The state collects some of the country’s highest income, business, and fuel taxes, and now spends more than $300 billion per year.
And yet, everywhere you look, California seems to be falling apart.
The roads are crumbling. Mismanaged wildfires have turned neighborhoods into ash. Drug addiction and homelessness have metastasized, turning parts of Los Angeles and San Francisco into no-go zones.
And the cost-of-living crisis is pricing middle-class taxpayers out of basic necessities like groceries and gas, even as the state spends billions on welfare programs that never seem to lift anyone out of poverty.
Californians are beginning to ask: Where is all this money going?
On paper, it funds public services. But beneath the surface, something else is happening: massive, systematic, brazen fraud.
We conducted interviews with public officials, fraud experts, and political figures, and reviewed hundreds of pages of government reports, state audits, criminal indictments, and other public records on California fraud.
Seemingly every state program has been compromised by criminals.
The best estimates suggest that, on the governor’s watch, fraudsters, scammers, and organized crime rings have stolen at least $180 billion from taxpayers.
Fourteen months after Newsom began his first term as governor, the COVID-19 pandemic swept the world. The state’s leaders imposed some of the country’s most restrictive public-health measures. In response to the crisis, Newsom sought to dump pallets of cash across the state — as quickly as possible.
One way to inject money was through California’s massive unemployment insurance program (UI). Unemployment insurance is administered by the state’s Employment Development Department (EDD), which can process billions of dollars in payments monthly. Before the state turned on the cash machine, however, experts had warned that the system was ripe for fraud.
Haywood Talcove, one of America’s leading fraud specialists and CEO of LexisNexis Risk Solutions for Government, said: “I was begging [federal officials] not to let the money go out like that, because it was going to be the biggest fraud in the history of our country. Obviously, I wasn’t successful.”
For many reasons, California was particularly susceptible to the large-scale fraud schemes that Talcove foresaw.
“They literally suspended all of the rules for the [unemployment insurance] program,” Talcove said. “[That made] it possible for anyone to get that benefit even if they weren’t entitled to it. It was very intentional. They knew what they were doing. But it caught up to them because it just got so out of control.”
The scams began almost immediately, with criminals from around the world reportedly siphoning cash from the program. In one case, a Romanian-led fraud ring orchestrated a $5 million unemployment-insurance scheme. Many of the fraudsters wired the stolen funds to Romania.
Around September 2020, Fontrell Antonio Baines, a rapper from Memphis known as Nuke Bizzle, released a music video on YouTube entitled “EDD.” In the song, Baines bragged about ripping off California’s UI program. “Go to the bank with a stack of these,” Baines rapped, holding up EDD envelopes. Another rapper can be heard saying: “You gotta sell cocaine, I just file a claim.” All told, Baines obtained more than $700,000 in stolen funds using preloaded EDD debit cards. He pleaded guilty to federal charges.
California’s prison population apparently got in on the action, too: The EDD allegedly paid out hundreds of millions of dollars in fraudulent claims in prisoners’ names, including those of at least 133 inmates on death row.
Remarkably, EDD not only failed regularly to cross-reference its unemployment payouts with a list of state prisoners, but it also had just two bureaucrats assigned manually to inspect reports of suspected fraud.
State officials eventually admitted to having paid out approximately $20 billion in fraudulent claims during the pandemic, and to making an estimated $55 billion in improper payments. Talcove claims those figures don’t even tell the full story: “In California, at one point, you had more people applying for unemployment insurance benefits than you had people over the age of 18.”
While Newsom has conceded that “bad actors” took advantage of the UI program, he has also defended his government’s record, saying they took swift action as soon as the alleged prison scheme surfaced. The EDD, for its part, has a webpage documenting its anti-fraud efforts. But any suggestion that California has fraud under wraps is contradicted by findings from its nonpartisan state auditor.
Newsom also came to power vowing to pursue “guaranteed health care” for Californians. Under his leadership, the state extended Medi-Cal coverage to illegal aliens, covered sex-change surgeries for Medi-Cal enrollees, and offered “gender-affirming care services” to enrollees of “all ages.”
Total budgeted Medi-Cal spending — which includes federal, state, and local contributions — has more than doubled on the governor’s watch, rising from $93.5 billion the year before he took office to $196.7 billion in the current annual budget. During the same period, California’s resident population declined by 0.2%.
In-Home Supportive Services, a Medi-Cal sub-program, has presented major fraud concerns. In 2009, former Gov. Arnold Schwarzenegger estimated that IHSS fraud could be as high as 25%. That same year, a Sacramento grand jury report on the county’s IHSS program claimed IHSS fraud was “reported to be rampant and out of control.”
Yet, even in light of these worries, Newsom has dramatically increased funding for IHSS. According to recent estimates, taxpayers are funding nearly 800,000 IHSS providers, who offer caregiving, cooking, shopping, cleaning, and laundry services to elderly and disabled people. In about 70% of cases, providers and recipients are family members. According to co-author Schrupp’s reporting, the IHSS program is responsible for 41% of all “job gains” during the Newsom administration.
The IHSS program almost seems designed to facilitate scams.
According to sworn testimony summarized in the Sacramento report, IHSS participants have falsely represented recipients’ needs; misrepresented hours worked timecards; and even secured payment after a recipient has died. The system operates largely on trust, with providers “working” in the privacy of the recipient’s home. The state’s IHSS protocols explicitly prohibit random unannounced home visits, which would be the best tool to uncover any potential rackets.
Beginning in 2024, federal officials announced multiple prosecutions for IHSS fraud. In one case, prosecutors alleged that Cindy Lynn Fromm claimed to have provided services for more than a year while the recipient was incarcerated. In others, prosecutors said that IHSS caregivers falsified timesheets and claimed to have provided services while beneficiaries were in hospitals, care homes, other facilities — or dead.
The other major target for fraudsters is California’s expansive welfare state. The state is famously home to enormous wealth, but also to millions living in poverty, and, as of 2024, to more than 180,000 homeless people.
Responding to these realities, Newsom has unleashed a wave of spending on welfare initiatives.
He has overseen much of a $24 billion state spend on homelessness projects, roughly doubled food-stamp benefits during the pandemic, and has maintained high levels of cash assistance. Just like unemployment insurance and Medi-Cal, though, these welfare programs proved easy targets for swindlers. The homelessness spending, for example, was a massive transfer of funds into a complicated web of nonprofits and other contractors, with apparently little oversight.
Cody Holmes served as chief financial officer of Shangri-La Industries, a Los Angeles–based affordable-housing developer. His company reportedly received nearly $26 million from the state to develop properties under a program aimed at housing the homeless. Prosecutors allege that Holmes, who pleaded not guilty, embezzled roughly $2.2 million to pay for “exotic cars” and monthly rent for a “6,500-square-foot mansion.”
In addition, a 2024 report from California’s state auditor highlighted the government’s limited data on homelessness programs. For three of the five initiatives the auditor examined, it was “unable to fully assess” their success because of a lack of outcome data.
For many California watchers, the 2024 audit came years too late. In 2020, Rep. Kevin Kiley, then serving in the California Assembly, requested a similar report, he told City Journal, but state legislative Democrats rejected the proposal after Newsom intervened. “They likely knew what the audit would show and didn’t want taxpayers to get that window into how their money is, quite frankly, being squandered,” Kiley said.
Notwithstanding this steady drumbeat of fraud cases, at least one California Democratic lawmaker is pushing to lower penalties for those who steal from state welfare programs.
In April 2025, state Sen. Lola Smallwood-Cuevas sponsored a bill that would raise the threshold for felony welfare fraud from $950 to $25,000. The measure would also make it more difficult to charge perjury based on misstatements to county welfare departments. Republican state Assemblyman Carl DeMaio has said that if the bill becomes law, it will effectively “legalize welfare fraud” in California.
Federal prosecutors, however, are stepping up enforcement. Last year, Bill Essayli, first assistant U.S. attorney for the Central District of California, announced the creation of a federal task force to combat fraud and corruption in the state’s homelessness programs. The task force has already brought charges in several multimillion-dollar homelessness-fraud cases — and Essayli has vowed that more are coming.
We reached out to Newsom’s office for comment on this story. A spokesperson called Kiley’s claims “ridiculous,” accused the Trump administration of “mak[ing] up numbers,” and suggested, remarkably, that California had “no missing homelessness funds.”
The culture of fraud in California is so pervasive that it has allegedly reached the governor’s own office. Between 2022 and December 2024, Newsom’s chief of staff was Dana Williamson. In November 2025, she was charged with fraud for allegedly “siphoning campaign and COVID-19 recovery funds into her and an associate’s pockets.” Two other “well-connected aides in state politics were also charged” and struck plea deals that reportedly confirmed the scheme’s existence. Williamson has pleaded not guilty.
Newsom’s office said they were made aware of an investigation into Williamson in late 2024 and immediately moved to place her on leave. When she officially left the governor’s office a month later, though, Newsom’s send-off message applauded her “insight, tenacity, and big heart,” while making no mention of the investigation against her.
The pattern that emerges in California is that of a vast system that almost seems to invite fraud.
According to California Assemblyman David Tangipa, “Sacramento is pervaded by a culture of corruption.” And he points the finger right to the top: Newsom, he says, has helped “create an environment where corruption thrives.”
Still, California’s fraud crisis is not a lost cause, nor is it beyond correction. On March 16, President Donald Trump signed an executive order creating the Task Force to Eliminate Fraud. The effort, led by Vice President JD Vance, will “coordinate government-wide efforts to combat widespread fraud, waste, and abuse in federal benefit programs.”
The Minnesota fraud scandal, brought to national attention by City Journal, offers a revealing case study of what can happen when a seemingly hidden problem — one long in plain sight — finally comes into view.
The extent of fraud in Minnesota had been an open secret for years. But once the scandal drew national attention, investigations snowballed, ultimately derailing the political career of Tim Walz.
It may seem unlikely today, but a similar outcome is possible for Newsom in California.
Newsom is not untouchable, and the scale of fraud in California appears far larger than in Minnesota.
Despite his claim to have taken “decisive action” against one form of fraud, the broader problem is real and ongoing, and taxpayers, in California and across the country, have reason to be furious.
Newsom will no doubt rely on charisma and partisan appeal to downplay the extent of these abuses. But listen closely, and you can still hear the California cash machine, steadily dispensing untold billions to criminals, scammers, and organized crime rings — funds taken from taxpayers and diverted from those most in need.
Christopher F. Rufo is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and the author of America’s Cultural Revolution. Ryan Thorpe is an investigative reporter at the Manhattan Institute. Kenneth Schrupp and Haley Strack are investigative reporters at City Journal.
California Post News: Facebook, Instagram, TikTok, X, YouTube, WhatsApp, LinkedInCalifornia Post Sports Facebook, Instagram, TikTok, YouTube, XCalifornia Post Opinion California Post Newsletters: Sign up here!California Post App: Download here!Home delivery: Sign up here!Page Six Hollywood: Sign up here!
