1,800 companies left California in a year — with most bound for Texas

By: Bill Hethcock

A record number of companies are leaving California for states with a better business climate, and a new report shows that Texas remains their No. 1 destination.

The study estimates that 1,800 relocation or “disinvestment events” occurred in 2016, the most recent year available, setting a record yearly high going back to 2008. About 13,000 companies left the state during that nine-year period.

Of the 1,800 events, 299 of those departures landed in Texas.

What’s more, the study’s author – for the first time in his career – is openly urging California businesses to relocate out of state.

Texas’ rank as the top destination for California companies is especially significant considering that the large majority of corporate relocations cross only one state line, said Joseph Vranich, president of Pennsylvania-based Spectrum Location Solutions LLC.

“A lot of people don’t want to be more than one hour from other members of their family they might be leaving behind, or their good friends or their favorite country club — whatever it is,” Vranich said in an interview with the Dallas Business Journal. “For Texas to do as well as it does attracting California companies is really remarkable in and of itself.”

North Texas has surfed a wave of California company headquarters relocations in the past few years, with health care giant McKesson (NYSE: MCK), convenience store distributor Core-Mark (Nasdaq: CORE), and medical technologies company DJO announcing moves from the Golden State to Dallas-Fort Worth in the past three months.

In the past three years, California companies — like Toyota Motor North America (NYSE: TM), Kubota Tractor Corporation, Charles Schwab Corp. (NYSE: SCHW) and Jamba Juice, among others — have announced corporate moves or regional hub launches in North Texas.

Forty-three of the 123 corporate headquarters that have relocated to DFW since 2010 came from California, according to the Dallas Regional Chamber.

“Departures are understandable when year after year CEOs nationwide surveyed by Chief Executive Magazine have declared California the worst state in which to do business,” said Vranich, a corporate relocation expert who jokes that he loves California’s weather, but not its business climate. Until recently, Spectrum and Vranich were based in Irvine, Calif.

Texas, on the other hand, consistently ranks as one of the best states to do business in, he said.

The top reason to leave California is no longer high taxes, although that still ranks highly, Vranich said.

“The legal climate has become so difficult that companies should consider locating in jurisdictions where they will be treated fairly,” he said.

Hostility toward businesses, high utility and labor costs, punitive regulations and worrisome housing affordability for employees are among California’s other negatives, Vranich said.

California has reached a “tipping point” with the Immigrant Worker Protection Act, a new statute that Vranich says puts businesses in a legal “lose-lose” situation.

The law says that an employer that follows federal immigration law by doing things such as allowing an immigration enforcement agent to review or obtain employee records is now violating California law and is subject to fines, Vranich said.

“Signs are that California politicians’ contempt for business will persist,” he said.

During the study period, 275,000 jobs and $76.7 billion in capital funds were diverted out of California. The departing companies acquired at least 133 million square feet elsewhere — and probably much more because such information often went unreported in source materials, Vranich said.

Three previous California governors – Gray Davis, Pete Wilson and George Deukmejian – have cited findings from an earlier version of Vranich’s study when expressing concerns about companies shifting their operations out of state.

According to the study, titled “It’s Time for Companies to Leave California’s Toxic Business Climate,” the top 10 states starting in the order of those that gained the most from California business relocations were:

1. Texas, which has held the first-place distinction for at least a decade
2. Nevada
3. Arizona
4. Colorado
5. Oregon
6. Washington
7. North Carolina
8. Florida
9. Georgia
10. Virginia

The top 10 cities gaining company migrations from California were:

1. Austin
2. Reno
3. Las Vegas
4. Phoenix
5. Seattle
6. Dallas
7. Portland (Ore.)
8. Denver
9. San Antonio
10. Scottsdale

The Dallas ranking is for the city itself, and does not count the broader DFW area. Fort Worth, Houston, Pittsburgh, Atlanta, Indianapolis and Nashville also ranked among the top twenty.

The top nations attracting California businesses were:

1. Mexico
2. India
3. China
4. Canada
5. Philippines
6. Costa Rica
7. Malaysia
8. Singapore
9. Thailand
10. Japan and Taiwan (tie)

The top California counties losing the most companies were:

1. Los Angeles
2. Orange
3. Santa Clara
4. San Francisco
5. San Diego
6. Alameda
7. San Mateo
8. Ventura
9. San Bernardino
10. Sacramento

More headquarters leave California than any other type of facility and more manufacturers than any other industry.