The Economics of Tim Draper’s Six Californias Split

Silicon Valley venture capitalist Tim Draper has an idea. He wants to split California into six separate states, ostensibly to eliminate the bloated bureaucracy of a single California and better address the disparate needs of its 38 million inhabitants. In 49 of the states in America, an idea as radical as Draper’s would probably remain just that: an idea, with about nil chance of ever going anywhere.

Thanks to California’s loopy ballot initiative law, where any proposal can come up for popular vote as long as it gets enough signatures, Draper’s “Six Californias” idea will likely make the November ballot. And considering California has a penchant for voting “yes” on loopy ballot initiatives, it very well could pass.

If Draper’s proposal did win over voters, it would still have to clear the US Congress, where it would likely to be squelched. Adding 10 senators (and several members of Congress) to the legislative branch would dilute major political players' power, something people in power don’t tend to enjoy.

But let’s pretend for a second Draper’s proposal gets on the ballot, passes, and somehow, some way became the law of the land. The six new states born from California’s demise would stand to split a massive amount of wealth. After all, California as a state is the eighth largest economy in the world.

However, these theoretical six newest additions to the Union certainly wouldn’t split California Gold into six equal chunks. Quite the opposite. The “Six Californias” initiative would create three new states of fantastic wealth, one of medium means, and two quite poor ones.

The Tale of the Tape

California sports an annual GDP of $2 trillion, or roughly as large as the economies of Russia and Italy. California is also the fifth largest food supplier in the world, and a big player in energy, finance, real estate, and tech.

Especially tech. Draper is a tech venture capitalist that made his fortune in the Tech Boom 2.0. Over the last few years gobs and gobs of liquid cash have flooded into Silicon Valley as Apple Inc. (AAPL) , Google Inc. (GOOG) and Facebook Inc. (FB) have ballooned to become 12-figure companies.  As a result, San Jose and close neighbor San Francisco are now, per capita, the richest cities in America.

Which in the world of Six Californias, would both be located in the new state of Silicon Valley. It looks like, in the event of a Six Californias state split-up, that $2 trillion a year wouldn’t be split up all too evenly.

The vast majority of California’s GDP – $1.98 trillion – is generated in its major metropolitan areas, with only $30 billion (less than 2 percent) generated in the state’s rural areas. Using the 2012 GDP of California’s major metro areas, we can break down how 98 percent of the wealth would be divided among Draper’s six new states, and how these nascent additions to the Union would look in relation to the rest of the country.

New State #1: Silicon Valley

Major Metropolitan Areas and 2012 GDP: San Francisco-Oakland-Heyward ($360.39 billion); San Jose ($173.9 billion); Salinas ($17.7 billion); Santa Cruz ($9.57 billion)

Approximate Total GDP: $561.56 billion

State Rank: 7th

The new state of Silicon Valley would have an economy larger than Ohio's with about half the people. With a per capita income of approximately $73,000, Silicon Valley’s denizens would be, on average, the richest in America by a wide margin.

New State #2: West California

Major Metropolitan Areas and 2012 GDP: Los Angeles County ($548.28 billion); Santa Maria-Santa Barbara ($20.943 billion); San Luis Obispo ($11.3 billion); Oxnard-Thousand Oaks-Ventura ($39.07 billion)

Approximate Total GDP: $619.593 billion

State Rank: 5th

Draper’s Six Californias would split the massive LA-Orange County metro area between two states. LA comprises 76 percent of the metro area’s population but is slightly poorer on average than Orange County. We found that approximately 71.06 percent of the GDP in that metro area comes from LA county, which would be in the new state of West California.

West California would be an economic powerhouse, slightly smaller than the economy of Pennsylvania. That ranks higher than Silicon Valley’s, but, with a population of 11.5 million, West California’s GDP would be split among 4 million more people.

New State #3: Southern California

Major Metropolitan Areas and 2012 GDP: Orange County ($217.47 billion); El Centro ($4.75 billion); Riverside-San Bernadino-Ontario ($113.998 billion); San Diego ($177.41 billion)

Approximate Total GDP: $513.628 billion

State Rank: 9th

This new small state, which would contain all of Orange County and San Diego in addition to the Los Angeles exurbs in Riverside county, would be another economic giant and rank in the top ten wealthiest in states in America.

New State #4: Northern California

Major Metropolitan Areas and 2012 GDP: Napa ($7.37 billion); Sacramento-Roseville ($97.55 billion); Vallejo-Fairfield: ($14.769 billion); Santa Rosa ($20.32 billion)

Approximate Total GDP: $140.03 billion

State Rank: 37th

While North California would be ranked relatively low, between Utah and Arkansas in terms of annual GDP, make no mistake about the economic health of wine country and the old capital of Sacramento. The fantastically affluent county of Marin, just north of Silicon Valley, has the fifth highest per capita income of any county in America and would be included in this fairly well-off new state.

New State #5: Jefferson

Major Metropolitan Areas and 2012 GDP: Chico ($6.325 billion); Redding ($5.06 billion)

Approximate Total GDP: $11.295 billion

State Rank: 55th

The theoretical state of Jefferson, which would include the northernmost part of California bordering Oregon, would be the smallest state in terms of population in the Union, at less than 400,000 people. It would also be the smallest in terms of GDP at about half of the next tiniest economy, Vermont. Even with the small popualtion, the state would be quite poor, with its two largtro areas, Chico and Redding, both sporting a very low per capita income of under $20,000 a person.

New State #6: Central California

Major Metropolitan Areas and 2012 GDP: Bakersfield ($34.26 billion); Fresno ($31.89 billion); Hanford/Corcoran ($4.46 billion); Madera ($4.04 billion); Merced ($6.4 billion); Modesto  ($15.9 billion); Stockton-Lodi ($20.39 billion); Visalia-Porterville ($12.05 billion)

Approximate Total GDP: $129.39 billion

State Rank: 38th

The real story in the proposed break-up of California is how Central California would fare. Along with Jefferson, this region is much poorer than the rest of California, and would be drastically impacted by the loss of revenue generated in the more affluent parts of the state. Central California’s major cities of Bakersfield, Stockton, and Fresno sport per capita incomes less than $21,000 a year, with Visalia and Modesto only being slightly better off, with both around $22,000 per annum.

Central California would be one of the five poorest states in the nation per capita, with its citizens making about a third of Silicon Valley’s.