Who Is Leaving Golden State?

It is no longer a secret that not all Californians are irrevocably bonded to their state of residence, as is a turtle to its shell. The fact our state’s number of congressional seats are about to be reduced, for the first time ever, cannot be ignored. Evidently matters are afoot which are causing fewer people to move in, and more to move on.

A brief review of the numerous articles on this subject describes in detail what is encouraging the exodus. Apparently a major cause relates to the cost of housing. Consider the most populous portion, Los Angeles County, containing approximately 10 million residents. With the median household income of $68,093, and a typical home value of $835,721, is it any wonder why hundreds of thousands of Angelinos are desperately seeking some way to find relief?

It’s not much more favorable in the less expensive areas. The traditionally lower-priced Inland Empire, consisting of Riverside and San Bernardino counties, is experiencing increases in both population and home prices. The median household incomes of $56,592 and $67,903 respectively are being severely challenged by the rise in single family home sales prices, to a record high of $450,000 – some 17% higher than a single year earlier. The one-time rule of thumb, limiting the purchase price of a home to five times the purchaser’s gross income, is a relic of the past.

Not all the departures are by persons unable to afford a place to reside. In 2020, after spending a lifetime in California, Jim DeMartini, for 16 years a Stanislaus County supervisor, joined the migration train and moved to Nevada. He admitted it pained him to leave everything he knows and all his friends, but said he had all he could take. “This is not a good place to live or to do business in anymore. I’ve been involved in local government here for 16 years, and I see California as just a basket case.”

He then added “The high taxes, hostile business climate, and ‘left-wing politics’” fueled his decision. “I hate to leave. It was a place I’ve lived all my life. I’m a third-generation farmer and always lived in this county, but the politics and taxes here are such that California is the place to move away from.” He concluded with a final comment: “As a county supervisor tasked with addressing the issues locally, regulations and red tape have made it very hard to actually build anything in the state. Talk to any developer who’s trying to have a project approved; it’s not months to put in a project, it’s years. There’s no good reason to move to California.”

If an unaffordable cost of living and a difficult business climate were the sole factors driving the citizens elsewhere, it might not be so noticeable. However, there are other circumstances alienating long-time residents. California is not the agreeable refuge it once was. No longer is there the ability to comfortably move into the state, obtain a suitable place to reside at an affordable price, readily find a respectable paying job to cover normal living expenses, and conduct a life without governmental rules and restrictions defying human endurance. It has, instead, become a highly taxed, highly partisanized and highly regimented enclave, in which the elected and appointed leaders set the rules and the rabble does as it is told to do.

There are yet other justifications for no longer selecting the Golden State as an ideal place to live your life. The following are selected comments from media mogul Ben Shapiro last October as he announced the sale of his Los Angeles domicile and the movement of his family and business to Nashville, Tenn.

“My family and my company are leaving California. It’s heartbreaking. I grew up here. I was born at St. Joseph’s in Burbank; I attended elementary school at Edison Elementary; I went to college at UCLA; I co-founded a major media company here in Los Angeles; I met my wife here; all three of my kids are native Californians. This is the most beautiful state in the country. The climate is incredible; the scenery is amazing; the people are generally warm; there’s an enormous amount to do. And we’re leaving.

“We’re leaving because all the benefits of California have steadily eroded – and then suddenly collapsed. It can be difficult to spot the incremental encroachment of a terrible disease, but once the final ravages set in, it becomes obvious. So, too, with California, where bad governance has turned a would-be paradise into a burgeoning dystopia.

“When my family moved to North Hollywood, we lived in a safe, clean suburb. There were problems, but we thought they could eventually be healed. Instead, the government allowed these problems to metastasize. As of 2011, Los Angeles County counted less than 40,000 homeless. That number has now skyrocketed to 66,000. Suburban areas have become sites of homeless encampments. Nearly every city underpass hosts a tent city. Police are forbidden from moving transients or even moving their garbage. Nearly every public space in Los Angeles has become a repository for open waste. The most beautiful areas of Los Angeles, from Santa Monica beach to my suburbs, have become wrecks.

“To combat these trends, local and state governments have gamed the statistics, reclassifying criminal offenses and letting prisoners go free. Meanwhile, the police have become targets for public ire. The city of Los Angeles has slashed police funding, cutting the force to its lowest levels in a decade.

“At the same time, taxes have risen. California’s top marginal income tax rate is now 13.3%. Legislators want to raise it to 16.8%. California is also home to a 7.25% sales tax, a 50-cent gas tax and a bevy of other taxes that drain the wallet and burden business. California has the worst regulatory climate in America. And all the while the public-sector unions essentially make public policy, running up debt while providing fewer and fewer actual services.

“California is not on a trajectory toward recovery; it is on a trajectory toward oblivion. Taxpayers are moving out – now including my family and my company. I want my kids to grow up safe. I want them to grow up in a community with a future, with more freedom and safety that I grew up with. California makes that impossible. So, goodbye, Golden State. Thanks for the memories.”

With what you just read, you’ve gotten a pretty fair idea of how and why most disgruntled Californians are fleeing the state for what they hope will be more agreeable lives elsewhere. There are, however, certain individuals whose financial circumstances – and accordingly their form of departure – may be unique … and will result in a true misfortune for all who are left behind. Let me describe one such person, whose name I may not reveal.

He’s a man of late middle age, with a net worth of possibly $100 million, who until a year ago, owned several thousand apartment units here in the Southland. During the past year he has been systematically disposing of those properties and replacing them with similar ones in Arizona. It’s his intention that, by mid-2022, he will own no California real estate, except his multimillion dollar oceanfront home in Newport Beach. As he describes the situation: “Newsom and his cohorts may be forcing me to divest myself of my investments here, but they’re not going to run me out of my home” … which he jokingly refers to as his “vacation cottage.”

From our conversations over the past months, he has shared his uncertainties with me. His concern has grown that the California rules and laws to be enacted in the near future will be specifically designed to confiscate increasingly huge sums from persons of wealth. In addition to the threatened increases in state income taxes, he anticipates additional surcharges on those whose incomes exceed a certain amount.

He also predicts annual taxes will be assessed on an individual’s net worth in excess of a specified amount. Such taxes will initially be levied only on those with substantial wealth, though as is normally the case, over time inflation will push middleclass taxpayers into these brackets as well.

As for the owners of apartment units, he foresees special rules being enacted wherein fees will be assessed for any variety of occurrences. As bizarre as it may sound, a special assessment might even be instituted on gross rental income … and California legislators are capable of this. Can you imagine what such a ruling could do to the viability of an apartment investment already in relatively tight straights?

A final thought: If a massive number of the state’s wealthier citizens choose to move their investments – and the taxability of those investments – to other states, it won’t matter if they remain as climate-worshiping residents ... for California will have lost them as budget-balancing residents. And you can guess the financial outcome of this.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. Al may be contacted at al@abjacobs.com