Home Budget & Tax News California's High Taxes, Declining Home Values, Budget Troubles Are Sending People Packing

California’s High Taxes, Declining Home Values, Budget Troubles Are Sending People Packing

California’s fiscal, energy, and crime problems are creating a downward spiral as productive people flee and tax revenues head toward a freefall.

Excessive heat is expected to test the power grid throughout most of California while the state desperately tries to prevent the rolling blackouts that leave citizens without power during the hottest part of the summer, The San Diego Union Tribune reports.

Blackouts are just one of the challenges California residents face as life becomes increasingly tarnished for many in the Golden State. The government-mandated business lockdowns in response to the coronavirus are having a significant budget impact, The Wall Street Journal reports.

“With tax revenues projected to drop by up to $32 billion this fiscal year due to the pandemic, state officials agreed to billions in budget cuts to help close a $54 billion deficit,” reports the Journal. “Even if the virus abates by next year, economists predict employment in the state won’t return to its pre-pandemic peak until 2024.”

There is an urban flight underway, with California cities such as San Francisco experiencing an exodus of residents and serious decreases in home values, says Dr. Lynn Reaser, chief economist for the Fermanian Business and Economic Institute. Permits for new housing in the state are expected to drop by 21 percent.

“Several forces are at work,” said Reaser. “The capping of deductions for state and local taxes has sent residents of high-tax states, such as New York and California, to Florida, Nevada, Texas, and other states with much lower tax burdens.”

Gov. Gavin Newsom told CNBC that California residents should “prepare themselves” to deal with the economic challenges ahead. Newsom predicts the state will have to cut the budgets for public schools and colleges, and the state is expected to absorb an extra $7.2 billion for increased enrollment in social programs such as Medicaid’s medical coverage for the indigent. The exodus from the state can only exacerbate the revenue shortfalls as taxpayers move out.

“Economic stagnation and declining property values will further strain local government budgets,” said Reaser. “Already strained by the legacy of high pension costs for public workers, these governments will be hard-pressed to fund the investments in education, social services, public health, and neighborhood safety that are so badly needed.”

Commercial real estate values will suffer along with residential home values, deepening the fiscal impact, says Reaser.

Many residents are fleeing California’s cities out of concern for their personal safety. Cities are enduring rioting, looting, and general lawlessness while local government are defunding the police. Los Angeles approved a $150 million budget cut to its police department, San Francisco approved a $120 million cut to its police and sheriff’s departments, and Oakland reduced its police budget by $14.6 million.

The aftermath of the recent riots in Los Angeles was comparable to that of the 1992 riots which cost the city $1 billion in property damage, ABC 7 reports. So far this year, rioters have looted and damaged businesses and vandalized, graffitied, and torched police vehicles. The violence has resulted in injuries to police officers, broken windows, destruction of security gates, and other damage. Given the normal reluctance of people to move into neighborhoods known for violence and property crime, the riot damage reduces property values and the tax base erodes further.

“A rise in inner-city violence and rioting, if sustained, could elevate concerns about safety,” said Reaser. “Studies of the effects of the riots in the 1960s and in other periods, together with reports on the impact of rising crime, have documented the negative impact on home values these trends can cause.”

“Years of failed policies by a special interest-driven political establishment have created these conditions, which have already spurred a mass outflow of talent, workers, and families from California’s cities,” writes John Cox for The Daily Signal. “Fallout from the pandemic will almost certainly accelerate this trend.”

Cox outlines several reasons for the loss of California residents: the number of homeless people on the streets continues to rise, the murder rate is soaring as police budgets are being reduced, and California is a sanctuary state that releases dangerous criminals from custody.

“This isn’t about politics, this is about public safety,” San Jose Police Chief Eddie Garcia told The Daily Signal.

Garcia made his comment after a 59-year-old Californian woman was killed in her home by an illegal alien.

“He could have been turned over six times,” Garcia said, referring to cities’ refusal to turn criminals over to U.S. Immigration and Customs Enforcement (ICE).

Newsome claims to be optimistic about the state’s prospects as California residents increasingly flee the decline in public safety, reduction in property values, and deterioration of public services they have been getting in return for paying some of the highest taxes in the nation.

“The next few years we’re going to have to work through these challenges,” Newsom told CNBC. “But we’ll work through them. And we’ll get out the other side.”

California and its major cities will have to change course if they are to slow the outflow of productive people, Reaser says.

“Depending on future tax policy, a vaccine, and company/employee decisions about onsite versus offsite work, some of these trends could reverse and some easing of the extremely high prices of homes and apartments in New York and San Francisco could entice some residents back,” said Reaser.

“Violence and rioting, however, have tarnished the glow of some of America’s greatest cities,” said Reaser. “People value their safety and, once challenged, that confidence may be hard to readily restore.”

Eileen Griffin
Eileen Griffin writes from Richland, Washington.

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