The evidence still shows California exodus

Oct. 24, 2012

By Wayne Lusvardi

Scientist Carl Sagan once came up with a “baloney detection kit.”  Perhaps columnist Dan Walters should have consulted it before trying to debunk a study by the Manhattan Institute, “The Great California Exodus,” about why people migrate from the Golden State.

Walters asserted that the study contains “no evidence” to support its conclusion that high taxes, over-regulation, high housing prices and government budget instability drive people out of California. Instead, Walters said each wave of out migration from California coincided with an economic recession. So he concluded that it wasn’t the overtaxed and over-regulated business climate that drove ex-Californians out. Rather, it was recessions that were beyond the control of the state.

There was evidence

The study amassed sufficient, albeit arguable, evidence from which to draw its conclusion.  Check out Chart II and Tables 14, 15, 16 and 17  from the study’s executive summary.

One can quibble with the Manhattan Institute’s interpretation of the data. But it’s not accurate to say that “no evidence” was presented.

Perhaps the interpretation depends on one’s viewpoint. Conservatives and libertarians are prone to conclude that out-migration was self-caused by California.  Liberals are prone to conclude the causes of out-migration were due to external forces over which California had no control.  The reality is probably a little bit of both.

But where is the Preponderance of the Evidence?

On which side of the debate is the preponderance of the evidence?  Neither the study nor Walters’ critique of it attempts to tell us that.

The study does, however, contain data that suggests on which side the preponderance of the evidence might rest.  The study shows the top “sender states” of those who migrate to California; and it shows the top “destination” states where Californians are moving.  What is most revealing is that Californians are not returning to the states they came from, such as Minnesota or New York, despite the possible pull of prior family and community ties.

People moving to California mainly come from big Blue States in the East and the Midwestern parts of the United States that the Tax Foundation ranks as having relatively unfavorable tax and business climates.  As shown in the data below, excerpted from the Manhattan Institute study, the top-10 “sender states” to California are:

Top Sender States to California Average Business Climate Rank: 37.3 Median Business Climate Rank: 40.0 California Business Climate Rank: 42.0 Business Climate Rank/Population Correlation: 16% 1) New York 2) Illinois 3) New Jersey 4) Massachusetts 5) Michigan 6) Ohio 7) Pennsylvania 8) Connecticut 9) Wisconsin 10) Minnesota

Conversely, people moving out of California typically flee to Red States with a much more favorable tax and business climate than California.  The top-10 “destination states” are:

Top Destination States from California Average Business Climate Rank: 17.9 Median Business Climate Rank: 14.0 California Business Climate Rank: 42.0 Business Climate Rank/Population Correlation: 19.6% 1) Texas 2) Arizona 3) Nevada 4) Oregon 5) Washington 6) Colorado 7) Idaho 8) Utah 9) Georgia 10) North Carolina

The top ten “destination states” had a business climate ranking at least twice as favorable as “sender states.” A factor of two is typically considered statistically significant.

It would seem safe to tentatively conclude that what drives those out of California is not solely recessions, but the unfavorable tax and regulatory climate compared to other states.

Complicating problem

However, there is a complicating problem with the above tentative conclusion. Large states by population tend to be donor states and smaller states tend to be destination states. So maybe all that we can conclude is that large states send more people to California and smaller states receive more people from California.

However, if state size alone were the major determinant of whether people migrated to or away from California, then Texas — the second most populous state — would have been expected to be both a top “sender” and “destination” state.  However, this was not the case. Texas is only a top “destination” state.  And the probable reason that Texas is also not a “sender state” is that it has a highly favorable tax and business climate. Additionally, Georgia and North Carolina — the ninth and 10th most populated states — are only destination states and not sender states.

I made a separate analysis in Table 2 below. It found only a weak 33 percent correlation between the annual percent of change in California GDP from 1999 to 2010 and the number of people leaving California. The largest wave of recent population flight occurred during the Real Estate Bubble from 2003 to 2007, with people apparently fleeing the high housing prices despite the economic boom.

But boom years also were weakly correlated with out-migration.  This suggests that, as government grew, population flight increased. The data failed to support Dan Walters’ claim that California population flight is mainly related to economic recessions.

As the authors of the Manhattan study humbly state, there are no simple or definitive answers.  We can view the evidence with our cultural and political value biases as proving that recessions cause out-migrations; or conversely that high taxation and regulation do. Or we can try and look at the evidence as non-ideologically as possible.

When we do so it appears that the preponderance of the evidence is on the side of those who contend that high taxes and overregulation drive people out of California.

Table 1.

Sender Versus Destination States Shown by
Tax and Business Climate Rank & Population Rank 

SENDER STATES	Business Climate Rank(per Tax Foundation)	Population Rank
1. New York	49	3
2. Illinois	26	5
3. New Jersey	48	11
4. Massachusetts	36	14
5. Michigan	28	8
6. Ohio	47	7
7. Pennsylvania	22	6
8. Connecticut	41	29
9. Wisconsin	37	20
10. Minnesota	39	21
Average Median	37.3 40.0	12.4 9.5
DESTINATION STATES
1. Texas	7	2
2. Arizona	29	16
3. Nevada	4	35
4. Oregon	10	27
5. Washington	11	13
6. Colorado	13	22
7. Idaho	30	39
8. Utah	15	34
9. Georgia	20	9
10. North Carolina	40	10
Average Median	17.9 14.0	20.7 19.0
Data from “The Great California Exodus: A Closer Look,” Manhattan Institute, Sept. 2012

Table 2.

Percent Calif. GDP Change & California Population Flight (1998-2010)
Correlation Coefficient: 33 percent

Year	Percent Annual Change in State GDP	California Population Flight (approximate)
2009-10	1.7%	-41,120
2008-09	(4.7%)	-71,066
2007-08	(0.4%)	-112,447
2006-07	1.0%	-205,017
2005-06	3.3%	-234,644
2004-05	4.2%	-201,150
2003-04	4.5%	-124,765
2002-03	3.1%	-87,883
2001-02	1.9%	-96,677
2000-01	0.1%	-39,547
1999-00	7.5%	-66,605
1998-99	7.8%	-66,925
Data Source:	Table D-1, Gross Domestic Product,California Department of Finance, January 2009	“The Exodus from California Slows,” Orange County Register, May 31, 2012, Updated June 1, 2012