CA Governor Candidate Steve Hilton on Why California is Destroying Itself & How a Republican Can Win

All right, everybody. Welcome back to the All-In Interview Show. We're very lucky today to have a candidate for governor of California who is extremely unique in a number of ways. First of all, he's a Republican. Second, he's a Brit. [Laughter] Welcome to the program, Steve Hilton. You've decided to increase the degree of difficulty in 2 ways, but you're polling fantastic. You've got 5 or 6 people in the polls, so—

He's leading the field.

You're leading the field. Obviously, it's going to get narrowed a bit when the Democrats shiv a couple more people and get them out of the race, and then pick their eventual winner in their cobble um whenever that happens—when Nancy Pelosi picks who's running. But, Steve, maybe you could introduce yourself a bit and tell us why you're running. Sorry, guys, I got jokes.

Well, hang on. Can I just say, after that great intro, where you just tried to kill my chances in a couple of words? Thanks a lot, Jason. I really appreciate it.

Let me actually tee this up. I've known Steve since 2012 or 2013, when he and his wife, Rachel Wetstone, moved to Silicon Valley. Rachel worked at Facebook initially, and then she worked with you, Jason, at Uber and has had a great run. Steve has had a great run as well.

You said it in a funny way, but ultimately, this is an incredible land of immigrants, and Steve has a really compelling story. So before we jump into the questions, I know your background, Steve, but I do think it's important to go back to your parents, your mom, and how you grew up. Set the stage for how you made it out from where you started, because I think that's important, and then how you got to the United States and why.

Thank you. I appreciate that. You're right—we've known each other a long time now, and it's a great joy to be here. By the way, I just want to say it's a great joy to be on a show where I don't have to wear the suit and shirt. That's 1 of the things about running for governor that I'm loving most of it, but dressing up is not the favorite part for me. So it's great to be with you.

I thought, for this show, we had to get it right. The more I think about my background, the more I think it is really important in terms of how I see things and what I want to get done.

My parents are Hungarian. They were refugees from communism, and I grew up in England, in a town called Brighton on the south coast. We just had a regular working-class, immigrant, aspirational family story, I guess. My parents actually split up when I was young.

My stepfather was also Hungarian, and he had an amazing story. He was a refugee as well, but he literally ran across the border. He grew up in a small village on the west side of Hungary. In 1956, when you had the Soviet invasion, he tells this amazing story: They heard on the radio, “The Russians are coming.” He and his brother and some friends from his school—he was 14 years old, just 1 year younger than my youngest son right now—they just ran. They literally ran because they said, “We want our freedom.”

They ran to the border, through barbed-wire fences and minefields, and got shot at by the guards. Half of them were killed, and he ended up in a refugee camp in Austria and from there went to England. All of that gives you a real appreciation for freedom and opportunity.

I grew up in England and worked very hard. I ended up at Oxford University, but my first job was as a project manager for a construction company. I just wanted to earn money. I just wanted to get out. I think that's exactly the right phrase that you used, and that's been the story.

After Oxford, I went to work for a little bit for the Conservative Party in England. Then I worked for a big ad agency and worked all around the world. I started my own business and had a couple of offshoots of that, including a couple of restaurants. Then I went back into politics when my friend David Cameron, whom I'd met many years before, had gone into politics and gotten elected to Parliament.

I helped run his campaign for the leadership of the British Conservative Party. He won that election, and then I worked with him to get the Conservatives elected when he became prime minister in 2010. I joined him at 10 Downing Street as senior adviser to the prime minister. Most of my job was focused on trying to implement our reform program.

Then, in 2012, that's when we met. We moved here because Rachel—actually, before Facebook, she was at Google, where she had this big global job. She was running communications and public policy for Google worldwide. I had my job at Number 10. That was when our 2nd son was born. There was a lot of travel for her and the time difference, so that's why we moved here.

Well, you're also notable because you became naturalized. You're a citizen of the United States now, so you have dual citizenship, lest people are confused by the accent. You're running for governor, and you're a citizen of the United States.

Let's talk about your political setup. Being a child of Hungarian immigrants raised under communism, you're going to hear a certain version of what the role of the state is versus the role of the family or the individual. Then, growing up in the UK, I'm sure your attitudes either got cemented or changed.

Give us the setup. What is the political evolution of Steve Hilton? What did he believe, what does he believe now, and what has shaped those beliefs?

It really goes back to around when I first started thinking about it all. It was just as Margaret Thatcher was coming to power. The 1970s in England were a disaster—a decade when the economy was completely stagnant and sclerotic, and unions ran everything.

There was this period called the Winter of Discontent in 1979, when you had massive strikes. Famously, the dead went unburied and trash was piled up in the street. It was a real collapse of everything, and that's what Thatcher came in to fix. I really identified with that, as well as with her very clear stand against communism.

Funny enough, when I was thinking about the video that I made to launch my campaign about a year ago, we ended up putting that in there. I thought, “Well, actually, that was the thing that got me going.” I was totally inspired by her, but also by the focus that she had on business, enterprise, and hard work.

Remember, my stepfather—they weren't at all political, by the way. It wasn't a household where we talked about politics. It really wasn't. But he had this thing that stuck in my mind. In England, you've got the Conservative Party, the equivalent of the Republicans, and the Democrats are represented by the Labour Party. I remember he used to say, “Mrs. Thatcher's for the workers, and Labour are for the layabouts.” That phrase stuck in my mind—the importance of work and hustle. I think about that all the time.

Where do you think California is, by contrast?

This is the point I was just about to get to: We really are there. There are so many things I see in California today that are exactly like the UK in the 1970s.

You've got the massive dominance of the unions in policymaking. You've got a sclerotic economy and massively high taxation. It was higher then. At 1 point, I think the top rate, when you added in the wealth taxes in the UK, was literally 98%. You had that confiscatory taxation and a top rate of 60%, and so on.

Someone—Mike Moritz, actually—sent me a report that someone had done about the UK today. There are these eerie parallels with just how impossible it is in the UK to build anything because of the overregulation. When I read this report, it was exactly like California today.

By the way, 1 thing, Jason, just to be clear: I am a proud American now, but I actually renounced my UK citizenship. I did that because—

I just wanted to be clear that I'm—just to borrow the title of the show—all in.

You'd be all in.

All in. Literally. I really think it's important that everyone knows that, and I am.

Thanks for the background there. You have some unique policy positions. Taxes, I think, are the most unique—and, dare I say, pretty populist. You want to have no state tax in California for people with under $100,000 in income, and then a flat tax for everybody over $100,000 at 7.5%.

How is that possible? Is that something you've studied? Where did this come from?

The tax plan that I put out there was the first day of my campaign. I think of it as pro-worker and pro-growth, and I think we need both of those things.

If you look at what's going on in California today, just big-picture, obviously you can look at the data. It's a real economic disaster. I'm not sure people appreciate just how bad things are, because hiding behind that data point of having the 4th-largest economy in the world—which is true, and obviously I'm proud of that—I want California to be big, successful, and growing.

But underneath that 4th-biggest-economy data point, you've got a state with the highest unemployment rate in the country and the highest poverty rate in the country, tied with Louisiana. There's a United Way report from about a year ago. They do it every 2 years—a sort of assessment of living conditions in California. They found that over 1/3 of Californians cannot afford to meet basic needs.

The starting point for my tax plan is: What can we do quickly to help people who are really struggling? The working poor aren’t being taken care of by the welfare system. They’re working incredibly hard, but they’re being squeezed by all these costs.

We have the highest gas prices in the country, as you know, and the highest electric bills everywhere except for Hawaii. Housing costs are the highest in the country, as are insurance costs. All these costs are so high. What can you do to help working people quickly?

The starting point was: What’s affordable? The $100,000 mark. I remember when we were playing around with numbers. I did it with some economists from the Hoover Institution, where I was a fellow during the first couple of years after we moved to California. I taught at Stanford, including in the public policy department and the d.school at Stanford, but I was also a fellow at Hoover. We did the math on the tax plan there just about a year ago.

The first part is that the first $100,000 is tax-free. In many counties in California today, the official definition for low income is $100,000. That number may sound very high to people in other parts of the country, but it’s actually the definition of low income in a lot of counties.

You’ve got people earning $70,000, $80,000, or $90,000 in California, and they’re paying a 9.3% state income tax. That rate is higher than the top rate in most states in America. To me, that’s ridiculous when you’ve also got all these other taxes that those exact people are paying: sales tax, property tax, gas tax. All of those are the highest in the country.

So cutting taxes this significantly means you then also have to cut spending.

Yes. But can I just do the other part of it?

I just did the other part, which is the 7.5% flat tax.

When you look at the facts about economic performance—for example, Chief Executive magazine has ranked us 50th out of 50 for business climate for the last 10 years or so—a big driver of that is tax. I’m sure we’ll get into the insane proposed billionaires’ tax and all these things that are driving wealth creation and business investment out of our state.

It’s not enough just to take care of, or give some relief to, people who are on the lower end of the scale. You’ve got to actually have a pro-investment, pro-growth tax framework. Apart from anything else, the complexity of our tax system is ridiculous. These endless different rates are ridiculously complicated, and that itself is a cost—the bureaucracy and hassle associated with it.

That’s why I think a flat tax makes sense. Remember, this is in the context of federal taxes and all these other taxes; it’s not the only component. But to get to that cost, you’ve got to reduce spending, exactly as you say.

The cost of that in total is about an 18.5% reduction in revenue, which takes us down about $60 billion, something like that. That’s not even going back to what the budget was just before the pandemic. If you look at the budget of the state of California, it’s nearly doubled in the last 10 years. In the last 5 years, it’s gone up something like 75%.

This is just bringing the budget back. Achieving that entire tax cut would bring the budget back to roughly where it was before the pandemic.

Let me just summarize. If you make between $0 and $100,000 a year as a California resident, under your plan, you pay no tax—

No state income tax.

No state income tax. If you make $100,000 and $1 or more, you pay a 7.5% flat tax.

Yes, that’s the concept.

How many Californians does that impact? What percentage of the population gets that benefit?

The tax numbers usually only count households, and it’s about 7 million households that would benefit from the under-$100,000 provision.

Do you know how many that is as a percentage?

We’ve got 40 million people. I think that’s probably just over a third, something like that.

A third of households now essentially go to zero tax.

State income tax, yes. There are all these other taxes.

The pushback would be that if we then take it dollar for dollar from the operating budget, programs will suffer.

To your point—and I’m putting words in your mouth, but you filled them in—not really, because we’re just going to go back to the 2019–2020 budgets. The difference is that we spent $1 in 2020, and we now spend $2, and nothing has changed. So, yes, go from $2 back to $150, and everything should be fine. That’s your point.

Yes. I’d actually go further than that. First of all, what we’ve seen happen to the budget is that the expansion we saw during the pandemic and afterward has been baked into the baseline, which is totally unsustainable. We’ve got to get back to a more reasonable growth in spending, even without tax cuts, because we’ll go bankrupt.

We’re seeing that with these deficits we’re getting even when we’re not in a recession, and with the state taking money out of the reserves—the rainy-day fund—to plug the gaps. That’s what they’re doing, and it’s totally irresponsible fiscally.

Even if you don’t change anything in the composition of spending and just get back to where we were, that gives you scope for a major reduction in taxes. But the other part of it is what we’re discovering in terms of where the money is actually going.

Obviously, the whole fraud story has exploded as a national political and economic story ever since Nick Shirley’s first investigation in Minnesota, just around the time of Thanksgiving last year. We’ve been making our own contribution to that.

A few months ago, I set up what I literally called Cal DOGE—the California Department of Government Efficiency. I know that’s a controversial brand, but the idea of efficient government is something I think everyone would support. I thought, why not use that? Everyone knows what it is.

We’ve been looking at the published data on spending to find examples and make an estimate of the total amount of fraud, waste, and abuse in the system. We’ve now published 4 separate fraud reports out of Cal DOGE.

When I say “we,” this is a longer story we can get into, but one of the ways I think I’m running this campaign differently is that I’m actually putting together a team before the election of others who will run with me for statewide office. You’ve got some very important positions alongside the governor that are going to be crucial in putting us back on track.

In this instance, the state controller is very important because the state controller is an elected position with the legal power to audit any organization receiving state money and to stop the flow of money if there’s any suspicion of improper spending. There’s a guy running with me called Herb Morgan, and we’ve been doing this work together.

We’ve published 4 reports now: 3 of them on individual examples of fraud. We can get into those in a second if you want to know; some of the examples are really shocking. The fourth was an estimate of the total. We went through published data from the state auditor, Medicaid error rates, and so on to estimate the total amount of fraud.

What did you find? Give us a couple of examples.

Here are some specific examples. The second fraud report was a classic: $1 billion over the last 10 years, or $100 million every year since 2015. This was from the climate-change mitigation fund, which is part of the cap-and-trade system. These are actually gas taxes and surcharges on electric bills and so on.

$100 million a year was allocated to be spent on climate-change mitigation. In this case, it was solar panels for low-income apartment buildings. We tracked that money with an AI partner that can gather all the reports. Of that $1 billion total over 10 years, the actual amount spent on the purported benefit—solar-panel installation—was $72 million.

The other $928 million actually went to nonprofits doing all the usual Democratic-associated activities: voter registration, environmental-justice campaigns, and all that kind of stuff. The money was mostly spent on that. That’s $1 billion.

The first one was the cannabis tax, Proposition 64, legalizing cannabis. There’s a tax associated with that that was supposed to be spent on substance-abuse prevention. We found $350 million that was supposed to be spent on substance-abuse prevention going instead to this network of more than 500 nonprofits through small individual grants. When you look at what each of those organizations does, it’s all the usual stuff: voter registration and activism.

The third one was Project Homekey, which we looked into. That was the homelessness program they set up after the pandemic. It involved buying property for homeless people, sometimes building new property for homeless people, or converting hotels. We found $3.8 billion on that one. Others have found other amounts, most of which went into the pockets of developers without any real—

The California budget, if I’m not mistaken, is $350-odd billion.

$350 billion—$349 billion this year.

What percentage of it, in your best estimation, do you and your team think is inefficient, fraudulent, or wasted?

Our estimate over the last 5 years was $425 billion in total. Averaged over the years, it’s about $80 billion a year.

So that's around 20% or so. That's unbelievable.

Yeah. And now, just to bring some reality to the situation, you would have to get through the legislature, which is controlled by Democrats. You can't unilaterally, as the governor, just say, "Hey, we're cutting these services." We had a Governor Schwarzenegger who tried this very thing. He had to move to the center. You, of course, I believe, in California, have a line-item veto, so you have some balance there.

But this is fantastic for people to maybe get a reprieve from taxes. You're going to get a major fight with Democrats to cut any spending. What's your plan there if you were to win?

So, Jason, a couple of things. You're right about that. I'm very thoughtful about the realities of these things, and I always make clear that, certainly on the tax plan, you can't do that without the legislature. I think that we'll actually get—there's a possibility of a consensus around some of these items where we can work together with the legislature to make it happen.

One indicator of that is actually one of my Democratic opponents in the governor's race, Katie Porter. We were doing a debate the other week in Fresno, and she just said—we were talking about affordability, or whatever it was—and she said, "Well, I've decided I'm stealing Steve Hilton's tax plan. I agree with him: first $100,000 tax-free, and I think we should take good ideas where we find them."

So this is an interesting example that I think we may actually be able to persuade the legislature to do.

And then I noticed she yelled at you and said, "Get the hell out of her shot."

[Laughter.]

Her video.

Except a stronger word than "hell." Exactly—than hell.

So, the attitude that I've got on that whole question of the legislature is that when I'm elected—and I'm sure your eyebrows are raised, saying, "What are you talking about? It's impossible for Republicans to win," and we'll get into that—I'm doing this on the basis that I will, and I'm preparing to actually start implementing the big changes we need to make in a thoughtful manner on day 1, because otherwise, what's the point of doing this?

Steve, do you think that there's legislative agreement or momentum to give you the win? Even though, to your point, I think it's quite significant that the Democrats would signal that it's a legitimate policy proposal, do you think that if you win, people would see the forest for the trees and realize how important it would be to make salaries under $100,000 exempt from state income tax?

Look, I've seen the Democratic arguments now, up front, many, many times. We've done a lot of events together—some of the televised debates, many more that aren't televised. We're literally all saying the same thing in terms of the diagnosis of the problem.

It's incredibly expensive to live here. People are really struggling. The business climate is a disaster. We're massively overregulated. We can't build anything. Everything takes too long, and everything's too complicated. There's a real consensus about diagnosing the problem among all the candidates.

That doesn't mean, of course, that we agree on the solutions. I would argue that the Democrats are all, in some version, for more of the same, actually, despite what they say about the problems. But I think there are certain things where we'll be able to get agreement.

I also think that when you have a situation where you have the first Republican governor elected in 20 years, that really will change the dynamic in Sacramento. I think it may actually loosen things up a little bit, because there are people in the legislature who really understand that things have gone too far. Some of them have said it to me personally—Democrats there—but they feel constrained by the current political situation, with the machine being in control. They can't really move, and I think that'll shake things up a little bit.

That's one point. Secondly, I really do have experience working across party lines like this. I think I'll be able to bring some of that into play. I mentioned earlier that I worked in 10 Downing Street as a senior adviser to the prime minister. He was a Conservative prime minister, but it was a coalition government.

I literally shared an office in 10 Downing Street with my opposite number from another party, and we would hash things out and argue. We were part of the team that negotiated a coalition agreement and then tried to implement it. I think those skills of actually putting something together where you don't agree about everything, but you can make some things happen, will be useful in this situation.

I think we can—I mean, look, everyone agrees that things are going like this in California.

It's not farcical to think a Republican can win here. Pete Wilson did 2 terms. Schwarzenegger did 2 terms. That's 16, I guess, of the last 36 years. It is completely conceivable that a Republican could win.

You and Katie Porter have the same plan. I think Chad Biano has the same plan, which is no taxes for people earning under $100,000. All of you agree: no taxes. You're all attacking affordability. They don't believe in cutting services, though. They want to increase taxes on businesses, if I'm correct.

So why is that plan not as good as yours, I guess, is the question. Which one do you think would be more appealing to the voters? The voters, I think, will all agree: paying less taxes, fantastic. It makes you more competitive with Florida and Texas. But if they had it their way, they're probably going to want to see Google and Apple pay more in taxes and not lose their services.

Yeah, but we're losing jobs. I think that's the consequence of squeezing businesses and high earners more and more, and you're seeing it right now. You're seeing the business exodus. If the billionaire tax proposal goes through, I think that absolutely puts it—it's a complete disaster for the tech ecosystem and what we've built in Silicon Valley over the years, and all the job creation and wealth creation that comes with that.

It's not just everywhere you go in the state; there are so many conversations. You sit down with businesspeople, and we are on the brink of leaving. I don't think people realize quite how near the cliff edge we are.

I'll give you another example. I was just in Pomona the other day, down in Southern California. There's a fantastic sheet-metal company—it's an HVAC duct manufacturer. It's exactly the kind of thing you'd want here. They're union jobs, actually; it's a great manufacturing facility.

They're making these HVAC systems, the air conditioning, which is incredibly important, as you know, for TSMC and these semiconductor factories, and all this high-end manufacturing that's happening in other states. These facilities now have massive amounts of investment in the AI economy and tech more broadly, but none of it's happening in California.

We just published our policy report on that today: how we can get some of that full stack of those jobs in California. But that company said to me that, since the facilities are all now being built in other states, they're on the brink of moving their facility to be closer. What's the point of making this stuff in California? It's not going to be used because nothing's happening—nothing's going to be happening—in California.

So you have to stop this squeeze on business. You really do.

Let me ask about the broader cost of living for a second. Probably the most impactful cost to people's lived experience is the cost of housing.

Yeah.

Double-click into that for a second. For the 40 million residents of California, what is going on? Why are rents so high? Why are homes so expensive? And what can actually be done to make the cost of living and rent cheaper?

This particular issue captures better than almost anything else the underlying structural reasons why everything is so difficult in California and so expensive, because you've got these 3 structural forces that I think underpin the problem and show why a Democrat can't fix it. The 3 things are union power, litigation, and climate dogma, and they all come together in the housing story.

The first part of the story is that we're just not building enough homes for the number of jobs that we're creating and the size of our population. It's a classic supply-and-demand situation.

Within that, there are certain wrinkles. You could point out that because of rent control, which has gotten completely out of control, there are a lot of empty properties in California that could be used to house people, but they're not because landlords don't want to do it. The rights have swung so far in favor of tenants. But I don't think that's the major driver.

The major driver is the fact that we just haven't built enough housing of different kinds. If you go through the reasons for that and why it's so expensive, it brings these 3 factors into play.

First of all, it just costs more to build anything in California. The same exact floor plan, house, apartment building, industrial building, whatever it is, costs 2 or 3 times more to build in California than in neighboring states.

The first reason is the building codes—the actual requirements for construction—which are way more onerous and driven by climate dogma, without actually providing much benefit.

What does that mean, climate dogma?

Well, you have to install—here we are—

Because, like, Nevada's hot and drought-ridden, and Arizona has issues.

So what is it that we say that those states don’t say? When you build apartments or when you build parking, you have to put in EV charging. The scale of what’s required for the EV charging just makes it more expensive. When you do a parking structure, they have to reinforce the floors and the bays have to be wider. It adds up, and you have fewer bays per structure. There’s a specific cost associated with that.

Solar panels—we talked about that earlier in terms of low-income apartments that taxpayers are paying for. Developers have to pay for that as well. Insulation, energy efficiency—all these things are good. I think that’s pretty much the story of California: things that start with good intentions actually end up being taken to an extreme, where it just makes it too expensive to build at a rate that people can afford to buy the properties.

And the other 2 are really CEQA, under which anybody can sue.

Exactly—the private right of action under CEQA.

So let’s unpack that, because that brings together the 3 things: climate, litigation, and unions. The California Environmental Quality Act itself is a nightmare in terms of the amount of regulation you have to comply with. The private right of action means anyone can sue. 70% of CEQA lawsuits are used to block housing, and most of those lawsuits are filed by unions.

They’re used as leverage to negotiate what they call project labor agreements, where you have an agreement for the site and usually have 1 or both of 2 components, both of which sound great: a skilled and trained workforce, which means union-only, so it’s a closed shop; and prevailing wage, which again sounds very good, but it’s 2 or 3 times market-rate wages. So both of those things inflate the cost. I’ve spoken to many developers, and there aren’t enough union workers in the area to actually do the job, so sometimes they have to fly them in from other states to do the job. The cost of travel and accommodation is just another added cost.

Exactly. This is the key. There’s no equivalent to CEQA in Texas, where I now reside after 20 years in California. The other thing is the fees: it’s $30,000 per door in fees to the government to build a door in California. It’s under $1,000 in Texas. And in California has three times the new units per capita than California. Every year, we produce 3 times as many new homes per capita.

Just a simple question, though, guys. Put this into ChatGPT or whatever. California’s mandate with CEQA is to protect the air, protect the water, and protect the land. Texas doesn’t have it. Is it the case that Texas’s air is worse, the water is worse, and the land is worse?

No, definitely not.

Yeah.

So is it roughly the same? Meaning, is the particulate count, the pollen count, and the air quality the same? Because if it is, then what is CEQA doing other than just slowing down and retarding the progress of housing? Why hasn’t that study been done?

I think, again, all of this, guys, comes back to the fact that when the data is presented in a way that’s factual, there’s very little room for people on both sides to argue about it because they’re all relatively smart. It’s when it’s presented either in a partisan way or by somebody who reeks of partisanship that I think people attack the messenger versus the message. So I’m just trying to understand: Why hasn’t the California government confronted this? It has the highest rents in America, the highest poverty rate in America, and also the highest regulation. It has the lowest and the slowest housing-unit growth. Steve, I guess what I’m asking you is, how does that not get to the legislators more?

Okay. Well, I’ll tell you, I’m afraid the answer is the corruption within the system and the interest groups that have taken over the system. I know a lot about housing policy because the first area of policy I studied, when I decided that I wanted to get into the whole world of policy and politics in California, was housing. I actually tried to get a ballot initiative qualified for the ballot that would have had 2 elements to it. One is what Jason just mentioned: capping impact fees, which are now up to about 20% of the cost of housing. I wanted to do a statewide cap of 3% of construction cost, and the second component was eliminating the private right of action under CEQA.

I didn’t succeed in getting it on the ballot. I didn’t raise enough money in time. So then I tried to pursue it through the legislature. I said, “Well, let’s see if we can make something happen in the legislature.” I went to Sacramento, took meetings with legislators, and started to engage with Sacramento.

There was 1 meeting I had with a legislator who was described to me as good on housing. This was a person I needed to talk to, and we had a great meeting. They said, “This would be transformational.” I said, “Great, let’s work on it together. You’re a Democrat, I’m a Republican. That’d be great. People like that.” They said, “Oh, I couldn’t support you publicly.” “Why not?” “Well, the unions would hate it.” “Why?” “Because if you take away the private right of action, you take away the unions’ leverage.” And I said, “Yeah, but you just told me it would be transformational.”

We were sitting in an office. You could see the state capitol down below, high up. They just waved their arm around like this and said, “Yeah, the unions run this place.” And that’s the real reason.

If you look, for example, Gavin Newsom touted these 2 bills last year, AB 130 and SB 131, that were going to solve the housing crisis. He said, “This is the moment where we are embracing abundance,” and all the rest of it—big CEQA exemptions for certain types of housing. But if you look at the fine print tucked away in them, you only get the exemptions if you have these project labor agreements, a union closed shop, and prevailing wage. So you’re just writing back in exactly the things that CEQA is causing the cost increases from.

So, because the unions benefit from this, let’s follow it all the way through. If you look at Gavin Newsom’s political donations over the 16 years he’s been running statewide, just as a proxy for Democratic politicians by category, the number 1 category is government unions, number 2 is trial lawyers, and number 3 is nongovernment unions. So that’s why nothing changes: the interests that benefit from this system are funding the politicians who make the decisions.

Yeah. And, Chamat, to your other question: Is the environment better since 1970, when this regulation came into effect? California still has the worst air quality in the country, largely because of the addiction to cars and traffic. And then Texas, as a comparison, just has industrial-waste problems because we have a lot of chemicals here, or chemical processing done here.

So we have a car-loving culture in California, to your point, Jason. It’s part of our cultural fabric—driving down Highway 1. It’s just a very iconic thing that’s embedded in this state. Steve, I have 2 questions. What have all of the incremental regulations done with respect to climate and air quality, whether it’s EV mandates or the ICE-engine requirements?

And then, separately, just as a more general way to explain it, why is gas in California $7–$8 a gallon, and why is it $3 everywhere else? Why is ours more than 2 times what it costs everywhere else, including other states that are also quite expensive to live in? We also have the highest gas prices in the country, including Hawaii in the middle of the Pacific Ocean, even though we have abundant oil reserves here. So we have way higher gas prices than states that don’t have oil reserves. We actually have very significant oil reserves in California.

The fundamental reason that gas prices are so high is because, again, in the name of climate—but in this case, it’s actually counterproductive to climate—instead of using the production that we have here in California, we’re importing nearly 80% of the oil that we use. I’ve been to the oil fields in Kern County, mainly near Bakersfield.

Over the period since this all started in 2006, with the passage of the Global Warming Solutions Act of 2006, our use of fossil fuels has declined by not that much. The proportion of our energy that’s coming from fossil fuels is still about 80%. In the rest of the country, it’s about 81%, so it’s barely any different.

But the difference is that we used to produce most of what we use in-state. Now we’re importing nearly 80%, and that has driven up costs. Of course, you have to ship it from halfway around the world. Our number 1 provider is Iraq right now. That’s the number 1 source of oil.

Sorry, sorry. The state of California itself—we are wholly dependent on Iraqi oil to sustain our economy.

Not wholly; it’s the number 1 provider. Yes. So if you look at the sources of oil, number 1 is Iraq; number 2, I think, is Ecuador and Brazil. But the broader point is that we used to have—let’s just go back a few steps—we had a really strong energy industry and infrastructure in California, where we produced most of the oil and gas that we use. We had about 40 refineries around the state, mostly in the Bay Area and down near LA, that refined and turned it into products that we use, gasoline and so on.

Now we’re down to 7 refineries. One of the main reasons for that is that we’re not producing what we could be refining. We’re shipping it in instead because there are no oil pipelines into California. If we don’t use our own oil, we have to bring it in by tanker. That’s a problem because the refineries were built to refine California crude, which is known as heavy crude.

There are different types around the world. You’ve got to have a good match. Iraqi oil is a good match. The other place whose oil is a good match for our refineries is South America. As a result of Democratic climate policy, we are now expanding oil drilling in the Amazon rainforest in order to provide the right kind of oil for California’s refineries.

It’s just so utterly insane and incoherent. Of course, in the process, we’re spewing out carbon emissions because the tankers run on what’s called bunker fuel, which is the most polluting form of transportation there is. To make the whole insane scheme work, CARB—the California Air Resources Board, which is obsessed with having all other businesses account for their carbon emissions right down the supply chain—miraculously counts the carbon emissions for oil imports only from when they’re 12 miles off the coast of California. [Laughter] It’s just so crazy.

Yeah. Change the finish line.

The taxes add like $1 a gallon, and then there’s this CARB standard.

It’s about 60. Yeah. It’s more like 61, I thought, or 65. I can’t remember exactly. It’s just going up again. Yeah, yeah.

Most of the $2 premium, as it were, for California is regulatory, not taxes.

Yes. And most of the oil that’s been pulled out of the ground in California—we got the easy stuff out. What’s left is generally dirtier or thicker.

Thicker to process? No, that’s not right. I’ve had a lot of conversations with the industry on this, and the problem is that you’ve got fields that could be producing. Actually, it’s a good example of what you can do as governor without the legislature, because the way they’ve been shutting down production is not legislatively. It’s through an agency of the state government called Calgen the California Department of Geologic and Energy Management.

It’s simply a question of refusing to issue permits for the various stages of production, including maintaining existing wells or expanding them. There’s a process called sidetracking, where you can take a well that’s doing 5 barrels a day and increase it to 100 barrels a day, and then drill new wells in existing fields. They’re denying permits for all of that. You can pretty much turn that around overnight by appointing people who are pro-energy and will issue permits, because I think there’s a simple common-sense rule here: As long as we’re using oil and gas in California, let’s use our oil and gas rather than importing it.

My conversations with the industry have been, “Look, what could we do if we had a kind of green light from a governor and a regulatory framework that just says, ‘Let’s do what we can. Let’s produce what we can’?” The estimate I’ve got from them is that we can double production every 2 years in California.

If we’re already one of the big gas-burning states with the worst air—or previously my state—you’re going to get into the circular conversation with the public: Do we want the air quality to decrease? Most people would say the EV credits were actually a good thing because we had 20 years of smog going down. Even though we’re still worse, it’s gotten a lot better.

That smog is not to do with carbon, but there’s a real misunderstanding. So, I completely agree on air quality, and one of the major advances that has been made in cleaning up the L.A. basin has been in reducing smog. Obviously, I wasn’t here then, but people say, “You know, it was really bad,” and now it’s not. You have clean skies, and you can see Mount Baldy or whatever. It’s a really different world, but that has nothing to do with carbon emissions.

The main driver of the air-quality improvements in California is actually car technology. If you look at EVs, EV penetration, even with all the subsidies and so on, is incredibly low in California. You can’t point to EVs. It’s about 4% or 5%, something like that—tiny. So, actually, the dramatic improvements in air quality that you saw in L.A. were nothing to do with EVs.

Steve, I want to switch topics to education. This is something we on the pod talk about a lot. We’re all the byproduct of a pretty fantastic education system—affordable education, frankly, at every level. We had options to pay for it.

We all had access to things like AP to really distinguish ourselves.

Even Jason.

Yeah, that’s true.

What’s happening in the California education system? Why are we stripping away things like AP? And how do we tie compensation to outcomes?

Yeah.

A lot of us would want to pay teachers triple, but we’d want to tie it to something that says, “Wow, the test scores are going up. Our kids can read. Our kids can write. Our kids can compete on the global stage.” It just feels like we are moving backward.

We really are. The numbers are horrific. First of all, we spend nearly the most of any state per student. This year, it’s just over $27,000 per student per year in California. If you take the average out, the money is nearly the most, and we get some of the worst results in the country.

I think the number for English and reading is 47% who meet basic standards, so less than half meet basic standards. For math, it’s 35%. Two-thirds do not meet the standards. It’s just an insane level of failure considering we spend nearly the most.

Again, you’ve got to look at this in a practical way. There’s a long-term structural reform that I think we need, because the driver of this is really the grip of the government-school monopoly by the teacher unions, which increasingly have been driven by ideological factors. You saw that, for example, during the pandemic, when you saw the longest and most destructive school closures in the country.

I was always struck by the teacher union in L.A. When they put out their demands for reopening schools, it was just a list of political demands: a wealth tax, Medicare for All, something about Palestine. They’ve completely become an organized political interest group that’s about their members and broader political goals, rather than anything to do with the interests of students and kids in school.

The fact that you’ve got this monopoly of the public school system controlled by the unions is the problem. They, of course, in turn control the politicians. As I mentioned earlier, the number-one donors to Democratic politicians are these government unions, including the teacher unions. So, you’ve got to break that grip.

Long term, I think the answer is to move in the direction of school choice, which I’ve always been a strong advocate of. You’re seeing that school-choice revolution across the country now, with many states moving very rapidly in that direction and getting really good results. It’s not a panacea, but I think that is the long-term structural change you need.

That takes a long time, and it’s going to be very hard to get moving in California, given the fact that the teacher unions basically control the legislature through the Democratic politicians they put there. So, there are some practical things that we’ve got to do immediately to improve these basic standards.

Here, we’ve got to look at what works elsewhere. You see a lot of attention now on Mississippi, rightly so, because for one-third of the spending per student that California has, their results are spectacularly better. It’s really happened in the last 10 years, and there are some simple, practical things that they do.

Number 1 is how you teach kids to read. There’s a technique of reading instruction—I remember this was a debate I was having back in the day in England in the ’90s—and it was pretty much settled then. It’s called phonics. It’s a way to teach kids to read, and it’s clearly established as the most effective method. It’s barely used in California schools at all, just in a very small proportion of public schools. That’s something the governor can drive forward through the State Board of Education, where you appoint all the members.

Secondly, in Mississippi, they introduced something very common-sense. As everyone in education says, up to about 3rd grade, you’re learning to read, and then from 4th grade, you’re reading to learn. If you can’t read, you can’t learn. There’s widespread consensus that reading by 3rd grade—by the end of 3rd grade—is an incredibly important benchmark.

In Mississippi, if you don’t pass the basic reading test by the end of 3rd grade, they give you a bit of help over the summer. If you still don’t make it, you repeat the year. They don’t let you go forward. That single change has transformed their results.

Your point about accountability also happens there. They give—and this is something else that we could implement here—the publicly available test scores and data, but really assign them in a very visible way to individual teachers and individual schools. That’s one of the proposals I’ve got in my campaign: a grade for every school and a grade for every teacher, so we can reward the good ones and remove the bad ones.

Two more topics that Californians are very passionate about and have a lot of opinions about. I think one is pretty challenging, and the other one seems pretty easy. Other states have handled it in places where it’s easier: crime and then homelessness.

Obviously, as a society, we’ve seen violent crime go down over the long arc of our lifetimes, in the last 40 or 50 years. But California is still 30% more violent than the rest of the country, so we definitely have a violence problem specific to California.

If you live in the major cities—San Francisco or Los Angeles—they let people out for petty crimes under $850. There seems to be, and we see this going to a drugstore, everything’s locked up. So, there is a feeling—and a lot of debate over the numbers—that there’s a lot more property crime.

Some people claim people don’t report it anymore. That was my lived experience in California. What is your take on crime, and then we’ll go to homelessness?

Yeah, I mean, it’s this classic thing in California where they seem to be brilliant at passing laws, right? Every year, more and more laws, more and more bloat and bureaucracy, more nanny-state nonsense. Last session, for example, they passed—this is in one session—1,118 bills. That’s the number of bills the legislature passed.

We did a thing outside the state capitol. I’m not very tall. We printed them all out. It’s like double my height. I mean, just ridiculous. But the point I’m making is, they’re really good at passing laws but not very good at enforcing them. There’s just something missing in terms of the appetite, the willingness, to just enforce the law.

That’s going to be one of the main points I make in terms of homelessness. But when you get to crime, there’s just this attitude. I mean, there’s something off about how the left has seen this issue. Just when you think the worst excesses of “defund the police” and all that have receded, you’ve now got them popping up.

What is it, this new thing—microlooting, right? The New York Times and Slate podcasts are going on about, “Oh, it’s fine because it’s just social justice, and we’re allowed to steal things because it’s okay.” It’s just an unbelievable subversion of basic

values and morality. Just unbelievable.

On crime, it’s very decentralized. I mean, there are some state things that need to be dealt with. Remember the law that you’re talking about that legalized theft up to $950? That part has been overturned. That was Prop 47, which was passed a few years ago, and it has been overturned by Prop 36, which was overwhelmingly passed in 2024 by about 70%. But, of course, it’s not being properly implemented.

Gavin Newsom was against it, and so were most Democrats in the state. The people passed it anyway, but now there’s real resistance to enforcing it, which is ridiculous. In terms of the overall picture, though, it is very localized. You’ve got local police forces and sheriffs’ departments and so on.

So my focus has been, well, what can you do as governor? One of the biggest drivers that’s caused the problem really started with Jerry Brown, before Gavin Newsom. Gavin Newsom has accelerated it, which is the prison closure program. They’ve basically reduced the number of prison places by half. Guess what happened to the budget? It doubled.

Not quite—not quite that bad, but it’s a classic. They cut the numbers in half and doubled the budget.

But the serious point is that you’ve had tens of thousands of really dangerous, violent criminals either released directly into the community or, more destructively for the system, transferred to county jails, which are now completely overcrowded. Therefore, at the local level, the whole system is aware that you’ve had all these transfers from state prison. The system is full, and so there’s no capacity.

That really undermines the kind of accountability that judges and prosecutors would want to seek at the local level, because they know the jails are full. That, in turn, undermines law enforcement because they say, “What’s the point?” I mean, I hear this term all the time from law enforcement around the state. I’m traveling the state the whole time, and they talk about catch-and-release as the basic operating rule for the kinds of crimes you’re talking about: You catch them, they just release them, and nothing happens.

That undermines law enforcement. They think, “Why bother if we’re just going to bring these people in and nothing’s going to happen to them?” That, in turn, undermines public confidence because everyone sees that and then, as you just said, doesn’t bother reporting it.

So a simple thing we can do that is completely within the governor’s control is stop and reverse the prison closure program, which is what I’ve committed to doing: increasing prison capacity in California. That means you can relieve the pressure on county jails, but it also means you can use the prisons for what they should be doing—not just bringing accountability. You commit a crime; you should be punished. But it should also involve rehabilitation.

We’ve got one of the worst, though not the worst, recidivism rates in the whole country. One of the best states is Virginia; they’re less than half what we have. That would massively reduce crime. You’ve got to take the rehabilitation part seriously.

I mean, a huge proportion of prisoners in these jails can’t read properly. Many have dyslexia. You’ve got to have a really serious view on it, and they just don’t. They have an ideological view. I think that is the problem with so many of these issues: It’s ideology.

In this case, it’s decarceration—“Can’t have people in prison. Prison is racist. Criminal justice reform.” All this ideology instead of just practical things to keep people safe.

Newsom shut down 4 or 5 of the California state prisons. You’re absolutely correct. According to my notes, it peaked in 2006. California had 165,000 people in state prisons; now it’s 93,000 people. So it is definitely a trend, and I think a lot of folks who are living here—or who were living in California, where I used to live—are not in favor of that. Looking at homelessness, is it intractable in California?

One thing I’ll just point out: Over the last 3 years, I’ve been traveling the state, learning about this stuff and developing solutions. I had a policy organization for that called Golden Toto together. goldento together.com and you can find policy reports on many of these areas we've discussed and more including one on homelessness called ending homelessness.

My real partner in developing that was someone called Michelle Ste, who’s done a lot of work on this. She actually ran homeless shelters and worked at the street level of this for many years. Also, someone called Tom Wolf has given me a lot of great advice. He’s in San Francisco, a recovered addict who’s just fantastic.

He’s very vocal on Twitter and has a very common-sense approach.

Yeah, exactly. Okay, so very simply, I’ll try to capture it simply. It’s 3 points.

Number 1: It is already illegal to live on the streets, and homeless encampments are already illegal. They’ve always been illegal. It’s another example of where we just have to enforce the law.

For years, local politicians in California hid behind a court ruling called the Boise ruling from many years ago. It’s a 9th Circuit ruling that applies to the Western states, and it stated that you can’t remove people from the street unless you have sufficient shelter available locally.

They used this to say, “We can’t remove people because we don’t have enough shelter.” It didn’t define what shelter was. They defined it as these permanent supportive housing units costing $900,000 a door, but it could have been a camp with cots. There’s no reason it couldn’t have been.

But even that excuse has been lifted because there’s a Supreme Court case called Grants Pass versus Oregon in 2024 overturned that. So there’s no excuse. The people running local governments have the power and legal authority to remove every single homeless encampment, and they should.

My argument is that, once I’m elected, I’ll give them a certain amount of time, and if they haven’t done it, then I’ll use state law enforcement resources to take people off the streets.

Then you get to points 2 and 3 of the plan, which are that you’ve got to give people help in a compassionate way and help them get their lives back on track. Over 80% of people who are homeless have drug or alcohol problems, addiction, or severe mental health problems. So you’ve got to deal with that.

The second part is drug and alcohol recovery. You’ve got to get people into recovery. That used to be the rule in California: rehab or jail. We’ve got to get back to that. It can’t be an option. You’ve got plenty of service providers who can do it. You’ve got to require it.

I mean, last year, even the Democratic legislature passed a bill called the Sober Housing Act, which would have taken a certain proportion of homeless spending and allocated it to shelter where sobriety was a requirement. That bill was vetoed. It’s unbelievable.

So we’ve got to have a 100% sober requirement for any kind of state services on homelessness.

The third part is mental health. Honestly, going back to the jail conversation, you talk to sheriffs around the state. The number varies, but they say 50%—I’ve heard as high as 70%—of the people in their jails have severe mental health problems.

That’s where we are actually treating people with mental health problems: Either they’re on the street or they’re in jail. It’s totally barbaric. One of the reasons is that, when you’re talking about the homeless population, you’re obviously talking about low-income people.

So it’s very much entwined, when you talk about mental health care, with Medicaid and the federal system. There’s a rule in Medicaid that was set up right at the beginning, when it was founded in the mid-’60s, called the IMD rule, institutions of mental disease. This was a time when they didn’t want large mental asylums and whatever.

The idea was that you would have small facilities in the community. So the rule is that there is no Medicaid reimbursement to the states for any mental health care provided in a facility with more than 16 beds. It’s a 16-bed rule. Of course, that makes the whole thing incredibly uneconomic and inefficient. Imagine if hospitals could only be 16 beds. How inefficient that would be.

The first Trump administration created a waiver—the IMD waiver—that states could apply for so you could get around the rule. California. A lot of other states have taken that up. California hasn’t. There’s plenty of money in the system. As we’ve been saying, the budgets are there. They’ve just been diverted into the wrong places.

So, the third part of the plan is to take the money that’s currently going into the homeless industrial complex—these ridiculous apartment units for people who should be either getting mental health care or recovery treatment—and put it into modern large-scale mental health facilities. Then we can treat people.

That’s broad work. That’s a great place for you to put a big magnifying glass, because that’s where there are massive amounts of corruption. People cannot believe how much we spend in this—

Or we spend in California on—

Homeless. And if you pay for something, you will get more of it, and they’re getting a lot more of it. Yeah.

Steve, as we wrap up, give us the quarterback view of your path to victory. Walk us through the sequence of events, the key moments leading up to the primary vote, and then from the primary to Election Day. What has to happen for you to get to Sacramento?

So, we have the top-two system. For those who don’t know, another crazy California thing is that you end up with 2 candidates going through to the general election regardless of party. The idea of this was to have more moderate politics. Ever since it was introduced, the state has gone further and further to the left.

You’ve got various scenarios that are possible. Right now, I’m leading in all of the polls. On the Republican side, there’s 1 other candidate. With President Trump’s endorsement of my campaign, I think we can expect—I’m pretty confident—that we can make it into the top 2. It’s not certain. We’ve got to fight very hard over the next month or so. The ballots go out next week, in early May.

I think that we’re going to have a top 2 with myself and 1 other Democrat. Right now, it looks as if it’s going to be 1 of Tommy Styer, Katie Porter, or Javier Basera. All 3 represent either no change from what we have now or a move even further to the left in the wrong direction. So, broadly, the argument is going to be very straightforward: Are you happy with the way things are going in California? Do you want more of it? If you do, you vote Democrat. Or do you think we need a change? It’s a classic change-versus-more-of-the-same election.

Getting into the numbers, I know a lot of people look at California and say it’s impossible for a Republican to win. We’ve had Republicans in the past, but that was a long time ago. You could say there were special circumstances because Arnold Schwarzenegger was elected in a recall election and so on.

And he was a celebrity who was highly known and loved in Los Angeles—half the state.

Exactly. All of those things are true. But I’ve always said from the beginning that it’s not going to be easy to win. It’s going to be very difficult because of the structural factors in California. But it’s not impossible. Given the seriousness of our predicament and how much I think the whole country depends on a successful, growing, thriving, leading California, we should go for it, because getting things back in a common-sense direction is just a really important thing. I always say California means to America what America means to the world. So, this matters.

If you look at the numbers, some people look at the voter registration numbers and say Democrats outnumber Republicans 2 to 1, and that is true. But when you look at actual voting, the gap is a little bit closer. Over the last 20 years, when you haven’t had Republicans elected, the average Republican vote has been just over 40%. So, it’s been like a 60-40 split. Obviously, that’s not close, but the gap is perhaps not as wide as some people might think.

But then you look at a couple of factors that I really think are different this year. First of all, there’s a dissatisfaction with the way things are going that wasn’t there before. If you look at that basic number—is the state on the right track or the wrong track?—even 4 years ago, in the last governor’s race, the wrong-track number was in the mid- to high 40s. Now it’s in the mid- to high 50s. So, there’s a majority for change in California, just put it that way, which is a good environment to be going into as a candidate representing change.

The second point is, if you look at the actual votes you’re going to need to win, this is a midterm election in 2026. If you try and get some kind of sense of how many votes will be cast in the midterm election this year, take the average of the last 2—2018 and 2022—and you get a total of 11.7 million votes as an estimate. To win, you’re going to need just over half of that. Call it 5.9 million.

When people say there aren’t enough Republicans in California to win, in 2024, in the presidential race, President Trump in California—without even campaigning here or spending money on ads or anything, since it wasn’t a targeted state—got 6.1 million votes. In other words, there are more than enough people who just voted Republican for President Trump.

Of course, you’re not going to get 100% of presidential-year turnout in a midterm election. But the reason I make that point is that the votes are there, actually, even with just Republicans. I don’t think we’re going to get there just with Republican votes, but that’s the starting point: a strong campaign to turn out Republican votes.

A big driver for that this year, which again is a unique feature this year, is the fact that in November we’re going to have voter ID on the ballot. That just qualified for the ballot. Republicans, particularly, are enthusiastic about voter ID. That’s going to help us get a big turnout.

In terms of the coalition for victory, I think that you’ve got a real opportunity to put together the kind of multiracial, working-class coalition that President Trump put together. Going right back to where we started, it’s working-class people who are really struggling and being hammered the most by these policies. They get to vote directly for no taxes. No state income taxes.

Exactly. Because that’s my tax plan. I just put this out there the other day: no state income tax and no tax on tips. That’s the other part, which has been implemented at the federal level, but California won’t do it at the state level. My whole plan is geared toward $3 gas. I call it “Californable.” $3 gas. Cut your electric bills in half. Your first $100,000 tax-free. A home you can afford to buy. Really simple, practical, common-sense things that particularly help the people who’ve been hurt the most over the last few years. I think that’s how we pull this off.

Steve, on behalf of all, I just want to say thank you for being so incredibly candid and open with us. We’re wishing you the best of luck.

Thank you for joining us. And just from my seat, if you want—

Moving back. [laughter]

No, I mean, if you want it, I left for a reason, and part of it was the dysfunction of the state. If you want things to continue, I think having an unbalanced government that’s all in 1 party is a way to do that. You’ve got to try to find some balance here, and I think, why not give it a shot? If you’re in California, you have nothing to lose. The state is in a massively dysfunctional situation. So, I wish you great luck, Steve Hilton.

Thank you, guys. Great to be with you.

All right. Cheers. Now, [music]

I'm going all in.