Lt. Gov. Eleni Kounalakis, a major Democratic donor and the first well-known candidate to formally launch a campaign for governor in April 2023, said Friday morning that she is dropping out of the governor’s race and will instead run for state treasurer.

Her announcement is the second big development in the governor’s race in the last two weeks. Last Wednesday, former Vice President Kamala Harris said she would not run, creating a vacuum other Democrats in the race are rushing to fill.

Kounalakis said in a statement that as treasurer, she can “make the greatest impact by focusing on California’s financial future.”

The state treasurer manages California’s assets and serves on powerful boards that oversee the state employee pension systems and award financing for affordable housing and infrastructure projects. That role, Kounalakis said, would allow her to focus on “fiscal responsibility, economic opportunity and strategic investment in our state’s priorities — from affordable housing and clean energy to infrastructure and education.”

“This work is critical and I am prepared for the challenge,” Kounalakis said.

Kounalakis is the former U.S. Ambassador to Hungary and the daughter of a wealthy real estate developer from Sacramento. In 2016, Kounalakis was a California co-chair of Hillary Clinton’s presidential campaign, helping raise money and advising on foreign policy.

Her family has deep ties to the well-heeled world of Bay Area political donors and power brokers, including U.S. Rep. Nancy Pelosi (D-San Francisco) who gave Kounalakis a nod on TV last week after Harris decided not to run for governor.

Her exit from the governor’s race creates an opening for other candidates to build relationships and secure contributions from those donors, some of whom were waiting to give until Harris made a decision.

The other Democrats in the race include Toni Atkins, a former Assembly speaker and Senate president pro tem; Xavier Becerra, former California attorney general and Biden Cabinet secretary; Stephen Cloobeck, a philanthropist and businessman; Katie Porter, a former congresswoman from Orange County; Tony Thurmond, the superintendent of public instruction; Antonio Villaraigosa, the former mayor of Los Angeles; and Betty Yee, the former state controller.

There are two prominent Republicans running: former Fox News commentator Steve Hilton and Riverside County Sheriff Chad Bianco.

Early polling showed Kounalakis in the top half of the gubernatorial field, but most voters also said they haven’t made a decision yet and don’t know the candidates.

Kounalakis had raised millions of dollars in her race for governor, most of which her campaign said she will be able to transfer to her race for treasurer.

She will face several other longtime California politicians in that race, including state Sen. Anna Caballero (D-Salinas); the former mayor of Oakland, Libby Schaaf; and Tony Vazquez, a member of the state Board of Equalization.

Kounalakis was first elected lieutenant governor in 2018 and was reelected in 2022. The office is a largely ceremonial post that has been a launchpad for the governor’s mansion in the past: Both Newsom and former Gov. Gray Davis previously served as lieutenant governor.

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“At this moment, I believe I can make the greatest impact by focusing on California’s financial future,” she said in a statement Friday. “As State Treasurer, I will bring a deep commitment to fiscal responsibility, economic opportunity, and strategic investment in our state’s priorities — from affordable housing and clean energy to infrastructure and education.”

Her decision comes at an odd moment in the campaign for California’s top office. Just last week, former Vice President Kamala Harris announced that she would not run for governor next year, seemingly cracking the unsettled race wide open ahead of the June primary. That same day, former House Speaker Nancy Pelosi unofficially endorsed Kounalakis in a television interview.

But Kounalakis, who has served as lieutenant governor since 2019, had been sputtering in a crowded field of prominent but low-wattage Democrats. They also include former U.S. Rep. Katie Porter, former U.S. Health and Human Services Secretary Xavier Becerra, former Los Angeles Mayor Antonio Villaraigosa, former state Controller Betty Yee, former state Senate leader Toni Atkins, state Superintendent of Public Instruction Tony Thurmond and timeshare magnate Stephen Cloobeck.

A poll released Friday by Emerson College found Kounalakis running sixth, with only 3% support — behind the Los Angeles billionaire developer Rick Caruso, who has not even entered the race.

And despite significant personal wealth from her background as a real estate developer, Kounalakis struggled to fundraise for a campaign that could ultimately cost tens of millions of dollars to win. She recently reported raising only about $100,000 in the first six months of the year.

In her announcement, Kounalakis emphasized her experience developing housing and said addressing affordability would be a focus for her if she wins the treasurer’s office.

“I will ensure that we efficiently leverage every dollar at our disposal to increase housing production,” she said in a statement. “This work is critical and I am prepared for the challenge.

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