California’s costly tax and regulatory policies prompted more than 10,000 businesses to leave the state, reduce their operations or curtail plans to locate here between 2008 and 2015, according to a report from Spectrum Location Solutions.
The Irvine-based company conducts site-selection studies and other assessments to help businesses relocate to optimum states and locales for their operations. Some of their clients include corporations that have relocated out of California, like Honda.
The report, “California Business Departures: An Eight-Year Review 20082015,” reveals that at least 1,687 California disinvestment events occurred during that period, a count that reflects only those that became public knowledge.
And for every disinvestment that became known — either through media reports, company announcements or company reports to the U.S. Department of Labor, the Securities and Exchange Commission or the California Employment Development Department — another five occurred, the report said.
In preparing the Spectrum report, site selection consultants and economic development personnel from across the U.S. were asked this question: For every company that leaves an area — any area, not just California — how many others make such a move without any media coverage or without having to file a report with the state or federal government?
Responses ranged from five to seven, with a few indicating that as many as 10 additional businesses made disinvestment moves for every one that was known. Spectrum ultimately relied on the most conservative estimate of five. With that multiplier in mind, the total number of businesses disinvestment actions in the Golden State exceeded 10,000.
A variety of factors would appear to support the multiplier theory. Smaller companies often avoid issuing statements about such moves to avoid publicity. And companies that expand outside of California to serve new territories — actions that might appear unrelated to California’s difficult business climate — often are not listed.
Another factor is the California Worker Adjustment and Retraining Notification Act. That requires companies to file a furlough notice with the state Employment Development Department giving a 60-day notice if it employs 75 employees or more and lays off 50 or more during any 30-day period. But a review of the notices indicates the absence of companies with 74 employees and lower that are known through other sources to have closed completely or in part and left the state, the report said.
Several types of disinvestment events were tracked, with “relocation” accounting for the lion’s share.
Figures in the report show that 1,085 businesses moved all or part of their operations outside of California during the 20082015 period, with 498 of the moves shifting operations from California to another country through offshoring, outsourcing, relocation or expansion. Other forms of disinvestment included businesses that closed a facility in California with work migrating to one or several out-of-state locations, capital directed elsewhere that in the past would likely have stayed in California, work dispersed to other unknown areas outside of California, “U-turns” that occurred when a business was considering locating here but ultimately opted for an out-of-state location, and the canceled construction or lease of a planned facility in California.
Economist Christopher Thornberg, a founding partner with Beacon Economics, acknowledged that California’s isn’t the most business friendly state. But he said the state’s economy is still moving in a positive direction. “Some companies do move out of California because of cost concerns,” he said. “Would I like to see those jobs stay here? Of course. But we still added more jobs than Florida and Texas put together. If you take a good hard look at things, our state is largely a success story.” Figures from the state Employment Development Department show that California led the nation in year-over-year growth in June with 461,100 jobs added — outpacing Florida’s new 244,500 jobs and Texas, which added 171,100.
Spectrum President Joe Vranich, who authored the report, isn’t impressed by that number. Texas, he said, still outperformed California over the past 15 to 20 years in overall employment growth. He added that the California jobs that have moved to Texas tend to pay higher wages than the Texas jobs that have migrated to California. “Texas is outperforming California on so many metrics,” Vranich said.
It’s not all bad. The Spectrum report notes that 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, a Palo Alto-based makers of electric cars, received $15 million in tax credits last year. And Environmental Systems Research Institute Inc., a Redlands- based international supplier of geographic information system software, received $2 million in tax credits.
California’s costly tax and regulatory policies have driven scores of businesses to leave the state, reduce their operations or curtail plans to locate here, according to a report from Spectrum Location Solutions.
