Researchers at a Stanford University think tank have chronicled a growing exodus of corporate headquarters from California. And they say the Lone Star State is the primary beneficiary of this outflow of brainpower, big salaries, and potentially transformational enterprises.
The authors of a new report from the Hoover Institution, a conservative-leaning public policy outfit now under the direction of former Secretary of State Condoleezza Rice, says "74 known California businesses" moved their headquarters out of the Golden State in the first six months of this year.
That's twice the rate for each of the three previous years and brings to 265 the number of such relocations since the start of 2018, co-authors Lee Ohanian and Joseph Vranich say in the report titled "Why Company Headquarters Are Leaving California in Unprecedented Numbers."
Ohanian and Vranich said in an Aug. 24 blog post about the report: "Texas is the number-one state favored by these relocating companies, snagging 114 California headquarters since the beginning of 2018, with Tennessee and Arizona following in the ranking. Many move to the nation's interior, which is sometimes unfairly disparaged as 'flyover country.'"
"Unless policy reforms reverse this course, California will continue to lose businesses, both large established businesses, as well as young, rapidly growing businesses, some of which will become the transformational giants of tomorrow," the authors write in the introduction to the 45-page report.
Consult the Oracle. They're not alone.
The report points to moves by some huge players -- including Oracle and its plans for Austin, Texas, and Nashville, Tennessee, -- but provides examples of many smaller firms doing the same. These companies together create an ecosystem of innovation and economic expansion that could well be leaving the state, taking with it jobs, taxes, and growth.
The authors say the major reason for leaving is economics, writing in the blog: "California is too expensive, too regulated, and too heavily taxed, both for companies and for the workers they hire. These businesses are predictably moving to states with lower costs, fewer regulations, lower taxes, and a higher quality of life for their workers, in which families pay far less for a home."
They point to one salient example: It costs $562,000 for a median-priced home in tech-heavy Austin, Texas, compared with $1.6 million in San Francisco and Silicon Valley.
Plus, they write: "Check out Zillow's 'for sale' listings for Austin -- and also Dallas, Fort Worth, Houston, and San Antonio -- and you will see a plethora of new construction. For San Francisco? We checked and couldn't find any such listing."
Private-sector investment in offices, factories, data centers, and the like are also lagging. California ranks 16th in total capital investment projects, the blog post claims, with one-seventh as many as Texas. It trails even much-smaller states, including Louisiana and South Carolina. And that's not per capita. Adjust by population, and California falls to 46th, the authors say.
"We can think of no worse statistic for the future of California than the failure of businesses to invest more in the state today," they write.
The Millionacres bottom line: Rust Belt in the eyes of the beholder
"Texas has become the new California, and California is becoming the new Rust Belt, losing businesses and people to states that offer more opportunities and a better, more affordable life," the authors assert.
In all fairness, that's a disparaging remark on its own. There are many places in the Rust Belt that are uber-affordable, plenty nice to live in, and perfectly good places to put down roots for newcomers who can now work from home (or anywhere else) for big tech and many other companies.
But the Hoover Institution's perspective can be eye-opening for investors. The economic factors it cites -- plus wildfires and drought -- make this a challenging time for a state with an economy larger than many nations.
California recently made a big move toward addressing the affordable housing crisis. In September, Governor Newsom signed a series of measures designed to do away with single-family-only zoning, encourage cities to zone for multifamily housing, and jump-start affordable housing production.
Will that be enough to encourage businesses to stay? Hard to say. After all, this isn't Hotel California. They can check out anytime they like -- and they can definitely leave.