California lost jobs for the fourth consecutive month in September — and it’s expected to add only 62,000 new jobs next year as high taxes drag on business formation, according to a report released Thursday.

The annual Chapman University economic forecast released Thursday found that the state’s job growth totaled just 2% from the second quarter of 2022 to the second quarter of this year, ranking it 48th among all states.

That matches California’s low ranking on the Tax Foundation’s 2024 State Business Tax Climate Index, which measures the rate of taxes and how they are assessed, according to the Gary Anderson Center for Economic Research report by the Orange, Calif., school.

The state also experienced a net population outflow of more than 1 million residents from 2021 to 2023, with the top five destinations being states with zero or very low state income taxes: Texas, Arizona, Nevada, Idaho and Florida, the report noted.

What’s more, the average adjusted gross income for those leaving California was $134,000 in 2022, while for those entering it was $113,000, according to the most recent IRS data on net income flows cited by the report.

“High relative state taxes not only drive out jobs, but they also drive out people,” said the report, which expects just a 0.3% increase in California jobs next year leading to the 62,000 net gain.

More unsettling, the report said, was a “sharp decline” in the number of companies and other advanced industry concerns established in California relative to other states, in such sectors as technology, software, aerospace and medical products.

California accounted for 17.5% of all such establishments in the fourth quarter of 2018, but that dropped to 14.9% in the first quarter of this year. Much of the competition came from low-tax states, the report said.

California saw the number of advanced industry establishments grow from 89,300 to 108,600 from 2018 through this year, but low-tax states saw a 52.2% growth rate from 164,000 to 249,600 establishments, it said.

Also on Thursday, the U.S. Bureau of Labor Statistics released its monthly states jobs report, which had been delayed by the government shutdown. It, too, showed California had a weak labor market with the state losing 4,500 jobs for the month, edging up its unemployment rate from 5.5% to 5.6%, the highest in the nation aside from Washington, D.C.

The state has lost jobs since June as tech companies in the Bay Area and elsewhere shed employees and spend billions of dollars on developing artificial intelligence capabilities.

There have also been high-profile layoffs in Hollywood amid a drop-off in filming, runaway production to other states and countries, and industry consolidation, such as the bidding war being conducted over Warner Bros. Discovery. The latter is expected to bring even deeper cuts in Southern California’s cornerstone film and TV industry.

Michael Bernick, a former director of California’s Employment Development Department, said such industry trends are only partially to blame for the state’s poor job performance.

“The greater part of the explanation lies in the costs and liabilities of hiring in California — costs and especially liabilities that are higher than other states,” he said in an emailed statement.

Nationally, the Chapman report cited the Trump administration’s tariffs as a drag on the economy, noting they are greater than the Smoot-Hawley Tariff Act of 1930 thought to have exacerbated the Great Depression.

That act only increased tariffs on average by 13.5% to 20% and mainly on agricultural and manufactured products, while the Trump tariffs “cover most goods and affect all of our trading partners.”

As a consequence, the report projects that annual job growth next year will reach only 0.2%, which will curb GDP growth.

The report predicts the national economy will grow by 2% next year, slightly higher than this year’s 1.8% expected rate. Among the positive factors influencing the economy are AI investment and interest rates, while slowing growth — aside from tariffs and the jobs picture — is low demand for new housing.

The report cites lower rates of family formation, lower immigration rates and a declining birth rate contributing to the lower housing demand.

The battle between California and the White House escalated as President Trump signed an executive order to block state laws regulating artificial intelligence.

The president’s power move to try to take over control of the regulation of the technology behind ChatGPT through an executive order Thursday was applauded by his allies in Silicon Valley, who have been warning that many layers of heavy-handed rules and regulations were holding them back and could put the U.S. behind in the battle to benefit most from AI.

The order directs the attorney general to create a task force to challenge some state AI laws. States with “onerous AI laws” could lose federal funding from a broadband deployment program and other grants, the order said.

The Trump administration said the order will help U.S. companies win the AI race against countries such as China by removing “cumbersome regulation.” It also pushes for a “minimally burdensome” national standard rather than a patchwork of laws across 50 states that the administration said makes compliance challenging, especially for startups.

“You have to have a central source of approval when they need approval. So things have to come to one source. They can’t go to California, New York and various other places,” Trump told reporters at the Oval Office on Thursday.

California Gov. Gavin Newsom pushed back against the order, stating it “advances corruption, not innovation.”

“They’re running a con. And every day, they push the limits to see how far they can take it,” Newsom said in a statement. “California is working on behalf of Americans by building the strongest innovation economy in the nation while implementing commonsense safeguards and leading the way forward.”

The dueling remarks between Newsom and Trump underscore how the tech industry’s influence over regulation has increased tensions between the federal government and state lawmakers trying to place more guardrails around AI.

While AI chatbots can help people quickly find answers to questions and generate text, code, and images, the increasing role the technology plays in people’s daily lives has also sparked greater anxiety about job displacement, equity, and mental health harms.

The order heavily impacts California, home to some of the world’s largest tech companies such as OpenAI, Google, Nvidia and Meta. It also jeopardizes the $1.8 billion in federal funding California has received to expand high-speed internet throughout the state.

Some analysts said Trump’s order is a win for tech giants that have vowed to invest trillions of dollars to build data centers and in research and development.

“We believe that more organizations are expected to head down the AI roadmap through strategic deployments over time, but this executive order takes away more questions around future AI buildouts and removes a major overhang moving forward,” said Wedbush analyst Dan Ives in a statement.

Facing lobbying from tech companies, Newsom has vetoed some AI legislation while signing others into law this year.

One new law requires platforms to display labels for minors that warn about social media’s mental health harms. Another aims to make AI developers more transparent about safety risks and offers more whistleblower protections.

He also signed a bill that requires chatbot operators to have procedures to prevent the production of suicide or self-harm content, though child safety groups removed support for that legislation because they said the tech industry successfully pushed for changes that weakened protections.

States and consumer advocacy groups are expected to legally challenge Trump’s order.

“Trump is not our king, and he cannot simply wave a pen to unilaterally invalidate state law,” state Sen. Steve Padilla (D-Chula Vista), who introduced the chatbot safety legislation that Newsom signed into law, said in a statement.

In addition to California, three other states — Colorado, Texas and Utah — have passed laws that set some rules for AI across the private sector, according to the International Assn. of Privacy Professionals. Those laws include limiting the collection of certain personal information and requiring more transparency from companies.

The more ambitious AI regulation proposals from states require private companies to provide transparency and assess the possible risks of discrimination from their AI programs. Many have regulated parts of AI: barring the use of deepfakes in elections and to create nonconsensual porn, for example, or putting rules in place around the government’s own use of AI.

The order drew both praise and criticism from the tech industry.

Collin McCune, the head of government affairs at venture capital firm Andreessen Horowitz, said on social media site X that the executive order is an “incredibly important first step.”

“But the vacuum for federal AI legislation remains,” he wrote. “Congress needs to come together to create a clear set of rules that protect the millions of Americans using AI and the Little Tech builders driving it forward.”

Omidyar Network Chief Executive Mike Kubzansky said in a statement that he is aware of the risks posed by poorly drafted rules, but the solution isn’t to preempt state and local laws.

“Americans are rightly concerned about AI’s impact on kids, jobs, and the costs imposed on consumers and communities by the rapid development of data centers,” he said. “Ignoring these issues through a blanket moratorium is an abdication of what elected officials owe their constituents — which is why we strongly oppose the Administration’s recent executive action.”

Investors seemed unimpressed by the possible boost the sector could get from the White House.

The stock market fell sharply on Friday, led by AI shares.

Bloomberg and the Associated Press contributed to this report.

California and a coalition of other states are suing the Trump administration over a policy charging employers $100,000 for each new H-1B visa they request for foreign employees to work in the U.S. — calling it a threat not only to major industry but also to public education and healthcare services.

“As the world’s fourth largest economy, California knows that when skilled talent from around the world joins our workforce, it drives our state forward,” said California Atty. Gen. Rob Bonta, who announced the litigation Friday.

President Trump imposed the fee through a Sept. 19 proclamation, in which he said the H-1B visa program — designed to provide U.S. employers with skilled workers in science, technology, engineering, math and other advanced fields — has been “deliberately exploited to replace, rather than supplement, American workers with lower-paid, lower-skilled labor.”

Trump said the program also created a “national security threat by discouraging Americans from pursuing careers in science and technology, risking American leadership in these fields.”

Bonta said such claims are baseless, and that the imposition of such fees is unlawful because it runs counter to the intent of Congress in creating the program and exceeds the president’s authority. He said Congress has included significant safeguards to prevent abuses, and that the new fee structure undermines the program’s purpose.

“President Trump’s illegal $100,000 H-1B visa fee creates unnecessary — and illegal — financial burdens on California public employers and other providers of vital services, exacerbating labor shortages in key sectors,” Bonta said in a statement. “The Trump Administration thinks it can raise costs on a whim, but the law says otherwise.”

Taylor Rogers, a White House spokeswoman, said Friday that the fee was “a necessary, initial, incremental step towards necessary reforms” that were lawful and in line with the president’s promise to “put American workers first.”

Attorneys for the administration previously defended the fee in response to a separate lawsuit brought by the U.S. Chamber of Commerce and the Assn. of American Universities, arguing earlier this month that the president has “extraordinarily broad discretion to suspend the entry of aliens whenever he finds their admission ‘detrimental to the interests of the United States,’” or to adopt “reasonable rules, regulations, and orders” related to their entry.

“The Supreme Court has repeatedly confirmed that this authority is ‘sweeping,’ subject only to the requirement that the President identify a class of aliens and articulate a facially legitimate reason for their exclusion,” the administration’s attorneys wrote.

They alleged that the H-1B program has been “ruthlessly and shamelessly exploited by bad actors,” and wrote that the plaintiffs were asking the court “to disregard the President’s inherent authority to restrict the entry of aliens into the country and override his judgment,” which they said it cannot legally do.

Trump’s announcement of the new fee alarmed many existing visa holders and badly rattled industries that are heavily reliant on such visas, including tech companies trying to compete for the world’s best talent in the global race to ramp up their AI capabilities. Thousands of companies in California have applied for H-1B visas this year, and tens of thousands have been granted to them.

Trump’s adoption of the fees is seen as part of his much broader effort to restrict immigration into the U.S. in nearly all its forms. However, he is far from alone in criticizing the H-1B program as a problematic pipeline.

Critics of the program have for years documented examples of employers using it to replace American workers with cheaper foreign workers, as Trump has suggested, and questioned whether the country truly has a shortage of certain types of workers — including tech workers.

There have also been allegations of employers, who control the visas, abusing workers and using the threat of deportation to deter complaints — among the reasons some on the political left have also been critical of the program.

“Not only is this program disastrous for American workers, it can be very harmful to guest workers as well, who are often locked into lower-paying jobs and can have their visas taken away from them by their corporate bosses if they complain about dangerous, unfair or illegal working conditions,” Sen. Bernie Sanders (I-Vt.) wrote in a Fox News opinion column in January.

In the Chamber of Commerce case, attorneys for the administration wrote that companies in the U.S. “have at times laid off thousands of American workers while simultaneously hiring thousands of H-1B workers,” sometimes even forcing the American workers “to train their H-1B replacements” before they leave.

They have done so, the attorneys wrote, even as unemployment among recent U.S. college graduates in STEM fields has increased.

“Employing H-1B workers in entry-level positions at discounted rates undercuts American worker wages and opportunities, and is antithetical to the purpose of the H-1B program, which is ‘to fill jobs for which highly skilled and educated American workers are unavailable,’” the administration’s attorneys wrote.

By contrast, the states’ lawsuit stresses the shortfalls in the American workforce in key industries, and defends the program by citing its existing limits. The legal action notes that employers must certify to the government that their hiring of visa workers will not negatively affect American wages or working conditions. Congress also has set a cap on the number of visa holders that any individual employer may hire.

Bonta’s office said educators account for the third-largest occupation group in the program, with nearly 30,000 educators with H-1B visas helping thousands of institutions fill a national teacher shortage that saw nearly three-quarters of U.S. school districts report difficulty filling positions in the 2024-2025 school year.

Schools, universities and colleges — largely public or nonprofit — cannot afford to pay $100,000 per visa, Bonta’s office said.

In addition, some 17,000 healthcare workers with H-1B visas — half of them physicians and surgeons — are helping to backfill a massive shortfall in trained medical staff in the U.S., including by working as doctors and nurses in low-income and rural neighborhoods, Bonta’s office said.

“In California, access to specialists and primary care providers in rural areas is already extremely limited and is projected to worsen as physicians retire and these communities struggle to attract new doctors,” it said. “As a result of the fee, these institutions will be forced to operate with inadequate staffing or divert funding away from other important programs to cover expenses.”

Bonta’s office said that prior to the imposition of the new fee, employers could expect to pay between $960 and $7,595 in “regulatory and statutory fees” per H-1B visa, based on the actual cost to the government of processing the request and document, as intended by Congress.

The Trump administration, Bonta’s office said, issued the new fee without going through legally required processes for collecting outside input first, and “without considering the full range of impacts — especially on the provision of the critical services by government and nonprofit entities.”

The arguments echo findings by a judge in a separate case years ago, after Trump tried to restrict many such visas in his first term. A judge in that case — brought by the U.S. Chamber of Commerce, the National Assn. of Manufacturers and others — found that Congress, not the president, had the authority to change the terms of the visas, and that the Trump administration had not evaluated the potential impacts of such a change before implementing it, as required by law.

The case became moot after President Biden decided not to renew the restrictions in 2021, a move which tech companies considered a win.

Joining in the lawsuit — California’s 49th against the Trump administration in the last year alone — are Arizona, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, North Carolina, New Jersey, New York, Oregon, Rhode Island, Vermont, Washington and Wisconsin.