Exodus from New York City

How about a little data with that morning coffee? Today, we report from a New York Times article about the decline of New York City’s tax base.

We have expressed some alarm about this in previous posts. So, consider today's post a more extensive discussion of what is happening to New York City now that more and more of the very rich debark for warmer and friendlier climes. 

And, add this information to the cognitive dissonance indicator, given that in a city that is losing population and that has seen office space remaining empty, it has become prohibitively expensive, not to mention nearly impossible, to find a place to live.

Anyway, the pandemic lockdowns produced an exodus of rich New Yorkers. And this will cause a decided reduction in tax revenue. The Times reports:

When roughly 300,000 New York City residents left during the early part of the pandemic, officials described the exodus as a once-in-a-century shock to the city’s population.

Now, new data from the Internal Revenue Service shows that the residents who moved to other states by the time they filed their 2019 taxes collectively reported $21 billion in total income, substantially more than those who departed in any prior year on record. The IRS said the data captured filings received in 2020 and as late as July 2021.

As for the replacement rate, those who have newly moved in make considerably less than those who moved out of the city:

Many new or returning residents have since moved in. But the total income of those who had initially left was double the average amount of those who had departed over the previous decade, a potential loss that could have long-term effects on a city that relies heavily on its wealthiest residents to support schools, law enforcement and other public services.

The sheer number of people who left in such a short period raises uncertainty about New York City’s competitiveness and economic stability. The top 1 percent of earners, who make more than $804,000 a year, contributed 41 percent of the city’s personal income taxes in 2019.

Note well that last sentence. We have noted it on occasion before, but there is no harm in bringing up the fact that 1% of earners contribute over 40% of tax revenue. Do you consider that to be a fair share? It turns out that the more you tax the rich the more they find reasons to leave town.

One remarks that in Chicago, the largest companies are leaving town. Whether Boeing or now the Citadel hedge fund, companies are finding that the Windy City is too violent and crime-laden for most of their employees. And, of course, taxes in Virginia and Florida are considerably lower.

As for New York, new residents did not make up the tax shortfall:

The average income of city residents who moved out of state was 24 percent higher than of those who moved the year prior, according to a New York Times analysis of federal tax returns that were due in 2020. It was the biggest one-year income increase among people who left the city for other states in at least a decade.

The tax data is in line with the most recent Census Bureau estimates, which showed that in the first year of the pandemic, the number of New York City residents who left was more than triple the typical annual outflow before the pandemic. 

International immigration, a key source of growth in New York, plummeted to one-fourth the level prepandemic. And the death rate surged, as approximately 17,000 more residents died than in a typical year.

Note well that last graph. International immigration, the kind the sustains condo prices and that contributes mightily to tax revenues has plummeted. It may be the crime  rate. There may be other factors. And, I suspect this does not factor in the possibility that the American sanctions against Russia, our confiscation of Russian assets and our willingness to weaponize the dollar-- these are not going to entice too many foreigners to come invest in New York City property.

City bureaucrats are trying to paint a rosy scenario. They insist that the city will be coming back.

New York City’s official demographers say that the pandemic was a blip in the city’s long-term population growth and that migration trends have returned to prepandemic levels, pointing to indicators like change-of-address requests and soaring rents that suggest people are flooding back.

But, they said, it is too soon to conclude when the population that was lost will be completely replaced.

And then there is the schooling problem. Recall that the teachers’ unions, in collusion with the de Blasio administration, shut down public schooling, thereby damaging the minds of young children. And the city’s willingness to replace merit based admissions to the best public schools with a lottery told some parents that it was time to leave for the suburbs. (For the record, those places that have tried this, like San Francisco and MIT, have had to reverse course.

Whatever the cause, the effect is clear. And, if school enrollment is down, so too will teacher layoffs be up:

And other indicators suggest flight from the city may be continuing. Public school enrollment this year is down 6.4 percent compared with before the pandemic, according to New York City Department of Education data, and private school enrollment decreased by 3 percent, according to state data, potentially signaling a reduction in the number of families that could hurt the city’s ability to foster a diverse work force.

Where did they go? Those who left New York most often seemed to move to Florida. Of course, you knew that. But, it’s good to have a little data to sustain our opinions:

The exodus to Florida was especially robust, and not just for the retiree crowd. In 2020, New York City had a net loss of nearly 21,000 residents to Florida, IRS data showed, almost double the average annual net loss from before the pandemic.

The pandemic accelerated the relocation of several New York-based financial firms to new offices or headquarters in Florida. Many of them have landed in Palm Beach, Fla., including the hedge fund Elliott Management, whose co-chief executive, Jonathan Pollock, is now a full-time Florida resident, according to records obtained by The New York Times.

The Manhattan residents who moved to Palm Beach County had an average income of $728,351, IRS data showed.

The question now remaining is whether this trend will reverse itself now that the pandemic seems to be waning. My guess is, don’t bet on it.