By James Hughes and Joseph Seneca, Edward J. Bloustein School of Planning and Public Policy

There is a growing perception that increasing numbers of New Jerseyans are cashing out and moving to lower-cost, more-affordable states, or establishing permanent residence in low-tax states while continuing to maintain a New Jersey home.

Unfortunately, this perception is statistically confirmed by recent Census Bureau and Internal Revenue Service data. The population outflow is very real, and our analyses show it is already exerting a small but increasing negative impact on the New Jersey economy.

Census Bureau data reveal a sharp downturn in New Jersey's population growth in the 2002-2006 period and a sharp upturn in the number of people leaving the state. In 2002, the state's population increased by 79,184 persons. The absolute population growth declined steadily in the next four years. It was up only 63,144 in 2003, 56,467 in 2004, and 32,759 in 2005. By 2006, the state's population growth was just 21,410 persons. A simple extrapolation of this trend indicates New Jersey would experience an absolute population loss in 2008.

Three factors - births minus deaths, international migration and national migration - go into calculating these numbers.

The overall deceleration in the growth rate has been caused by the sharp acceleration in the number of New Jerseyans moving to other states - national migration. In 2002, New Jersey had a net outflow 23,759 people - that is 23,759 more people moved from New Jersey to other states than people from the rest of the country moved into New Jersey. The losses accelerated over the next four years: 33,225 in 2003, 45,045 in 2004, and 56,989 in 2005. By 2006, the new outflow was 72,547 persons. A simple extrapolation of this trend suggests that New Jersey would have a net outflow of over 100,000 persons in 2009.

These losses are starting to have significant economic and fiscal consequences. Internal Revenue Service data on tax filers and their dependents show a substantial loss of income in the state. New Jersey's 2005 net aggregate adjusted gross income (AGI) was reduced by an estimated $7.9 billion because of the net loss of tax payers between 2000 and 2005. Our estimates of continued out migration indicate that our AGI was reduced by over $10 billion in 2006. In essence, because of the cumulative net outflow of taxpayers, $10 billion was removed from the New Jersey economy in 2006, reducing consumer expenditures, employment, and state and local taxes.

All this translated into a total direct and indirect tax loss (state income and sales taxes) of $539 million in 2005. Based on 2006 population out migration data, the tax losses are estimated to have increased to $680 million in 2006.

Why the outflow? Decisions to move are complex, but there are several factors that may prove influential. New Jersey and the Northeast once had a near monopoly on high-paying knowledge-based jobs. However, the current decade has seen improved relative economic opportunity elsewhere, with knowledge-based jobs growing far faster in the southern Atlantic states for example.

New Jersey's extraordinarily high housing and living costs provide a strong rationale for moving to more affordable states if equivalent jobs are available. And our higher income and property taxes provide additional incentives for New Jerseyans to seek tax refuge in adjacent states while maintaining their Garden State jobs, or for retirees to move to more affordable locations. Reversing all of these factors will be a daunting task for public policy.

However, there may be short-term relief from these trends. The recent deep slump in the housing market is changing relative housing values across the states, and the accompanying reduction in home sales affects the ability of individuals to move.

Also, in the long term, rising costs, taxes, and congestion in many of the destination states for New Jersey out-migrants will eventually reduce the attractiveness of these areas. Thus, with appropriate policies and changing market conditions, the net out-migration of New Jersey taxpayers could be reduced.

October 2007