Bacon's Rebellion

James A. Bacon

The Silent Migration

Taxpayers have been leaving the inner cities for decades. Now they're leaving the inner suburbs. The trend bodes ill for the localities where a majority of Virginians live.

Arlington County would seem to have everything going for it. It sits at the heart of the booming Washington metropolitan area but across the Potomac from the frequently disordered District of Columbia, a location that confers Virginia's favorable business climate. The county has done a suburb job of urban planning, clustering development around its Metro stops. County coffers are blessed by one of the largest employment concentrations in the metro area; businesses pay an exceptionally high percentage of the county's taxes. And inhabitants earn among the highest incomes in the country: Arlington's $51,200 average per capita income in 2001 was almost 60 percent higher than the state average.

Why, then, are people leaving? More to the point, why are higher-income residents leaving?

According to Internal Revenue Service data, 4,600 more taxpayers and their dependents moved out of the county between 2001 and 2002 than moved into it. That's in a jurisdiction of 190,000 residents over just one year! This isn't Beirut. It isn't even East St. Louis. Even more alarming, the median income of taxpayers who left the county was $42,200, while that of newcomers was a mere $34,700. Add it all up and the net loss of countywide income from out-migration over in-migration was $214 million.(1)

Economic development practice traditionally focuses on attracting industrial and commercial investment, which can be taxed in the form of real property. But in a Knowledge Economy in which human capital is the main engine of economic prosperity, Virginia localities need to think more broadly about what constitutes a healthy tax base. High-income taxpayers generate more in sales and property taxes than poorer people do. They also are incredibly mobile -- roughly one in five Americans changes residences each year -- and they can relocate with ease. Virginia communities need to do a better job of hanging onto these people.

Arlington is a microcosm for Virginia's cities and urbanized counties. According to IRS data, other Virginia cities are leaking their productive populations, too. In 2002, Richmond, Alexandria, Hampton, Roanoke, Charlottesville and Newport News collectively suffered a net loss of 11,000 taxpayers and dependents, not to mention nearly $200 million in gross adjusted income, through out-migration.

What's especially worrisome is to see the travails of Virginia's older cities oozing into the older, urbanized counties -- the older suburbs. Henrico and Fairfax Counties, the economic powerhouses of their regions, have suffered significant net losses through out-migration. The median salary of out-migrants from Henrico County exceeded that of in-migrants by roughly $2,600, draining some $50 million in income from the county.

For Fairfax County, the numbers are staggering: 12,500 more out-migrants (taxpayers and dependents) than in-migrants. The gap in median income between those who moved out and those who moved in was $5,400 per taxpayer. The total loss of income to out-migration amounted to $640 million. While Fairfax moves from strength to strength in the field of business recruitment, many affluent residents are heading for the county line.

The big winners across Virginia are the "exurban" counties, fast-developing localities on the outer fringe of development. Measured by gains in total gross adjusted income attributable to migration, Loudoun, Prince William and Stafford Counties topped the list. Ranked by gains in median income, Fauquier County (on the Washington metro fringe), Powhatan County (on the Richmond metro fringe), and Fluvanna County (on the Charlottesville metro fringe) came out miles ahead. For those localities, the median income of in-migrants exceeded that of out-migrants by more than $10,000.

All these numbers should be used with caution. First, they reflect the performance of a single year only. To draw meaningful conclusions about a single locality, it would be advisable to draw upon three to five years' of numbers. Secondly, the IRS data is not necessarily an accurate reflection of broader population movements: It tracks only people who filed federal tax returns, and their dependents.

Still, the same pattern prevails in every metropolitan area: Higher-income people are moving towards the urban fringe, lower-income people are moving towards the urban core.

The conventional wisdom of the past 40 years suggests that middle-class families, especially those with children, are fleeing the crime, dysfunctional schools and high taxes of the core cities. That might explain what we see in Richmond, for instance, but why, then is Henrico witnessing the same trend? The crime rate here, where I live, is enviably low, the schools are among the best in the state, and taxes are the lowest of any urbanized county in the state.

How, also, do we explain Fairfax County, one of the leading high-tech centers in the country and the economic dynamo of the Washington region. As a percentage of income, its taxes are hardly oppressive. Its schools are among the best in the country.

Skip past chart

Source: Internal Revenue Service

Notes...

Net Population Gain/Loss: Difference between the number of federal income tax exemptions filed for out-migrants and in-migrants.

Gain/Loss in Median Income: Difference between the median Gross Adjusted Income reported by out-migrants and in-migrants. A positive number indicates that in-migrants earned more than out-migrants; a negative number indicates that out-migrants earned more than in-migrants.

Gain/Loss in Total Income: Difference between the aggregate Adjusted Gross Income of all out-migrants and in-migrants. A positive number represents a gain in collective income for residents of the locality.

There are many cross-cutting currents in the IRS data but the flood of higher-income taxpayers to the suburbs stands out as the dominant stream. In perhaps the clearest illustration of this trend, the data demonstrate that thousands of residents are spilling down the I-95 Corridor.

South of Washington, D.C., I-95 runs through five counties before it reaches the metropolitan fringe: Arlington, Fairfax, Prince William, Stafford and Spotsylvania. We shall examine each in turn.

Arlington County, in the urban core, lost 4,600 people in net out-migration in 2002. Where did they go? Of the 76,000 people who either entered or left the county that year, most shuttled back and forth between Arlington and other urbanized locales such as Washington, D.C., Alexandria and Montgomery County, Md. But a significant number broke out of the urban core. Fairfax accounted for the greatest net out-migration: 3,500 taxpayers and dependents. The median earnings of migrants from Arlington to Fairfax exceeded the earnings of citizens on the reverse trek by roughly $3,000.

Fairfax County, despite its influx from Arlington, lost 12,500 (net) migrants in 2002. A great many headed south to Prince William County -- 8,000 more than came the other way. Notably, the median income of migrants leaving Fairfax was about $6,800 more than that of taxpayers traveling against the flow.

Prince William County, one of Virginia's fast-growth counties, was a big gainer in the migratory sweepstakes, scooping up 7,500 more arrivals than departures. But that didn't stop the torrent down I-95. Prince William suffered a net out-migration to Stafford County of almost 2,200 people. Incredibly, the median income between people moving to Stafford was $9,000 higher than those heading the other way.

Stafford County, another fast-growth county, gained 4,500 people in its migratory transactions with other jurisdictions. Even so, it suffered a deficit with its neighbor to the south, Spotsylvania County. More than 700 people moved from Stafford to Spotsylvania than the other way around. The difference in median income: $6,200.

The southward flow towards the metropolitan periphery finally petered out in Spotsylvania. To the south of Spotsylvania lies Caroline County, a rural watershed between the Washington and Richmond metro areas. A mere 66 more people decamped south from Spotsylvania to Caroline than moved the other way. 

What's going on? Taxes are one possible culprit. That's the answer favored by my friend Tim Wise, president of the Arlington County Taxpayers Association, who kindly supplied the raw IRS data I used in my analysis.

Tim's reasoning is intuitively appealing: Arlington County has one of the highest tax burdens in the state. (See his article, "Taxation and Migration," page 8, in the ACTA's July newsletter.) But I draw different conclusion from the data. Taxes in Fairfax County, a major depository of former Arlingtonians, don't represent much of a bargain. A typical family of 1.3 moving from Arlington to Fairfax could save about $350 in local taxes. Does that justify the transaction costs associated with the move? Perhaps, as an economist would say, it would influence the marketplace "on the margin."

But a state-level analysis suggests that other factors are at work. People aren't just leaving Arlington County -- they're joining a migratory stream headed toward the urban periphery.

I would suggest a holistic approach to the subject. People move to new locations in order to better their lives. They seek a bundle of attributes, of which taxes most definitely are one. Virginians also look at crime rates, the quality of schools, proximity to their jobs, the availability of urban amenities and -- this is a biggie -- affordability of housing.

One of the main reasons that people move from one location to another within the same metropolitan area, in my observation, is to acquire a bigger, better house. A middle-class lifestyle today requires a kitchen big enough to entertain the whole neighborhood in, a family room big enough to house a big-screen plasma TV with surround-sound, a back deck for the grill, a bedroom for every kid, and a three-car garage to store all the junk. America's need for living space, it seems, is expanding exponentially.

Virginia's older urban areas lack the housing stock to accommodate the Great American Lifestyle. Homeowners can tack on a room here, convert a duplex into a single-family dwelling there; occasionally, someone erects a modern house on a vacant lot. In contrast to the constrained spaces in old neighborhoods, developers can build entire tracts of McMansions in the wide-open spaces of the exurbs.

Here in western Henrico, the so-called "West End" of metro Richmond, the housing stock is severely constricted. There are many fine neighborhoods in the West End, but there also are thousands of tiny ranches and bungalows. Fifty years ago, these dwellings were considered respectable, middle-class homes. Today, no one today would consider living in one except as a starter home. As expectations ratchet up for ever-bigger houses, an increasing proportion of Henrico County's housing stock becomes attractive mainly to people with below-median incomes. The county isn't losing population through out-migration, but newcomers are making about $2,500 less than those who are leaving.

If you want to buy a bigger house with all the cool stuff, West End residents have two options: Pay really high prices for a property close to town -- in other words, pay a premium for a superior location -- or pay significantly lower prices by driving 10 to 15 miles beyond the Richmond city line.

Many people choose the second option. In sum, the driving force behind the ever-expanding urban frontier is a quest for square footage.

Virginians, take heed! Affluent taxpayers are migrating to the urban periphery where they can find bigger houses equipped with 21st-century amenities. But they're losing the attributes that make a great place. All we have to do is look at much of the development that was “new” 50 years ago and realize that the sheen grows dull. Rather than invest in upgrading their houses and improving their neighborhoods, inhabitants just move on to a newer subdivision and bigger home. Inevitably, the disposable neighborhoods go into decline.

In county after county, Virginia is experiencing the same pattern of declining neighborhoods and emigrating citizens. Our older communities are bleeding. Their tax bases are eroding. In many cases, there's nothing that seems worth saving.

What can be done? For starters, recognize that square footage may be the main thing, but it isn't the only thing. People also care about taxes. They care how long it takes to drive to work. They care how long it takes to run their errands. They care if their neighborhoods possess a sense of "place" that's worth preserving.

We can retain some of our wealthier citizens by creating more great places that offer compensations beyond the square footage of their living space. I would urge anyone interested in the characteristics of such places and what it takes to create them to read Ed Risse's companion column in this edition of Bacon's Rebellion. (See "Wild Abandonment," September 8, 2003.) The high and rising prices that homeowners are willing to pay to live in these great places -- from Georgetown in D.C., to Old Town Alexandria, from historic Fredericksburg to Richmond's Fan -- are proof that people crave more than raw square footage.

But in our society, intangibles are not enough. People want both: big houses and the classic characteristics of great places. We must find a way to provide both.

-- September 8, 2003

1. 2002 was no fluke. The numbers are almost as serious for 2001: the loss of 4,100 taxpayers and their dependents. The median income of out-migrants was $41,300, that of in-migrants only $34,200.

According to U.S. Census Bureau estimates, Arlington's total population did not decline nearly as severely as the IRS data would indicate. The IRS tracks only taxpayers and their dependents, not all residents. Census estimated a drop of only 165 inhabitants in 2002.

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