More than 1 million people have left California since the start of 2019. The state economy has and will continue to lose billions of dollars as a result.
It’s popular to attribute this outflow to rising costs of living in urban areas, but a closer look at the data reveals complex social, cultural and employment factors, as we’ll get into below.
All of our findings are derived using Unacast Insights and focusing on state and MSA-level migration patterns from Q1 2019 through the end of Q2 2023. Tax and State Disability Insurance figures per person are derived from the California Tax Form Calculator using individual contributions based on income.
That said, let’s get into the top-line numbers, which are eye-popping, and examine who is leaving California, where they are going, and why.
California: $5 billion in annual state revenue has moved away
The California Republic is in full bear mode as of the middle of 2023. Outbound population flow has been so severe in major urban centers as to take billions in annual revenue out of state coffers, and there is no end in sight to the exodus.
Just the facts: More than 1 million people and $90 billion in income are gone
More than 1 million people have left California since the start of 2019. At a median average income of $84,097, that’s about $90 billion in personal income that has fled the state, much of it for Texas.
At an average income tax loss per year of $3,950 per person, plus the loss of State Disability Insurance (SDI) revenue of at an average of $789 per person, that means the California Republic’s total revenue loss due to population outflow since 2019 is now more than $5 billion annually.
This has significant implications for the SDI program and other state services. As California grapples with economic challenges, it will need to reevaluate its public services and programs, leading to potential cuts or changes in service delivery.
California Exodus Economic Impact on State Revenue
Here’s a brief list of some of the other issues the California Republic is facing as a result of the exodus of more than one million people in the last four-and-a-half years:
- Business Relocations: Businesses are already following the population shift, relocating operations to other states, causing California to lose out on business tax revenue and new job creation opportunities.
- Economic Activity Reduction: With fewer residents spending and consuming within the state, local businesses are experiencing decreased revenue, leading to closures and job losses.
- Infrastructure Maintenance: With a shrinking tax base, California will struggle to allocate sufficient funds to maintain and upgrade its infrastructure, including roads, bridges, and public transportation systems.
- Impact on State Debt: The economic issues stemming from population exodus could lead to higher state debt levels as California seeks to address financial shortfalls through borrowing.
The top-line numbers are concerning but it’s when you zero-in on how individual MSAs are doing that it becomes clear that urban areas are the hardest hit, with the economic impact being felt most harshly in the Bay Area, where high wages and a high outflow rate create a perfect storm of lost state revenue.
San Francisco alone has lost more than a quarter million people since the start of 2019. Outflow peaked in September 2020 and remained net negative through the end of Q2 2023, with no change in the trend line in sight. That said, there is plenty of pain to go around in California, as the following table outlines.
The reason individual MSA numbers don’t add up to the state total is because, at the state level, we are measuring all those who left California entirely, whereas at the MSA level, some of these folks are moving between MSAs, or other counties, in California.
To explore the nature of the people moving out and what’s behind their decision-making process, let’s examine where those out-of-state movers are going to, and what sort of social, cultural, and economic environments they are seeking out.
Where people from California move to
The fact that Texas is the #1 state for Californians to move to and Arizona is #3 is perhaps a bit surprising. Other hot destinations include Washington, Oregon, Florida and New York, with Nevada, Colorado, Illinois and Georgia rounding out the Top 10. So, why are people choosing these states when they leave California?
While it’s easy to dismiss this phenomenon as purely a matter of rising costs, that is just one factor at play in a much more complex picture. Yes, states like Texas, Arizona, Washington, and Oregon often offer a lower cost of living, making it more attractive for individuals and families seeking to stretch their budgets further. However, we also need to consider the influence of:
- Housing Affordability: The housing market in California has been historically competitive and expensive. Many people leaving the state may find that they can purchase more affordable homes in Texas, Arizona, Washington, Oregon, etc., providing better ownership opportunities.
- Business-Friendly Environment: Texas, in particular, is known for its business-friendly policies, including lower taxes and fewer regulations, which can be appealing to entrepreneurs and businesses looking to relocate.
- Climate and Environment: Washington and Oregon offer beautiful landscapes and milder climates compared to certain parts of California. Some people may prefer the natural scenery and weather conditions of these states.
- Political and Social Factors: Individuals leaving California may be seeking different political environments or cultural settings that align more with their values or preferences.
- Education and Healthcare: Washington and Oregon, in particular, are known for their quality education systems and accessible healthcare services, which can be significant factors for families considering relocation.
- Commute and Traffic: Many parts of California face significant traffic congestion and long commutes. Moving to states with better-planned infrastructure and less traffic can greatly improve quality of life.
Yet, with all these seemingly good reasons to leave California, people from other states do continue to move here, just not at a rate enough to backfill those who are departing. So who are these new people bucking the trend to provide this moderate lifeline of support?
Who is moving to California in 2023?
Since the start of 2019, the new people moving to California from other states are about the same age as remaining residents, though they earn 20% less income on average — about $70,000 per year compared to a little more than $84,000 for existing California residents.
This is the first clear rebuttal we see of the argument that urban exodus is attributable to increasing costs of living alone. Clearly the people that are moving to urban L.A., San Francisco, etc. aren’t letting that income differential scare them.
Even in 2023, there are still a lot of good reasons for people to make the move to California:
- Job Opportunities: California offers numerous high-paying job opportunities in industries like technology, entertainment, and healthcare. As a result, many individuals with higher incomes move to the state to take advantage of these lucrative job prospects.
- Lifestyle and Climate: California's pleasant climate, diverse cultural offerings, and recreational opportunities can attract people from various income brackets, even if they need to adjust to a different cost of living.
- Educational Institutions: California is home to several prestigious universities and colleges, attracting students from various backgrounds, including those with lower incomes.
So, while rising costs in urban areas are one contributing factor to human migration, increasing expenses are hardly the only reason people are leaving California. It's essential to recognize that population flow is complex and influenced by a myriad of factors. The statistics showing lower average incomes of incoming residents may not reflect the whole picture but rather a combination of various demographic and socioeconomic factors at play in California.
Summary
In reflecting upon the entirety of the data, it is clear that the significant outflow of population from California since the beginning of 2019 is attributable to much more than Covid or the rising costs of living. The data from Unacast Insights highlights the complexity of this trend and its impact on the state's economy.
Over 1 million people have left California, taking approximately $90 billion in personal income with them, largely to states like Texas. This has led to an annual revenue loss of over $5 billion for the state, affecting services like State Disability Insurance and potentially leading to cuts in public programs. Several issues arising from this population exodus:
- Business Relocations: Businesses are also moving out of California, resulting in loss of business tax revenue and job opportunities.
- Economic Activity Reduction: The reduced spending by residents has led to lower revenue for local businesses, causing closures and job losses.
- Infrastructure Maintenance: With a shrinking tax base, California faces challenges in funding infrastructure maintenance and upgrades.
- Impact on State Debt: The state's economic issues may lead to increased levels of state debt as California seeks to address financial shortfalls through borrowing.
The post delves into the impact on specific metropolitan areas (MSAs), with urban centers experiencing the most severe economic impacts. For instance, San Francisco has lost a significant number of residents, resulting in substantial revenue losses. The reasons for the exodus vary, with Texas being a popular destination due to factors such as lower cost of living, business-friendly environment, climate, political preferences, and more.
While rising costs do play a role in the migration, it’s clear that’s not the sole reason for the population shift. People moving to California in 2023, despite lower average incomes compared to existing residents, are attracted by job opportunities, lifestyle, climate, and educational institutions.
The complex nature of population flow underscores that various demographic, socioeconomic, and personal factors contribute to the decision to leave or move to California, or invest in it.
