by Michael Lodge
When you have a state with a far left liberal Governor like Jerry Brown and an Lt. Governor like Gavin Nesom, who are so anti business and pro liberal programs, you want to move out of California. When it become harder for small business to comply with so many regulations to try and remain compliance, small business and major corporations look for states that are friendlier. In November of 2015 National Review did a really good story, written by Sarah Rumph, on why business is leaving California. The full story is below, however it deals with companies moving from California to Texas, another pro-business state.
Why Businesses Leave California
by SARAH RUMPF November 12, 2015 3:00 PM
The Golden State’s hostile business environment continues to drive thousands of companies away. For most of the 20th century, California was a place that people and companies moved to in search of opportunity. The Golden State still has its beautiful climate and technically skilled workforce, but today these things are not enough to prevent companies from leaving the state. A new study seeks to quantify the trend of companies fleeing California and determine how, and to what extent, it is caused by California’s hostile business environment.
The study was conducted by Joseph Vranich, the president of Spectrum Locations Solutions, a site-selection consultancy based in Irvine, Calif. Using publicly available records, mostly media and government reports, Vranich searched for what he calls “California divestment events” — business decisions to shun the state. These come in three types: companies that left the state entirely; companies that expanded in other states rather than in California; and a few companies that had planned to grow in the Golden State but changed their minds.
Vranich found records of 1,510 divestment events occurring in California between 2008 and 2014, but that number is an incomplete accounting of the situation. “Experts in site selection generally agree that at least five events fail to become public knowledge for every one that does,” he writes, concluding that the real total is probably more than 9,000 divestment events for this period.
Even that estimate may not tell the full story. Small businesses are less likely to get media coverage when they relocate, but they are the biggest category of divestment events. Moreover, the cost and compliance burdens of California’s taxes and regulations fall disproportionately on smaller companies, which are less able to afford the teams of attorneys and accountants that mega-corporations can employ. As Carly Fiorina has ably pointed out during the GOP debates, big government tends to benefit big business.
The cost and compliance burdens of California’s taxes and regulations fall disproportionately on smaller companies, which are less able to afford teams of attorneys and accountants.
To no one’s surprise, Texas was the main beneficiary of California divestment events during each year of the study. After Texas, the top destinations for escaping California businesses were, in order, Nevada, Arizona, Colorado, Washington, Oregon, North Carolina, Florida, Georgia, and Virginia.
California’s elected officials dismiss stories about businesses leaving the state as anecdotal propaganda, but it’s hard to argue with the 200-plus pages of divestment events that Vranich’s report lists. Vranich has been conducting similar studies and publicly sharing his findings about thousands of ex-California companies since 2010, yet despite all the evidence, Governor Jerry Brown has made several public statements over the past few years denying a “mass exodus” of California businesses.
Brown has a long history of making excuses when businesses reject his state. When Toyota announced it was uprooting three California plants and consolidating its headquarters in Plano, Texas, the Wall Street Journal quoted Brown as saying, “We’ve got a few problems, we have lots of little burdens and regulations and taxes. But smart people figure out how to make it.” The Journal’s retort: “California’s problem is that smart people have figured out they can make it better elsewhere.”
To be fair, Silicon Valley has enjoyed a boom in the last few years. However, as The Economist noted last year, “whereas venture-capitalists and coders may be rushing to California, others cannot wait to leave,” as the state still faces substantial problems of its own making. “Beyond the gilded strip of land between San Francisco and San Jose is another California, an inhospitable place plagued by over-regulation, mindless bureaucracy, high taxes and endless lawsuits,” in addition to the nation’s highest income-tax rate and highest minimum wage.
The Texas Public Policy Foundation’s Chuck DeVore served in the California state assembly from 2004 and 2010, and he has written frequently about the vastly different approaches to tax policy and economic regulation found in California and Texas. He echoes The Economist’s pessimism about California’s ability to sustain the current tech boom, let alone expand on it to benefit the rest of the state.