California Business Exodus Now Triple Last Year’s Rate

Joseph Vranich
Principal of Spectrum Location Solutions helps companies plan and select ideal sites for new facilities across the U.S. and internationally.

In executive coaching, there is a saying: "The problem you define is
the one you solve." Based on what I’ve seen, California is in serious
trouble because many people refuse to admit to one of our big problems
– the flight of businesses, capital and jobs to other states and
nations.

Good information about the phenomena is hard to come by. Hence, out of
frustration, a year ago I began compiling a list of what I call
"California Disinvestment Events."

The new compilation shows that 144 companies have fully or partially
engaged in such events during the first three quarters of 2010, nearly
triple the 51 companies discovered for all last year. You can see the
list of companies that disinvest along with explanatory context here.

Such events are found in public documents. The real exodus is
incalculable because so many are carried out without public notice. I
think that for every one that becomes public knowledge, another dozen
or more occur. Of course, many are small companies, but as they grow
the economic benefits will be reaped elsewhere.

The top states gaining our businesses since January 2009 show Texas in
the top spot, followed by Arizona, Colorado, Nevada, Virginia and Utah.
Also, companies have moved functions to Taiwan, Mexico, Brazil and
Chile. The jobs include R&D, which used to be a California
hallmark. Now we’re seeing unusual losses. Last week, HomeEq Servicing
said it’s closing its Sacramento headquarters and moving some jobs to
Uruguay. Having employees in Uruguay reinforces just how "portable"
jobs have become.

Businesses are shrinking their California footprint because high taxes
and intense regulation damage their ability to compete. Even Boeing
conceded as much when moving hundreds of jobs from Long Beach to
Oklahoma City, saying it must become a "more affordable" federal
contractor.

On the "California Disinvestment Events" list are companies relocating
headquarters to another state, moving facilities overseas, or targeting
locations elsewhere to expand, thereby financing out-of-state and
out-of-country growth worth billions of dollars. The list is
conservative because it excludes many companies and many categories
such as bankruptcies and retail stores.

Diversion of
capital includes building facilities in places that in prior years
would have been in California. That’s true for many categories:
computer R&D, boat building, solar panel manufacturing, data
centers, online services, aerospace components and assembly, electronic
game design, nutritional supplements, software development, medical
research – the list goes on.

Last week I met a "denier" regarding this issue, which turns out to be
a great "case study." A journalist interviewing me resisted the idea
that Northrup Grumman moved its Los Angeles headquarters to Virginia
because of tax and regulatory burdens.

"Oh no," he suggested. "They moved to be near their customer, the
Pentagon, and the business environment here had little to do with it."

Hardly. California’s business-bashing had plenty to do with it, to wit:

· Predecessor
company Northrop Corp. had been a California institution since 1939.
Why did its leadership feel compelled in 2010 to live near the Pentagon
when that was unnecessary for the prior 70 years?

· I used to
be Grumman Corp.’s Washington, D.C. public affairs director, part of a
40-person staff. I suspect the Northrop Grumman presence is larger now.
Did dozens of expert Washingtonians lose their competence and now need
the top officers around every day? Nope. Not convinced.

· Certainly executives across the country aren’t lying about their criticisms, which caused CEO Magazine to declare California the worst state in which to do business.

· How about public comments by California companies? McAfee revealed in March that it avoids hiring here and saves about 30 to 40%
each time it hires outside of the state. (Certainly a similar figure
would apply to Northrop Grumman.) Intel boldly says it won’t put a new
facility anywhere in California. Mercury Paper Moved to
Virginia and cited "low operating costs"? Pipeline Software is leaving
for Nevada because taxes represented a major hurdle. How many comments
like that do I have to provide to that reporter?

· California
companies have relocated high-tech jobs, demonstrating that one of our
greatest assets – brainpower – doesn’t count for as much as it used to.

· Why would
Hilton Hotels move its headquarters out of Beverly Hills and VeriSign
do likewise out of Mountain View, with both relocating near the
Pentagon in Virginia when neither are defense contractors?

· Costly
proposals are red flags. Site selection firms know that California’s
Workers’ Comp may jump by 29.6 percent next year and have already
warned their clients. (An "incoming" company may have reversed course
for another state, and we’ll never know it.)

If all of the above isn’t convincing, check out "The Top Ten Reasons
Why California Companies Are Calling the Moving Companies" here.

We suffer long-term when companies move out. Lockheed left for
Bethesda, Md., in 1995 when after a merger it became Lockheed Martin.
The corporation reported an operating profit of $5.2 billion last year.
If it had stayed, how much would California’s treasury have benefited
from their corporate and personal income taxes over those many years?

Sadly, the situation will worsen with legislators willing to hike
business and personal taxes and with regulators planning to impose more
fees and fines.

Today, when a company calls me about a California-related move, it’s always to move out.
It’s time for us to be honest with each other about the hostility we
direct towards businesses and find ways to reverse it. Until then,
outbound moving vans will continue to do a brisk business.

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