
The great California Exodus - flavio87
http://www.manhattan-institute.org/html/cr_71.htm#.UN33BInjlsw
======
mjg59
The Manhattan Institute is an explicitly conservative political organisation.
That doesn't inherently invalidate any of the conclusions they draw, but
readers should be aware that they have been made with a pro-free market, anti-
big government mindset. Others may draw quite different conclusions from the
same facts.

~~~
001sky
I don't think this is relevant. The reason that people for the most are
leaving is not politics or taxes, but high cost of living. The biggest expense
for most people is housing. From 1930-2000, almost everyone who moved to CA
made money on exploding real-estate values, eithe directy or indirectly. This
extended massively peoples wealth, so they lived in houses and with a
lifestyle they could never afford based on their "day jobs". Now that the
elevator of home-equity is no longer subsidizing cost of living, most people
realize that there are a lot more $1MM houses in CA than $300K/yr jobs. And
where there are those kind of jobs, a $1M house doesn;t get you much beyond
the basics (like in SF/palo alto etc).

~~~
thrownaway2424
I think it obviously does matter. The conclusion of the paper was clearly
written before the rest of it. Gems totally unsupported by the preceding
evidence include "California has cut taxes in the past, most dramatically with
1978’s Proposition 13, and when it has done so, prosperity has followed.
Ballot propositions this November aim to do the reverse, raising taxes on
business owners while the state is still struggling to hold its own against
more aggressive, confident rivals. The results will send a strong signal,
whichever way they go: the state’s voters will be deciding to continue on the
path of high taxes and high costs—or to make a break with the recent trend of
decline" and other whoppers. Even the title is ridiculous unless you are
willing to define "exodus" as "growing at the same pace as the nation as a
whole".

~~~
001sky
The point is taxes are second order. Locally (st.city) are based on either
property values and incomes. (1) if incomes cannot support paying the housing
costs, they cannot support higher taxes, because there is no excess earning
power; (2) if people cant pay the rent, then they are likely to move away to
"somewhere more affordable". Most people spend ~30 pc of their income on tax
and another ~30pc income on housing. So those are material numbers. When
housing was going up=up=up, the mismatch of income to consumption was masked.
Lower income supported higher living b/c the real-estate capital gains was not
taxed and the grand-fathered real-estate became a lower % of income as
salaries rose proportionate to real estate. So, if you had a 10 year house,
you had $500K appreciation in the bank (no tax) and maybe a morgage taking
only 15% of income b./cause it was bought cheap. this leaves a lot to pay
taxes no problem. But same people cannot make math work if they need 30 pc
after tax to pay rent, and 30 pc to pay tazes. 40%r residual for save/consume
vs 55% is almost 1/3 drop, and a big difference. If gov;t ups taxes anothe 5%,
then 55 to 35 is even bigger hit. But without the 500k in appreciation per
decae accruing to savings, the 35% needs even more to be allocated to savings.
So spendin cash mabed is only 20-25% from 55% in this example. In other words,
that is a huge pay cut doing same work, etc. And that knind of pay-cut (1/2
order of magnitude) will cause people to look for new places to live. The
taxes issue is more a problem for businesses (who are next in line after
consumers to get taxed), but it is the residential people moving out that is
the focus of the discussion for the most part here.

~~~
rdl
The funny thing is the counties where people weren't leaving (SF) had the
highest housing prices.

~~~
_dps
I think there might be some nuance in the composition of the leavers vs the
comers. This is purely speculative, but one could imagine that in SF:

\- leavers are mainly people with established jobs, thinking of starting a
family, who want more house per dollar (and more post-tax dollars per salary
dollar)

\- comers are mainly early 20s unattached aspiring professionals who aren't
hit as hard by high real estate prices (price to rent ratios are still very
high in SF), and who also don't yet have a large income against which to
evaluate the tax impact

This kind of dynamic would result in a "perpetual churn" as each generation
matures through their professional lifecycle, each time opening new jobs and
housing opportunities (and thus the near-zero net migration).

Again, very speculative. But your observation made me scratch my head for a
bit and this was the best explanation I could muster aside from "people just
like SF and don't leave despite economic pressure".

~~~
rdl
That makes sense. The Bay Area also has a lot of H1B and other (legal, not
tied to agriculture and thus inherently migratory) immigrants, too (in the
tech sector), relative to the rest of California.

OTOH, it's pretty safe to say Californians outside of the Bay Area and maybe
LA tech industry are struggling at all ages, so if you live in Redding, and
don't own a productive farm or something, jumping up to Oregon or Nevada isn't
a big compromise.

I can kind of justify California taxes and other expenses if you get the
benefits of industry concentration, and maybe even if you are tied in with UC
somehow, but for a person working in a fast food restaurant or light machining
job or something, there's a lot less to tie you to California vs. a place with
faster growth.

------
seiji
At the high end of moving out (rich people), California is unappealing because
it's budgetfucked. Education, transportation, public services, and everything
else will suffer for a long time. This leads to their crazy high state income
tax and crazy high sales taxes and municipalities doing insane additional
taxes for businesses on top of everything else.

The Bay Area may be the best place to create Show Me Your Food 13.0, but I
think you can build things elsewhere with nicer conditions.

~~~
thrownaway2424
"In other words, the highest-income Californians were less likely to leave the
state after the millionaire tax was passed."

[http://www.stanford.edu/group/scspi/_media/working_papers/Va...](http://www.stanford.edu/group/scspi/_media/working_papers/Varner-
Young_Millionaire_Migration_in_CA.pdf)

By the way, the reason the state is "budgetfucked" as you eloquently put it is
because of low taxes, not high taxes. You may be interested in reading about
Proposition 13, a scheme under which people who are sitting on massively
valuable assets are taxed at lower rates than those who actively acquire and
dispose of much less valuable assets, and where assets held by corporations
are taxed static amounts (in terms of absolute magnitude, not rates) in
perpetuity.

~~~
seiji
Quite true. Prop 13 is an abomination. Instead of only homeowners paying
reasonable real estate tax, they've essentially made everybody in california
subsidize low-tax-locked real estate owners. Now you get to have the fun of
paying virtual real estate tax without owning property.

It turns out, we have the ability to _not_ live there!

It's not quite sane to take a multimillion dollar exit in California when
Seattle has zero additional overhead. Though, it is an absolute dickhead move
to build your company in California then "establish residency" in a zero-
income/capital gains tax state solely to avoid California tax harassment.

~~~
bcoates
It's California's stupid fault for picking that tax system. It's not like
residence-based income taxes were decreed by God as the only way to fund a
government.

~~~
001sky
residence based taxation is a stealth wealth tax. us is illegal wealth tax
directly. problem was in 1970s, people bought 10k house on 3k/ye wages. 10 yes
later, it was million dollar house. 3k/wages cannot pay taxes on million
dollar house. so that is why they passed such a law. otherwise, people would
have all had to sell house for capital gains and move out of california in
1970s.

This is not justifying system, but explaining how these thnings come about.
Again, it has to do with people not being able to afford the either the real-
estate (at market values) or the taxes based on their incomes. taxes just
second order effect though.

~~~
thrownaway2424
You will have to excuse me if I don't sympathize with the taxation problems of
people who are sitting on unrealized million-dollar capital gains.

~~~
001sky
The politicians were showing sympathy with the grandma on social security
liing in her house she bough in 1940 with no plumbing, etc. It was not her
fault NASA moved in next door to send men to the moon, etc. That, at least was
the context. I don't have sympathy for entitled people either, particulalrly
those we are talking about who "developed" and paved over CA with freeways.
But before them was a genration of home-steaders, who had no income because
they were modest people. They took a lot more risk and invested a lot of sweat
equity to make CA a better plave to libe, so perhaps worth showing them some
respect...etc. or not YMMV.

------
majormajor
It seems like there are several additional ways one could spin the data in
this report.

From a selfish standpoint, should I, as a Californian in a booming industry
that looks like it will remain a central part of the economy for the
forseeable future, be too broken up about a lot of people moving elsewhere for
jobs? Should I want the metro area I live in to be seeing double-digit-
percentages population growth over decades (I don't think that would make it
any cheaper, or would make traffic any better)? And even then, the overall
populations for the parts of California I'd want to live in are still rising,
and jobs and new companies are still being created, and I'm meeting a ton of
smart people who've moved here from all over the country.

I certainly have no intention to move back east any time soon. I've found a
lot more interesting stuff being done out here, and the weather is worlds
better, and the high population density allows a ton of things I like.

~~~
prostoalex
It's perfectly fine to live in California as a salaried employee, you're
likely not to get screwed.

For an entrepreneur, where you might subside 7 years on Ramen noodles to
(maybe) have a large windfall during the 8th year, California places an
unreasonable penalty on that once-in-a-lifetime event.

Therefore from selfish standpoint, if you start a business, grow it fast
somewhere else, and then, when growth plateaus, bring it to California (let's
face it, it's still a large consumer market).

[http://allthingsd.com/20121204/what-proposition-30-means-
for...](http://allthingsd.com/20121204/what-proposition-30-means-for-
californias-entrepreneurs/)

~~~
ubernostrum
This makes about as much sense as someone living in a trailer voting to ensure
their own tax rate is higher than a billionaire's, "because I might win the
lottery one day".

~~~
prostoalex
Except moving to another state is not "living in a trailer", it's more like
living in a house next door, unless you feel particularly superlative about
California.

------
mejarc
So that's why my rent here in the SF Bay Area is decreasing! (Not).

I admit it was kind of nice after the Loma Prieta earthquake in 1989 and the
dot-com bust in 2001 to have some breathing room. Alarms about hordes leaving
California have the opposite effect on me, as I look forward to uncrowded
hiking trails and affordable real estate.

~~~
thrownaway2424
Yeah, that's the joke. It's a place where nobody wants to live, where all the
houses cost a fortune and there's a waiting list for every apartment.

The funny thing is there's a big generational shift underway right now. People
born around 1980 and later are much more likely to express a desire for a real
urban environment, like that found in San Francisco, New York, and throughout
Europe, instead of the suburban environment favored by their parents. Now, far
be it from me to judge anyone, but it seems to me that anyone leaving
California for Nevada is clearly expressing their preference for the suburban
or even rural lifestyle. That lifestyle, being extremely energy intensive, is
the definition of non-sustainable. If other states are attracting residents
because they have lots of that unsustainable development, I think they can
pretty much have as many of those people as they want. I far prefer to see
California investing in real cities, attracting the kinds of people who prefer
to live in those real cities, and building a future that actually has a
future.

It won't be very long (certainly within fifty years) before non-places like
Las Vegas and Phoenix are viewed as bizarre, obvious mistakes of our past.

------
natnat
I think this has a lot less to do with taxes than it does with the prices of
real estate. Buying a house in California is prohibitively expensive for most
people, which eats up a huge amount of everyone's disposable income. In Texas,
you make less money, but houses and rent are a factor of 2-4 times cheaper for
what you get.

I think there are two main reasons for this: proposition 13 and CEQA. Prop 13
keeps property taxes really low, which makes buying and holding onto single-
family homes really cheap. This is a giant subsidy for people who have lived
in California for a while, but jacks up the prices for everyone else who gets
in after them, since low ownership costs translate to high upfront prices.

The California Environmental Quality Act has a different effect that also
raises housing prices: empowering NIMBYs. Because any new development can be
pretty easily be slowed down/made more expensive/stopped altogether by a bogus
CEQA request, new housing isn't getting built in nearly as much as one would
expect given the demand. This makes existing housing more valuable, which
increases prices even more.

In addition, some municipalities, notably San Francisco, have an insanely
regulated rental market that makes renting incredibly difficult for a
landlord, which makes it more attractive for people to buy housing instead of
rent. This means there's less rental housing to go around, which makes the
rent in SF absolutely insane.

------
josephscott
Seems odd to try and focus only on domestic migrations. In 1990 the population
of California was 29.9M, in July 2011 it was 37.6M. The total population has
continued to climb -
[https://www.google.com/publicdata/explore?ds=kf7tgg1uo9ude_&...](https://www.google.com/publicdata/explore?ds=kf7tgg1uo9ude_&met_y=population&idim=state:06000&dl=en&hl=en&q=california%20population#!ctype=l&strail=false&bcs=d&nselm=h&met_y=population&scale_y=lin&ind_y=false&rdim=country&idim=state:06000&ifdim=country&tstart=333612000000&tend=1311832800000&hl=en_US&dl=en&ind=false)

The net draw to California still seems to be in place.

I moved from California to Utah in 2007. The reason? My wife wanted to be
closer to her family there and my job didn't care where I lived.

------
saosebastiao
Their conclusion about density is bullshit, supported by bullshit assertions.
Population-Weighted Density is what people experience, not geographic density.
Nobody moves out of their 10 acre farmhouse in San Bernadino county because
Long Beach is too crowded. Even the Census acknowledges as much.
[http://www.theatlanticcities.com/housing/2012/10/americas-
tr...](http://www.theatlanticcities.com/housing/2012/10/americas-truly-
densest-metros/3450/) Furthermore, there are plenty of dense cities that are
growing more densely as well as in absolute. In fact, the city that is densest
(by a factor of 2x), is doing exactly that.

~~~
tsotha
While it's true nobody moves out of a 10 acre farmhouse in San Bernadino
because Long Beach is too crowded, the low density parts of the state don't
have any jobs and aren't particularly nice places to live to start with. So
density in the nice, employment rich places matters.

San Francisco is an outlier. It attracts people who want to live in a dense
urban environment and has a reasonable public transportation system. In most
places higher density directly translates into less free time as a result of
longer commutes.

~~~
saosebastiao
High density doesn't directly translate into longer commutes. It directly
translates into better jobs. Since people are willing to travel longer
distances for better jobs, longer commutes are an indirect result.

~~~
tsotha
In the long run that's true, but if you're already living somewhere and the
density increases you're going to have a longer commute, most likely.

------
rdl
Seriously considering Seattle or Las Vegas, or farther afield, Hawaii or New
Zealand, in 2013+.

~~~
jinushaun
The problem with the great California Exodus is the people leaving CA end up
trying to re-create CA wherever they move. Just look at the Californication of
Seattle, Hawaii and Denver.

~~~
seiji
Anecdote: Walking around Seattle, I stumbled into an olive oil/butter shop
(think: wine shop, but not). In this shop was an 8 year old girl. She, in the
shop without a parent or guardian, asked the attendant, "Which one of these is
the organic butter? I only eat organic."

Who knew the insanity started so young?

~~~
rdl
Expensive/organic/artisanal food is a native Northwest thing, though -- it's
not just a California import.

------
scrrr
After just roughly scanning the graphs I'd speculate that the ageing society
plays a role. Which could explain why less liberal states are experiencing a
rise of population, while the more liberal states are experiencing a decline.

Which is just my hunch (without any source or proof) that people get more
conservative with age. And another one, that they prefer to live in places
with like-minded folks.

Just wild guessing though. I am not even from America.

~~~
antidoh
“Show me a young Conservative and I'll show you someone with no heart. Show me
an old Liberal and I'll show you someone with no brains.”

― Winston S. Churchill

[http://www.goodreads.com/quotes/95528-show-me-a-young-
conser...](http://www.goodreads.com/quotes/95528-show-me-a-young-conservative-
and-i-ll-show-you-someone)

~~~
stevejohnson
This quote doesn't add to the discussion and is also incorrectly attributed to
Churchill.

[http://www.winstonchurchill.org/learn/speeches/quotations/qu...](http://www.winstonchurchill.org/learn/speeches/quotations/quotes-
falsely-attributed)

------
johnohara
This exodus is occurring in Illinois as well (shown). Both states share
similar budget problems along with predictable leadership responses -- higher
taxes and reduced services.

What Illinois needs is genuine growth and that doesn't happen overnight. In
the meantime, people get fed up and leave -- unless they have to sell their
home or business.

~~~
ubernostrum
I would disagree with your assertion that "growth" is what's needed.

The problems we're seeing, in many places, are the result of pursuing "growth"
-- some seemingly-smart people show up and say that if only the local
government will provide, up-front, a bunch of infrastructure and tax breaks
right now, it'll all be made up in "growth" from businesses and people moving
in and creating jobs and wealth.

Of course, what actually happens is the businesses and people move in, take
advantage of everything provided, and then scream bloody murder about
"expropriation" and move away when finally presented with the bill for all the
services and breaks that enabled that "growth".

What is needed is a responsible expression of some kind of actual social
contract, with obligations and benefits for both sides. But good luck rallying
support for that on HN, where short-term lottery-syndrome has everyone
blinded.

~~~
johnohara
Illinois is 13B+ in debt with 80B+ in long term obligations that take the form
of pensions and entitlements. The social contract is there -- and
constitutionally protected.

The scales are out of balance, the corn crop has failed, Caterpillar wants to
move, gas is the highest in the nation, gang violence is increasing, the
schools are struggling, and everyone feels the weight.

We need to grow, we need to export, and we need to sustain it for a prolonged
period of time.

------
zdgman
Along with this study it would be enlightening to see if someone could
correlate it to a decline in California's jobless rate:

[http://www.latimes.com/business/la-fi-mo-california-
sheds-38...](http://www.latimes.com/business/la-fi-mo-california-
sheds-3800-jobs-in-november-jobless-rate-falls-to-98-20121221,0,6802816.story)

Of course, you have to take the jobless rate with a grain of salt as it does
not take into to account people who have just given up looking all together. I
still wonder if population decline in California could contribute to lower
unemployment (more jobs open for the people that stay in the state).

------
thrownaway2424
Would rather have more parks and forests than more people. Carry on.

------
kqr2
There was a recent KQED forum podcast on the rise and fall of California:

<http://www.kqed.org/a/forum/R201212271000>

------
sxcurry
tl;dnr

It's so crowded, nobody goes there anymore (after Yogi Berra)

