After Decades of Historic Growth, California Faces Chronic Stagnation

By Tom Sheehy

Ever since California became a state 173 years ago in 1850, every time there was a census taken the population of this great state grew larger. Indeed, for most of the 20th and 21st centuries, California led all states in the country in population growth. The state’s economy has grown to $3.6 trillion, placing it in the top five largest in the world. However, California’s population growth trend has ended. The state’s population has been decreasing for several years, and the state Department of Finance recently projected that it would remain unchanged at 38 – 40 million residents until 2060 — a huge change from earlier predictions that it would top 50 million by then. In fact, in 2021 and 2022 combined, a record 800,000 people left California for other states including Nevada, Arizona, Idaho, Utah, Texas Florida and Tennessee. After the 2020 census, California lost a congressional seat for the first time in its history! Following the stagnant/declining population, the state’s labor force is also stagnant, according to the state budget’s projections, which explains why employers are having such great difficulty filling positions. A chronic lack of workers discourages employers from expanding operations with a negative effect on the overall economy.

This stagnation also has budget implications. Many of those leaving the state are higher-income earners who disproportionately support the state’s General Fund and the education, health, and social welfare programs it supports. Even the youngest members of the post-World War II baby boom are starting to retire, and there is a growing demand for health care and other services for the increasingly elderly population. The Department of Finance projects that state tax revenue will remain unchanged for at least the next several years, leading to operating deficits for the remainder of Governor Gavin Newsom’s second and final term. The state’s tax system is inordinately dependent on taxing the incomes of the state’s most affluent residents. The top 1% of income earners in Californians generate half of all the income tax. When they exit the state, there is a disproportionate impact on the General Fund.

Tom Sheehy is the former Chief Deputy Director of the California Department of Finance and Principal and Founder of Sheehy Strategy Group