Matthew Ladner

Californians drawn to friendly Arizona - for now

Posted on May 27, 2004 | Type: Issue | Author: Matthew Ladner
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Californians are converging on Arizona in record numbers. Between 1995 and 2000, nearly 200,000 Californians moved to the Grand Canyon State. And while California lost 755,000 residents, Arizona gained almost 800,000, U.S. Census numbers show.

So why do so many Californians move to Arizona?

A new Goldwater Institute report reveals the main factors attracting Californians are Arizona's lower taxes and better business climate. As Gov. Janet Napolitano recently put it, Californians come here because of "California's crummy conditions." Even if you earn $75,000 a year, she said, "you still can't afford a house most places over there."

The report's statistical analysis of U.S. Census data shows in no uncertain terms that she is correct. People are moving out of high-tax, high-cost states such as California at a rapid pace, and much of the decline is directly attributable to poor economic policies.

A comparison of the 10 states with the lowest taxes versus the 10 states with the highest taxes is revealing: The low-tax states gained more than 1.3 million new residents, while their high-tax counterparts lost more than 1.7 million.

Overall business climate is the other key factor driving Californians into Arizona. States with the 10 best business climates gained 1.1 million citizens between 1995 and 2000, while those in the bottom 10 lost 1.8 million.

The biggest net population declines were in New York with 874,000 and California with 755,000 people, the Goldwater analysis shows.

California's decline was the first since the Census Bureau began tracking migration patterns in 1940, marking reversal of a long-established trend of westward migration to California.

It's no coincidence that people are leaving those states in droves. From 1995 to 2000, New York and California had some of the nation's highest taxes and most antibusiness regulations.

While population growth brings new challenges to states, it is certainly the problem to have rather than population decline.

For example, so many college graduates in Iowa were moving out that the state government recently mailed out more than 215,000 letters begging graduates to stay. Slow-growth areas are gradually but surely in danger of being left behind by more dynamic areas of the country.

While the rush of Californians into Arizona has been an economic boon, Arizona cannot afford to rely on "California's crummy conditions" to ensure continued economic growth.

Arizona is competing with neighboring Nevada and Colorado, which are among the nation's five best places to start and expand businesses. In fact, almost half of the people who fled California between 1995 and 2000 went to Nevada.

Even more disconcerting is the fact that as a percentage of income, Arizona's taxes are now even higher than California's.

The evidence is clear that Americans prefer to live and do business in states where taxes are low and relatively simple. And as lawmakers consider $1 billion budget increases and the tax hikes required to pay for them, they cannot ignore the fact that higher taxes will drive a portion of their citizens to live, work and do business elsewhere, to the peril of the state's long-term fiscal health.

The 1990s brought Arizona an infusion of new residents, businesses and economic strength from California. But as Arizona taxes and business regulations become more cumbersome, and California becomes more business- and taxpayer-friendly, Californians might end their love affair with Arizona and begin to look elsewhere.

Dr. Matt Ladner is a senior fellow at the Goldwater Institute and author of "The Tax Man and the Moving Van: Fiscal Policy and State Population Shifts.

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