Joe Vranich, Lee Ohanian Hoover Institute, 10/25/22
McKinney, Texas, Oct. 25, 2022: Large corporations and privately owned businesses moved their headquarters out of California in 2021 at twice their rate in both 2020 and 2019 and at three times their rate in 2018, according to a study issued jointly by Spectrum Location Solutions and the Hoover Institution at Stanford University.
The report, “Why Company Headquarters Are Leaving California in Unprecedented Numbers,” names the companies that departed, the states to which they relocated and the California counties that lost headquarters in the 2018 – 2021 study period.
Then, California lost 352 headquarters. The 2021 loss total of 153 – averaging 12.8 per month – is more than double the earlier full-year loss and significantly above the totals for earlier years.
“Our count is almost certainly biased downwards significantly because relatively small business relocations are difficult to detect,” said the authors, Joseph Vranich and Lee S. Ohanian.
The winner for California headquarters relocations was Texas, while Tennessee ranked No. 2; Nevada, No. 3; Florida, No. 4; and Arizona, No. 5. The migrations occurred across varied industries – manufacturing, aerospace, financial services, consumer products, real estate, chemicals and healthcare.
Counties experiencing the most losses were Los Angeles at 80, San Francisco at 52, and Orange at 39. Silicon Valley counties – Santa Clara, Alameda and San Mateo – with a collective loss of 73 headquarters, indicate that high-tech firms are migrating to locations that offer greater availability of tech talent and lower operating costs.
Eleven Fortune 1000 headquarters departed, among them McKesson Corp., Tesla, Oracle, HP, CBRE, Charles Schwab and Kaiser Aluminum.
The report cites a CEO magazine survey where chief executives nationwide in 2021 ranked California at No. 50 – the worst state in which to do business. The Small Business Policy Index ranked California No. 49 – only New Jersey was worse.
California’s high business taxes resulted in the Tax Foundation placing California at No. 49, with only New Jersey following. The situation can only worsen considering that Gov. Newsom is considering more tax hikes.
California ranked No. 47 in Worker’s Compensation costs, and for small businesses, California’s annual LLC fee of $800 exceeds that of other states. In Texas, the initial LLC fee is $300 and is free every year thereafter.
California’s high labor costs are due to excessive lawsuits. The American Tort Reform Foundation said that California is among the nation’s worst “Judicial Hellholes” for business. Sacramento politicians show no signs that even one law or regulation will be eased for businesses.
The state ranked No. 47 for the costliest commercial electricity rates, with only Alaska, Massachusetts and Hawaii being worse.
California is attempting to stem business losses by proposing $100 billion in incentives to retain companies or lure them from elsewhere. The costly move caused one economic developer to boost that “no other state” can match California’s financial incentives.
Individuals are leaving the state in large numbers – often to states with no personal income taxes. The Tax Foundation found that California ranked No. 49 due to high income taxes. Only New Jersey was worse. California has no plans to lower income taxes. Meanwhile, eleven states reduced income taxes between 2019 and 2021.
Individuals are fleeing California’s exorbitant housing costs. The Demographia International Housing Affordability Survey found that seven California metropolitan areas ranked as the most unaffordable nationally, which included Fresno, Sacramento, Riverside-San Bernardino, San Diego, Los Angeles and San Francisco, with San Jose being the most costly nationwide.
When it comes cost-of-living, the Bureau of Economic Analysis found that California’s ranking was No. 49, with only Hawaii being worse.
Three previous California governors – Gray Davis, Pete Wilson and George Deukmejian cited findings from an earlier version of Vranich’s work when expressing concerns about companies shifting their headquarters out of state.
The report is available here:
If you wish to speak with me, please call 469-400-8971 (Central Time) or to speak with Lee Ohanian please call 310-968-6008 (Pacific Time).
Joseph Vranich of Spectrum Location Solutions is a site selection consultant based in McKinney, Texas providing location advisory services to corporations. His number one source of clients has been companies leaving California.
Lee Ohanian is a Senior Fellow, Hoover Institution and Distinguished Professor of Economics, UCLA. He writes California on Your Mind, a journal published by the Hoover Institution about how California politics and policies affect California’s economy.
Media citations include the Wall Street Journal, CNN Business, The Economist, CNBC, Dallas Morning News, Fox News, USA Today, Barron’s, Newsweek, Reuters, Chief Executive Magazine, Investor’s Business Daily, Forbes, Kiplinger’s, Vital Speeches & more