Since achieving statehood in 1850, California has retained its appeal to people across the country. As the most populous U.S. state, California seems, on the surface, like a great place to live, work, and study. With its oceans, mountains, deserts, and forests, it is perhaps one of the most beautiful U.S. states. It’s also extremely wealthy; if it were a country, California would have the fifth-largest economy in the world. It seems that California is the epitome of the American dream.
In recent years, however, California has declined. 650,000 people left California in 2019 followed by 135,600 in 2020. California’s population increased by 0.05% from July 1, 2019 to July 1, 2020 — a rate lower than any seen since 1900. Overall the population growth rates have been steadily decreasing over the past few decades. The incredibly high cost of living, rising tax rates, and other issues endemic to the state are driving people out of California in droves. Unless California addresses the reasons why people are leaving, this trend will continue.
Three of the top five cities that Americans are leaving from are in California. As an example, people left San Francisco in droves in 2020. According to The Hill, “from last March to the end of 2020, net exits from the Northern California city increased by 649 percent when compared to the same period in 2019, from 5,200 departures to 38,800.” While not all these people are leaving the state, those who aren’t usually abandon the expensive cities for “some counties in the Sierras”. And while not all of them are being forced out by every problem living in California entails, many are departing to escape the most significant problem: the high cost of living.
The primary reason people are leaving California must be the cost. California house prices are 2.39 times the national median, causing homeownership to be less attainable than in other states. Moreover, Californian rents are 1.58 times the national median. These costs primarily affect the lower classes, not the wealthy. It’s important to keep in mind that these numbers are somewhat deflated, as California’s cities, where most Californians live and work, are much pricier than even the California median.
The median home price in Los Angeles is $689,500, 1.2 times the state median, and the median home price in San Francisco is $1,378,300, 2.5 times the state median and a whopping 6.0 times the national median. These costs do not increase proportionally to people’s incomes; the average Californian’s income is $72,277, just 1.21 times the national median of $61,937. With the cost of housing dropping significantly just across the state line, the vast majority of people can afford far better accommodations in other states; that’s why they leave.
Another significant contributor to the cost of living in California is high taxes. Some might claim that high taxes are used for the greater good in California. However, they also may lower revenues for the California government. According to a study by the Stanford School of Business, California may be on the “wrong side of the Laffer curve” — a reference to the famous proposition by Arthur Laffer that, at some point, higher tax rates will lead to lower tax revenues.”
Even if one holds the position that California’s high budget is completely justified, the extremely high tax rates could be undermining that end. When enough companies and wealthy people leave, the top 1% contributing 47% percent of the California budget, the government should act to address the problem, even if it is primarily to its own benefit.
Yet the facts do not sufficiently back up the assertion that high government budgets result in citizen well-being in California. A third of the California budget goes to K-12 education, yet California students have some of the worst rates of academic performance in the country by average. Moreover, driving on some of the worst roads in the country, California drivers spend on average $3000 more in car expenses compared to other states.
In addition to these many inconsistencies between large government budgets and citizen well-being, California has the highest poverty rate in the United States with one-third of California’s residents living at or near the poverty line adjusted for cost of living. Due to this high rate of poverty, 35% of welfare recipients in the U.S. live in CA, despite CA making up only 12% of the U.S. population. There is clearly a great overreliance on social programs in California, which does not solve the underlying problems causing the high poverty rates. Moreover, in some cases, residents are incentivized not to work, which makes coming out of poverty less appealing.
In contrast, a great solution relies on work requirements for welfare programs. Traditional welfare programs are inefficient, each dollar spent translating to 66 cents in reduced employment and earning. Although there are many problems in welfare-to-work programs, they contributed to a modest increase in employment during the late 1990s. Their success relies heavily on state and local governments implementing them well. Eleven such programs lowered poverty by an average of 2.1 percentage points but raised deep poverty by 2.9 percentage points. So, they are effective but need to be reformed. In other words, states often apply work requirements inappropriately. The Heritage Foundation states correctly that “the public does not want to deny aid to those who need it, but does believe that recipients should take steps toward self-support in exchange for the assistance they are given.”
Hand-in-hand with this poverty crisis is the homelessness crisis. A staggering 151,278 Californians are homeless. One in four American homeless people lives in California. Only New York and Hawaii have slightly higher per capita rates of homelessness. And, California has the largest proportion of people living without shelter.
The homelessness problem is only getting worse. According to CalMatters.org, “San Francisco officials say for every homeless person they house, another three fall into homelessness. Much to the chagrin of local politicians trying to prove taxpayer money is being spent effectively, new shelters and supportive housing will have trouble making a dent in visible homelessness unless the spigot is plugged in the first place.”
However, there is still hope in this crisis. While many large cities of California have not stopped the overflow of homelessness, Riverside, California is the exception. In fact, it is the only community in California that, according to usich.gov, “has a system in place to ensure that homelessness is rare, brief, and one-time.” Riverside is one out of 84 communities in the United States that meets the requirements laid out in the federal criteria and benchmarks for ending homelessness. Riverside Mayor Rusty Bailey has gone out of his way to make practical solutions to homelessness, including sleeping in an 8×8 Pallet shed, which he proposes will be a huge aid in helping homeless people obtain homes. Each Pallet shed costs just $4,900, which even adjusting for other expenses is a tiny fraction of the cost of a single unit of housing for the homeless in Los Angeles, which has risen to $531,000. Twenty homeless shelters by Pallet would cost $495,680 to start up and $1.3 million for operations. Scale is key here, and since there are so many homeless people in California, Riverside’s successful plan should be implemented statewide and perhaps even nationwide.
In addition to the crises of poverty and homelessness, companies leaving are also driving California’s exodus. Around 13,000 companies left California between 2009 and 2016, and many prominent companies such as Tesla, Oracle, and Hewlett-Packard have announced that they are relocating to other states. The California Policy Center has cataloged at least 50 large corporations that have left California since 2014, with the vast majority leaving in 2019 and 2020.
And while corporate taxes are definitely higher in California than in most other states, they are not the only factor driving companies to leave. Personal income tax rates certainly play a role, and for an executive of a large company, the difference is extremely significant. Moreover, it increasingly seems better for workers to live outside California as they can afford a much better living due to lower costs.
Beyond these other factors, the ongoing coronavirus pandemic has further disincentivized California as a state for business. One survey found that two out of three workers from the Bay Area would leave if they could work from home permanently. As workers could afford so much more elsewhere, it is no wonder that rent fell to record lows in San Francisco while rose in many cities out of state such as Boise, Idaho.
The pandemic has revealed the many limitations living in California, especially in large cities, poses. And people have and are responding to such limitations. Fueled by pandemic frustrations, Californians have in all likelihood triggered a recall of Gavin Newsom, who has been criticized for his infamous French Laundry dinner party amidst tightening restrictions on gatherings. While not every Californian is on board, many are increasingly dissatisfied with how the state is run, and their voices should be heard if California is to try to fix the many problems it has. While many are hopeful that the worst of the pandemic is behind them, California has far-reaching problems that existed prior to the pandemic and will exist afterward. The great challenges of homelessness, poverty, and high costs of living are clearly linked to one another, and they affect the entire state. 13,000 companies leaving California between 2009 and 2016, and 650,000 people leaving in just 2019 is not a coincidence. It is a result of problems that remain unfixed despite “well-intentioned” politicians. California needs to change if it wants to continue being a great state, and it certainly can. But there is a long way to go.
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