By J.P. Donlon - May 4, 2018
California is facing a bigger issue than its tussle with the Federal government over sanctuary cities. According to a November report from the U.S Census Bureau, the Golden State has had 142,932 more residents exit to live in other states than people arriving from other states. This domestic outmigration was the second largest outflow in the U.S. behind New York and New Jersey. It was up 11 percent (13,699 net departures) compared to 2015.
The state’s net outmigration has been continuing for over two decades, yet the state’s population continues to grow owing to foreign immigration. According to census numbers some 108,301, or 0.3 percent immigrants came to California as new residents from other countries. That and more births than deaths contributed to limited population growth. To everyone else the state has become a hard sell to people who presently live elsewhere in the country.
What is more serious is the number of California-based companies that have left or signaled their intention to leave the state. Last year marks the first anniversary of the announcement that Carl’s Jr., a California burger icon for more than six decades, was relocating its headquarters to Nashville. It’s a symbol for what’s become a stream of businesses that have quit California. What was once an almost quiet exodus of companies now looks more like a stampede.
Among the roll call of businesses abandoning California for more hospitable business environments includes Toyota which has left Torrance and will complete the move of its U.S. headquarters to Dallas in the coming month. Also having left for Dallas is Jacobs Engineering Group, $6.3 billion firm formerly based in Pasadena that has more than 230 offices across the world, employs 60,000 and generates $12 billion in annual revenue.
Nissan North America (left for Nashville a decade before Carl’s Jr. did), Jamba Juice (traded San Francisco for Frisco, Texas), Occidental Petroleum (prefers Houston over Westwood for its headquarters), Numira Biosciences (departed Irvine for Salt Lake City) and Omnitracs, a software firm (waved goodbye to San Diego and said hello to Dallas). Chevron moved 800 jobs from its Bay Area headquarters to Texas, and Waste Connections shifted more than 100 jobs to Texas from Folsom.
“MANUFACTURING FIRMS ACCOUNT FOR THE LARGEST GROUP OF BUSINESSES THAT SOUGHT GREENER PASTURES, FOLLOWED BY PHARMACEUTICAL COMPANIES.”
In addition, two dozen California companies have said they are tired of the business-bashing in Sacramento, along with the high taxes — and are now threatening to leave the state. The passing of proposition 30 in 2012 triggered $6 billion in new annual taxes pushed even more companies to abandoning the Golden State for greater opportunities in Arizona and Nevada. For example, Kubota Tractor Corp. and Kubota Credit Corp., the company’s financing arm, plan to move their headquarters from Torrance to Grapevine, Texas.
Business relocation expert Joe Vranich who, as president of Irvine-based Spectrum Location Services, has been tracking the exodus of companies of all sizes. Vranich told Investor’s Business daily (IBD) that from 2008 through 2015, at least 1,687 California companies pulled up stakes and moved elsewhere. And those are only the reported ones. Vranich cites a rule of thumb among business site-selection experts that five companies leave for each one that actually gets reported in the press. So it’s probable that as many as 10,000 companies have left in recent years.
A good example is that of Nestle USA which is moving its headquarters from Glendale, Calif., a suburb just miles from downtown Los Angeles, to Rosslyn, Va., near Washington, D.C., and taking 1,200 California jobs with it. Why? IBD reports that the $26-billion-a-year food conglomerate tries hard to be discreet about its reasons, but the fact is, Nestle and others in California quietly admit that they are overtaxed and over-regulated, and elected officials treat them not as honored members of the community but as rapacious pirates. Apart from having higher taxes, absurd housing costs and more regulations than nearly any other state, says IBD, California’s wacky laws have turned the Golden State into a venue of choice for activist groups to file costly class action lawsuits — or to launch anti-corporate PR campaigns against big, wealthy targets like Nestle.
It’s not all bad. According to Spectrum, California offers a variety of incentive programs to help businesses, many of which are administered through the Governor’s Office of Business and Economic Development. Those include tax incentives for aerospace companies, California Film Commission incentives, employment training panel incentives and California Energy Commission incentives.
Some of those incentives are hefty. Tesla, the Palo Alto-based maker of electric cars, received $15 million in tax credits last year. And Environmental Systems Research Institute, a Redlands-based international supplier of geographic information system software, received $2 million in tax credits.
But these incentives are still somewhat overshadowed by the businesses that have left California. Manufacturing firms account for the largest group of businesses that sought greener pastures, followed by pharmaceutical companies, medical device makers, biotech firms, health and dental businesses and veterinary businesses.
The irony in all this is the company that identifies favorable out-of-state locations for firms seeking to free themselves of California’s harsh business climate has itself departed the state for greener pastures. Spectrum Location Solutions, which for ten years has been based in Irvine, in Orange County, has moved to Cranberry Township, a Pittsburgh suburban community in Western Pennsylvania. “I moved for three reasons – taxes, regulations and quality-of-life,” said Joseph Vranich, president of the boutique consulting firm. “First, I’ll have greater freedom in my business now that I’m free of California’s notorious regulatory environment and threats of frivolous lawsuits that hurt small businesses like mine,” he said.
“Finally, we are enjoying a superior qualify-of-life here. We bought a house larger than what we had in California for about half the cost. We can afford to engage in more activities because the cost-of-living in Cranberry Township is 44 percent lower than in Irvine,” he said.
Concern about California’s costs is widespread. Statewide, 58 percent of Millennials and 65 percent of parents echoed the sentiment that “I am considering moving away from California because of the high cost of living,” according to a recent poll by the PR firm Edelman.
Gov. Jerry Brown’s spokesperson once said few companies would leave California for “desolate locations” elsewhere. “Well, this area is the opposite of ‘desolate,’” said Vranich. “Pittsburghers are justifiably proud of their neighborhoods, cultural attractions, sports teams, scenic vistas, and transformation to a place where more than 10,000 innovative tech firms call home.”