The Great Business Exodus in California: Can We Stop It?
While most people have visions of people trekking it to California to make their dreams come into fruition, businesses in the Golden State are having a hard time making it in the California sunshine. Instead, many companies are packing their bags and turning their backs to the California sunset to a place with a better economy, less business restrictions, and more potential profit. The phrase, “Go West, young man,” was originally coined by the author Horace Greeley in his 1850 book “Hints Toward Reform;” however, Joe Vranich, the leading relocation expert who has the gift of turning a phrase, said, “Go East, young man, go East.”
According to the Bureau of Labor Statistics, the national non-farm unemployment rate is at 6.5 percent. Experts say that in our economy’s current shape, 5.2-6 percent is about normal. Unemployment in adult men and women are at 5.9 percent and 5.7 percent, respectively. While these statistics are relatively low compared to the abysmal unemployment rates in recent years, they are still bad news. The long-term unemployment rate is at 3.4 million, or about 34.6 percent of unemployment. Long-term unemployment is defined as people who have been unemployed for six months or longer who are still looking for work. These statistics don’t include people who have given up looking for work.
Not only that, but California has the 6th highest unemployment rate in the United States at 7.4 percent. The Los Angeles-Long Beach-Santa Ana area has an unemployment rate of 7.4 percent, which is the same as the state unemployment rate, but worse than the national rate of unemployment.
Even though the Californian economy is trailing behind most other states, the state legislature still doesn’t want to ease the burden on companies. Instead, they tax businesses until they’re dry in an attempt to save California. What they’re doing, however, has the opposite effect. Extreme, unfair taxes and regulations don’t make anyone particularly happy. It’s one of the main reasons businesses are leaving California.
According to California Budget Challenge, a non-partisan group dedicated to researching the California budget, California has one of the highest income tax rates for upper-income households and one of the lowest income tax rates for lower-income households. The top 1 percent of income taxpayers in California account for over 40 percent of income tax revenue. A very small amount of people are paying over a third of the total income tax revenue. The other 60 percent of income tax revenue comes from the other 99 percent of tax payers. It also has one of the highest corporate income tax rates and is ranked 4th among the states in terms of per capita corporation tax revenues. The corporate tax rate for corporations other than banks and financials is 8.84 percent.
Joe Vranich states that there are three main reasons businesses leave California:
1) If they’re very profitable, taxes are the reason
2) If they’re not profitable, the reason switches and regulation is the reason
The first reason businesses leave California is more specifically about businesses that are making a large profit. Excessive taxes bites into revenue and increases operating costs. If you can decrease your operating costs by about 30 percent going to someplace like Texas, which has been voted the most business friendly state by Chief Executive magazine ten years in a row, why wouldn’t you? It just makes more sense.
The second reason is more focused on small businesses. Since there are so many burdensome regulations here in California, it’s hard to be a business. The point of a business isn’t to break even—it’s to make a profit, and a lot of businesses can’t do that due to the regulatory burden. Joe Vranich said, “If you operate a business in California, you could be subjected to inspections from about a dozen different regulatory agencies. Not only that, but if you’re fined by one of these agencies, the money from that fine goes into their account up at Sacramento, so these agencies are incentivized to fine businesses.”
The state of California allows counties to levy taxes called “personal property taxes” or “business property taxes.” Every piece of equipment, whether it’s a chair, a desk, a computer, or even a typewriter, could be subject to being taxed because it holds “value.” “One company left California,” the CEO said, “’the day the county assessor came in and taxed everything in sight; [that] was the day I decided to leave California.’ So that’s an additional tax over and above state taxes,” Vranich said.
Unfortunately, a lot of these businesses can’t afford to leave the state and instead just end up shutting down. You sure are business friendly, California.
The third one comes as a surprise to most people. California is the biggest state, and is often considered the state most people want to live in. Its weather, as well as its beaches, are just two reasons why people want to move to the Golden State. However, Vranich says differently; “California is good for young single people. If you want a family, or if you have a family, it’s a different story. Most people can’t even afford a house out here.”
“When companies leave California, the number one state they go [to] is Texas. Number two is Arizona, three is, I think it’s Utah? Four is North Carolina, five is Nevada, six is South Carolina. That’s the rough order. Texas is the winner by far,” Vranich said.
It’s no wonder states like Texas keep snatching up Californian companies, especially since more and more companies keep relocating to it. Other companies just follow their predecessor’s suit, as California makes it so easy. One of California’s biggest losses this year was Toyota. The automotive company announced a few months ago that they would be moving their United States’ headquarters to Plano, Texas.
It’s sort of become this weird joke that Rick Perry comes here to recruit businesses. I mean, why wouldn’t he? However, the problem is that it’s not actually a joke. They have a whole division within Rick Perry’s office dedicated to recruiting businesses to Texas. “Texas Wide Open for Business” is the official “brand” for the Texas Economic Development division within the Office of the Governor. Its goal is to convince companies to move their business to the new land of opportunity—Texas. It even has ad campaigns tailor-made for a few specific states. The states are California, Connecticut, Illinois, Maryland, Missouri, and New York.
The fact that California places the burden of their out-of-control spending on businesses and tax payers is nothing new. It’s been the norm for a while. It’s become common place for articles upon articles to crop up bashing the Golden State. California is great…well, it sort of isn’t, at the same time. We might have beaches and fantastic weather, but we have one of the worst public school systems in the country. It doesn’t seem to help that we have a “boom and bust” economy. When the economy is going well, the Californian economy tends to shine, but when the economy is doing poorly, California’s economy is usually ranked at the bottom. Poor budget management up in Sacramento may be the cause of it, or it may be other factors as well. Hey, at least we have the best public university system in the country, so that’s a plus, right?
For some reason, a lot of business owners are made out to be evil money-grubbers, only out to make a profit. Well, the purpose of a business is to make profit, but that doesn’t make it an inherently bad thing. Business owners are people, just like people who work for the government are people. I was lucky enough to get ahold of David Tran, the CEO of Huy Fong Foods. Sound familiar? That’s the company that makes Sriracha, or what many people call their beloved “rooster sauce.”
Up until recently, the city of Irwindale pursued a lawsuit against Huy Fong Foods, saying the chili pepper dispersing through the air caused headaches, sore throats, and burning eyes. After relentlessly pursuing the lawsuit since October 2013, the charges were mysteriously dropped. The city was not willing to work with him no matter how many times Tran offered for them to come see the factory until right before the lawsuit was dropped.
When asked about this, Tran said, “Although I don’t have evidence, I believe that someone offer[ed] the city to shut me down and/or take over our business.”
This is the business climate in California. A business climate that makes it possible for a business owner to believe that the city is bribable to the point where they think their business is trying to be taken over. Despite being mistreated by the city of Irwindale, David Tran says he will stay in California.
“I am not considering moving out from California at this time because I see the support I have from our employees, so I cannot leave them here without a job. Expansion is a possibility, but further research needs to be done. In addition with the recent appearance of the Sriracha Tabasco and other new Sriracha brands, who have seize[d] the opportunity to promote their brands at this time, we really need to evaluate whether this would impact our sales,” Tran said.
Is it business owners like this that are keeping California’s business climate afloat? People who care about their employees, so they stay here, despite the fact that many of our laws are restrictive and unfair? Is it our beaches, our weather, the “California dream?”
People who have more experience in business have ideas they think will help California get back on track, not only in the business area, but in general.
“There’s a difference between what California should do and what it will do. What it should do is lower taxes, ease the regulatory burden, shape up its lousy public schools, and start investing in highway bridge repairs for better infrastructure. What California will do, because it’s got a radicalized electorate, is put in office people who are insensitive to the very things I mentioned. Therefore, I see a further deterioration of the tax climate, in the regulatory arena, in infrastructure, and I see spending, again, going out of control,” said Vranich.
David Tran thinks the California business climate can be improved in other ways. “[California can improve the business climate by] talking with more California businesses to find out what their concerns [are] and doing something about their concerns and issues.”
This seems like the reasonable, logical thing to do: to work out regulations with the companies instead of making up regulations when they don’t know how it is to run that particular business. However, Tran says otherwise.
“Some agencies seem to just follow regulations and not consider what their regulations are doing to business—it’s almost as if your company cannot follow these regulations, then your company would just have to discontinue your business. But do they consider the employees and the loss of their jobs? The agencies can’t be so overly restrictive—they need to be reasonable and work with businesses to see what can be done without compromising safety of the consumers and the quality of the products,” said Tran.
Assemblyman Travis Allen for the 72nd Assembly District of California thinks we need to enact policies that are reasonable for the business community. “It is clear that we have a long road ahead and true economic reform will not happen overnight. It is ultimately up to Californians to take a stand and declare that they are tired of the rhetoric coming out of Sacramento. We need to be clear that the terms “business friendly,” “job creation,” and “economic generation” need to be proven through sensible policy initiatives rather than being used as feel good sound bites delivered by career politicians. We need to insist that our legislature’s actions speak louder than their words.”
These people, all who run a business or have run a business at some point (Assemblyman Allen worked as a financial advisor for 18 years), all have a common thread underlying their responses: taking regulatory legislation off of companies and instead replacing them with reasonable rules that the business community isn’t disgruntled or upset to comply with.
So what is the solution to keep businesses from leaving California? Unfortunately, it seems like politicians in office don’t really care about the problem. They don’t care about the needs of the California business climate. It’s obvious by what Governor Jerry Brown said in May of this year: “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it.” Does that sound like someone who is willing to make changes to help business?
Since California’s politicians are beyond apathetic to the situation, there’s only one viable solution: start electing entrepreneurs and businesses people into office and stop electing career politicians. Most California politicians today are just that: career politicians. People who were on the city council, on the board of an agency, or who haven’t had the experience of running or owning a business. It is all good and well to have experience in politics, but isn’t it better to have someone who knows how to successfully balance a budget and make sacrifices when necessary?
According to the U.S. Census Bureau, California has the highest rate of poverty. Also, California spends $24.6 billion on welfare, while the total of all the states combined is $160.3 billion. California amounts to a tenth of total state spending for the whole of the nation. New York comes in second, at $11.3 billion. If the state of California is spending this much on welfare, yet we still have the highest rate of poverty in the country, why aren’t we changing the business model?
Just 50 years ago, California was considered the wealthiest state, flourishing in both business and culture. In order to bring this prosperity back to California, Californians need to start electing entrepreneurs and business people into office. Maybe then businesses will stop packing up their bags and start heading towards the California sunset again instead of away from it.