Last month I wrote about reports that McKesson, California’s second largest corporation (after Apple), might be planning to move its HQ out of San Francisco. After the company initially denied such stories, the firm has now confirmed their planned HQ move to Texas.
One factor seems to be that the company’s top dogs are tired of paying a (now nondeductible) 13.3% California state income tax. Of course, Texas has no state income tax.
Would that this move was a “man bits dog” story. It’s not. It’s more of the same. And it’s getting worse.
The “Business Relocation Coach” tracks these California business moves, and just updated the figures. The survey found that in 2016 an astonishing 1,800 “disinvestment” decisions were made by CA businesses who decided to either abandon California, or to expand their business elsewhere — primarily to other states. Not surprisingly, Texas was the biggest beneficiary of CA state anti-business policies.
The study cautions that since there is no departure reporting mandate, the 1,800 figure is surely understated. Many companies don’t want to ruffle progressive feathers when leaving California’s “workers’ paradise.”
The study is summarized below. Note the most popular destination states, and the most desirable cities. All are FAR more business friendly than what CA offers — which is a low bar to clear, come to think of it.
Wednesday, December 12, 2018
Study Finds More Companies Leaving California – Urges More to Exit the State
California’s business climate has deteriorated to the point that a consultant who specializes in helping companies find new locations is now – for the first time in his career – openly encouraging businesses to relocate out of state.
The recommendation comes in a massive new study about companies departing California for business-friendly states. It estimates 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 about 13,000 companies left the state during that nine-year period.
“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,” said Joseph Vranich, President of Spectrum Location Solutions LLC and study author.
“The top reason to leave the state no longer is high taxes,” he said. “The legal climate has become so difficult that companies should consider locating in jurisdictions where they will be treated fairly.”
In California, a “tipping point” has been reached with a new statute that puts businesses in a legal “lose-lose” situation.
The new Immigrant Worker Protection Act states that an employer that follows Federal immigration law is now violating California law, is committing a crime, and is subject to fines. However, it’s also a crime if employer fails to follow Federal immigration law.
“Think about it. California may penalize 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 counts for nothing in the state’s eyes,” said Vranich. “Signs are that California politicians’ contempt for business will persist.”
“For years the American Tort Reform Foundation said California is among the nation’s worst ‘Judicial Hellholes’ for businesses, a label I’m confident will persevere considering the nature of this new law alone,” he said.
“The fact that the law deals with immigration is irrelevant because it makes us wonder what comes next. Why impose insufferable legal penalties only for immigration? Elected officials are capable of enacting more laws that only they could imagine – such as arresting a factory manager for cooperating with a Federal OSHA inspector or imposing fines on a movie producer for speaking with Federal EEOC officials,” Vranich said. “Where does this stop?”
Three previous California Governors – Gray Davis, Pete Wilson and George Deukmejian – cited findings from an earlier version of Vranich’s study when expressing concerns about companies shifting their operations out of state.
The study is brimming with information including naming the companies that departed, describing the locations they left and places they went to, and relaying what CEOs have said about their decisions.
The top ten states starting in the order of those that gained the most from California business relocations were (1) Texas, which has held the first-place distinction for at least a decade, (2) Nevada, (3) Arizona, (4) Colorado, (5) Oregon, (6) Washington, (7) North Carolina, (8) Florida, (9) Georgia and (10) Virginia.
The top ten municipalities gaining company migrations from California were (1) Austin, (2) Reno, (3) Las Vegas, (4) Phoenix, (5) Seattle, (6) Dallas, (7) Portland (Ore.), (8) Denver, (9) San Antonio and (10) Scottsdale. 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.
The top ten nations attracting California businesses were (1) Mexico, (2) India, (3) China, (4) Canada, (5) Philippines, (6) Costa Rica, (7) Malaysia, (8) Singapore, (9) Thailand, and Japan and Taiwan tied for tenth place.
The top ten California counties losing the most companies were (1) Los Angeles, (2) Orange, (3) Santa Clara, (4) San Francisco, (5) San Diego, (6) Alameda, (7) San Mateo, (8) Ventura, (9) San Bernardino and (10) 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 funds were diverted out of California along with 275,000 jobs – and companies acquired at least 133 million square feet elsewhere – all of which are 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, punitive regulations, worrisome housing affordability for employees, signs that workers plan to depart California, and how the state lags behind other states in acquiring facilities that are being reshored from overseas.
The report has a rather bold title, “It’s Time for Companies to Leave California’s Toxic Business Climate,” and may be purchased at https://spectrumlocationsolutions.com/california/
Joseph Vranich is a site selection consultant providing location advisory services to corporations and small businesses throughout the United States. In recent years he has discussed California’s business environment with more than 100 economic development agencies located in North America and Europe. The official name of his company is Spectrum Location Solutions LLC, but he also has been known as the Business Relocation Coach.