The great California Exodus | Hacker News Reader

The great California Exodus

manhattan-institute.org

45 pointsflavio8767 comments

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.

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).

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".

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.

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

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".

I think that is an important observation. The total population might be stable or slightly rising; however, that should not be interpreted as no one leaving and only a few people moving in. It's has to do with the churn, or velocity of people coming in and then going out (leaving) as children begin reaching school age. The (public) schools, which very few exceptions, are terrible and just about everyone I know who has young children has plans on moving somewhere with better schools when it comes time.

Yes the city has many cultural and civic attractions, but they do not outweigh the educational deficit, for those with young children. For singles and for empty nesters the city is perfect, for people with young families the dearth of good public educational institutions is maddening. The wealthy can afford to send their children to private schools, everyone else cannot.

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.

Well, I would think some people roll in taxes as part of cost of living. Especially with California with its taxes disguised as "fees". But cost of housing is a huge factor as you say.

> The Manhattan Institute is an explicitly conservative political organisation.

Are we going to do this for all submissions? Newspapers' leanings, political donations of blog authors...?

And if so, would it be reasonable to expect examples of actual bias? Or at least credible sources for that kind of information?

> Are we going to do this for all submissions? Newspapers' leanings, political donations of blog authors...?

Well, this isn't an institution that most people are familiar with. For example, most people know the New York Times is liberal and that the Wall Street Journal is (moderately) conservative. We wouldn't need someone to point that out. But in this case, the OP's information is helpful in analyzing the source for any bias.

    For example, most people know the New York Times is liberal
    and that the Wall Street Journal is (moderately) conservative.

TIL that in the US, "liberal" means pro-war and "moderately conservative" means fanatically pro-war.

The sad part is you aren't wrong

We expect a certain about of editorial bias from newspapers, and we accept that individuals are going to have their own biases, but it's often not obvious whether a generically named organisation is tied to an ideology or not. This isn't a dispassionate report written by someone who incidentally holds certain political views, it's a report written with the express purpose of influencing public policy in line with a specific ideology. Knowing that is important in judging its conclusions, just as knowing whether a report on climate change has been funded by a windmill manufacturer may alter your impression of its claims.

The article has an agenda to promote low taxes. It casts the net flow of head count out of California as bad. In the Bay Area where I live, I personally see that when people talk of leaving they complain of the cost of living, but that is a consequence of how prosperous the Bay Area is for some industries. If the top destinations include Nevada and Arizona then I imagine we are reading of a migration of retirees as well people in softening industries. It is natural for societies to have premium destinations.

If we had lower taxes like Texas, perhaps more retirees could afford to live here, but I would rather have a state with better infrastructure and better institutions. Why should we have poor state resources because because some can no longer afford to live in an area where their homes are now worth 5x the price of when they bought them? As a parent I want good schools.

Side note: I don't think it is a coincidence that one of the top searches for 'State Tax' is www.retirementliving.com/taxes-by-state, and that the Republican Party (the party of no-taxes-no government-except-for-medicaid) is the party for old people.

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.

"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...

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.

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.

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.

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.

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.

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.

>>> they've essentially made everybody in california subsidize low-tax-locked real estate

That's not true - your tax base is set at the time of the purchase. And California real estate market is quite vibrant compared to other states.

I think the point was that Prop 13 was a gambit by incumbent asset owners to disproportionately tax newcomers. This worked perfectly well (for the incumbents) as long as California enjoyed robust net population growth, because the disproportionate tax burden was primarily born by newcomers. However, now that net migration has slowed, the disproportionate burden is now mainly born by natives of the state. It just doesn't make sense to continue this scheme, unless you are just a bitter old Boomer who hates your own children.

The problems of getting rid of Prop 13 will in the details. If you just eliminate it, you will drop housing prices across the board, and every homeowner will be hit (just as every homeowner reaped an unearned windfall at the time 13 was enacted.) There may be some way to phase it out over many years, or to get rid of the more ridiculous protections for corporate-owned real estate and inheritance transfers.

I'm having a tough time buying it. Imagine someone who's old and in the (lucky) position to sit on a highly appreciated real estate lot. Their potential behavior:

(a) enjoy the low property tax they have to pay, while patting themselves on the back

(b) sell to downsize and pocket the difference, retire to greener pastures

I think (a) is more rational if you're on a giant farm, and this way you don't have to sell the pieces to pay the property tax bill any time the land value fluctuates because of external economic cycles.

(b) is more rational with any residential estate. That's why a San Francisco magazine would complain about the influx of young tech workers, not the influx of little old retired ladies, and most older houses in Atherton and Palo Alto are bought for teardown value.

I'm not sure it works like this. Keep in mind that most states don't have a tax system like prop 13. Texas actually has fairy high property taxes...

http://www.nytimes.com/2007/04/10/business/11leonhardt-avgpr...

So consider a 65 year old who purchased a house in San Francisco in the early 70s for $50,000. This house is now most likely worth about a million now. However, it is taxed at a far lower rate.

They can sell and repurchase in California and keep their old taxes provided that they don't purchase a more expensive house (this is limited to people over 55 and is a one time thing)

http://www.boe.ca.gov/proptaxes/faqs/caproptaxprop.htm

There is also one other major exemption - heirs to a property can keep the old property tax rate! I've always been amazed that California is essentially creating a low tax aristocracy based on inherited titles to land, but that is exactly what we have done.

Now, I suppose the retiree could sell the house and move to Texas, but now you're going to be paying a much higher tax rate. If you're a true prop 13 aristocrat, you'd probably have to buy a house that is worth no more than 20% of your current house's value to come out ahead, and you'd need to uproot to texas to do it.

If you're a young family looking to buy for the first time, or looking to trade up (triggering a reassessment of your property taxes), then it does make economic sense to move to Texas. Your prop taxes will be high, but you won't face California's income tax, and you also won't have to subsidize the low tax rates for the titled, landed aristocrats next door.

As for the young tech workers... well, the SF Bay Area is incredibly well positioned for high tech. It has an incumbent advantage and Berkeley, Stanford, and UCSF all within a stone's throw of each other. I think that our regulatory environment is a disadvantage, but clearly not enough to offset. I remember PG mentioning during an interview at the Hoover Institute that bad as things are, things would have to get incredibly bad to drive high tech out of California (I recall him joking "don't tell them").

People refer to Prop 13 as if it's going to be the budget-savior, but don't forget that property taxes are distributed to municipalities (counties and cities), so if Prop 13 was dropped, wealthy cities would get even more revenues, while ghettos would remain the same, as there's more turnover at low-end of the real estate market (so constant reassessment of property values that more or less follows the boom and bust cycle).

City of Mountain View ran at a profit for a few years, from what I recall, so having more money from Google might result in couple of additional parks or extra lanes on Shoreline, but not going to be the game changer for South Central LA.

>By the way, the reason the state is "budgetfucked" as you eloquently put it is because of low taxes, not high taxes.

This is utter nonsense. California has both a high income tax and a high sales tax, and while property tax rates are low, property prices are high. Where I live you can pay seven figures for a tract home.

Tax receipts in the state are quite healthy - the problem is on the spending side, specifically a large and grossly overpaid bureaucracy.

24 states spend more per capita than does California, so I think your argument fails on the facts.

Where are you getting that? It's hard to believe, given that California has the 4th highest per capita tax burden:

http://www.usatoday.com/story/money/personalfinance/2012/10/...

http://www.nasbo.org/sites/default/files/State%20Expenditure...

See page 7 for the spending amounts. I don't see how tax revenues as a fraction of income (your link) has anything to do with spending per capita.

Where is the ranking in per capita expenditures? I don't see it?

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.

There's lots of ways this data could be interpreted. If you look at the data by national origin, a contributor to the outflow of "domestic migration" is first-generation children of foreign immigrants to California. This net flow is a just a fact of life for any state that receives large influx of foreign immigration. The immigrants move here and their children, having no particular long-standing roots in the state, move around.

California has more than twice as many foreign-born residents as any other state, and more than three times as many as Texas. These foreign-born women in turn have more children than natural citizens of the state (about 90 per 1000 women per year).

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...

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".

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.

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.

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.

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.

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_&...

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.

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... 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.

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.

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.

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.

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

If I had to put places in order, I'd go with: NYC, Barcelona (May-July), Seattle (August), Austin (not summer).

Sure, I'm biased because I moved here from NYC, but also check out Nashville. You can live like a Columbian drug lord on NYC (or California) freelance rates.

I was kind of turned-off of TN due to Memphis, but maybe Nashville is enough better to be worth considering.

I know a lot of Memphis residents who have relocated to Nashville. One guy described it as "life-changing." The cities are completely different. The problem with Nashville is the same as the problem with Austin - it's surrounded by rural hicks. On the other hand, I moved here because housing is cheap and it allows me to do the things I want to do (like travel) while keeping my overhead low.

I'm pretty pro-TN (my relatives are from KY and OH), and surprisingly compatible with hicks, but I wonder how it would be for e.g. my Japanese-ancestry girlfriend. She seems afraid of Texas for the same reason.

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.

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?

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

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.

“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...

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

http://www.winstonchurchill.org/learn/speeches/quotations/qu...

There are also numbers that suggest the more conservative states, such as Texas, are becoming more liberal over time. I would almost wager that Texas, at it's current growth rate, could be a swing state by the 2020 Presidential Election.

What do you mean by becoming more liberal? If anything the white population of texas has become more conservative and solidly republican over time. Until the hispanic population reaches a tipping point texas will be as conservative as any deep southern state. Just based on population data that really won't happen until 2028 at the earliest.

Many people are saying that the Hispanic population could swing the state by 2020. It's not just population data that matters, it's also election engineering. In states like Florida, no one predicted the results that we saw in the recent election because they didn't pay attention to the Obama campaign's Spanish-language get-out-the-vote effort that targeted non-Cuban Hispanics. In Ohio, Obama's victory can be partly attributed to his success in getting the black population to vote at a higher rate than the white population (a highly unusual phenomenon) by using gathering places in black communities, such as barbershops and beauty salons, as local campaign branches. There's much more to the story than raw demographics.

Such efforts didn't exist in Texas this time around because it wouldn't have been enough for this election for Obama to have a chance there. But things could be very different in 2020. Of course, it will also depend upon the two candidates and the general political climate at that time.

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.

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.

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.

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...

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).

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

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

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

tl;dnr

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

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