Austin Wins Big as Companies Leave California
Austin Wins Big as Companies Leave California’s Anti-Business Climate
by Joseph Vranich
There are countless ways to measure a city's economic vibrancy, one of which is to assess the number and types of companies that relocate to the area from another part of the United States.
On that score, Austin reigns as a champion.
My company's newest study of business migrations shows that companies continue to leave California because of rising costs, concerns over the state’s hostile regulatory environment and difficulty in recruiting talent to its ultra-expensive cities.
Their top destination is Austin, which ranks No. 1 on two different scores – as a municipality and as a metropolitan area.
Over the seven-year period that includes last year, the study estimates that 9,000 businesses divested in California. Some relocated completely while others targeted out-of-state locations to expand the types of facilities that used to be placed in Golden State.
It’s typical for companies leaving California to experience operating cost savings of 20 up to 35 percent. The appeal isn’t necessarily to the lowest-cost states, but to lower-cost states with the proper workforce.
Texas No. 1 Despite Distance
Companies often don't like to move far and will select adjacent states for relocation. For that reason, it's remarkable that Texas is the No. 1 state where California companies settle, ahead of nearby Nevada and Arizona, which rank second and third, respectively. Metropolitan areas benefiting from California divestment events show Austin-Round Rock-San Marcos in the top spot, followed by No. 2 Dallas-Fort Worth-Arlington, and No. 10 San Antonio, which was tied with Salt Lake City.
Of the Top 15 destination metropolitan communities benefiting from out-of-California Austin tops the list, followed by No. 6 Dallas, No. 8 San Antonio, No. 11 Houston, No. 13 Irving and Plano (tied) and No. 14 Fort Worth.
The findings aren’t popular in Sacramento, where Gov. Jerry Brown’s office routinely denies that business departures is a serious issue. The study provides examples of the companies that selected Austin as a new home in one way or another.
The company, which helps others increase website traffic, made it clear why it was moving its headquarters from San Diego. Erica Douglass a young entrepreneur, said, “Dear California, I’m leaving you.” She explained: “One thing I’ve struggled with about California for years is the government that is notoriously business-unfriendly – with everything from high taxes on business earnings to badgering businesses into more work” to satisfy the bureaucracy. One example she gave was a hair-pulling exercise in trying to communicate with authorities over taxes that were not due for her type of company.
Al Frank Asset Management
The institutional money management company moved its headquarters from Los Angeles. It’s being done without any government incentives, but is designed to take advantage of a deeper worker pool and friendlier business environment. “The costs of doing business in California are prohibitive,” CEO Jeff Montgomery said.
The enterprise, which works with software buyers and vendors, moved the headquarters from San Francisco. Company founder Don Fornes said he “found it hard to rationalize staying in California with its high operational costs, burdensome tax system and tight labor pool.”
Oh – the listing can go on and on, including business migrations from some of the most beautiful locations in California such as Marin County, Santa Barbara, San Diego and my very quite appealing home town of Irvine in Orange County.
Capital diverted to out-of-state locations totaled $68 billion, a small fraction of actual experience because only 16 percent of public source materials provided capital costs for the events detailed in the report.
More Will Knock on Austin’s Door
The study’s findings should make it more difficult for the legislature in Sacramento to pass an expected "tsunami" of new taxes, higher fees and more regulations next year. But, in all candor, the harsh attitudes among California politicians toward business is so fully ingrained that I expect little to change. As California’s business climate worsens, chances are that more companies will seek places that are friendlier to business interests. And when they do, they transfer more than jobs – they also shift investment capital, machinery, taxable income, intellectual capital, training facilities and philanthropic investments. Austin can expect to gain still more in the future.
Every divestment event can be found in the study: “Businesses Continue to Leave California - A Seven-Year Review” available as a PDF here (378 pages):
Joseph Vranich is President, Spectrum Location Solutions, a site selection consulting firm based in Irvine, Calif.
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