California’s tax and regulatory policies have made the cost of doing business more expensive than other states and prompted about 10,000 companies over the last eight years to leave the state or shift or curtail operations to reduce costs, according to a report from Spectrum Location Solutions.
Austin has been the biggest beneficiary of the trend.
The Irvine-based company, which helps companies find places to locate their operations, issued a report titled “ California Business Departures: An Eight-Year Review 2008-2015,” which provides details about such events by company name, ranks the popularity of destination states and cities, and outlines the difficulties of doing business in the Golden State.
The study found at least 1,687 California disinvestment events occurred from 2008 through 2015, but the report said that number is understated since it reflects only those that became public knowledge, such as through company announcements or regulatory reports. Spectrum President Joseph Vranich, who authored the study, said at least five events fail to become public knowledge for every one that does.
“Thus it is reasonable to conclude that a minimum of 10,000 California divestment events have occurred during that period,” Vranich said.
California disinvestment events are defined as companies that:
- Relocate entire offices and facilities to an out-of-state location
- Remain in the state but expand elsewhere with facilities that heretofore were built in California
- Close completely with production moving to competitors in dispersed locations
- Shift work to a foreign nation through offshoring, outsourcing or relocation
- Cancel a project after it has been announced, or
- Perform a “U-Turn” – which means considering a California location but rejecting it after studies favor a location outside of the state’s borders.
The report said the top 15 California counties with the most events were
1. Los Angeles
3. Santa Clara
4. San Francisco
5. San Diego
7. San Mateo
9. (tie) Sacramento
9. (tie) San Bernardino
12. (tie) Contra Costa
12. (tie) Santa Barbara
14. San Joaquin
Vranich said Los Angeles has the worst ranking in part because it has so many businesses, but also because doing business is costlier in Los Angeles than in just about any other California location outside of the San Francisco Bay Area.
The top 10 states that benefited from the California disinvestments were Texas, followed by Nevada, Arizona, Colorado, Washington, Oregon, North Carolina, Georgia, Florida, and Utah, which tied with Virginia.
Texas was the top destination for California companies each year during the eight-year study period.
The out-of-state metropolitan areas that benefited included:
1. Austin-Round Rock-San Marcos
2. Dallas-Fort Worth-Arlington
5. Las Vegas-Paradise
6. (tie) Denver-Aurora-Lakewood
6. (tie) Portland-Vancouver-Hillsboro
9. Atlanta-Sandy Springs-Marietta
10. Salt Lake City-Ogden-Clearfield
The report notes that California does offer a variety of incentive programs to lure businesses, many of which are administered through the Governor’s Office of Business and Economic Development. Some of those incentives include tax incentives for aerospace companies, California Film Commission incentives, employment training panel incentives, and California Energy Commission incentives.
But the study also notes California’s business environment could worsen as the state is considering imposing a broad set of taxes on businesses in 2016 and 2017, including higher fuel and motor vehicle taxes, and tax increases on business properties.
“The proposals, if enacted, will worsen California’s business environment, so much so that a result may be an increasing number of businesses leaving California for greener domestic or international pastures,” Vranich said.