California is losing businesses at an alarming rate. Large corporations are making the decision to leave, fleeing to states that are more welcoming to big business. The savings in revenue is drastic for the companies, their exits leaving California in an even more precarious position.
The state has suffered recently, mostly due to poor leadership. Billions have been “lost” in accounting errors, schools are broke, a neglected infrastructure is collapsing around them, and illegals and refugees have become the new priority. Given those circumstances, it is no wonder that companies would rather have their headquarters elsewhere.
The latest giant to pack its bags is the Nestlé Corporation. They made the official announcement that they will be moving; from a Los Angeles suburb to Rosslyn, Virginia.
The cross country move will result in the loss of 1,200 jobs for the struggling state. Looking at the numbers, it is clear that California has brought this on themselves.
Nestlé made be the latest but they are definitely not the first. An eight year study, concluding in 2015, shows that at least 9,000 businesses of all sizes have either left California completely or chosen other states for expansion. These numbers do not include businesses opening new facilities elsewhere to have better access to growing markets.
Toyota is at the top of the list in terms of size of businesses that have left. Leaving their 3 locations in California, the Japanese automaker is heading for Texas, setting up their headquarters in Plano. The number of jobs it will add to the Texas economy? 4,000.
The car giant brought 4,000 jobs to Texas
Nestlé has given the standard response when asked about the decision, claiming a desire to be closer to core customers and technology based business as the reason for the exit. Studies of the business practices of California tell a very different story.
Joseph Vranich, a site selection consultant and president of Irvine, California-based Spectrum Location Solutions, is the author of the eight year study. He states that when businesses leave California they gain a massive cost of operating savings of between 20 and 35%.
For the $26 billion a year Nestlé, that equals some serious money.
Where are businesses going when they leave the West Coast? Vranich’s study concluded that Texas is the top destination. The other remaining top ten states are;
Nevada, Arizona, Colorado, Washington, Oregon, North Carolina, Florida, Georgia, and Virginia.
The reasons for the migration, besides the obvious operating savings, are multi-faceted.
All aspects of California are experiencing financial instability. State and local governments cannot be counted on to provide essential services to businesses when they are so uncertain. Tax breaks and incentives are out of the question as well in those situations.
In addition, the chronic condition of California budgets, out of balance, often signals incoming tax hikes for the companies. No business could be comfortable with that kind of uncertainty.
A higher than average unemployment rate does not help CA retain businesses
Work ethics also factor in. California has an unemployment rate which is consistently higher than the national average. On the other hand, states like Texas have low unemployment, making them more attractive to businesses.
Taxation is definitely affecting the rate of migration. The states attracting businesses have lower tax rates, not just for the companies themselves but also for employees. Add in lower housing and commercial real estate prices and less labor costs and the decision becomes clear.
Counties such as Orange, San Francisco, San Diego, Sacramento, and Alameda are seeing the largest amount of exodus. Los Angeles is at the top of the list of effected counties.
States like Texas and Virginia are sweetening the deal, offering large incentives for companies that make the move. Virginia offered tax breaks of approximately $16 million to Nestlé.
California can’t and likely doesn’t want to compete. They certainly don’t want the loss of revenue and jobs either but their financial troubles and unwillingness to give breaks does not make the decision too difficult.
Besides Toyota and Nestlé, the list of businesses that have left California include some major names;
Heinz – From Los Angeles to Florida and Ohio
Walt Disney – From Orange to Florida
J.M Smucker – From San Francisco to Ohio
Lyft – From San Francisco to Tennessee
Uber – From San Francisco to Pennsylvania
Apple Inc. – From Santa Clara to Arizona
Obviously, California cannot afford this kind of mass migration. Erratic leadership and erroneous financial decisions have left the state struggling to cover the most basic necessities. The loss of revenue, jobs, and status will have a continued effect on the liberal state that they may never recover from.
Their threats of secession are based on the assumption that the United States needs California more than the opposite. The state needed to be seen as indispensable, a source of too much income to be easily let go.
They have failed in those goals. The crumbling state is a burden on the country and their stubborn refusal to accept any of the blame provides even more reasons to grant their wish and allow them to fend for
California is on its way to become US’ own light version of Venezuela, “Calizuela”