The Business Exodus

Senator Mimi Walters
California State Senator, 37th Senate District

Waste Connections, one of the Sacramento region’s largest publicly traded companies, announced last week that it will be relocating its headquarters from Folsom, California to Houston, Texas. Currently valued at $3.6 billion, Waste Connections has been one of the area’s few thriving home-grown businesses, infusing approximately $100 million dollars into the local economy each year. In a recent interview, CEO Ron Mittelstaedt broke down the numbers, outlining the effects of the move: “We spend 3,000 or 4,000 room-nights a year in Folsom and Sacramento on hotels; we rent 5,000 or 6,000 rental cars a year; we contract with our lawyers, our outside engineers, outside auditors, outside marketing and advertising professionals.” Beginning this month, this capital will be leaving for Texas, along with 130 jobs.

The relocation of Waste Connections is just one example of the continual exodus of business out of California. Other companies departing to more business-friendly climates include Fairfield’s Copart Inc, which recently announced its move to Dallas in 2012, and Hewlett-Packard, which relocated to Houston in 2003. Both companies cited lower operating costs and regulatory burdens in other states as primary reasons in their decision to relocate.

Mittelstaedt explained that Waste Connections is leaving California because it has “the most expensive income tax in the nation, a structurally built-in budget deficit, and unfunded public employee pensions.” He opined that “California is structurally and fiscally broken, and that lies squarely on the shoulders of the Legislature.”

Waste Connections’ decision should come as no surprise to the Legislature, as the company had warned lawmakers for years that it would be forced to leave the state if California did not improve its business environment.  After repeated legislative efforts to improve California’s business climate was rebuffed by the Legislature, the company’s departure became inevitable.  According to Michael Faust, vice president of economic development with the Sacramento Metro Chamber of Commerce, this situation “validates a lot of the criticisms that the Chamber has had over the years about the regulatory environment in both the region and state.” Given California’s anti-business climate, exemplified by burdensome regulations strangling Waste Connections, the company concluded that Texas would provide an atmosphere that is better for both their business model and the quality of life of their employees.

Regrettably, recent comments by members of the Legislature regarding Waste Connections’ decision to leave make it clear that little will be done in the Legislature to salvage California’s business climate; or to create new jobs.  Senate Pro Tem Darrell Steinberg (D-Sacramento) stated in response to losing a leading regional business, “It seems disingenuous that Mr. Mittelstaedt would make amorphous complaints about California’s business climate, when his company recently reported a third-quarter revenue increase of almost 17 percent.” His comments ignore the real issues – costs and profit.

In order to be successful and thriving, a business must be profitable. To turn a profit, businesses need more than an increase in revenue; they must also cover their costs of doing business, which are increased excessively by the state in the form of punitive tax rates and overregulation. The decision by Waste Connections to relocate, despite the 17% revenue increase and the $18 million cost to move to Texas, illustrates that businesses will endure short-term costs to insure long-term prosperity. Business relocation expert Joseph Vranich estimates that because of California’s high taxes and excessive regulations, businesses save 40% in costs by moving out of state. As detrimental as Waste Connections’ move is to Sacramento’s economy, it is crucial to California’s economic survival that legislators realize that the combination of tax hikes, stifling regulations, and a consistently unbalanced budget is forcing more California businesses to seek out more business-friendly environments.

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