Musings on the Coast

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Leaving California, Leaving Laguna

By Michael Ray

There has been a lot of news about people leaving California for other states. The reasons usually specified are high housing and tax costs.

Here are the facts:

  1. The net out-migration from California is about 100,000 people per year, mostly going to Texas, Nevada, Arizona and Oregon. However, California’s population is still growing thanks to new births. The state’s total population now is about 39 million and projected to hit 40 million this year or next.
  1. The people moving out primarily are middle-class folks who cannot afford to live here. They can buy a house in Reno or Dallas for a fraction of the cost of California. Reason: California’s various popular cities have become hostile to creating new housing. So, what is built is both expensive and not enough.
  1. The people moving into California are better educated and younger, most with college degrees or advanced degrees. They seek California action, opportunity and climate.
  1. Rich people are leaving too; at least, supposedly. They pay much lower ordinary taxes in, say, Nevada. On a “capital event,” meaning the sell of a big asset owned for a long time, the long-term capital gains tax in other states either is/are zero or very low. To avoid those taxes, many rich Californians establish legal residences in other states, while also maintaining an apartment or second home here. They then spend only as much time out-of-state as is necessary to avoid California taxes. When in California, they pay only cash to escape credit card records. They also keep very careful calendars on where they are and when. These calendars are kept to “prove” where they live—meaning, out of state. Trust me, I know many of them and they follow the advice from their CPAs very carefully.

So, two points to be made:

  1. Less-educated people are being traded for better educated. This is an unfortunate fact because we need both. However, if the trade must be made, better educated is a net plus.
  1. The rich actually are not leaving California that much. It is all about gaming the tax systems.

One Big Mitigating Factor for California:

Nation-wide, our infrastructure is crumbling—not just a little. It suffers from a half century of neglect. There are many reasons for this, but mostly there always have been other priorities: wars of choice in and near Iraq and Afghanistan (Bush); tax cuts (twice: once Bush, once Trump); the Affordable Care Act (Obama). So, national infrastructure spending has been abysmal, and it shows.

In California, however, there is an answer. It is the gas tax, which Governor Brown created and results in $5-6 billion per year, repeat per year, new spending on our infrastructure.

So, as other states infrastructures’ crumble, California will repair our old systems and then leap ahead on new ones. This is critical for growth. Infrastructure does not create growth unto itself; it allows it. Infrastructure is a necessary ingredient.

But there is a conundrum. No-growth advocates often fight new infrastructure because they believe no new or little infrastructure is equal to no or little new growth. In Woodbridge, Irvine, there are two main north-south traffic corridors, Barranca and Alton Parkways, which connect all of central Irvine. Outside of Woodbridge, the parkways are six lanes wide; inside Woodbridge, the parkways are four lanes wide. The reason: the then-Irvine City Council thought smaller streets would translate into less growth. They were wrong. Smaller streets merely created more traffic jams.

It always is the same. Demographics are demographics; people move to where people want to move. You either prepare for it or you suffer the consequences.

Leaving Laguna Beach:

Fun Fact: the population of Laguna has stayed constant at about 22,000 since 1990, but its character has changed dramatically. Since 1990, our median age has risen almost 10 years. It now is about 51 and getting older. Orange County is about 38 and getting younger.

In short, we are an aging white population. The question is why. There are a number of reasons, but the most important is this: the old Laguna is gone. We used to be a city of gay bars and nightclubs, Timothy Leary, hippies, a roaring arts scene, a cutting-edge place—the city had action. Most of it is gone now. Why?

The main reason is hostility to anything new. Older people drive this hostility. They do not want change. They’ve got theirs and want to freeze Laguna as though it was an extraordinary valuable antique.

True story: a few years ago, the city was offered a large grant to repair/replace its key storm-drain channel running parallel to Broadway. This channel drains all of Laguna Canyon and when it rains hard, it overfills and floods downtown Laguna. It was a badly needed fix. However, the City Council rejected the money. Stated reason: it would temporarily disrupt the business near it. Real reason: new or fixed infrastructure might attract more growth. They thought.

So, we’ve become old, cranky and our own children cannot afford to live here as adults. What a swell legacy.

Michael Ray grew up in Corona del Mar and lives in Laguna Beach. He is a real estate entrepreneur involved in many nonprofits.

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