Misguided State Policies Lead To More Companies Leaving California

Kerry Jackson
Kerry Jackson is a Fellow at the California Center for Reform at the Pacific Research Institute.

This spring marks the first anniversary of the announcement that Carl’s Jr., a California burger icon for more than six decades, was relocating its headquarters to Nashville. It’s yet another business that has quit California in what was once an almost quiet exodus of companies but now looks more like a stampede.

The list of businesses abandoning California for more hospitable business environments reads like a roll call of top companies. Toyota is in the process of leaving Torrance and will complete the move of its U.S. headquarters to Dallas by the end of 2017. Also having left for Dallas is Jacobs Engineering Group, $6.3 billion firm formerly based in Pasadena that has more than 230 offices across the world, employs 60,000 and generates $12 billion in annual revenue.

Other companies that have left, or are pricing moving van rates, are Nestle (leaving Glendale to reboot its U.S. headquarters in Rosslyn, Va.), Nissan North America (left for Nashville a decade before Carl’s Jr. did), Jamba Juice (traded San Francisco for Frisco, Texas), Occidental Petroleum (prefers Houston over Westwood for its headquarters), Numira Biosciences (Irvine, no – Salt Lake City, yes) and Omnitracs, a software firm (goodbye San Diego, hello Dallas).

From 2007 through 2015, as many as 9,000 companies have left California, according to Joe Vranich, president of Spectrum Location Solutions in Irvine. And no one should wonder why. Just by simply putting California behind them, these companies are saving 20 percent to 35 percent a year in operating costs, Vranich says.

Leaving California is not cost-free, though. Vranich recently wrote on his blog about the storm of criticism one business received on social media after its relocation to another state was announced. One Facebook comment said, “Good riddance.” Another said, “If you can’t pay your employees a living wage, you don’t have my sympathy.”

These comments are a sign that the toxic hostility toward business in this state has spilled over from policymakers and into the general population. Consequently, Vranich encourages clients “to keep a low profile” when they move so they won’t be “hammered without mercy from an uninformed public and sometimes from public officials who know little about what it takes to run a business.”

It would be helpful if the rancor were put in neutral long enough to allow some facts about business in California to become a part of the public debate. Last year, for instance, Chief Executive magazine ranked California the worst state in which to do business. It was the 11th straight year the state was embarrassed by the magazine’s basement grade.

The problem will only worsen with job-killing mandates such as the recently enacted minimum wage increases. The business owner who took flak on social media for moving his company to Nevada wrote in the Los Angeles Times that the rising cost of doing business was the biggest driver of his decision. California raised its minimum wage to $10.50 an hour on Jan. 1 for businesses with at least 26 employees. It will continue upward every year until arriving at $15 an hour in 2022 for the bigger companies, the highest in the country.

“I’m in no way an opponent of higher pay,” wrote Houman Salem, who is moving his apparel company to Nevada. “When you have a company with fewer than 50 employees, you get to know them pretty well and have a genuine concern for them as individuals. But that has to be balanced with concern for keeping your clients, who can always take their business to other countries or states.”

The Daily Caller reported last April, just after the minimum wage law was passed and signed, that “California businesses are already starting to move out of state.”

Carl’s Jr. didn’t move its corporate operations to Nashville because of California’s climbing minimum wage. But increasing employment costs were a factor in the decision to stop opening new restaurants in California and a reason why franchisees are opening “very few” here, outgoing company CEO Andy Puzder says.

So that means fewer job opportunities for entry-level workers, who, like companies, will also have to flee the state’s ugly business climate, joining the 250,000 workers at all levels who, according to federal data, left in 2013 and 2014 alone.

California’s economic outlook could match its famous sunny weather if policymakers would cut punitive tax rates, reform the archaic income tax system, lift the regulatory burden from businesses, solve the housing crisis and rethink the minimum-wage hikes. While the politics are complex, the solutions aren’t.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

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