Population shifts are like snowflakes falling in the mountains - melting individually, they have little impact, but when you get enough of them moving the same direction, over time they can change the landscape and form the Grand Canyon. Like snow melting in the Rockies, the population of the United States has steadily been making its way south west across the country and, over time, this could have impact on municipal credits.
With every census, the U.S. Census Bureau releases a map showing the nation's mean center of population. This is the location where - were you to put a map of the United States on a pin - all residents counted in the census would be perfectly balanced. Since 1790 when the population center was Chestertown, Maryland, the location of this point has moved a total of 872.9 miles west and was located at Plato, Missouri in 2010. Since the 1960s, the population center has started to curl southwest. Given the migration data since the last census, when the 2020 census data is released I suspect this point will continue curling toward Texas.
There are many possible reasons why people have been moving from the Northeast and Midwest to southern locations: employment opportunities, retirement to warmer destinations, tax avoidance and protection of wealth to name a few. Since 2010, the Northeast and Midwest regions have lost 2.2 million and 1.5 million people, respectively, to domestic migration. Factoring in international immigration, those regions are still down a net 425,000 and 441,000.
Since 2010, New York, Illinois, California and New Jersey have lost the largest numbers to domestic migration. Florida, Texas, North Carolina and Arizona have gained the most. When international migration is included, New York and Illinois still have the largest losses in the country - each losing over 500,000 residents to migration since 2010. California turned positive with international migration included, gaining over 330,000, but recently the trend there has been reversing - in the last two years California had a net migration loss of 56,000 residents. The big winners were Texas and Florida, gaining 1.8 million and 2.2 million in net migration, respectively, since 2010.
So, everyone likes warmer weather and is moving out of the snow - why does this matter? As far as municipal bonds go, it comes down to the size of the tax base supporting the outstanding debt and maintenance of the infrastructure. A perfect example of what a declining population can do to a municipality is Detroit, Michigan - one of the largest municipal bankruptcies in history. At its peak in 1950, Detroit had a population of 1,849,568. In 2018 the population was estimated at 672,662. Granted corruption and poor management contributed to Detroit's financial disaster, but when you have an infrastructure built for nearly 2 million people being supported by a third of that, something must give.
This is a slow-moving problem and most municipalities will be able to adjust over time. However, the ones that fail to recognize the situation early will be left with fewer options to fix the situation and could eventually face serious problems. Two ratios we monitor with our credits are debt per capita and debt to assessed value. We compare these ratios to state and national medians and if we see these ratios trending upward along with a shrinking population, we see it as an early indicator of potential problems ahead.
United States Census Bureau, Where the Population is Changing, Numeric Population Change by County and Municipio, 2010-2018, 2018
United States Census Bureau, Where the Population is Changing, Numeric Population Change by Metropolitan and Micropolitan Statistical Area, 2010-2018, 2018
United States Census Bureau, State Population Totals and Components of Change: 2010-2018, 2018