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 

 

13 comments

Write a comment
  1. Stanley K.
    Stanley K. 24 October, 2012, 10:53

    Great analysis. To me, Dan Walters’ assertions and the motivations behind them are inexplicable, but your conclusions (and Manhattan Institute’s) make more sense on their face so it’s good to see a breakdown of this kind to confirm them.

    Reply this comment
  2. Ulysses Uhaul
    Ulysses Uhaul 24 October, 2012, 11:02

    Good news doomers! Business is brisk!

    We have discount chits from Dr. STRANGELOVE for California Seperation Anxiety counseling….

    Try PACK AND SHIP!

    Love these moving articles-

    Reply this comment
  3. Hondo
    Hondo 24 October, 2012, 13:19

    What they can’t measure is outside investment money NOT spent in Kali or Kali investment money spent in another state instead of here because of the poor business climate. But you can look at the unemployment numbers. Still over 10%. And the only way Obama could get the nations unemployment numbers under 8 was to not include Kali’s numbers.

    Reply this comment
  4. Tax Target
    Tax Target 24 October, 2012, 13:38

    Frankly, I’ll leave it to the libtards to decide to move here and be taxed to high heaven. After all that is their favorite sport. Me, I’m leaving. Doom?? pshaw.. not for me I’m outta here – It’s a simple financial decision. I can either pay to move to a taxpayer friendlier state or get taxed up the wazoo here. I’ll leave the doom to those that remain – but hey would they admit if it occurred?? Probably not. – It would be an issue beyond their control…

    Oh and please don’t come begging to the Feds for a bailout. We don’t need to spread this tax infected state elsewhere….

    Reply this comment
  5. Queeg
    Queeg 24 October, 2012, 15:41

    TaX…….TRY MEDS!

    Reply this comment
  6. Donkey
    Donkey 24 October, 2012, 20:06

    Queeg, it is the RAGWUS feeders and libs that are going to need the meds, and soon. 🙂

    Reply this comment
  7. BobA
    BobA 24 October, 2012, 22:30

    I own my home free and clear and I like the weather here where I live on the coast so I’m not ready to bolt just yet. But I have been looking at purchasing property in northern Arizona just in case California gets really hardup for money and end prop 13.

    Reply this comment
  8. Ulysses Uhaul
    Ulysses Uhaul 25 October, 2012, 00:11

    BoBA….

    We have complimentary maps!

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 26 October, 2012, 00:22

    Teddy, post under your teddy handle..I miss u 😉

    Reply this comment
  10. Thunder2494
    Thunder2494 8 November, 2012, 12:15

    Come on down to Florida, reasonable housing costs and NO income tax. Have met many fellow ex Californians here.

    Reply this comment
  11. lsjogren
    lsjogren 24 December, 2012, 08:55

    Why I left California:

    A little bit of both.

    I grew up in the Pacific Northwest, worked in the LA area, but immediately fled once I retired. Some factors.

    1). Family ties in the PNW
    2). No state income taxes in Washington state (one reason I settled there rather than my native state of Oregon)
    3). Better health- no smog
    4). Physically beautiful environment rather than hellhole.
    5). Much less traffic nightmares.
    6). Little smog- better health. Stopped having my chronic problem with colds immediately after moving.
    7). Non insane Democrats in charge of state politics.

    Reply this comment
  12. lsjogren
    lsjogren 24 December, 2012, 08:58

    Ah one more:

    8). Was able to buy a beautiful house with a million dollar view for under 500k. A comparable house in LA would cost millions.

    Although, once enough people have fled, one of the few virtues of California in the future is that housing will be cheap.

    Reply this comment
  13. lsjogren
    lsjogren 24 December, 2012, 09:01

    A couple more virtues of PNW over CA:

    1). Low-cost electrical energy. (massive hydropower resources.) This will become increasingly as California finds that wind and solar don’t help much. Ironically, alternative energy probably actually works better up here because intermittent renewables can be backed-up with dispatchable hydro.

    2). Abundant water. Our city (Vancouver) just got its permit for some new municipal wells for 4000 gal/minute to help “top off” the water supply for the city. Meanwhile, the water supply in the SW is very shaky.

    Reply this comment

Write a Comment

Leave a Reply



Related Articles

Will Cap and Trade cure California’s deficit?

May 18, 2012 By Wayne Lusvardi California voters may soon ask themselves: “Why vote for an $8.5 billion sales and

Experts warn of new easy-money hazard

COSTA MESA — Federal regulators are repeating the same easy-money mistakes that led to the Great Recession. So warned five

Pollution increase would be ‘negligible’ from consumer-friendly move on gasoline prices

Editor’s note: Soon after this was posted Sunday morning, Jerry Brown took our advice — and even used the term