Why Companies Are Leaving California
Over the past several years, a disturbing trend has been developing in California. Once known as the bastion of commerce and business growth, the Golden State is saying goodbye to dozens of businesses every year, and the numbers seem to be increasing as companies are leaving California.
The Spectrum Location Solutions Report
About a year ago, the Spectrum Location Solutions organization, led by Joseph Vranich, released a 7-year study on just what is happening on the West Coast and why companies are leaving California. The study reported that, between 2008 and 2015, nearly 1,700 disinvestment events became public knowledge. However, the report theorizes that real number of companies shunning or leaving the state is actually much higher:
Experts in site selection generally agree that at least five events fail to become public knowledge for every one that does. Thus it is reasonable to conclude that about 10,000 disinvestment events occurred during that period.
Losing huge players like Toyota, Comcast, and many others is cause for the state to sit up and take note. The exodus is especially dramatic in 15 California counties, with Los Angeles being the worst. The top 15 counties for disinvestment events during this period in order are:
- Los Angeles
- Santa Clara
- San Francisco
- San Diego
- San Mateo
- San Bernardino
- Contra Costa
- Santa Barbara
- San Joaquin
Causes and Effects: Why Companies Are Leaving California
The report breaks down the primary causes driving business to seek out fairer havens for their industrial operations:
Taxes rank high on the list. California is already an expensive place to work and operate a business, but its tax regime has grown increasingly complex and prohibitive in recent decades with new hikes occurring regularly.
The state’s $15 minimum wage does not go into effect for another five years, but this is yet another motivating factor. Already it has been noted that California school teachers are the highest paid in the country, prison guards typically make six figures, and state workers often receive a retirement pension higher than their average base salary.
Since the 1980s, California unions have grown in power and influence at a rapid pace, leading to extremely prohibitive benefits packages and inflexible labor regulations.
- Red Tape
It often takes two years just to open a small business in California. Ongoing compliance and reporting can be quite costly.
- Environmental Regulations
The California Environmental Quality Act (CEQA) has become quite a burden, with spurious and damaging lawsuits being the norm. Plaintiffs win half of the suits filed, and when they lose, they do not have to pay the defendant’s legal fees. In addition, new Cap and Trade rules (and costs) go into effect next year.
These and many other concerns demonstrate just why companies are leaving California. While the state offers many incentives for doing business there, companies are increasingly finding the costs outweigh the benefits. Many of these companies are heading to Texas, Arkansas, Missouri and locations friendlier to business. Some are simply crossing the border and moving major operations into Tijuana and other locations in Mexico. The Tecma Group of companies, with operations in multiple cities in Mexico, specializes in making such a move simple. Manufacturing in Tijuana is no more complicated than moving a facility from California to Nevada and produces proven economic savings.