Companies Join People in Fleeing California

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A new study by Spectrum Location Solutions finds that companies are leaving California because of its difficult business climate, which has worsened this year as politicians in Sacramento have approved harsh new policies.

Joseph Vranich, a corporate relocation expert, recently moved his own company out of California

California companies leave because the state’s business climate continues to worsen.

For once, government agencies agree on something – the Census Bureau, Internal Revenue Service and California’s Legislative Analyst's Office have a common message – California is indeed losing population in big numbers. In short, within the last decade more than 1 million people left the state.

However, no agency calculates the number of companies exiting California. To fill in the information void, a consulting firm, Spectrum Location Solutions, today issued new research estimating that about 660 California companies moved 765 facilities out of state in 2018 and thus far into 2019.

While the news media focuses on corporations that move hundreds of jobs out of state, most departures of small to mid-sized businesses occur with no public notice. The study relies on a conservative metric that five companies (many of them small) leave for each one that is reported by the news media, and the current estimate is based on 132 companies putting 153 facilities in out-of-California locations.

The study provided no estimates on outsourcing to foreign nations, recording only actual events, to avoid overstatement. Such events appear to be declining since the federal Tax Cuts and Jobs Act (TCJA) was passed in 2017, which reduced incentives for companies to outsource.

Overall losses involve corporate headquarters, manufacturing facilities, data centers, research hubs, software and engineering centers and a few warehouses.

The diversion of capital is significant in that the offices and factories being built in other states and nations are valued at $22.7 billion – that’s real money, not an estimate – financed by companies while still based in California.

“California companies leave because the state’s business climate continues to worsen, particularly with the harsh employment, immigration and spending measures that Gov. Gavin Newsom has approved,” said the study’s author, Joseph Vranich. “I foresee more exits because California politicians have a level of contempt for business that has reached epic lows.”

Three previous California Governors – Gray Davis, a Democrat, and Pete Wilson and George Deukmejian, both Republicans – cited findings from an earlier, similar version of Vranich’s work when expressing concerns about companies shifting their operations out of state.

The jobs relocated directly or lost as an opportunity cost total at least 145,000, a good number of which are high-paying positions because headquarters moves accounted for 34 percent of actual moves. Also, manufacturing plant relocations, which totaled 44 percent of events, take decent middle-class wages with them.

“Company departures are understandable when CEOs nationwide surveyed by Chief Executive Magazine have for 15 consecutive years declared California the worst state in which to do business,” said Vranich.

Texas held the No. 1 rank for attracting California companies – which has been the case every year for 12 years – followed by Arizona, Tennessee, Colorado and Nevada.

Foreign nations that gained from California companies outsourcing were Mexico, India, China, Costa Rica and the Philippines, which aren’t ranked because of the small sample available.

At least 22 California counties suffered losses with Los Angeles losing the most followed by San Francisco. Their bottom-of-the-barrel rankings are due not only to their business-unfriendly municipal policies but increasingly unpleasant neighborhoods as squalor continues to spread.

“The decline in livability is reflected in surveys that show about half of all Californians are thinking about leaving the state, a number that grows to 63 percent of Millennials,” said Vranich.

Companies often keep their headquarters in the Silicon Valley counties of Santa Clara, San Mateo and Alameda. But these very places are experiencing high levels of expansions in out-of-state locations, likely due to the workforce demanding high wages to meet exorbitant housing costs.

Excluded from the study were events unrelated to the state’s business climate. For example, not counted was a startup experiencing hyper-growth and is expanding in eight out-of-state cities, companies establishing distribution centers in the South and Midwest to bring about faster deliveries to customers, corporations consolidating facilities from far-flung states into one central location, companies suffering from tariff issues, moves by sole proprietors and relocations of any type of retail store.

A report issued earlier in 2019, entitled, "Why Companies Leave California," addresses in depth the state's hostility toward businesses. Examples include regulations requiring steep fines for minor infractions, a ruthless legal climate, escalating taxes and utility rates, high labor costs, and signs that more workers plan to depart California.

That study, which focused on the 2008-2016 period, estimated that about 13,000 companies disinvested in the state and nearly $77 billion in capital was diverted to other states and nations. The report has been cited by The Wall Street Journal, Investor’s Business Daily, Forbes and many local Business Journals around the nation.

Sources for Vranich’s studies include company announcements, media accounts and reports from economic development agencies. When doubts exist about whether to include a company event, research is done on filings with the Securities & Exchange Commission, U.S. Dept. of Labor and the California Employment Development Dept.

Joseph Vranich relocated his consulting firm, Spectrum Location Solutions, last year from Irvine, Calif., to Cranberry Township, Pa. a suburb of Pittsburgh.

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