Why Companies Leave California

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“A study by business relocation consultant Joe Vranich estimates that … about 13,000 companies have left the state since 2008. Over the last decade, $76.7 billion in capital and 275,000 jobs have moved out of the state.” – Wall Street Journal.

Summary of Report: ‘Why Companies Leave California’

California’s business climate continues to deteriorate, so much so that a record number of companies are leaving the state. Joe Vranich, the report’s author, finds that the business-hostile climate continues to worsen at the state and local level. After reviewing legislation introduced through the end of 2018, he sees virtually no signs that the business climate will improve.

The report is the latest update to a series of studies about companies departing California for business-friendly states and foreign nations. One finding is that 1,800 relocation or “disinvestment events” occurred in 2016 (the most recent year available), setting a record yearly high going back to 2008 – and that at least 13,000 companies moved out of state during that nine-year period.

The Last Straw: Legal Environment Now Merciless

The top reason to leave the state has long been high taxes. But California now has such a brutal legal environment that business owners and corporations should consider jurisdictions where they will be treated fairly and respectfully.

“California politicians threaten businesses with one harsh law or regulation after another. Now, the state has reached a new low with an awful law,” said Joe Vranich. The report states:

California politicians triggered a “tipping point” with a new statute that puts businesses in a terrible “lose-lose” situation no matter how hard a company tries to operate in a legal manner.

California’s benign-sounding Immigrant Worker Protection Act specifies that an employer following Federal immigration law is now violating state immigration law and is committing a crime. However, it remains true that an employer failing to follow Federal immigration is also a crime.

Think about it: California may place penalties on someone in business who is a legal citizen operating a legal business that is in compliance with every Federal, state and local law, who pays state and local taxes, and who creates employment – and all that can count for nothing in the state’s eyes.

The Future Holds What Other Cruel Laws?

The fact that it is an immigration law is irrelevant because it makes us wonder what comes next. Why impose unwarranted legal penalties only for immigration? California’s elected officials are capable of enacting other intolerable laws that only they could imagine, such as arresting a factory manager for cooperating with a Federal OSHA inspector. Where does this irresponsible behavior stop?

It’s little wonder that for several years the American Tort Reform Foundation said California is among the nation’s worst ‘Judicial Hellholes’ for businesses, a label that will persevere considering the laws passed in 2018 and introduced in 2019.

Business Departures

The study is brimming with information about companies that have left, why they did so, where they moved to, and what business owners and CEOs have said to support their decisions. One finding in the report is that many companies relocate even though they have not been offered economic incentives in their new state or community.

Departures are understandable when year after year CEOs nationwide surveyed by Chief Executive Magazine have declared California the worst state in which to do business. The state has a high-cost business tax climate, with the Tax Foundation in 2019 ranking California at No. 49 – the second worst in the nation, ahead of only New Jersey.

Three Previous Governors Quoted Earlier Reports

Three previous California Governors – Gray Davis, Pete Wilson and George Deukmejian – cited findings from an earlier edition of Joe Vranich’s disinvestment report when expressing concerns about companies shifting their activities and expanding their operations out of state.

Where California Companies Relocated

The states gaining the most from California’s losses are Texas – it has held the first-place distinction for at least a decade – followed by Nevada and Arizona. Other states, including in the South and Midwest, also are gaining California companies.

The top municipalities gaining migration from California are Austin at No. 1, followed by Reno, Las Vegas and Phoenix. Also, cities unfairly disparaged for being in “flyover” country are successful in attracting California companies, with Pittsburgh, Atlanta, Fort Worth, Houston, Indianapolis and Nashville among the top twenty.

Foreign nations have successfully recruited California companies with Mexico being No. 1, followed by India and China.

California’s Disinvestment Events by the Numbers

The ten California counties losing the most businesses were Los Angeles in the top spot, followed by Orange, Santa Clara, San Francisco, San Diego, Alameda, San Mateo, Ventura, San Bernardino and Sacramento.

More headquarters leave California than any other type of facility and more manufacturers than any other industry.

During the study period, $76.7 billion in capital was diverted out of California along with 275,000 Jobs – and companies acquired at least 133 million square feet of space elsewhere. All of those findings are greatly understated because such information often went unreported in source materials.

The report addresses the state’s 40 years of hostility toward businesses, high utility and labor costs, excessively punitive regulations, worrisome housing affordability for employees, signs that workers plan to leave California, and how the state lags behind other states in acquiring facilities that are being reshored from overseas.

How You Can Use this Report

Owners of small businesses will find information here to be helpful in exploring with their partners and families relocation to out-of-state locations that offer welcoming and gracious business environments along with excellent quality of life factors. Entrepreneurs can share the report with their financial supporters.

A leader in a large corporation may relay findings in this study to their Board of Directors to justify shifting facilities, capital and jobs to business-friendly states. Doing so will reduce costs for taxes, fees and regulatory compliance, lessen risks for incessant litigation and – effective with the immigration law – diminish occasions when employees feel intimidated or threatened by agents of the state Attorney General’s office.

Whether the organization is small or large, leaving the state will increase the ROI based on labor costs alone – which can total 15 percent and up to 30 percent depending upon the location selected – along with peace of mind assuming that a prudent location choice is made.

Economic Development agencies may quote information in the report to present to prospects seeking a new location.

The new report has received recognition in The Wall Street Journal, Investor’s Business Daily, Forbes and countless local newspapers.

Joseph Vranich is a site selection consultant providing location advisory services to companies. In recent years he has discussed California’s business environment with more than 100 economic development agencies located in North America and Europe. In 2018 he relocated his company from Irvine, California to Cranberry Township, a suburb of Pittsburgh, Pa.

Company Website: https://spectrumlocationsolutions.com/