Money Matters – What is behind the mass Exodus from California?

 For six-decades after World War II, California was a destination for Americans in search of a better life. In many people’s minds, it was the state with more jobs, more space, more sunlight (better weather), and more opportunity. They voted with their feet, and California grew spectacularly (its population increased by 137 percent between 1960 and 2010). However, this golden age of migration into the state is over. For the past two and a half decades, California has been sending more people to other American states than it receives from them. In the past 10-years almost 5-million residents, through this migration, have left California.
A recent study on the ongoing California exodus, using data from the Census Bureau, the Internal Revenue Service, the State’s Department of Finance, the Bureau of Labor Statistics, the Federal Housing Finance Agency, and other sources. The study mapped in detail where in California the migrants come from, and where they go when they leave the state. It then analyzed the data to determine the likely causes of California’s decline and the lessons that its decline holds for other states.
The data showed a pattern of movement over the past decade from California mainly to states in the western and southern U.S.: Texas, Nevada, and Arizona, in that order, are the top magnet states. Oregon, Washington, Colorado, Idaho, and Utah follow. Rounding out the top ten are two southern states: Georgia and South Carolina.
Southern California had about 55 percent of the state’s population in 2000 but accounted for about 65 percent of the net out-migration in the decade that followed. More than 70 percent of the state’s net migration to Texas came from Southern California.
What has caused California’s transformation from a “pull in” to a “push out” state? The data have revealed seven crucial reasons:
Number One: Chronic Economic Adversity – unemployment and lack of high paying jobs.  In most years, California unemployment is above the national average.  States with low unemployment rates, such as Texas, are drawing people away from California. Good paying jobs are hard to come by in California.  Case in point – both my adult children, who are college graduates and were gainfully employed, left California last year for better paying jobs in other states (Idaho and Connecticut) where the cost of living is much lower. Two of my son’s friends and their wives, all college graduates and gainfully employed, have left Los Angeles, within the last six-months and moved to Dallas and San Antonio Texas for better paying jobs, lower taxes and cost of living.  Both couples plan on buying homes within the next year. Bottom Line – the falsehood has been that California was only losing the lower to moderate income earner, i.e. the unskilled laborer(s).  California is now losing the highly skilled professionals/college graduates that pay their taxes and send their discretionary income on goods and services thus further stimulating the California Economy. The IRS migrations studies show that in 2013 and 2104 that this migration caused the State of California to lose 21 Billion dollars in taxable income over that two-year period.
Number two: High Business & Personal Taxation – negatively contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates as well. California will soon have the highest tax rates in the United States based upon current legislation and propositions in Sacramento.
Number three: High price of housing and commercial real estate – California as a whole has the most expensive housing in the United States. Because of this California has the lowest homeownership rate in the Country.  Case in point – my son is looking to buy a home in Idaho that will cost $325,000 that would cost well over $600,000 here in Santa Clarita. Deference in mortgage payment would be over $1800 a month or about an additional $35,000 needed a year in gross income to pay the higher mortgage payment.
Number four: Cost of Living – of which I will concentrate on utilities, food, and gasoline.  We pay 10 times the electricity rates of residents in the State of Washington.  The national gas price per gallon is for unleaded gas is $2.21 which at this time is dropping almost on a daily basis.  The highest gasoline prices in the Nation are in the State of California where unleaded gas is just under $3 a gallon. The average cost of water in the United States is $1.50 for 1,000 gallons or a penny for a gallon. Case in point – my water costs, for my home are exponentially higher than that!  Californians are lowering their usage of water drastically but have been hit with increased rates and surcharges because the water companies claim they are losing money. Water costs have risen at a higher rate than any other commodity.
Number five: State and Local Governments’ Fiscal Instability – sends at least two discouraging messages to businesses and individuals. One is that they cannot count on state and local governments to provide essential services—much less, tax breaks or other incentives to remain in California.
Number six: Laws and Regulations – the myriad government tax and regulatory agencies have a chokehold on small to medium sized business.  There is a very funny saying that if you, as a business owner, want to the see the different routes to starting a business in California – simply look at a road map that shows the various interstates leaving the state. Case in point – a friend of mine moved his medium sized business out-of-state.  Of the 50-employees he had at his company headquarters here in town, 49 agreed to relocate.  Forty-nine tax-paying home owners left this state from just one medium sized company out of hundreds that leave the state every year. My friend’s personal savings in taxes per year exceeded $650,000.  California is ranked 48th out of 50 by the Tax Foundation in “business climate”.  New Jersey and New York are 49th and 50th.
Number Seven: Density – too many people. The Los Angeles and Orange County region now has a population density of 6,999.3 per square mile—well ahead of New York or Chicago. Dense coastal areas are a source of internal migration, as people seek more space in California’s interior, as well as migration to other states.
Population change, along with the migration patterns that shape it, are important indicators of local fiscal and political health. Migration choices reveal an important truth: some states understand how to get richer, while others seem to have lost the touch. California is a state in the latter group, but it can be put back on track. All it takes is the political will and changes in Sacramento.
For more information, please call Douglas J. Sedam at 1-866-549-3900, 661-295-2400 #1 or email: Doug.Sedam@ThePaseoGroup.com.  You may also learn more at www.ThePaseoGroup.com.
The Paseo Financial Group, Inc. encompasses the following companies: The Home Loan Pros – Residential, Investment, & Commercial Real Estate Mortgages and Oak Tree Realty – Residential, Investment, & Commercial Real Estate Sales.  The Financial Services Pros – Investments, Insurance, & Retirement Planning.