Prices have risen from about a third higher than the national average in 2015 to more than 80 percent higher as of 2024.⁸ Even with much lower usage overall, homeowner electricity costs in California now exceed the national average.⁹

Recent research has identified two core drivers of these electricity rate increases: subsidies for rooftop solar and spending on wildfire prevention and mitigation. Spending on grid upgrades and infrastructure to facilitate renewable energy has also likely contributed to rate increases, but to a much smaller degree.¹⁰

Rooftop solar subsidies and electricity rates

Since 1996, homeowners who install rooftop solar systems have benefited from a policy known as “Net Energy Metering” (NEM). NEM allows solar owners to essentially run their meters backwards when they produce power, receiving full retail-rate credits for electricity they export to the grid. In the early 2010s, as rooftop solar installations became more common due to falling panel costs, California’s electric utilities began expressing concern about NEM. They claimed that allowing rooftop solar owners to net out their bills meant that the fixed costs to maintain the grid were being shifted to non-solar customers. Most economists agreed.

Responding to these concerns, the California Public Utilities Commission modified NEM in 2016 and 2022 to address the cost shift and reduce rates for non-solar customers. But, even with these modifications, non-solar customers have shouldered higher grid costs as rooftop solar has grown in California and electricity rates have gone up. These dynamics can spiral, as higher electricity costs incentivize more rooftop solar adoption, which shifts more costs onto non-solar customers’ bills.¹¹

UC Berkeley economist Severin Borenstein estimated that as of 2024, the cost shift from rooftop solar made up 12-15 percent of Pacific Gas and Electric’s (PG&E) residential electricity price, 9-11 percent of Southern California Edison’s (SCE), and 19-22 percent of San Diego Gas & Electric’s (SDG&E). The California Public Advocates Office estimated that the total rooftop solar cost shift grew from $3.4 billion in 2021 to $8.5 billion as of 2024.¹²

Rooftop solar lobbyists and some environmental groups claim that these estimates undercount the value rooftop solar delivers to the grid.¹³ Economists and CPUC analysts generally agree that NEM in California increases rates for customers without solar, though credible estimates of the size of the cost shift vary.

Wildfire hardening and electricity rates

The second major component of California’s rising electricity rates is wildfire spending. Before 2019, wildfire spending was a negligible portion of utility bills in California, but it now comprises between 10 and 24 percent of bills for most customers.¹⁴ California’s large electric utilities have spent a huge amount of money to reduce the risk that their equipment causes a wildfire. They pass those costs on to ratepayers. Between 2019 and 2024, investor-owned utilities collected around $27 billion in cost recovery for wildfire mitigation and wildfire insurance premiums.¹⁵

Utilities’ strong incentive to spend heavily on wildfire hardening stems in part from California liability law. In California, utilities are liable for wildfire damages caused by equipment regardless of determinations of negligence — whereas in most states, liability requires a negligence finding.¹⁶

Wildfire spending, in addition to potentially reducing liability from causing a damaging wildfire, can also generate strong returns for utility investors. For instance, utilities have historically received a high rate of return on infrastructure deployed to underground electricity lines, even though research indicates that undergrounding is generally not cost-effective for wildfire reduction compared to lower-cost interventions like installing fast-trip equipment settings.¹⁷ To its credit, the California legislature has passed legislation over the past few years limiting utilities’ ability to earn high returns on wildfire-related spending.

Balancing state goals and electricity rates

There is no inherent problem with spending heavily on rooftop solar subsidies and wildfire hardening in California. The state has positioned itself as a leader on climate change mitigation, and rooftop solar is an important component of the clean energy transition. Likewise, as climate change has made California hotter and drier, investing to make the electric grid more resilient and less prone to sparking fires is a worthy goal.

For a state struggling with affordability, however, the problem with both is the funding structure. Ratepayer-funded subsidies and infrastructure investments are regressive by nature. They hit middle- and lower-income Californians the hardest.

The misaligned incentives these policies can create worsen the impact on affordability. Generous NEM programs incentivize rooftop solar investments but disincentivize homeowners from installing battery systems that the grid also needs. Utilities face full wildfire liability regardless of negligence and earn high returns on hardening investments. Together, these incentivize more ratepayer-funded capital spending on resilience — which is exactly what we have seen. They also disincentivize local governments and property owners from investing in wildfire hardening. Perversely, by driving up electricity prices, these policies also discourage emissions-reducing investments in vehicle and appliance electrification.

In a 2022 report, UC Berkeley researchers proposed shifting some of the costs for long-run grid investments (including to reduce wildfire risk) onto the state budget.¹⁸ This would reduce the burden on low- and middle-income Californians. We agree, while recognizing also that this solution raises difficult questions about state budget priorities given the presence of structural deficits. The state should also adopt more rigorous cost-benefit analysis to ensure utilities use state funds prudently to reduce wildfire risk.

The same UC Berkeley report proposes dealing with inequity in rooftop solar subsidization by adding a fixed monthly charge for connecting to the grid based on customers’ income (an “income-graduated fixed charge”). This would allow utilities to lower per-unit prices and still collect the revenue they need to run the grid. It would also limit the ability of Californians to avoid paying grid costs by installing rooftop solar, reducing the regressive cross-subsidy from non-solar to solar customers.

Consistent with the report’s recommendation, the California legislature passed AB 205 in 2022, which includes a provision requiring an income-graduated fixed charge for customers of California’s investor-owned utilities. Implementation is still ongoing, though it appears the charge will be lower than what was proposed by the major utilities — potentially too low to have a significant effect.¹⁹

Adapt environmental governance for greater affordability

Loosening the LCFS and removing rooftop solar subsidies and wildfire spending from electricity rates are two clear ways to improve energy affordability in California. But the lessons from these reforms can be applied more broadly. Over the longer term, California should adjust its approach to environmental governance towards greater transparency, cost-effectiveness, flexibility, and progressivity. Doing so can deliver greater energy affordability while still promoting environmental sustainability.

State regulators should be transparent about what Californians are being asked to pay to support the state’s environmental ambitions. They should be expected to demonstrate the positive effects of the various environmental programs. Programs that produce high costs but minimal benefits should be reformed or eliminated.

When possible, the state should also consider options for shifting costs up the income ladder to reduce the impact on low- and middle-income Californians. Greater progressivity can be achieved by rebating revenues from market-based environmental programs to low-income Californians. It can also be achieved by funding subsidies or other environmental programs via the state General Fund, rather than through regressive regulations.

This framework should be applied to reexamine two longstanding pillars of California environmental governance: the CARBOB fuel standard and cap-and-trade. Consider, first, CARBOB. The benefits of cleaner air in California are enormous, and there is strong reason to believe the CARBOB blend generates cleaner air. At the same time the interaction of the CARBOB requirement with California’s planned phase-out of combustion vehicles could drive much higher gasoline prices.²⁰ That’s because refiners will be averse to making capital investments in conventional gasoline supply, so in-state supply of CARBOB is likely to dwindle.

In this context, it is critical that the state maintains the capacity to import CARBOB-compliant gasoline. If lack of supply pushes prices significantly higher, the state should consider either relaxing the CARBOB standard or providing relief for low- and moderate-income Californians who rely on gasoline-consuming vehicles. CARB should also produce an updated, rigorous assessment of the current environmental benefits of the CARBOB standard compared to the costs.

California’s cap-and-trade program is more flexible than the CARBOB standard, but has broader cost impacts beyond transportation. It pushes up the cost of natural gas, electricity, and energy-intensive industrial production, among other activities. Researchers have questioned the environmental benefits of cap-and-trade, as regulators have diluted the program in response to political pressures.²¹

Originally, designers of California’s cap-and-trade program envisioned that it would catalyze similar programs in other states and countries, which could then be linked to create broad and efficient carbon trading systems. Outside of linking with Quebec’s system, the catalytic effect envisioned has not come to fruition (although there are discussions of linking with Washington). With this in mind, it is worth closely examining the costs and benefits of running a (mostly) isolated cap-and-trade program and considering major reforms.

3. Reform building codes for housing affordability

Every three years, the California Building Standards Commission (CBSC) convenes to set the new statewide building code. Using the code set by the International Code Council as their starting point, the CBSC sets standards meant to promote safety and sustainability that cover areas such as electrical, plumbing, fire, accessibility, and green building. Builders consider California’s state building codes to be some of the nation’s strictest (though credible state-by-state comparisons do not exist, to our knowledge).²²

Strong building standards in California make sense given seismic and wildfire risk and the state’s ambitious clean energy and environmental goals. At the same time, California has a massive housing shortage, and stringent building standards can drive up the cost of producing the new homes that the state desperately needs to lower housing costs. Here again, it is essential to consider trade-offs between competing goals.

Similar to some of the environmental regulations discussed above, building standards can operate as implicit taxes that drive up the cost of housing. Pragmatic building standard reforms can improve housing affordability while preserving safety and sustainability benefits.

Allow single-stair midsize apartments

California imposes a number of high-cost statewide building standards that lack strong evidence of safety benefits. One practice is especially detrimental to expanding dense, multifamily housing in urban areas. Following ICC guidance, primarily to promote fire safety, the California Building Code (CBC) requires two separate exits for multifamily residential buildings over three stories. In practice, this means two stairwells.

Adding a stairwell increases materials and labor costs, and takes up valuable space that could be rented or sold. Research from Pew and the Center for Building in North America indicates that eliminating the second stairway from midsize apartment buildings could cut costs by 10 percent without compromising safety.²³ Indeed, New York, Seattle, and Honolulu have long allowed four-to-six-story buildings to have just a single stairway and have not suffered excess fire deaths.²⁴ This standard is also the norm in other parts of the world, without producing safety problems.

Legislation passed in 2023 required the state fire marshal to study and propose standards for single-stairway buildings over three stories. As of 2026, several California cities are working on code revisions that would allow midsize apartment buildings without two stairwells.

Reduce building code bloat

The two-stairwell requirement is just one particularly high-cost standard in a state code that is divided into 12 parts and spans several thousand pages. This produces a “death by a thousand cuts” problem. Many individual regulations have a modest impact, but in combination, they can substantially increase the cost of producing housing.

The state should work to streamline the building code to focus on requirements with meaningful safety or sustainability benefits. This will require rigorous cost-benefit analysis to study the impact of different provisions.

Adjusting the timing of building code updates could also produce greater predictability and less bloat. Currently, standards are updated on a triennial cycle aligning with ICC updates. Since standards are rarely loosened, fast update cycles generally lead to greater building code stringency over time. Fast code update cycles also generate uncertainty for developers. This is particularly problematic for developers of state-subsidized, affordable units, which generally have longer timelines due to the need to cobble together financing from a variety of programs.

In 2025, the state passed AB 130, which freezes updates to residential building codes for six years. While this produces greater stability, it also locks in existing provisions, thus preventing the state from paring back high-cost, low-benefit ones.

Reduce fragmentation across municipalities

In addition to stringent statewide building standards, variation in local building codes across California municipalities generates cost. Local amendments to the state building code can vary significantly, even within the same region. For instance, San Francisco’s building code is, across a number of dimensions like energy, seismic design, and egress, stricter than neighboring Oakland’s.

Municipal variation in building codes requires projects to be designed differently depending on where they are located. This prevents developers from using cost-saving common templates for units located in different municipalities. A recent RAND study on the high costs of producing multifamily housing in California noted high architecture and engineering fees driven in part by complex building codes.²⁵

Local-level variation in building codes can also increase labor costs. It can reduce competition for contractors, who may specialize in building compliant structures in particular locales. With less competition, contractors can raise prices without losing business.

In addition, municipalities may use stringent building codes strategically to prevent unwanted development — without necessarily running afoul of state regulators. Localities are now required by state law to adopt zoning consistent with contributing towards regional housing needs. But they can still impose strict building codes that ensure that new development is expensive enough to keep out new low- and middle-income residents. Moving forward, the state could incorporate building codes into the broader Housing Element framework that pushes localities to contribute to overall housing needs.

Finally, the state could take more direct steps to standardize building code governance. First, the state could establish a state-level appeals process for local code interpretations.²⁶ This way, when builders disagree with how local codes are being applied, they have recourse beyond appealing to the city council — which generally does not have the technical expertise to adjudicate these sorts of disputes. Second, the state could provide localities with a menu of building code options to increase standardization.

Adapt building code governance for affordability

Currently, the CBSC has 11 commissioners, appointed by the governor and confirmed by the State Senate. Seats on the commission are reserved for representatives of particular professions or affiliations: a local building official, a fire official, an engineer, an architect, a public health official, a labor representative, a general contractor or homebuilder, a building materials manufacturer, a local government representative, a member of the public, and a disabled access advocate.²⁷

Although relevant research is limited, we suspect this composition produces a general bias towards stricter standards. The perspectives of these professionals are likely to skew towards maximization on particular goals — e.g., access, safety, public health — rather than balancing these goals with the broad public interest in ensuring that enough homes are built. The state could reexamine the composition of the CBSC board, adding more members with an orientation towards addressing undersupply of housing and unaffordability.

4. Reform occupational licensing to promote affordability and opportunity

The rationale for occupational licensing is straightforward. Certain professions can generate safety risks for consumers, so the public may want the government to certify that practitioners are qualified. However, overly stringent licensing can produce significant costs. The hurdles of getting a license function as a barrier to entry, depressing the supply of services and allowing licensed providers to charge higher rates. Indeed, broad evidence indicates that stricter licensing produces higher wages for licensed professionals — and higher costs for consumers.²⁸

Consumers are not the only ones who bear costs from excessive licensing. Onerous licensure requirements can prevent younger, lower-income workers from entering higher-earning professions. Thus, licensure fuels the affordability crisis from both directions: It produces higher costs for services and prevents people from entering professions where they would be more productive and earn a higher income.

These dynamics are particularly severe in California. California has often been an early adopter of new licensure requirements. It was one of the first 10 states to regulate nearly half of all licensed occupations,²⁹ and California’s current rules are among the nation’s strictest. Researchers at the Institute for Justice regularly survey occupational licensure requirements in all 50 states for 102 low-to-middle-wage occupations. As of 2022, they found that fully 74 percent of these occupations required licensure in California, the third highest rate in the country. For licensed occupations in California, they estimated workers lost an average of 827 days of work to obtaining their licenses.³⁰

The evidence suggests any safety or quality benefits California gets from these regulations are minimal. Researchers associated with the Obama administration reviewed existing evidence on the effects of occupational licensing in 2015 and concluded that most research does not find a licensing impact on quality, public health, or safety.³¹

In California, the bipartisan Little Hoover Commission’s 2016 investigation found that occupational licensure generally existed to protect professionals from competition — not to protect consumers.³² Indeed, research shows that occupational licensing tends to arise when professionals face increases in competition that would lower prices.³³

The Little Hoover Commission also directly linked excessive licensure to inequality and unaffordability, stating, “Licensing requirements protect those who are already licensed at the expense of those who are not, and California licenses more occupations traditionally entered into by lower-income people than nearly every other state… Licensing results in higher prices and reduces the availability of services to lower-income people.”³⁴

Despite the Little Hoover Commission’s indictment of occupational licensing, little has changed in the decade since the report. There are many options modeled in other states for reducing excessive licensure and improving affordability and opportunity.

Relax child care credentialing to increase supply

California’s broken child care system, in particular, could benefit greatly from pragmatic reforms to licensing and credentialing. California’s child care costs are among the nation’s highest, with an average annual expense for infant care of nearly $22,000.³⁵ Child care costs in California are also high relative to California’s median incomes.³⁶

Child care is a vexing policy problem. Because good child care is highly labor-intensive, technological advances that increase worker productivity in other sectors can lead to inflation in child care costs (so-called “Baumol’s cost disease”).³⁷ The high cost of child care, combined with the fact that parents of young children tend to have limited resources, means that many working parents simply cannot afford the child care they need or want. What’s more, high-quality child care benefits broader society by producing better long-run outcomes for children. All of this points to the importance of greater government investment in the child care sector.

But underinvestment from the government is not the only problem with child care in California. Unnecessary regulatory barriers also drive up costs. More specifically, California could facilitate greater supply and lower costs of child care by relaxing credential requirements and offering a simpler path to licensure for new providers.

California has some of the nation’s strictest credentialing requirements for child care workers. Center directors, even for very small centers, are required to obtain 12 early childhood education (ECE) college units, plus three Administration units, alongside four years of experience working with children.³⁸ It is possible to work at a center without college units, but only as an assistant under the direct supervision of a credentialed teacher.

It can be difficult for early childhood educators to obtain the credentials they need to advance in their careers. Time and cost can be major obstacles. Students may face language barriers or difficulty navigating complex requirements. Some colleges and universities choose not to offer ECE coursework because the pay is poor relative to other career tracks.

At the same time, the weight of evidence does not indicate that credentialing for child care workers produces benefits for children. Research generally does not show a robust relationship between staff educational attainment and child outcomes.³⁹

Washington State provides a useful model of a much more pragmatic and functional approach to licensing. Unlike in California, where licensing and credentialing represent a series of barriers potential providers must overcome to practice, in Washington, the state provides an easy-to-follow, funded pathway for potential providers to gain licensure. At the core of the pathway is the Imagine Institute, a state-contracted organization with a mandate to help people start child care businesses via a 10-month, mentorship-based program. Unlike in California, potential providers receive some financial support while they complete training, with less classroom-based learning and more on-the-job apprenticeship. And licensing is based to a much greater extent on demonstrated competencies and experience as opposed to classroom credits.

Bolster sunset review

California already has a process to evaluate and potentially sunset most of the state’s licensing boards. Boards submit a report that includes details regarding their mission and history, budget, priorities and programs, and measures of performance. These are reviewed by a legislative committee. Then, a hearing is held, and the legislature decides whether to pass new authorizing legislation.

The main problem with this process, as the Little Hoover Commission writes, is that “the sunset review process cannot completely escape political forces, and requires a small legislative staff to sort through a mountain of data compiled by the very boards under review in a relatively short period of time.”⁴⁰ As a result, boards’ rules are not often modified by the legislature, and it is virtually unheard of for boards to be sunsetted.

Colorado offers one model of stronger sunset review that California could draw from. Colorado has an independent office, called the Office of Policy, Research and Regulatory Reform (COPRRR), with a mandate and resources to perform systematic analysis of licensing boards (in addition to other regulatory programs). It is required to apply specific criteria to determine whether licensing boards are serving the public interest. This likely contributes to the fact that, according to 2022 estimates from the Institute for Justice, just 33 percent of low- to middle-wage occupations in Colorado required licensure — compared to 74 percent in California.

Improve licensing legibility and transparency

California’s licensing regime suffers from a lack of transparency. Beyond the basic fact of licensing stringency there are often unclear requirements, duplicative steps at multiple agencies, and unpredictable timelines. Even with the same level of licensing stringency, California could likely achieve economic gains from building a simpler, more legible licensing system.

Utah represents one good model. Utah has a centralized “front door” that covers most professions (the Utah Division of Professional Licensing, or DOPL). The agency has a website that allows users to clearly determine what licensing is required for each profession, with a checklist of requirements. It also guides users sequentially through the process of securing licensure, and has made entry pathways explicit for out-of-state workers.

5. The vexing politics of regulatory reform

While politicians are increasingly embracing a message of “affordability,” reforming regressive regulations is politically difficult — even when policy benefits are minimal. The first, and simplest, problem is that these policies are often hidden. When people buy homes in California, they easily recognize that prices are high, but they are unlikely to attribute some of that cost to our strict building standards.

Second, these regulations often have rationales that carry emotional appeal and signal alignment with California’s generally progressive politics. In California, it is hard to take a position against policies that purport to have environmental, safety, or quality benefits. For instance, when people think about the Low Carbon Fuel Standard, they likely envision this policy as part of our efforts to mitigate climate change. They may be less likely to consider how it affects the cost of energy or the technical implementation details that determine whether it is actually effective at promoting decarbonization.

When the public demands action on issues like climate change, the path of least resistance is often to add a new requirement or standard — even if it drives up the cost of living. Funding new policies in this way avoids conflicts over state budget priorities, and avoids the burden of raising new tax revenues, which is especially difficult in California due to Proposition 13.

This is one reason why, as concerns about affordability have grown, a common response in California has been to add new regulations purporting to address the cost of living — that are likely to make the problem worse in the long run. For instance, as exposure to wildfire damages has driven up home insurance costs, California regulators responded by controlling insurers’ ability to raise premiums. Insurers, in turn, canceled policies, driving more homeowners onto the state’s more expensive backup plan.⁴¹ Price controls in home insurance increase the state’s exposure. They also incentivize continued development in fire-prone regions of the state, which will only worsen the insurance affordability problem in the long run.

A third political difficulty stems from the fact that regressive regulations can generate benefits for specific groups, even while they produce a diffuse cost to the state as a whole. Who benefits? It depends on the policy area. As we discussed, one of the drivers of rising electricity costs in California is ratepayer-funded subsidies for rooftop solar installations. Naturally, businesses providing rooftop solar arrays have lobbied intensely to preserve these subsidies.⁴² Similarly, existing licensed professionals use strict licensure requirements to keep out competition and prop up their prices.

Political scientists have long observed that policies with diffuse costs and concentrated benefits tend to be difficult to reform. Concentrated beneficiaries of policies become vested interests that lobby intensely to block reforms. On the other hand, since costs are diffuse, negatively affected individuals and groups are difficult to organize. Concentrated benefits and diffuse costs contribute to a pattern of one-way ratchet, whereby regulatory effects on the cost of living may start small but expand steadily over time.

California’s politics leave it highly vulnerable to these sorts of dynamics. The Republican Party has become less and less relevant, having failed to differentiate itself sufficiently from the national party, which is highly unpopular in California. This has given Democrats in California broad leeway to pass progressive-coded legislation related to sustainability, safety, and quality — policies that have often done much good. However, the weakening position of regulatory skeptics makes it more likely for policies with negative effects on cost of living, and minimal benefits, to be passed or sustained year after year.

What’s more, the GOP’s weakness reduces the incentive for Democrats to get implementation right. Robust political competition motivates the ruling party to ensure that the policies they pass are well-implemented. If those policies end up producing negative effects, they have incentive to diligently reform them. Without sufficient political competition, policies and regulations are more likely to be captured by the organized interests that benefit from them — at the expense of the general public.

6. Upstream solutions for reforming regressive regulations

California’s politics too often allows regulations with regressive effects and limited benefits to emerge and persist. Regressively funded progressivism is difficult to undo. Progress is certainly possible: We have already seen some in energy and housing, for instance. But an important strategy to promote durable reforms is to introduce institutional changes “upstream” from individual policy decisions.

Revamp regulatory review and cost-benefit analysis

The high-cost, low-benefit regulations discussed above are, for the most part, not written directly into legislation. Rather, they emerge from California’s bureaucratic agencies. So, one way to prevent the accumulation of these sorts of regulations would be to revamp the regulatory rulemaking process, and in particular, establish more robust cost-benefit analysis.

Like the federal government, California has a formal process of regulatory review that governs how agencies make new rules. As set forth in the Administrative Procedure Act, agencies in California must go through a public notice and comment period, and regulations are reviewed by the Office of Administrative Law in advance of being finalized. The process is meant to promote rulemaking that is lawful, efficient, and responsive to the public.

Regulatory review was bolstered in 2011 by SB 617, which requires state agencies proposing regulations with anticipated economic impacts exceeding $50 million to conduct formal evaluations called “Standardized Regulatory Impact Assessments” (SRIAs). These are then reviewed by the Department of Finance (DOF). However, a 2017 analysis by the Legislative Analyst’s Office (LAO) of 22 SRIAs prepared between 2013 and 2016 surfaced important issues with the process, which, to our knowledge, have not been addressed.⁴³

For one, LAO analysts found that the costs and benefits of proposed regulations, and their alternatives, were often unmeasured or unclear. They also found that agencies generally did not estimate distributional effects that would indicate where on the income ladder costs and benefits would be felt. They also noted that the DOF has limited authority. It can provide guidance and comments on agencies’ SRIAs, but it cannot require methodological changes to how agencies estimate costs and benefits.

Among other measures, the LAO recommended that the DOF be given a more robust oversight role and proposed a process for retrospective review of implemented regulations — both good ideas in our view that could prevent the accumulation of cost-generating but ineffective regulations.

There are other promising reform avenues to bolster regulatory review and cost-benefit analysis. In many cases, existing cost-benefit analyses are little more than pro forma exercises that justify regulatory decisions that have likely already been made. Incorporating cost-benefit analysis more fully into agency decision-making processes might produce regulation with greater net benefits. In Virginia, for instance, the Department of Planning and Budget plays a much stronger role than California’s DOF in producing impact assessments in coordination with agencies. With its larger bureaucracy and budget, California could establish an office with teams of analysts specializing in particular policy areas that work directly with agencies to estimate benefits and costs of regulatory options.

Expand legislative branch oversight capacity

Revamping formal regulatory review in California would certainly help to prevent the accumulation of cost-generating regulations. But there is a deeper problem of resource and expertise disparities between agencies and the legislature that inhibits legislative oversight and accountability.

In theory, elected legislators write the laws, agencies implement them, and the legislature oversees implementation to ensure fidelity to the law. But when it comes to the technical details of implementation in complex policy arenas like energy and housing, it is difficult for the legislature to keep up with specialized agencies. Legislators may want to respond to public calls for greater affordability but lack the expertise to rein in overzealous agencies and reduce costs.

Greater investment in legislative branch analytical capacity could help. The LAO is an excellent resource for legislators and for the public, but it has limited staff capacity. As of 2025, it had just 43 analysts and 13 support staff. Compare that to CARB, which is just one of many California agencies, and has over 1700 staff members, including teams of engineers, lawyers, and economists. Enhancing legislative branch analytical capacity by investing more in the LAO or some other organization could help with oversight and thus help to eliminate high-cost, low-benefit regulations.

Loosening term limits in the legislature could also rebalance power between the legislative and executive branches, and potentially promote greater oversight and more of a focus on affordability in California’s agencies. Legislators can currently serve no longer than 12 years across both the Assembly and Senate. Allowing legislators to serve for longer periods would reduce turnover, give legislators a greater opportunity to accumulate policy expertise, and increase their capacity to effectively oversee agencies.

Strengthen budget governance

California is a liberal-leaning state. The public, by and large, wants public policies that promote safety, sustainability, and quality. California should not stop passing these sorts of policies. They should, however, be funded progressively when possible. For instance, as we’ve discussed, funding wildfire hardening through tax revenues would be significantly more progressive and better for climate change mitigation than the current approach of funding it through electricity rates.

Shifting these costs onto the state budget, though, requires the ability to raise durable revenues and responsibly manage the state’s budget. Both have been a challenge, for different reasons.

In 2015, the Center on Budget and Policy Priorities (CBPP) assessed how each of the states estimated fiscal effects of legislation as part of their lawmaking process, noting that “state legislators need accurate and useful information about the cost of spending and tax-related proposals.”⁴⁴ They observed that California and Hawaii were the only states without a statutory or legislative rule relating to fiscal notes.

As of 2026, California still does not have a formal requirement for estimates of the fiscal impact of new legislation. Bills that the Legislative Counsel determines to have budget impacts (which is most bills) go through Appropriations, where committee staff prepare bill analysis that includes fiscal effects. The analysis varies in depth and formality depending on staff expertise and capacity. In the past, the LAO took on a bigger role in producing fiscal analysis for bills expected to have a major budgetary impact. Their role was gradually reduced due to budget cuts after the Great Recession. Now their work focuses on the state budget as a whole rather than specific pieces of legislation.

According to CBPP, states can improve fiscal notes processes by preparing fiscal notes for all proposals, assigning the task of preparing them to a nonpartisan fiscal office, analyzing effects over a multi-year period, revising estimates as bills are amended, and posting fiscal notes online. California can improve on all of these fronts. The simplest path forward would be to move backwards: Reverse cuts and expand the capacity of the LAO to evaluate legislative proposals.

A second factor inhibiting careful long-run budget planning and progressive funding of progressive policies in California is the boom-and-bust revenue cycle. California’s budget relies heavily on taxing high earners, including those who earn income through capital gains. When the economy is strong, particularly in the tech sector, revenues can come in above expectations. But downturns in the economy and in tech produce revenue shortfalls and budget deficits. The volatile budget inhibits strategic revenue-raising to address state goals and priorities.

The state has existing rules for building reserves in flush times, but according to recent analysis from the LAO, they are insufficient to cover revenue swings the state is likely to experience.⁴⁵ According to LAO estimates, reserves accumulated under the current system are only expected to cover one-third of funding shortfalls from revenue volatility. Though the details are somewhat technical, they broadly recommend raising the cap on how much can go into the reserve fund, and adding rules that require the state to save more in flush times.

Moving from single-year to multi-year budgeting could also help smooth out the budget. One of the reasons we now have structural deficits in California is that the state overcommitted in 2021 and 2022 when it benefited from huge stock market gains in tech, IPO windfalls, and federal stimulus spending.⁴⁶ California policymakers must balance the budget on a yearly basis, but they can too easily make commitments that lock in future deficits. Multi-year budgeting, requiring the state to balance budgets over some future window (e.g., 2-5 years), would make it more difficult for policymakers to burden the state with structural deficits.

Loosen rules for raising revenues

As part of Proposition 13, adopted in 1978, the California voters required two-thirds majorities in both chambers of the legislature to impose new taxes. 2010’s Proposition 26 expanded the Proposition 13 restrictions to also include a variety of regulatory fees that bring in revenue.

These hurdles for raising new revenues have not stopped the legislature from adopting new programs that cost money, but they have made it more likely that the programs the state does adopt are funded through mechanisms that do not require two-thirds majorities.

Consider, again, wildfire hardening. Infrastructure investments in the electricity grid to improve wildfire resilience are sorely needed. The state is currently making those investments — but they are being funded through electricity rates set by investor-owned utilities and approved by the public utilities commission, as directed by the legislature through a majority vote. These charges are not subject to a two-thirds legislative majority. They are also a highly regressive way to fund wildfire hardening. What’s more, as discussed above, higher electricity rates make it less economical for households to electrify vehicles and appliances — which the state needs to meet decarbonization goals.

Loosening the rules on raising new revenues will make it easier for policymakers to fund new programs progressively through the General Fund and can help prevent the accumulation of regressively funded programs.

7. Conclusion

California should undertake a broad shift away from regressive regulations that increase the cost of living. The state can still pursue a progressive agenda that promotes sustainability, safety, and quality, but we must make sure that these policies are not placing such a heavy burden on California’s struggling low-income residents. As we have discussed, this can be achieved with more effective policy implementation and policy reforms that move costs up the income ladder.

We have offered policy remedies for doing just that in energy, housing, child care, and occupational licensing more broadly. We also discussed the political challenges these reforms would face and proposed upstream institutional measures that can help to overcome political barriers over the long term.

Zooming out, the two broad shifts we have proposed in this paper and in the prior installment — fostering sustainable growth and reforming regressive regulations that increase cost of living — can substantially improve California’s unaffordability problem by flattening cost increases while incomes continue to rise. These are not the only ways California can control cost growth, but they are essential pieces of any credible reform effort aiming to address unaffordability.

This paper and the prior one have taken on the cost side of the unaffordability equation. As we outlined in our first installment in this series on making California more affordable, however, unaffordability is not just about costs. It also depends on people’s incomes and the benefits they receive from the government.

The next installment will closely examine the government benefits side of the unaffordability equation. Given the strength of the economy and size of the state budget, California could be doing much more to combat unaffordability through government programs than it currently does. We will offer a number of policy measures and upstream institutional reforms to more effectively leverage the state budget to make California more affordable.

Acknowledgements

Thanks to Eric Biber, Ross Chanin, Danny Cullenward, Chris Elmendorf, Annie Fryman, Leif Haase, Emily Jacobson, Austin Land, 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 authors.