SF Standard: California’s legal corruption: Pay the politician, get the contract
The state bans pension managers from donating to the officials who oversee their money. Why doesn’t it ban everyone else who profits from public spending?
Originally published in The San Francisco Standard – Opinion on August 17, 2026
On a recent public radio show about California’s budget, one participant challenged my use of the phrase “legal corruption” to describe campaign contributions made to elected officials by recipients of government funding. (I was referring to unions and corporations that donate to statewide candidates who then approve higher pay and richer contracts for the donors’ stakeholders.)
But if a gift to a public official from a recipient of public spending is not corruption, what is it?
The same behavior has long been outlawed when it comes to managing public pension funds. A private equity firm that earns fees from managing a California public pension fund may not donate money to an elected official in the state. In fact, that’s the case even when the elected official has no direct authority over public pension fund assets. Yet recipients of more than $500 billion per year of state spending are allowed to donate to the very officials who approve that spending.
The amounts involved are huge. During fiscal 2022-23, corporations and nonprofit organizations providing hospital services received $39 billion in Medi-Cal reimbursements from the state. That same year, the California Association of Public Hospitals and Health Systems made donations totaling $1.025 million to a political committee controlled by Gov. Gavin Newsom and $2.050 million to the Democratic and Republican parties. Those parties, in turn, back members of the Legislature — and candidates for it — who vote on state budgets and healthcare laws. In 2021-22, a union representing state prison employees donated $1.75 million to a committee supporting Newsom and more than $350,000 to legislative caucuses. That same year, annual state spending on salaries for prison employees was $7.2 billion, 47% more than the prior year, due to an unusual mid-contract salary increase, negotiated by Newsom and approved by the Legislature, that bypassed a state regulation.
My critic on the radio show responded to these facts with a shrug. He said that’s just the way the government works, and money flowing to campaign contributors is a necessary consequence of providing government services. But just think about the incentives this system creates. Why would elected officials look for ways to run state prisons less expensively when doing so would cost them contributions from prison employee unions? This is why state spending on prison employee salaries has grown 18% during the Newsom administration, despite a 31% drop in the prison population. Why look for ways to get more from spending on healthcare if that would cost elected officials contributions from healthcare providers? The consequences of such incentives aren’t limited to greater costs for taxpayers. More spending by the government on healthcare also contributes to the “cost disease” that has been raising prices for everyone.
Reforming such a system would require imposing a law like the one banning campaign contributions from firms that manage public pension money. But getting the governor and Legislature to apply the same ban to contributions from recipients of state spending would be nearly impossible. California’s elected officials like the money too much. Donations from recipients of state spending help keep officials in office, supply money for pet ballot measures, and, as amply demonstrated by Newsom, provide resources that can be used to elevate one’s national profile.
If you’re wondering why state officials don’t have a problem with the rule prohibiting political donations from managers of public pension funds, that’s because, under California law, governors and legislators don’t have authority over the selection of the managers of those funds. That authority goes to independently governed boards.
One way to mitigate the problem would be for more government spending to go directly to residents rather than through providers. Refundable earned income tax credits give recipients cash to use as they see fit and support labor force participation to boot. Another would be to provide more services through automation, including artificial intelligence. Government services such as permitting, public transit, inspection, and parking enforcement are increasingly susceptible to provision by technology. But you can be sure that conventional elected officials who have grown dependent on funding from recipients of state spending will fight hard to preserve the current system.
