WHITE PAPER: California’s Fiscal Exposure to Fraud,Waste, and Abuse | A Five-Year Analysis of Major StatePrograms

Author: Herb W. Morgan

Candidate – California State Controller

FPPC: 1480103

Download the PDF here.

Executive Summary / Introduction

California’s state government manages one of the largest public budgets in the United States, with annual spending exceeding $320 billion (all funds) and multi-year programmatic investments reaching hundreds of billions. While these programs deliver essential services — from health care and unemployment insurance to education, housing, infrastructure, and climate initiatives — they also carry substantial risk of fraud, waste, improper payments, and inefficiency.

This white paper presents a line-by-line analysis of potential exposure across major California programs over a five-year horizon. Drawing from official state auditor reports, legislative analyses, federal error-rate data (such as CMS PERM and SNAP Quality Control), budget documents, and documented control weaknesses, this assessment estimates total exposure in the range of $312–$425 billion.

This range reflects:

•       Publicly acknowledged losses (e.g., EDD unemployment insurance)

•       Extrapolations from historical improper-payment rates

•       Systemic oversight gaps in high-volume entitlement programs

•       Chronic delivery inefficiencies in capital and megaprojects

•       Structural risks in pensions and emergency funding

•       Five-Year Estimated Exposure Totals

Category	Exposure Range
Unemployment Insurance (EDD)	$55 billion
Medi-Cal (Medicaid)	$95–115 billion
CalFresh (SNAP)	$20–25 billion
Homelessness & Housing Programs	$20–25 billion
K-12 Education & Special Programs	$30–35 billion
IHSS (In-Home Supportive Services)	$12–15 billion
Capital Projects & Megaprojects (incl. HSR)	$30–50 billion
Transportation Infrastructure (Caltrans & Transit)	$10–20 billion
State IT Modernization & Tech Projects	$5–15 billion
Climate, Energy & Decarbonization Programs	$20–40 billion
Disaster Response & Emergency Declarations	$5–15 billion
Other High-Risk / Emergency Funds	$10–15 billion
Public Pension Spiking	$3–8 billion
TOTAL ESTIMATED EXPOSURE	$312–$425 billion

These figures represent potential leakage in addition to proven fraud. They include improper payments (documentation errors, eligibility lapses, overpayments), administrative inefficiencies, cost overruns, and practices such as pension spiking that create long-term taxpayer burdens. Not every dollar lost is intentional fraud; however, the scale underscores the need for stronger controls, real-time verification, outcome tracking, and accountability.

Key drivers include:

• Massive entitlement programs (Medi-Cal, CalFresh, IHSS, Unemployment Insurance) with high transaction volumes and reliance on self-reported data.

• Limited oversight in homelessness, housing, and grant-funded initiatives.

• Delivery challenges in capital projects and IT modernization, exemplified by repeated cost overruns and abandoned systems.

• Emergency response authorities that prioritize speed over controls, combined with delayed reconciliation.

• Pension system incentives that can lead to contribution underpricing, even as actuarial assumptions become more conservative (a prudent step for beneficiary security, yet one that shifts remaining shortfalls to taxpayers).

This analysis is intended as a high-level exposure assessment to inform policymakers, oversight bodies, and the public. It highlights recurring red flags — from identity fraud and timesheet inflation to invoice padding, sole-source contracting, and unverifiable outcomes — that appear across multiple programs.

Stronger governance, enhanced data analytics, real-time verification tools, competitive procurement, and rigorous post-award monitoring could materially reduce these risks while preserving essential services. Formal, comprehensive audits and increased transparency are critical next steps to protect California taxpayers and ensure public funds deliver maximum value.

Unemployment Insurance (EDD). -- Estimated 5-Year Exposure: $55 Billion 

The $55 billion figure for potential improper or ineligible unemployment insurance (UI) payments administered by the California Employment Development Department (EDD) is not an external extrapolation or advocacy estimate. It is the official total estimate provided by EDD itself and documented in the California State Auditor’s internal control and compliance audit for the fiscal year ended June 30, 2022.⁠ According to the auditor’s report:

“EDD provided an initial estimate totaling $26 billion in paid ineligible benefits. … In response, EDD provided an additional estimate of $29 billion to account for these paid benefits, increasing its overall estimate to $55 billion.

This estimate covers ineligible or overpaid benefits, predominantly from the massive surge in federally funded pandemic-related programs (including Pandemic Unemployment Assistance — PUA) during 2020–2021. California disbursed roughly $188–200 billion in total UI benefits during the peak pandemic period, making the $55 billion ineligible portion represent approximately 27–30% of the total outflow."

The auditor noted significant methodological weaknesses: EDD’s initial $26 billion figure excluded certain confirmed ineligible payments and omitted a large population of claims where claimants failed to provide required documentation for self-employment, earnings, or identity. The additional $29 billion was added to address these gaps, but lacked adequate substantiation, raising concerns about possible material misstatements in the state’s financial reporting for federal funds and governmental activities.

Nature of the Exposure

The $55 billion encompasses both intentional fraud and administrative overpayments. Common issues, include:

• Impostor identity fraud (including organized crime rings and international actors)

• Individuals working while collecting benefits

• Under-reported earnings

• Duplicate claims

• Weak post-award monitoring and verification

Earlier audits had already flagged billions in suspected fraud. For example, a 2021 State Auditor report highlighted that EDD’s suspension of key identity and eligibility checks early in the pandemic opened the door to widespread improper payments.

Recovery and Ongoing Impact

Recovery has been limited relative to the scale. EDD has reported recovering several billion dollars (approximately $6 billion cited in various updates through ongoing investigations and inactivated cards), but the vast majority of the $55 billion is unlikely to be fully recouped. The losses have left California’s UI Trust Fund structurally insolvent, resulting in:

• Borrowing more than $17.8 billion from the federal government (projected to approach or exceed $21 billion)

• Increased Federal employer payroll taxes – Began January 2026

• Continued federal scrutiny, including probes into improper payment rates

This exposure is treated in the broader analysis as the admitted baseline for the pandemic era losses, with no additional percentage-based leakage applied beyond what EDD and the State Auditor have already acknowledged. It forms one of the largest single-line items in this overall 5-year exposure range.

Footnotes / Citations

California State Auditor, Report 2022-001.1, Internal Control and Compliance Audit Report for the Fiscal Year Ended June 30, 2022 (March 2024), available at: https://information.auditor.ca.gov/reports/2022-001.1/index.html.

Sacramento Bee, “$55 billion may have been overpaid in CA unemployment benefits, audit finds” (April 18, 2024).

The Center Square, “California unemployment fund ‘insolvent’ due to $55B fraud and overpayment during COVID-19 crisis” (April 22, 2024).

Medi-Cal (Medicaid) - Estimated 5-Year Exposure: $95–115 Billion

The $95–115 billion figure for potential improper payments and exposure in Medi-Cal (California’s Medicaid program) over a five-year period represents a synthesis of two primary components: (1) an approximate 10% improper-payment rate applied to the program’s large baseline spending, derived from federal CMS Payment Error Rate Measurement (PERM) bands, and (2) an additional $35–50 billion attributed to the cost of state-funded full-scope coverage for undocumented adults.

According to recent California budget documents and Legislative Analyst’s Office (LAO) analyses, total Medi-Cal spending (all funds) has hovered around $150–200 billion annually in recent fiscal years, with projections reaching approximately $197 billion in 2025-26 and $222 billion in 2026-27. Over a five-year window, this equates to a rough cumulative spend of roughly $750–800 billion (or more), consistent with the table’s methodology note. Applying a ~10% improper-payment exposure band to this base yields the core $75–80 billion range, with the undocumented coverage add-on pushing the total to $95–115 billion.

Basis for the Improper-Payment Component

The CMS PERM program measures improper payments in Medicaid (including overpayments, underpayments, and documentation/ eligibility errors). National improper payment rates have fluctuated significantly:

Peaked during the COVID-19 public health emergency (e.g., 21.7% in 2021, largely due to eligibility review challenges and flexibilities).

Declined post-unwinding to 5.09% in 2024 and 6.12% in 2025 (federal share only).

However, pre- and early-pandemic cycles showed much higher rates (often 20–27% in fully audited cycles that included robust eligibility reviews). This paper applies a conservative ~10% band, which aligns with historical PERM findings for high-volume programs like MediCal and accounts for persistent issues in eligibility determinations, fee-for-service claims, and managed care. California has faced ongoing scrutiny from the State Auditor for eligibility discrepancies, with past reports identifying billions in questionable payments due to unresolved data mismatches between systems.

Distinction: PERM rates reflect “improper payments” (payments that do not fully meet statutory, regulatory, or documentation requirements), not solely intentional fraud. A large share (often 70–77%) stems from insufficient documentation rather than proven abuse. Nonetheless, these errors represent real exposure and financial leakage.

Undocumented Adult Full-Scope Coverage Add-On ($35–50 Billion)

California has progressively expanded full-scope Medi-Cal to undocumented immigrants claiming use of solely state General Fund dollars (federal matching is unavailable for this population beyond emergency/pregnancy services). Expansions began with young adults, extended to seniors 50+, and later to all income-eligible adults regardless of immigration status.

Initial LAO estimates for full expansion were in the range of $2–3 billion annually (General Fund), but actual costs have significantly exceeded projections due to higher-than modeled enrollment and utilization. This has led to significant credibility and bias questions being raised around LAO estimates.

Recent analyses place the annual state cost for undocumented comprehensive coverage at approximately $8–10 billion General Fund (roughly one-quarter of total Medi-Cal General Fund spending in some years).

Over five years, this state-funded portion (100% borne by California taxpayers) contributes a substantial incremental exposure, estimated here at $35–50 billion when layered onto baseline improper-payment risks.

Note that starting in January 2026, new enrollments for undocumented adults (ages 19+) in full-scope coverage were frozen, with existing enrollees subject to renewal requirements and future premiums ($30/month for certain adults beginning 2027). This policy aims to moderate future growth but does not retroactively reduce the historical and near-term exposure captured in the table.

Well-documented risk areas in Medi-Cal oversight:

• Provider upcoding: Billing higher-level services than provided.

• Services not rendered / unnecessary services: Phantom billing or medically unjustified claims.

• Referral/kickback loops: Violations of anti-kickback statutes.

• Billing outliers: Anomalous claim patterns.

California’s Department of Health Care Services (DHCS) and the Medicaid Fraud Control Unit investigate these issues, with recoveries in the hundreds of millions annually.

However, the sheer scale of the program (serving ~14–14.5 million enrollees, over one-third of Californians) and reliance on managed care plans and county eligibility determinations create ongoing vulnerabilities. State Auditor reports have repeatedly flagged eligibility determination weaknesses as a high-risk area, with billions in questionable payments identified in prior audits.

Recovery and Ongoing Impact

Medi-Cal program integrity efforts (audits, data analytics, provider screening) generate significant returns on investment, but recoveries remain a fraction of total improper payment exposure. The program’s rapid growth, complex delivery system (heavy managed care), and state-only funding for certain populations amplify fiscal risk. The $95–115 billion five-year estimate treats this as material exposure warranting heightened scrutiny, without extrapolating beyond acknowledged spending levels and historical error bands.

This line item is one of the largest in the overall analysis, reflecting Medi-Cal’s dominant share of state programmatic spending.

Footnotes / Citations

California Legislative Analyst’s Office (LAO), various budget analyses and reports on Medi-Cal expansions and spending (2021–2026), including cost estimates for undocumented coverage.

Centers for Medicare & Medicaid Services (CMS), Payment Error Rate Measurement (PERM) Program reports, including FY 2025 Medicaid Improper Payment Rates (6.12% national rate) and historical cycle data.

California State Auditor, High-Risk Audit Program reports (e.g., 2025-601), noting persistent Medi-Cal eligibility determination issues and questionable payments.

California Governor’s Budget Summary and Department of Finance documents (2025-26 and 2026-27), detailing total Medi-Cal spending of ~$197–222 billion annually.

CalFresh (SNAP) - Estimated 5-Year Exposure: $20–25 Billion

The $20–25 billion figure for potential exposure in CalFresh (California’s implementation of the federal Supplemental Nutrition Assistance Program, or SNAP) over a five-year period is derived from the program’s approximate $150 billion cumulative spending baseline combined with historical and recent SNAP Payment Error Rates (PER), California State Auditor high-risk findings, documented eligibility lapses, and Electronic Benefits Transfer (EBT) theft.

Recent Legislative Analyst’s Office (LAO) budget reports show annual CalFresh and California Food Assistance Program (CFAP) spending in the range of $14.9–$16 billion (total funds, primarily federal for benefits). Over five years, this aggregates to roughly $150 billion when accounting for benefit outlays, administration, and related.

Applying SNAP Payment Error Rates to this base supports the $20–25 billion range. For context, California’s FY 2024 SNAP payment error rate was 10.98% (overpayments plus underpayments), above the national average and well above the federal target threshold. Nationally, SNAP error rates rose sharply during and after the COVID-19 period, reaching over 11% in some years before moderating slightly. California has consistently hovered near or above 10–13% in recent cycles, triggering federal corrective action plans and, under new policies beginning in FY 2028, potential state cost-sharing penalties if rates remain elevated.

Basis for the Exposure Estimate

Payment Error Rates (PER): These measure inaccuracies in eligibility determinations and benefit calculations. Errors include over-issuances (benefits paid to ineligible households or incorrect amounts) and under-issuances. I have applied these rates plus additional high-risk factors identified by the State Auditor.

Auditor and High-Risk Findings: The California State Auditor’s 2025 High-Risk Audit Program explicitly flagged the Department of Social Services (which oversees CalFresh) for persistent issues, including errors in benefit calculations that reduce program effectiveness and could increase state costs. California faces growing federal pressure due to its error rate, with potential billions in new liabilities under evolving SNAP rules that tie federal funding to performance.

Eligibility Lapses: Common problems include failure to timely report changes in income, household composition, or other circumstances, leading to continued benefits after eligibility ends.

EBT Theft: Skimming and card theft surged during the pandemic era. California reported reimbursing victims for tens of millions in stolen benefits in peak months (e.g., over $20 million in one month in early 2024). While the state implemented chip-and-tap EBT cards and other security measures that reduced reported theft by approximately 83% by late 2025, historical losses remain part of the exposure baseline.

The table’s estimate remains grounded in these acknowledged issues without aggressive extrapolation beyond official spending levels and error-rate data.

Nature of the Exposure 

The red flags listed align closely with documented vulnerabilities in CalFresh administration:

• Eligibility errors: Benefits issued after unreported income or household changes.

• Benefits after income/household changes: Failure to recertify or adjust promptly.

• EBT skimming: Criminal theft of benefits via card skimmers (partially mitigated by recent technology upgrades).

• Allegations of internal access abuse have surfaced, though they remain unverified in public audits

I suspect many payment errors stem from administrative or inadvertent household mistakes rather than intentional fraud. However, the cumulative dollar impact represents real leakage from taxpayer-funded resources.

Recovery and Ongoing Impact 

CalFresh benefits are 100% federally funded, but administrative costs are shared, and high error rates now carry financial consequences for the state (including potential future cost sharing under federal reforms). The Department of Social Services and counties conduct quality control reviews and investigations, with some recoveries of over-issuances. EBT theft mitigation efforts have shown success, but historical losses and persistent eligibility challenges keep this area on the State Auditor’s high-risk list.

This $20–25 billion exposure reflects the program’s scale (serving over 5 million

Californians in recent years) and ongoing integrity risks, positioning CalFresh as a material component of broader programmatic exposure.

Footnotes / Citations

California Legislative Analyst’s Office (LAO), The 2025-26 California Spending Plan: Human Services (November 2025) and subsequent budget reports detailing annual CalFresh spending of approximately $15–16 billion total funds.

U.S. Department of Agriculture Food and Nutrition Service, Fiscal Year 2024 SNAP Quality Control Payment Error Rates (June 2025), showing California’s rate at 10.98%.

California State Auditor, 2025-601 State High-Risk Audit Program (December 2025), highlighting CalFresh benefit calculation errors and potential increased costs to the state.

California Governor’s Office, “California reduces theft of food and cash benefits by 83% with state-of-the-art technology” (January 2026).

Homelessness & Housing Programs - Estimated 5-Year Exposure: $20–25 Billion

The $20–25 billion figure for potential exposure in California’s Homelessness & Housing Programs over a five-year period is based on cumulative state appropriations and spending in this area, estimated at roughly $20–25 billion, combined with documented limitations in outcome tracking and fragmented reporting by non-governmental organizations (NGOs) and subrecipients.

Multiple independent analyses confirm that California allocated approximately $24 billion in state funding for homelessness and related housing programs from fiscal years 2018–19 through 2022–23 (a roughly five-year span). This includes major initiatives such as the Homeless Housing, Assistance, and Prevention (HHAP) program, Encampment Resolution Funding (ERF), Homekey, and numerous other grants administered across at least nine state agencies and dozens of local continuums of care (CoCs). Annual spending peaked at around $6.9 billion in 2022–23 before declining in subsequent years due to budget constraints and the exhaustion of one-time pandemic-era funds. HHAP alone has seen roughly $5 billion in General Fund support since 2019, with additional billions flowing through other housing and services streams.

This paper’s methodology note highlights the core vulnerability: limited outcome tracking and fragmented NGO reporting. This assessment aligns directly with findings from the California State Auditor.

Basis for the Exposure Estimate

In its April 2024 report (2023-102.1), the State Auditor found that the California Interagency Council on Homelessness (Cal ICH) and partner agencies had not ensured consistent collection or reporting of program-specific fiscal and outcome data across the billions spent. Key issues included:

• Cal ICH stopped comprehensively updating statewide financial and outcome data after 2021.

• Reliance on self-reported data from grantees with minimal verification.

• Data quality problems in the state’s Homeless Data Integration System, including test/fake client records (e.g., “Mickey Mouse”), duplicate entries, and illogical enrollment figures exceeding shelter bed capacity.

Roughly one-third of program exits listed as “unknown” destinations in some initiatives, and incomplete or missing reporting templates for major programs such as HHAP, SRAP, and ERF (which together exceeded $9 billion).

Subsequent updates in the State Auditor’s 2025 High-Risk Audit Program noted ongoing concerns with accountability, though new legislation (AB 799) now directs Cal ICH to improve fiscal and outcome reporting. Despite these efforts, historical gaps in oversight create material exposure for the full spending base.⁠

Nature of the Exposure 

The red flags identified in the table are consistent with recurring audit and investigative findings:

• Invoice padding: Inflated or unsupported billing for services, rents, or administrative costs.

• No-bid vendor loops: Awards to preferred or related contractors without competitive processes.

• Duplicate billing: Multiple claims for the same services or clients across funding streams.

Weak subrecipient oversight: Limited monitoring of NGOs and local providers, including inadequate verification that funds were used for intended purposes or that services were actually delivered.

Recent examples include federal and local audits revealing weak invoice reconciliation, manual processes prone to error, and cases of alleged fraud (e.g., nonprofit operators accused of fabricating invoices or diverting funds for personal use). A 2024 HUD audit also criticized the Department of Housing and Community Development (HCD) for insufficient anti-fraud policies and risk assessments on homelessness grants.

Recovery and Ongoing Impact

Despite substantial investment, California’s homelessness population has continued to rise (reaching approximately 187,000 in recent point-in-time counts), underscoring questions about program effectiveness and return on investment. Recoveries of improper payments have been limited due to the decentralized structure and reliance on self-certification. The exposure estimate treats the full $20–25 billion appropriations base as carrying elevated risk because of these systemic tracking and oversight deficiencies, without applying an additional percentage leakage factor.

This category represents a significant but somewhat lower-dollar line item in the overall programmatic exposure, driven primarily by governance and accountability gaps rather than high-volume eligibility errors seen in entitlement programs.

Footnotes / Citations

California State Auditor, Report 2023-102.1, Homelessness in California: The State Must Do More to Assess the Cost Effectiveness of Its Homelessness Programs (April 2024).

California State Auditor, Report 2025-601, State High-Risk Audit Program (December 2025), section on accountability over homelessness spending.

Legislative Analyst’s Office (LAO) and California Budget Center analyses of homelessness-related spending (various reports, 2024–2026), noting peak annual spending of ~$6.9 billion and cumulative figures near $24 billion for recent multiyear periods.

Additional context from Hoover Institution and media reports citing the $24 billion figure and outcome tracking shortfalls.

K-12 Education & Special Programs - Estimated 5-Year Exposure: $30–35 Billion

The $30–35 billion figure for potential exposure in California’s K-12 Education and Special Programs over a five-year period is derived from the sector’s substantial cumulative spending base—approximately $500 billion over five years—combined with an estimated 6–7% leakage rate attributable to late reporting, reconciliation issues, and weaknesses in payroll and classification controls.

Recent data from the Governor’s Budget Summary and Legislative Analyst’s Office (LAO) indicate that total funding for TK-12 education (including state, local property taxes, and federal sources) has averaged roughly $134–$150 billion annually in recent years, with per pupil funding reaching record levels (approximately $27,418 total per pupil in 2026-27). Over a five-year horizon, this aggregates to a baseline spend of roughly $500 billion when including Proposition 98 General Fund guarantees, ongoing augmentations, one-time investments, and special programs such as special education, expanded learning, and teacher residency grants. The table applies a conservative 6–7% leakage factor to this large base, resulting in the $30–35 billion exposure range.

Basis for the Exposure Estimate

California’s K-12 system is funded primarily through the Proposition 98 formula, which guarantees a minimum share of General Fund revenues plus local property taxes. Annual totals have grown significantly, with the Proposition 98 guarantee for schools and community colleges projected at $125.5 billion in 2026-27 alone. Despite this massive investment—serving approximately 5.9 million students—oversight challenges persist in areas such as:

Late reporting and reconciliation issues: Delays in accurate financial and attendance data submission can lead to misallocations or overpayments that are difficult to recover.

Payroll and classification control weaknesses: These include job misclassification (e.g., treating employees as independent contractors to avoid benefits or overtime), title inflation (artificially elevating positions to justify higher salaries), and improper stipends.

The estimate remains grounded in the acknowledged scale of spending and documented control gaps rather than aggressive extrapolation.

 

Nature of the Exposure 

The red flags align with recurring issues identified in audits, investigations, and oversight reviews:

• Job misclassification and title inflation: Employees may be improperly classified or given inflated titles to increase compensation beyond what is warranted by actual duties.

• Improper stipends: Unauthorized or unsupported payments for additional duties, often without adequate documentation or approval.

• Unauthorized overtime: Excessive or unverified overtime claims, particularly in large districts.

• Attendance manipulation: Inflated or inaccurate reporting of student attendance, which directly affects Average Daily Attendance (ADA)-based funding. High-profile examples include charter school audits revealing millions (or in one case over $180 million) in ineligible K-12 funds due to misreported attendance and improper credentialing.

These issues are not limited to any single district or charter network but reflect systemic vulnerabilities in a decentralized system with thousands of local educational agencies (LEAs), charter schools, and special programs. Federal and state audits have highlighted risks such as “ghost” students/employees, enrollment irregularities, and inadequate vendor or payroll reconciliation.

 

Recovery and Ongoing Impact

While districts and the California Department of Education conduct audits and quality reviews, recoveries of improper payments or over-allocations remain a small fraction of the total spend. Recent examples of significant findings (e.g., charter school overpayments exceeding $180 million in one network due to attendance fraud and weak oversight) underscore the potential scale. Broader challenges include fragmented data systems, reliance on self-reported information, and resource constraints at both state and local levels for robust real-time verification.

This $30–35 billion exposure positions K-12 education as a major component of the overall programmatic risk profile, driven by the enormous funding volume and persistent control weaknesses in payroll, attendance, and classification processes. Enhanced transparency, stronger internal controls, and improved subrecipient monitoring could help mitigate future leakage.

Footnotes / Citations

California Governor’s Budget Summary 2026-27, TK-12 Education section (ebudget.ca.gov), detailing total funding of approximately $149.1 billion in 2026-27 and per-pupil amounts.

Legislative Analyst’s Office (LAO), The 2026-27 Budget: K-12 Proposals (February 2026) and Proposition 98 Guarantee and K-12 Spending Plan reports, providing context on annual and multi-year spending baselines.

California State Auditor reports and investigations (various, including charter school oversight findings), highlighting issues such as improper fund receipt, attendance misreporting, and payroll/credentialing weaknesses.

Public Policy Institute of California (PPIC) and EdSource analyses of K-12 funding trends (2024–2026), confirming cumulative spending scale near or exceeding $500 billion over five years when including all sources.

IHSS (In-Home Supportive Services) - Estimated 5-Year Exposure: $12–15 Billion

The $12–15 billion figure for potential exposure in California’s In-Home Supportive Services (IHSS) program over a five-year period is based on the program’s approximate $100 billion cumulative spending baseline, combined with an estimated 12–15% exposure rate due to reliance on self-reported hours and limited verification processes.

Recent Legislative Analyst’s Office (LAO) and Governor’s Budget analyses show IHSS total funding (all funds) at approximately $29.9 billion in 2025-26 and $33.4 billion in 2026-27, with General Fund portions of $11.1 billion and $12.5 billion respectively. The program serves roughly 800,000–875,000 recipients monthly, supported by a comparable number of providers. Over a five-year window, cumulative spending reaches roughly $100 billion when accounting for consistent growth in caseload (7–8% annually), cost per hour (~2–3%), and hours per case (~1–1.5%). The table applies a 12–15% exposure factor to this base, yielding the $12–15 billion estimate.

Basis for the Exposure Estimate

IHSS is a consumer-directed program providing domestic, personal care, and paramedical services to low-income elderly, blind, or disabled individuals (primarily Medi-Cal eligible) so they can remain in their homes. Funding is a mix of federal (Medi-Cal), state General Fund, and county shares. The primary vulnerability noted in the table is the self-reported nature of provider hours with historically limited real-time verification before full implementation of Electronic Visit Verification (EVV) systems.

While EVV has been phased in to improve tracking, the program’s design—where recipients (often family members) hire and direct providers, and timesheets are largely self-attested— creates inherent risks of over-reporting. County social workers assess and authorize hours based on need, but post-authorization monitoring of actual service delivery relies heavily on timesheet submissions, recipient/provider attestations, and periodic quality assurance reviews rather than continuous, independent verification for every hour.

The 12–15% exposure rate reflects documented challenges with:

• Timesheet inflation (claiming more hours than actually worked).

• Provider/recipient collusion (agreements to overbill or split payments improperly).

• Impossible-hour patterns (e.g., hours exceeding authorized limits, overlapping claims, or hours claimed during periods when the provider or recipient could not have been present).

These issues have been flagged in program integrity efforts by the California Department of Social Services (CDSS), counties, and the Department of Health Care Services (DHCS) Medicaid Fraud Control Unit. IHSS maintains a dedicated fraud hotline and participates in quality assurance activities, including desk reviews, home visits, and data matches.

Nature of the Exposure 

The red flags align with known program integrity risks:

• Timesheet inflation: Overstating hours worked.

• Provider/recipient collusion: Coordinated schemes to claim unprovided or inflated services, sometimes involving check splitting or concurrent improper billings.

• Impossible-hour patterns: Claims that defy logic (e.g., excessive weekly hours across multiple recipients or hours during documented absences).

The decentralized, consumer-directed model and high volume of transactions amplify the dollar impact. Recent state efforts include enhanced provider enrollment screening, EVV implementation, and targeted investigations, but full real-time verification remains challenging given the program’s scale and family-provider dynamics.

Recovery and Ongoing Impact

IHSS program integrity activities generate some recoveries through overpayment collections and fraud referrals, but these represent only a fraction of potential exposure. The program has faced rapid growth (caseload up significantly since 2019), driven by population aging, Medi-Cal expansions, and policy changes. Budget proposals in 2025-26 and 2026-27 have included reductions and cost shifts (e.g., aligning eligibility with MediCal, capping certain overtime/travel, shifting some hour-growth costs) to manage escalating expenses amid state fiscal pressures.

This $12–15 billion exposure highlights IHSS as a high-risk area within programmatic spending due to its reliance on self-reported data in a consumer-directed framework serving vulnerable populations. Stronger controls, expanded EVV utilization, and improved data analytics could reduce future leakage while preserving access to essential in-home care.

Footnotes / Citations

California Legislative Analyst’s Office (LAO), The 2026-27 Budget: In-Home Supportive Services (March 18, 2026), detailing total funding of $33.4 billion ($12.5 billion General Fund) and primary cost drivers.

LAO, The 2025-26 California Spending Plan: Human Services (November 2025), reporting $29.9 billion total funds for IHSS in 2025-26.

California Department of Social Services (CDSS) IHSS Program Integrity and Quality Assurance resources, including fraud reporting and stakeholder workgroup guidelines on timesheet verification and anti-fraud efforts.

Governor’s Budget Summary 2026-27, Health and Human Services section, confirming caseload and spending trends for IHSS.

Capital Projects & Megaprojects (incl. HSR) -Estimated 5-Year Exposure: $30–50 Billion

The $30–50 billion figure for potential exposure in California’s Capital Projects and Megaprojects (including High-Speed Rail) over a five-year period reflects chronic cost overruns, schedule resets, and scope drift inherent to large-scale infrastructure delivery in the state. This estimate draws from historical patterns of capital inefficiency across major programs rather than a single fixed spending base, treating systemic delivery weaknesses as creating material leakage on multi-year budgets that routinely total tens of billions annually when aggregated across state agencies.

California’s capital outlay and infrastructure spending encompasses transportation (Caltrans and transit), water, energy, education facilities, and high-profile megaprojects.

Annual state capital budgets frequently exceed $10–20 billion, with multi-year commitments pushing cumulative exposure into the hundreds of billions over a decade. The table applies a judgment-based exposure range recognizing that megaprojects regularly experience 20–100%+ cost growth and years-long delays, with High-Speed Rail (HSR) serving as the most visible example.

Basis for the Exposure Estimate

The core drivers are well-documented:

• Chronic cost overruns and schedule resets: Megaprojects frequently see budgets balloon due to incomplete planning, unforeseen site conditions, regulatory changes, and unrealistically optimistic initial estimates.

• Scope drift and re-baselining: Projects evolve in scale or requirements after funding is committed, leading to additional costs.

• Capital inefficiency exposure: Poor risk allocation, inadequate contingency planning, and reliance on complex delivery models amplify leakage.

High-Speed Rail (HSR) exemplifies these issues. Originally voter-approved in 2008 at roughly $33–43 billion for a full San Francisco-to-Los Angeles/Anaheim system with completion targeted for 2020, the project has seen dramatic escalation. Recent 2026 Draft Business Plan estimates place the full Phase 1 cost at approximately $126–231 billion (with various scaled scenarios ranging from $34.76 billion for the Merced-to-Bakersfield segment up to $126 billion for a threshold Los Angeles basin connection). Over $15–18 billion has already been spent with no operational high-speed track laid, multiple federal funding losses (including $4 billion terminated in 2025), and repeated change orders— including a $537 million settlement approved in early 2026. Earlier State Auditor reports (e.g., 2018) highlighted flawed decision-making and poor contract management contributing to billions in documented overruns even in the early Central Valley segments.

Similar patterns appear in other large capital programs, where delivery inefficiencies compound across consultant-heavy project management offices (PMOs), frequent amendments, and cost-plus contracting structures that shift risk to the public.

Nature of the Exposure 

The red flags align closely with recurring audit and oversight findings:

• Consultant-heavy PMOs: Extensive reliance on external consultants and program management firms, which can inflate overhead and reduce direct accountability.

• Change orders: Routine modifications that drive up costs (e.g., the $537 million HSR change order noted above).

• Cost-plus contracts: Structures that reimburse actual costs plus a fee, providing limited incentive for efficiency and exposing taxpayers to escalation.

• Re-baselining: Resetting budgets and timelines when original plans prove unachievable, effectively masking overruns.

These practices are common in complex infrastructure involving environmental reviews, utility relocations, land acquisition, and multi-agency coordination. While not all overruns constitute fraud, they represent substantial inefficiency and lost opportunity for productive public investment.

Recovery and Ongoing Impact

Recoveries through audits or claw backs are limited relative to the scale of exposure. The California State Auditor has repeatedly flagged delivery weaknesses in transportation and megaprojects, yet systemic reforms have been slow. For HSR specifically, ongoing challenges include funding shortfalls, legal compliance questions under Proposition 1A, and political pressures to scale back or accelerate segments. Broader capital programs face similar risks amid rising construction costs, labor shortages, and regulatory complexity.

This $30–50 billion five-year exposure underscores the high fiscal risk in California’s capital delivery model. Improved project selection, stronger upfront planning, fixed price contracting where feasible, and enhanced transparency on change orders and contingencies could materially reduce future leakage while preserving needed infrastructure investment.

Footnotes / Citations

California High-Speed Rail Authority, 2026 Draft Business Plan (February 28, 2026), detailing revised cost estimates for Phase 1 ($126.2 billion threshold to Los Angeles basin) and Central Valley segment ($34.76 billion).

California State Auditor, Report 2018-108, California High-Speed Rail Authority: Its Flawed Decision Making and Poor Contract Management Have Contributed to Billions in Cost Overruns and Delays (November 2018).

Legislative Analyst’s Office (LAO) and media analyses (2025–2026), covering federal grant terminations ($4 billion in 2025), change orders (including $537 million in January 2026), and persistent funding gaps.

Historical context from Governor’s Budget capital outlay summaries and State Auditor high-risk updates on transportation and infrastructure delivery inefficiencies.

Transportation Infrastructure (Caltrans & Transit) - Estimated 5-Year Exposure: $10–20 Billion

The $10–20 billion figure for potential exposure in California’s Transportation Infrastructure programs (primarily administered by Caltrans and involving transit projects) over a five-year period is grounded in the state’s large multi-year capital budgets, which total roughly $30– 35 billion annually in recent years, combined with documented delivery inefficiencies and the amplifying effect of federal matching requirements.⁠ 

According to the Legislative Analyst’s Office (LAO) analysis of the 2025-26 budget, the state allocated approximately $30.9 billion total for transportation-related programs. This includes $16.1 billion for Caltrans (a $719 million or 5% increase from the prior year), funding for local streets and roads, transit, and related initiatives. Caltrans manages a broad portfolio of highway, bridge, and multimodal projects across the state. Over a five-year horizon, cumulative spending across these programs easily exceeds $150 billion when including state funds, federal contributions (such as from the Infrastructure Investment and Jobs Act), and local matches. The exposure range reflects systemic challenges that reduce the effective value of these investments through cost growth, delays, and suboptimal outcomes.

Basis for the Exposure Estimate

The methodology emphasizes large multi-year capital budgets with delivery inefficiencies and federal match amplification. Key factors include:

• Extended project timelines due to planning, permitting, and construction complexities.

• Cost escalations from change orders, material and labor inflation, and unforeseen site conditions.

• Inefficiencies that diminish return on investment, particularly when federal dollars (which often require state matching) are involved—any shortfall or delay can force additional state backfilling or loss of grant funds.

While the California State Auditor removed “transportation infrastructure” from its high-risk list in 2023 after Caltrans demonstrated progress on pavement and culvert conditions, ongoing concerns persist regarding project delivery speed, cost control, and accountability. Examples include individual projects experiencing multi-year delays and tens of millions in overruns (e.g., certain highway widening or bridge rehabilitation efforts). Federal funds amplify the risk because California receives substantial formula and competitive grants; inefficiencies can lead to de-obligation of funds or increased state costs to maintain matching commitments.

Nature of the Exposure 

The red flags listed align with well-documented vulnerabilities in transportation project delivery:

• Environmental review creep: Prolonged or expanded California Environmental Quality Act (CEQA) and National Environmental Policy Act (NEPA) processes that add significant time and cost through additional studies, mitigation requirements, or litigation.

• Amended contracts: Frequent modifications that increase project scope, costs, or timelines after initial awards.

• PMO bloat: Over-reliance on project management offices and external consultants, which can elevate overhead and reduce direct accountability.

These issues are common in complex infrastructure involving environmental compliance, utility relocations, land acquisition, and coordination across multiple agencies and jurisdictions. Much stems from regulatory and planning realities which result in substantial leakage—funds that could otherwise support additional projects or maintenance.

Recovery and Ongoing Impact

Recoveries through audits, value engineering, or contract adjustments occur but typically represent only a fraction of total exposure. Caltrans and the California Transportation Commission continue efforts to improve project readiness, award timelines, and cost estimation. However, the sheer scale of the program—managing thousands of projects statewide—combined with rising construction costs and regulatory complexity, sustains material fiscal risk. Federal matching requirements further heighten the stakes, as delays can jeopardize billions in external funding.

This $10–20 billion five-year exposure positions Transportation Infrastructure as a notable component of the broader capital and structural risk category. Enhanced upfront planning, greater use of fixed-price or design-build contracting where appropriate, streamlined environmental processes (where feasible under law), and stronger oversight of change orders could help mitigate future leakage while advancing critical mobility and safety improvements.

Footnotes / Citations

Legislative Analyst’s Office (LAO), The 2025-26 California Spending Plan: Transportation (October 2025), detailing approximately $30.9 billion total transportation spending, including $16.1 billion for Caltrans.

California State Auditor, prior high-risk assessments and updates (e.g., removal of transportation infrastructure from the high-risk list in 2023 after noted improvements in pavement and culvert conditions).

Governor’s Budget Summary and California Transportation Commission documents (2025-26), covering capital project allocations, award statuses, and ongoing delivery challenges.

Additional context from LAO and media analyses of project-specific delays, cost escalations, and environmental/permitting impacts on transportation infrastructure.

State IT Modernization & Tech Projects - Estimated 5-Year Exposure: $5–15 Billion

The $5–15 billion figure for potential exposure in California’s State IT Modernization and Technology Projects over a five-year period is derived from the state’s history of failed or abandoned IT initiatives, ongoing parallel operation of legacy systems, and repeated vendor extensions that drive up costs without delivering full functionality. This range represents a conservative judgment on cumulative leakage from a portfolio of large-scale modernization efforts that frequently experience significant delays, cost overruns, and incomplete implementation.

California has a well-documented track record of IT project challenges. Between 1994 and 2013, the state terminated or suspended at least seven major IT projects after spending nearly $1 billion. More recent examples include the Next Generation 911 system (over $450 million spent since 2019 before abandonment in 2025 due to operational failures during testing), the BreEZe licensing system (costs tripled from $28 million to $96 million with limited adoption), and the long-running FI$Cal financial system (originally scoped at hundreds of millions but plagued by delays, partial functionality, and extensions well into the 2030s). Other high-profile setbacks include the Judicial Council’s case management system (over $500 million spent before termination) and multiple Department of Motor Vehicles modernization attempts.

As of late 2025, the California Department of Technology (CDT) was overseeing or tracking roughly 29 active IT projects valued at approximately $3.7–$3.75 billion, with additional modernization efforts underway across agencies. Annual state spending on technology modernization, stabilization, cybersecurity, and related initiatives has exceeded $1–2 billion in recent budgets when including broadband, AI, and agency-specific projects. Over five years, the cumulative investment base easily supports the $5–15 billion exposure range when factoring in historical patterns of 20–100%+ cost growth, schedule slips, and systems that never fully replace legacy infrastructure.

Basis for the Exposure Estimate

The methodology highlights a history of failed or abandoned IT systems, parallel legacy operations, and vendor extensions. Key contributing factors include:

• Poor initial planning, inadequate risk management, and weak oversight by the CDT and project sponsors.

• Scope creep, integration challenges with legacy systems, and unrealistic schedules.

• Reliance on external vendors with extended contracts that increase costs without proportional deliverables.

• Endless “agile phases” where projects remain in perpetual development with low actual output relative to spending (little in deliverables vs. burn).

The California State Auditor has repeatedly flagged these issues in reports dating back over a decade, noting that CDT has not always used its authority to intervene effectively, leading to tens of millions (and in some cases hundreds of millions) in avoidable overruns per project. IT infrastructure and security have remained on or near the Auditor’s high-risk list due to these persistent vulnerabilities.

Nature of the Exposure

The red flags listed align directly with recurring audit findings:

• Endless agile phases and re-platforming: Projects cycle through repeated development iterations without reaching stable production.

• Low deliverables vs. burn: Significant spending occurs with minimal tangible progress or completed functionality.

• Parallel legacy operations: New systems fail to fully retire old ones, resulting in duplicated costs for maintenance and support.

Many of these issues stem from complexity, governance gaps, and technical challenges rather than intentional fraud.  The cumulative effect represents substantial taxpayer exposure through wasted resources and foregone efficiencies.

Recovery and Ongoing Impact

Recoveries from failed projects are minimal; funds spent on abandoned systems (e.g., the $450+ million Next Generation 911 effort) are largely sunk costs, with the state often restarting from scratch. CDT has reported some improvement in project planning and outcomes compared to industry benchmarks in its 2025 annual report, but historical patterns and ongoing high-risk status indicate continued material exposure. Parallel legacy systems increase cybersecurity risks, operational inefficiencies, and long-term maintenance costs.

This $5–15 billion five-year exposure underscores the challenges of modernizing California’s aging government technology infrastructure at scale. Stronger upfront project readiness assessments, improved CDT oversight, better vendor accountability, and more disciplined governance could reduce future leakage while advancing digital service delivery.

Footnotes / Citations

California State Auditor, Report 2022-114 (April 2023) and related oversight reports, documenting inadequate CDT intervention leading to delays, cost overruns, and incomplete systems.

CalMatters, “California’s list of failed tech projects just added an agency” (March 6, 2025) and “Newsom’s 911 Debacle Is California’s Latest Failed Tech Project” coverage (2025), detailing the $450+ million Next Generation 911 abandonment and other high-profile failures.

California Department of Technology (CDT), Statewide Information Technology Annual Report 2025, noting active project portfolio values and delivery challenges.

Legislative Analyst’s Office and Governor’s Budget documents (2025-26 and 2026-27), referencing technology modernization investments exceeding $10 billion in recent years across broadband, stabilization, and agency projects.

Climate, Energy & Decarbonization Programs – Est. 5-Year Exposure: $20–40 Billion

The $20–40 billion figure for potential exposure in California’s Climate, Energy & Decarbonization Programs over a five-year period is based on the large volume of grants, subsidies, and investments flowing through Greenhouse Gas Reduction Fund (GGRF) revenues from the Cap-and-Trade (now renamed Cap-and-Invest) program, Proposition 4 Climate Bond proceeds, and related state-funded initiatives. Annual GGRF expenditures have recently ranged from approximately $4–5 billion, with cumulative investments from Cap-and-Trade auction proceeds exceeding $30–33 billion since inception. When combined with additional clean energy, building decarbonization, and climate resilience spending (including portions of the $10 billion Proposition 4 Climate Bond approved in 2024), the five-year baseline easily supports the table’s exposure range.

Recent budgets illustrate the scale: the 2025-26 spending plan assumed roughly $4.1 billion in GGRF expenditures, while the 2026-27 Governor’s Budget includes continued investments such as $326 million for clean energy transmission and ongoing support for long-duration energy storage and equitable building decarbonization programs (which have already received hundreds of millions since 2019). Funds are directed toward a wide array of activities, including clean energy infrastructure, forest health, zero-emission vehicles, and community resilience.

Basis for the Exposure Estimate

The table’s methodology focuses on large grants/subsidies with modeled vs. measured outcomes and weak claw backs. 

Key challenges include:

• Heavy reliance on modeled projections of emissions reductions rather than rigorous, post-implementation measurement and verification of actual results.

• Limited mechanisms to recover (claw back) funds when projects underperform or fail to deliver claimed benefits.

• Diversion of climate revenues to other priorities, such as backfilling CAL FIRE operational costs (e.g., $1–2.5 billion shifts in recent proposals) or high-speed rail, which reduces direct decarbonization impact.

The Cap-and-Trade program has generated significant revenue but faces criticism regarding the attribution of emissions reductions. While the state reports substantial cumulative GHG reductions from funded projects, independent analyses note uncertainty in isolating the program’s contribution amid other policies, economic factors, and market forces.

Some research has questioned the additionality and permanence of certain offsets (e.g., forest carbon credits), with estimates of “ghost credits” that may not deliver real atmospheric benefits.

Nature of the Exposure 

The red flags align with documented oversight concerns:

• Narrative reporting only: Many programs emphasize qualitative success stories or modeled projections rather than audited, quantified, real-world outcomes.

• Unverifiable emissions reductions: Difficulty in confirming that claimed CO₂ reductions are additional, permanent, and accurately measured (particularly with offsets and complex subsidy programs).

• Cost-per-ton outliers: Some initiatives show high implied costs per ton of CO₂ reduced compared to market-based benchmarks like Cap-and-Trade allowance prices, raising questions about cost-effectiveness.

While direct fraud cases in these programs are less frequently highlighted than in entitlement areas, audits have identified waste, improper payments, and misuse in related environmental agencies (e.g., the California Air Resources Board). The decentralized grant structure, reliance on third-party implementers, and emphasis on rapid deployment can create vulnerabilities to overstatement of benefits or inefficient spending.

Recovery and Ongoing Impact

Claw back provisions exist in some programs but are often described as weak or infrequently enforced. The state has made progress in reporting through annual California Climate Investments reports, yet gaps remain between projected and verified outcomes. Budget pressures have led to repeated shifts of climate funds to cover deficits or other priorities (e.g., wildfire response), which can undermine long-term decarbonization goals.

This $20–40 billion five-year exposure reflects the substantial public investment in California’s ambitious climate agenda and the inherent risks when large-scale subsidies depend on complex modeling, limited verification, and evolving policy priorities. Stronger independent evaluation, improved measurement protocols, and tighter accountability for grant recipients could help ensure better alignment between spending and actual emissions reductions.

Footnotes / Citations

California Governor’s Budget Summary 2026-27, Climate Change section (ebudget.ca.gov), detailing ongoing clean energy investments and GGRF allocations.

Legislative Analyst’s Office (LAO), The 2025-26 California Spending Plan: Proposition 4 (October 2025), covering $3.5 billion initial allocation from the $10 billion Climate Bond and GGRF expenditure plans.

California Air Resources Board (CARB), California Climate Investments 2025 Annual Report on Cap-and-Trade auction proceeds and funded projects.

Additional context from analyses by the Legislative Analyst’s Office, independent researchers, and media (e.g., CalMatters) on challenges with emissions attribution, fund shifts to CAL FIRE/high-speed rail, and cost-effectiveness questions.

Disaster Resp. & Emergency Declarations - Estimated 5-Year Exposure: $5–15 Billion

The $5–15 billion figure for potential exposure in California’s Disaster Response and Emergency Declarations over a five-year period serves as a conservative placeholder for spending on pandemic-related, wildfire, flood, and other emergency response efforts, particularly where emergency authorities weaken normal controls, enable rapid contracting, and result in delayed reconciliation of expenditures. This range accounts for the high variability and frequency of declared emergencies in California (wildfires being the most recurrent and costly), combined with documented risks in procurement, oversight, and post-event auditing.

California routinely faces multiple gubernatorial emergency declarations each year, with wildfire response dominating recent costs. In early 2025, Governor Newsom signed special session legislation allocating up to $2.5 billion in emergency funding specifically for Southern California wildfire recovery (following major Los Angeles-area fires that destroyed over 12,000 structures). The state also relies on the Disaster Response-Emergency Operations Account and draws from reserves or special funds during active events. Annual baseline spending on emergency management, CalFire operations, and disaster recovery (including federal match and state backfill) has run into the low billions in recent years, with spikes during major incidents pushing totals significantly higher. Over five years, cumulative exposure from repeated declarations, response, cleanup, and recovery efforts easily supports the $5–15 billion range when factoring in systemic control weaknesses.

Basis for the Exposure Estimate

The table’s methodology emphasizes emergency authorities that weaken controls, rapid contracting, and delayed reconciliation. Under declared states of emergency:

• Normal competitive bidding and procurement rules can be suspended or streamlined.

• Sole-source or limited-competition contracts become common for speed.

• Retroactive approvals and passthrough funding to local governments or contractors increase the risk of inadequate documentation.

• Reconciliation (verifying that funds were spent as intended and services were delivered) often occurs months or years later, if at all.

Recent State Auditor investigations (including the 2025 Improper Activities Report) have identified waste, improper payments, and misuse of state resources in various agencies involved in emergency response. While not all emergency spending is audited in real time, historical patterns from COVID-19 response, wildfire recovery, and other declarations show recurring issues with vendor concentration, limited competition, and challenges in verifying outcomes.

Nature of the Exposure

The red flags listed are classic risks amplified during emergencies:

• Sole-source vendors: Contracts awarded without competition due to urgency, increasing the potential for inflated pricing or unqualified providers.

• Retroactive approvals: Payments or contract changes approved after work has begun, reducing upfront scrutiny.

• Vendor concentration: Reliance on a small number of firms for debris removal, temporary housing, or other services, which can limit accountability.

These issues are exacerbated by the need for speed in life-safety situations (e.g., firefighting aircraft contracts, debris removal after wildfires, or emergency sheltering). While many expenditures are legitimate and necessary, the combination of relaxed rules and delayed oversight creates opportunities for overbilling, undelivered services, or inefficient spending.

Recovery and Ongoing Impact

Post-event audits and reconciliations do recover some improper payments, but the volume and pace of emergency spending often outstrip oversight capacity. Federal reimbursement (FEMA) can offset some costs but requires detailed documentation that is sometimes incomplete due to rapid deployment. Ongoing budget pressures, including repeated draws from reserves or shifts of other funds (e.g., climate bond proceeds) to disaster response, add to the fiscal strain. With climate-driven increases in wildfire frequency and severity, this category is likely to remain a persistent high-risk area.

This $5–15 billion five-year exposure treats disaster response as a material but variable risk bucket. It highlights the trade-off between rapid action in crises and the need for stronger post-event accountability, better pre-positioned contracts, and improved documentation standards even under emergency authorities.

Footnotes / Citations

Governor’s Office announcements and special session legislation (e.g., AB X1-4 and SB X1-3, February 2025), allocating up to $2.5 billion for Southern California wildfire recovery efforts.

California State Auditor, Investigations of Improper Activities by State Agencies (I2025-1, December 2025), documenting substantiated cases of waste, improper payments, and misuse of resources across state agencies.

Legislative Analyst’s Office and Governor’s Budget Summary documents (2025-26 and 2026-27), referencing emergency funding mechanisms, CalFire operations, and disaster response costs.

California Department of Finance and Office of Emergency Services materials on the Disaster Response-Emergency Operations Account and related procurement practices during declared emergencies.

Other High-Risk / Emergency Funds – Estimated 5-Year Exposure: $10–15 Billion

The $10–15 billion figure for Other High-Risk / Emergency Funds serves as a conservative placeholder for a broad category of pandemic-era assistance, special grants, one-time emergency appropriations, and passthrough funding that fall outside the major programmatic areas already quantified. This bucket captures residual risks from delayed reconciliation, weakened controls during rapid deployment of funds, and ongoing vulnerabilities in emergency or discretionary grant administration.

California received and administered tens of billions in federal and state emergency funds during and after the COVID-19 pandemic, including portions of the $27 billion Coronavirus State Fiscal Recovery Fund (SFRF) under the American Rescue Plan Act. These funds supported public health, negative economic impacts, revenue replacement, and various passthrough programs to local governments, nonprofits, and businesses. While many programs have reached or passed their obligation deadlines (with some funds required to be returned to the U.S. Treasury), reconciliation and closeout processes often extend well beyond initial spending periods, leaving exposure to improper payments, unsupported costs, and unverified outcomes.

Additional high-risk emergency funding includes wildfire and disaster recovery grants, homeland security grants, and other special appropriations where normal procurement and oversight rules were relaxed for speed.

Basis for the Exposure Estimate

This item serves as a conservative placeholder for pandemic and special grants with delayed reconciliation. Key risk factors include:

• Speed-over-controls: Emergency declarations and crisis response often prioritize rapid distribution over rigorous upfront verification.

• Passthrough opacity: Significant portions of funds flow through state agencies to counties, cities, nonprofits, and subrecipients with limited real-time visibility or standardized tracking.

• Missing documentation: Post-event audits frequently identify unsupported expenditures, inadequate records, or costs incurred without proper approval.

National and state-level audits of pandemic programs have consistently shown elevated improper payment rates in emergency assistance due to relaxed eligibility checks, high volume, and compressed timelines. In California, examples include challenges with various relief programs where documentation gaps and delayed reconciliations left billions subject to later adjustment or potential loss.

The $10–15 billion range is intentionally conservative, acknowledging that some pandemic funds have already been reconciled or returned, while still capturing ongoing exposure from remaining closeouts, special disaster grants, and future emergency responses.

Nature of the Exposure 

The red flags listed reflect classic vulnerabilities in emergency and high-risk grant environments:

• Speed-over-controls: Funds disbursed quickly with reduced pre-payment reviews.

• Passthrough opacity: Limited transparency and monitoring once money leaves the primary state agency.

• Missing documentation: Inability to fully substantiate that expenditures were allowable, necessary, and properly incurred.

These issues appear in State Auditor reports on high-risk programs and federal oversight reviews of pandemic relief. While intentional fraud occurs (as seen in prosecuted cases involving COVID relief loans and grants), some share of exposure typically involves administrative errors, unsupported claims, or inefficient use of funds.

Recovery and Ongoing Impact

Reconciliation efforts continue for remaining federal funds, with some amounts already identified for return to the U.S. Treasury. State agencies and the California Department of Finance have conducted reviews, but full recovery of improper payments is often limited by time, documentation challenges, and cost-benefit considerations. As emergency funding becomes more frequent due to climate-driven disasters and other events, this category is likely to remain a persistent source of fiscal risk unless stronger pre-positioned controls and standardized passthrough monitoring are implemented.

This $10–15 billion placeholder completes the programmatic and emergency exposure categories and contributes to the overall total. It underscores the tension between urgent crisis response and the need for robust accountability to protect taxpayer resources.

Footnotes / Citations

California Department of Finance, State Fiscal Recovery Fund (dof.ca.gov), detailing the $27 billion Coronavirus State Fiscal Recovery Fund allocations, expenditures, and remaining closeout items.

California State Auditor, 2025-601 State High-Risk Audit Program (December 2025), addressing systemic risks in high-risk spending areas, including emergency and grant programs with delayed oversight.

U.S. Congressional Research Service and federal Pandemic Response Accountability Committee reports on improper payments in pandemic assistance programs, noting widespread control weaknesses during rapid deployment.

Governor’s Budget Summary and Legislative Analyst’s Office documents (2025-26 and 2026-27), referencing ongoing emergency funding mechanisms and special grants.

Public Pension Spiking - Estimated 5-Year Exposure: $3–8 Billion

Public pension spiking refers to practices that artificially inflate an employee’s final compensation (or “final average compensation”) in the years immediately preceding retirement, thereby increasing their lifetime pension benefit at taxpayer expense. A realistic, conservative estimate for the incremental 5-year exposure attributable to spiking and related end-of-career compensation manipulation across California’s public retirement systems is $3–8 billion.

California operates two large statewide systems (CalPERS and CalSTRS) and more than 20 independent city and county retirement systems, including the San Diego City Employees’ Retirement System (SDCERS), LACERA, and SFERS. Recent actuarial valuations show funded ratios that, while improved by strong recent investment returns, remain incomplete:

CalPERS at approximately 79%, CalSTRS at 76.7%, and many local systems (including SDCERS’ City plan) in the 75–79% range. Statewide unfunded pension liabilities total roughly $265–300 billion.

Recent improvements in actuarial assumptions — particularly lowering the assumed rate of return (CalPERS currently at 6.8%, CalSTRS at 7.0%) — have increased reported liabilities in the near term. These changes are ultimately a positive development for plan beneficiaries, as they promote more realistic funding targets and greater long-term security of promised benefits. However, any shortfall in funding, whether from assumption changes, investment shortfalls, or practices such as pension spiking, ultimately falls on taxpayers. Employers (state agencies, cities, counties, and school districts) must cover the difference through higher contributions, increased taxes, or reduced services.

This dynamic creates misaligned incentives for pension board trustees and administrators — particularly those representing employee or beneficiary interests — to underprice annual Actuarially Determined Contributions (ADCs) or adopt relatively optimistic assumptions. Such decisions minimize immediate budget pressure on employers and employees but defer costs to future taxpayers exclusively. Spiking exacerbates this by adding permanent, compounding obligations that are difficult to reverse once granted.

Nature of the Exposure 

Common mechanisms include:

•       End-career overtime (OT) spikes

•       Specialty pay add-ons

•       Leave cash-outs

•       Late reclassifications

The Public Employees’ Pension Reform Act (PEPRA) of 2013 restricted many of these practices for employees hired on or after January 1, 2013. However, legacy employees in both statewide and local systems remain subject to them. Court rulings continue to enforce anti-spiking provisions, but compliance and detection vary, especially in decentralized local systems.

Recovery and Ongoing Impact

Because spiked pensions create lifetime obligations paid over decades, even modest annual leakage accumulates into significant long-term costs. Enhanced transparency — including better compensation reporting — stricter oversight of end-career pay practices, and continued movement toward realistic actuarial assumptions are needed to protect both beneficiaries and taxpayers. Local systems such warrant particular attention due to their governance structures and historical exposure to these issues.

This $3–8 billion five-year exposure estimate is conservative and focuses on the incremental, avoidable portion of the broader unfunded liability challenge. It positions pension spiking as a meaningful but manageable component of California’s overall pension risk profile.

Footnotes / Citations

Reason Foundation, “California’s state and local pension plans have over $265 billion in debt” (December 2025), citing CalPERS ~$166B and CalSTRS ~$39B unfunded liabilities.

California Public Employees’ Retirement System (CalPERS), Actuarial Valuation Reports (2024–2025), showing ~79% funded status and 6.8% assumed return.

California State Teachers’ Retirement System (CalSTRS), Actuarial Valuation (June 30, 2024), showing 76.7% funded status.

San Diego City Employees’ Retirement System (SDCERS), City Plan Actuarial Valuation (2025), reporting funded ratios in the 75–79% range.

Legislative Analyst’s Office (LAO) and State Controller analyses of public pension funding and contribution practices (2024–2026).

Historical State Controller audit (2014) on pension spiking impacts in CalPERS.

Conclusion 

California faces an enormous fiscal challenge: an estimated $312–$425 billion in potential exposure to fraud, waste, improper payments, and inefficiency across major state programs over just five years. From unemployment insurance and Medi-Cal to homelessness programs, capital megaprojects, climate initiatives, and public pensions, systemic weaknesses in oversight, verification, and accountability continue to drain taxpayer resources at a staggering scale.

While some of this exposure stems from genuine errors and administrative complexity, much of it is preventable through stronger controls (hi-lighting the need for a State Controller with deep financial expertise), real-time monitoring, competitive procurement, and rigorous outcome tracking. The recurring red flags identified throughout this analysis — identity fraud, timesheet inflation, invoice padding, sole-source contracts, unverifiable outcomes, and contribution underpricing — highlight the urgent need for fundamental reform rather than incremental tweaks.

The most powerful antidote to these persistent problems is the Radical Transparency framework proposed by the author. By making transaction-level spending data, compensation details, contract awards, performance metrics, and audit findings openly accessible in real time, California can empower citizens, oversight bodies, independent auditors, and the media to detect issues early and hold government accountable. Key concepts include:

• Full public dashboards for all major programs

• Granular, searchable expenditure data

• Real-time verification tools

• Clear outcome metrics tied to funding

• Enhanced whistleblower protections

True transparency shifts the balance of power from insiders to the public and creates powerful incentives for better stewardship of taxpayer dollars.

A detailed white paper outlining a comprehensive framework for Radical Transparency in California Government is available at:

https://herbmorgan.com

Implementing radical transparency will not eliminate every instance of waste or fraud overnight, but it represents the single most effective structural reform available to restore public trust, improve program integrity, and ensure that hundreds of billions in taxpayer funds deliver real results for Californians.

The time for bold action is now.