Tuesday, February 2, 2016

'California's Split Personality' - Coastal Economy Brisk While Large Swath of the State Suffers

Pleased to note that the City Journal published a column which relies in part on our firm's research about companies shifting their investments out of California to more business-friendly states and nations. The column's subtitle is quite apt: "The Golden State’s tech sector is booming, even as its industrial base flees." It's written by Steven Malanga, the senior editor of the magazine and a senior fellow at the Manhattan Institute. See California's Split Personality.

City Journal, a quarterly magazine of urban affairs, published by the Manhattan Institute, is “the most beautifully produced political magazine in the country,” according to PowerLine.

***
One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, California Business Departures: An Eight-Year Review 2008-2015, updated Jan. 14, 2016.

Joseph Vranich is known as the Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Finding Help for Your Location or Relocation Project.

Joe is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant.

Tuesday, January 19, 2016

How Family-Owned Companies Can Decide ‘Should We Stay or Should We Go?’

Stay or Go (2)Warren Buffett is reported to have said, "Never test the depth of the water with both feet.”

Such caution is respected by families that own businesses, especially when they consider a new location for expansion, relocation or consolidation purposes. The further away a new location is – say, in another state – it’s more likely the project causes company owners to contemplate the difficult-to-answer-question, “Should we stay or should we go?”

Also, complexity varies by project since it’s usually a more elaborate job to relocate a factory than, for example, an office or warehouse.

There are two basic ways for a family-owned business to launch a site selection project: Conduct studies and consider what the numbers say about various communities; or deal with emotional issues within the family unit before launching a serious location effort. Both approaches work and if desired both can be done simultaneously.

Gathering Data

Site selection consultants will say, rightfully so, that great clarity will result after hard information is gathered regarding labor costs, taxes, facility expenses and other factors in prospective locations. Then, those findings can be compared to the company's current situation. If you, the business owner, could reduce costs by 30 percent without hurting sales, would you be motivated to relocate? With savings of 10 percent, would you stay?

Acquiring Insight

It’s usually more than about numbers. Sometimes coaching occurs prior to data gathering to address family sensibilities about the project.

I've been in meetings where disagreements are aired by the company's founder (usually the parent or grandparent), their now-adult children and spouses, and sometimes by non-family members who are essential to smooth operations. To say that differing views are expressed would be an understatement.

Change: An Explosive Topic

People generally fall into two camps when it comes to the issue of change regardless of who originated the proposal – those who oppose and those who support.

Some will resist any business transformation or relocation simply because people dislike change and change agents. For an excellent list of the reasons employees resist change, which also applies to family members, see the book by Robert Kreitner and Angelo Kinicki, Organizational Behavior.

Those who prefer the status quo will often say, “We’re trying to fix something that isn’t broken – let’s tweak a few things and move on.” The resistance is understandable because revising a business process or establishing a facility in a new location presents disruption and uncertainty.

Supporters of change will often repeat a quote that “Insanity is doing the same thing over and over again and expecting different results” (often attributed to Albert Einstein, even though evidence that he ever said it is elusive). Support for change may grow if people feel confident that discussions are being conducted in an open, honest and participative manner.

Many will applaud when hearing about a new location that offers a nice quality of life and lower living costs. This is especially true for people who cannot afford to buy a house in some of our costliest cities; they will relocate to become a home owner, particularly when the new location offers better schools, lighter traffic and decent amenities.

The Focus of Coaching

Where there is disagreement or lack of clarity, this is where I come in as a coach. It may be too early for me to serve as a consultant offering data, but at the time it’s more important to explore personal priorities and look for opportunities to resolve conflicts.

At the outset, I encourage participants to acknowledge that we don't know what we don't know. I ask everyone to examine their own experiences; notably, how have they handled earlier turning points in their lives? If aspirations within the family aren’t complementary, how can they be reconciled? What are the fears about the future of the company regardless of location? It’s remarkable how fruitful conversations can become when the subject of fear is discussed openly.

Coaching success depends upon an honest airing of the issues with the intent to bring about extraordinary results for themselves and their organization. Although every case is different, the agenda is set by the client, not by me, although I focus on accelerating positive personal and business results.

The Pros, The Cons

Sometimes, we find the answer whether to stay or go before launching any study that pinpoints the optimum candidate locations. A stronger desire to relocate may result from a never-ending onslaught of taxes and regulations from states like California and New York that are hostile to business. In such cases, the owner “can’t take it anymore.” However, an assessment of family circumstances may outweigh other factors and result in a decision to stay in the current location.

Remaining in place or heading off to a new community is a strategic decision that affects the company’s future. Gathering information can be considered more of a tactical effort, although a critical one, that shows where and how any repositioning will take place.

So, when heeding Warren Buffett’s advice about how to test the depth of the water, it’s best to start by relying on a coach or consultant who will carefully use a “tape measure” on your behalf. That way, no one will “drown” trying to find a good answer to the stay or go question.

The resulting location decision, whatever it may be, can be positive for any family-owned enterprise. It does, after all, clear the deck for the next business-building steps to be taken.

* * *
One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, California Business Departures: An Eight-Year Review 2008-2015, updated Jan. 14, 2016.

Joseph Vranich is known as the Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Finding Help for Your Location or Relocation Project.

Joe is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant.

Wednesday, January 6, 2016

New Eight-Year Relocation Study Shows Companies Still Leaving California

California's difficult business environment was highlighted in a new study that shows thousands of companies have departed for business-friendly states and foreign nations over the last eight years.

Dollars diverted to out-of-state locations totaled $70.5 billion in the 2008-2015 period, only a fraction of the actual experience because few information sources specified capital costs.

The report by Spectrum Location Solutions provides by company name whether the relocation was partial or complete, their new location, and hundreds of quotes from company leaders saying what they found appealing about their new place of business.

"I prepared the report because California’s public officials fail to take seriously the issue of business exits,” said Joseph Vranich, an Irvine-based site selection consultant. "Using an accepted statistical model, it’s estimated that ten thousand companies have disinvested in California in the last eight years."

Companies include Fortune 500 firms down to small family owned businesses that headed for locations offering more satisfying business and lifestyle outcomes.

"Departures can have a long-lasting effect when a company establishes a foothold elsewhere and grows there big time,” he said. "One high-tech company opted for a new location, has expanded there eight times, and has hinted at a ninth iteration. 

“Anyone can verify each event on the Internet, which is a strength of the study,” Vranich said. “The study’s description of concerns by business leaders argues against plans in Sacramento for new spending and an astonishing array of new taxes and harsh regulations.”

“Companies often find operating cost savings of 20 to 35 percent in other states, which permits them to reinvent themselves if need be,” said Vranich. "The appeal isn’t necessarily to the lowest-cost states, but to lower-cost locations with the proper workforce.”

“There also is an increasing inclination to consider lifestyle factors such as housing costs, traffic congestion, crime, and secondary school performance – and many communities around the United States win out over Los Angeles and San Francisco in particular,” said Vranich. “There is considerable disenchantment with the treatment businesses receive from politicians and public agencies in those cities.”

The study finds that as California’s business climate worsens, more companies will seek a new location that is friendlier to their interests.

***
One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, California Business Departures: An Eight-Year Review 2008-2015updated Jan. 14, 2016.

Joseph Vranich is known as the Business Relocation Coach while the formal name of his business is Spectrum Location SolutionsJoe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Finding Help for Your Location or Relocation Project.

Joe is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant.

Tuesday, December 22, 2015

Another California Company to Expand Big Time - in Texas

Breaking news from the Austin American Statesman:

Oracle Corp. will build a huge, new corporate campus on 27 acres in Austin. With the new campus, Oracle plans to grow its Austin workforce by 50 percent over the next few years. The move expands the presence of another rapidly growing California-based technology giant in Central Texas, as companies including Apple Inc., Google and Facebook are aggressively ramping up their workforces there.

Seal_of_Austin,_TXIn addition to its new 560,000-sq. ft. campus, the deal also includes a adjacent 295-unit luxury apartment complex that will be a housing option for Oracle employees. Scott Armour, senior vice president of Oracle Direct, the firm’s cloud sales organization, said, “Our state-of-the-art campus will be designed to inspire, support and attract top talent – with a special focus on the needs of millennials.”

Jobs at the new campus will be primarily sales-oriented, lead qualification, prospecting and technical support. Founded in 1977, Oracle, one of the world’s leading software companies, is based in Redwood City in San Mateo County.

See the full story at: Shonda Novak and Lori Hawkins, Software giant Oracle to build major Austin campus, add employeesAustin American Statesman, Dec. 22, 2015.

*** 
One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, Businesses Continue to Leave California – A Seven-Year Review, issued in November 2015.

Joseph Vranich is known as the Business Relocation Coach while the formal name of his business is Spectrum Location SolutionsJoe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Why Get Help.

Joe also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as@LocationConsultant.

Friday, December 11, 2015

Good Choice: Faraday Nixes California, Will Put $1B Manufacturing Plant in Nevada

The Los Angeles Times headline said, "Electric car startup Faraday Future picks Nevada over California to build plant." I'll go further and say that the electric-car maker made an excellent decision to locate its new manufacturing facility in the Silver State.

Faraday Future Factory Design
It's been fairly well known that Faraday Future had been searching for a location for its first U.S. factory. It was natural to consider California considering that the company is headquartered in the state, a number of California-based Tesla employees were lured to the company, and some shipping will probably occur through the Ports of Los Angeles and Long Beach.

However, after Faraday Future also considered Nevada, Louisiana and Georgia, the company selected a site in North Las Vegas for the $1 billion facility.

The venture is backed by Jia Yueting, a Chinese billionaire, entrepreneur, and founder and CEO of Beijing-based holding company LeTV.

The company and its products have been called "mysterious." In an unusual take on the story, Matthew DeBord, Business Insider's transportation editor, wrote, "Faraday Future could be building ... anything. An electric car. An infotainment system. A self-driving electric car. A self-driving electric car with an infotainment system. Or ... not even a car! Maybe a self-driving-electric-car-sharing service!" See more at Everything about Tesla competitor Faraday Future is strange and confusing.

A company news release states:
We plan to construct something more than an ordinary 'assembly line’ – we’re creating a 3 million square foot workshop for passionate creators and diligent visionaries, where new concepts will be refined and implemented; where new discoveries will be conjured and crafted; and where new possibilities can be made, well, possible. After we get this manufacturing plant up and running, we will be directly staffing it with 4,500 new jobs. These positions will include a wide variety of professional and manufacturing employment opportunities, offering competitive pay and benefits.
Yes, that is a bit confusing. In any event, for several reasons I believe this was an excellent decision.
  • A California manufacturer can save between 20% and 35% in operating costs, depending upon which state it relocates to and what products it makes.
  • From a workforce standpoint, any challenge in recruitment should be eased by several factors. First, military people have excellent work habits, and nearby Nellis Air Force base offers a steady stream of potential employees as people leave the military. Also, workers can afford to buy homes in the Las Vegas area that on an equivalent basis would be far costlier in California, so potential home ownership is a lure for those willing to relocate. Finally, to the degree training is needed for Nevada residents, Gov. Brian Sandoval will ask lawmakers to develop a new job-training program through the Department of Employment, Training and Rehabilitation.
  • Airline service out of Las Vegas is outstanding in number of destinations served, frequency of flights and extent of non-stop services.
  • For shipping purposes, being near I-15 and the planned new Interstate highway, I-11, and the extension of a Union Pacific Railroad line – as well as proximity to that well-served airport – all offer logistics advantages.
  • Finally, the company hopes to leverage Las Vegas tourism to offer tours of its plant, which seems like a smart marketing move.
The Wall Street Journal reported that "Faraday’s plan is to break ground on the plant in early 2016 and begin production sometime in 2017. It is considering a rebuild of an existing factory or building a new plant from the ground up."

According to the Las Vegas Review-Journal, Faraday has been described as an international team with employees in 40 countries, a facility in suburban Los Angeles and other offices in Beijing and Dusseldorf, Germany.

When it comes to evaluating and deciding on a location for a new factory, somebody at Faraday Future knows what they're doing.
***
One focus of this blog has been to address California’s hostility toward business, as addressed in our study, Businesses Continue to Leave California – A Seven-Year Review, issued in November 2015.

Joseph Vranich is known as The Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Why Get Help.

Joe also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant.

Thursday, December 10, 2015

Wealthy California City, Palo Alto, Wants Family to Pay $8M to Close Business

Did several business-hostile politicians leave Sacramento to take over over the City of Palo Alto? Seems that way to me. After all, who else would demand that a family pay $8 million to close its business over issues that the family had nothing to do with?

Mobile Home“No one should be forced to carry on a business that they want to close,” said Larry Salzman, an attorney with the Pacific Legal Foundation (PLF), which has filed a federal lawsuit against the city because of its demand on the owners of a mobilehome park.

“The city is treating the Jisser [family] as an ATM to solve a problem they didn’t cause — the lack of affordable housing in Palo Alto. That’s not just wrong, it’s unconstitutional,” said Salzman.

“The way to make housing affordable in Palo Alto is to build more housing,” Salzman noted. “The city has for decades refused to permit enough housing to be built to meet the skyrocketing demand, and it is now shamefully scapegoating the Jissers for its own failure.”

Palo Alto is ground-zero for California’s affordable housing crisis, where the median home price is a blistering $2.46 million dollars (compared to $448,000 statewide and $180,000 in the U.S.). A May 2015, report by California’s Legislative Analyst Office blames the state’s high housing costs on overly restrictive land use policies, particularly in coastal cities like Palo Alto.

The PLF is representing the Jisser family (Tim, Eva, and their son, Joe) in the lawsuit challenging Palo Alto’s unconstitutional demand that the Jissers pay millions for the right to close their business. The PLF announcement reveals more about the situation:
The Jissers immigrated to Silicon Valley in the 1970s. They made their living running a small grocery store and saved their money to buy the Buena Vista mobilehome park in Palo Alto in 1986.  Since then, the Jisser family’s mobilehome park has provided some of the most affordable housing in Palo Alto for more than 30 years. 
At age 71, Tim Jisser would like to retire, but the family has been mired in a highly publicized and often acrimonious dispute for years over their right to withdraw the property from the rental market and close their business. Earlier this year, the city gave the Jissers permission to close their business, but only on the condition that they first pay approximately $8 million to their tenants. The payments include rent subsidies for alternative housing for the tenants and the outright purchase of all of the Jissers’ tenants’ mobilehomes at prices reflecting the acute housing shortage in Palo Alto. 
In effect, the Jissers are being forced to remain landlords – and to accept the permanent occupation of their land by their tenants – unless they provide their tenants with enough money to ameliorate the city’s notoriously high cost of housing. But it is the city itself that has created the housing shortage that makes it all but impossible for young families and people of modest means to live there. 
Palo Alto ... has refused to allow enough homes to be built to meet the skyrocketing demand during the last several decades, which has resulted in high prices. 
Represented by PLF pro bono, the Jissers’ case charges that Palo Alto’s staggering financial demand is an unconstitutional condition on the Jissers’ property rights and a violation of the U.S. Constitution’s Takings clause. The Supreme Court has repeatedly said that individual property owners should not be forced to pay for public benefits that, in fairness, should be borne by the public as a whole.[1]
Earlier, the Jissers had put together a relocation package for the low-income tenants that the city through early 2015 deemed adequate.[2]

“It was really shocking—and frustrating, to say the least—that it would cost in the several millions of dollars to get out of the rental business,” the owner’s son, Joe Jisser, said.[3]


One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, Businesses Continue to Leave California – A Seven-Year Review, issued in November 2015.

Joseph Vranich is known as the Business Relocation Coach, but the formal name of his business is Spectrum Location SolutionsJoe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Why Get Help.

Joe also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as@LocationConsultant.

[1] “Family sues Palo Alto to stop mobilehome park shakedown,” Pacific Legal Foundation news release, Nov. 19, 2015 http://blog.pacificlegal.org/family-sues-palo-alto-to-stop-mobilehome-park-shakedown/
[2] Eric Kurhi, "Palo Alto: Supervisors put $8 million in pot to save mobile home park," San Jose Mercury News, Jan. 28, 2015 http://www.mercurynews.com/bay-area-news/ci_27406422/palo-alto-supervisors-put-8-million-pot-save
[3] “Buena Vista Mobile Home Park Owners Sue City of Palo Alto,” sanjoseinside.com, Nov. 20, 2015 http://www.sanjoseinside.com/2015/11/20/buena-vista-mobile-home-park-owners-sue-city-of-palo-alto/

Wednesday, December 9, 2015

Top Destination for California Company Relocations: The Lone Star State

Today, the Dallas Morning News published a big spread online about businesses migrating from California to Texas. The story is based on our new study of 9,000 companies leaving California in the last seven years "with about 15 percent finding a home in the more business-friendly Lone Star state." (The print version will appear sometime next week.)

California FlagExcerpts:
"This report echoes what businesses that relocate to Texas continue to say – they are sick and tired of being over-taxed and over-regulated and are making the economically sensible choice to move to Texas,” said John Wittman, deputy press secretary for Texas Gov. Greg Abbott’s Office. 
Texas Flag“Texas is an easier place in which to conduct a business,” said Joseph Vranich, president of Spectrum Location Solutions in Irvine, Calif. “Why is that so? A lot of people think it’s taxes, but in my view the No. 1 benefit is an easier regulatory environment. California’s regulatory regime is so harsh that it causes companies to look at all kinds of states to go to.”
California ... is one of the costliest states in which to do business, with expenses 20 percent to 35 percent higher than other states, Vranich says.
Of all U.S. cities, Austin was No. 1, gaining 86 California corporate sites or expansions. Dallas ranked sixth (20 companies), San Antonio was No. 8 (16), Houston was No. 11 (11), Plano and Irving tied with Hillsboro, Ore., for No. 13 (9) and Fort Worth tied with Tempe, Ariz., for No. 14 (8).
The online version has a drop-down menu that permits searches by year, company, city, industry and product/service.

See the full Dallas Morning News story here.

One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, Businesses Continue to Leave California – A Seven-Year Review, issued in November 2015.

Joseph Vranich is known as The Business Relocation Coach while his firm is formally known as Spectrum Location Solutions. Joe helps companies find great locations in which to grow. He offers an introductory consultation at no cost to help company leaders understand the Site Selection process and to explore whether a project makes sense. See a summary of the process under "The Three Phases of a Location Project" at Why Get Help.

Joe also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as@LocationConsultant.

Tuesday, December 1, 2015

IBD: 'High-Tax California Still Losing Thousands Of Businesses'

Investor's Business Daily, citing our latest study, begins an editorial by stating, "To hear its media and political elites tell it, California is back on its golden path to long-term prosperity. But a new study suggests the state will suffer as thousands of businesses flee. Both can't be right." A few excerpts from the editorial:
IBD Graph Nov 2015 editorial with borderAs America's most populous and wealthy state, California, has a lot going for it. But a new study from business location consultant Joseph Vranich suggests it is hemorrhaging both businesses and jobs at an alarming rate — even as it remains home to an estimated one-third of the nation's welfare recipients. 
"In California, costs to run a business are higher than in other states and nations — largely due to the state's tax and regulatory policies — and the business climate shows little chance of improving," Vranich writes. 
The study is impressive for its size — nearly 300 pages — and thoroughness. Vranich focuses on what he calls "California divestment events" — decisions by homegrown businesses to move elsewhere or not to expand in-state, plus non-California firms that changed their minds about coming. 
Vranich counted some 1,510 such events from 2008 to 2014 and says that figure probably undercounts actual divestment by a factor of 5-to-1. So the real level is likely somewhere north of 9,000.... 
In some areas today, including Los Angeles, it's nearly impossible to build a manufacturing facility because of environmental concerns. So those jobs go elsewhere — to low-tax, pro-business Texas, Nevada, Idaho, Utah, Oregon, the Deep South and, increasingly, to foreign countries including Mexico, China and India.... 
[Voters would] be much better off if they stopped listening to progressive politicians who are systematically ruining the state and started listening to those more in tune with economic reality. Like Joe Vranich.
See the complete editorial here.

One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, Businesses Continue to Leave California – A Seven-Year Review, issued in November 2015.

Joseph Vranich is known as The Business Relocation Coach while his firm is formally known as Spectrum Location Solutions. Joe helps companies find great locations in which to grow. Joe also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as@LocationConsultant.

Sunday, November 29, 2015

'Mixed message: Business relocation expert is both fan, critic of California'

Story in the Orange County Register today about yours truly:
For a guy who’s gained a reputation as a harsh critic of California’s business climate, Joe Vranich has surprisingly good things to say about the state. 
Vranich, owner of Spectrum Location Solutions in Irvine, is a corporate relocation specialist who has gained a loyal following among people who think California’s regulatory and tax structure is scaring away hordes of businesses. ...  
His latest report estimates 9,000 business have disinvested from California in the past seven years – departures and out-of-state expansions that could have been worth at least $68 billion in capital investment.
See the rest of the story here.

One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, Businesses Continue to Leave California - A Seven-Year Review, issued in November 2015.

Joseph Vranich is known as The Business Relocation Coach while his firm is formally known as Spectrum Location Solutions. Joe helps companies find great locations in which to grow. He also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier businesses environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant

Tuesday, November 17, 2015

California: Awful Ranking in Business Tax Survey; How One Company Owner Said 'Goodbye'

The Tax Foundation issued its 2016 State Business Tax Climate Index, a highly respected report on the topic. For the fourth year in a row California ranks at No. 48 – meaning that business taxes are worse only in New York and New Jersey.

Calif FTB LogoBefore saying more about the Index, let's bring to light how some business owners feel about taxes in California.  I recently came across comments by Erica Douglass, a young tech entrepreneur, who moved the headquarters of her company, Whoosh Traffic, from San Diego to Austin, Texas. Although what she said is several years old, her comments remain quite relevant today:
Dear California, I’m leaving you. One thing I’ve struggled with for years is a government that is notoriously business-unfriendly – with everything from high taxes on business earnings to badgering businesses into more work to satisfy the bureaucracy. California decided that businesses grossing over $100,000 a year should have an account to report quarterly on the sales tax customers pay for goods sold. But my company sold services – not products – which aren’t taxed. When I closed the account with the state (by going into a local office and spending nearly an hour explaining my situation), they forced it open again and sent me a nastygram explaining that I would owe fines for not filing the quarterly reports. It takes time to fill them out, even if you owe nothing. Also, the state charges a 10% income tax on all income over $47,055 in addition to an 8.25-9.25% sales tax (depending on where you buy products). I paid enough in California income tax in one year alone to hire another worker for my business. I’d bet that I’m far more efficient at creating jobs as a small business owner than the state is given the same amount of money. And a really dumb law for small business owners is an annual $800 fee just to have a corporation in California. Most states only charge you a few dollars annually. California’s is exorbitant. (Comments edited for brevity.)
How many other business owners share Ms. Douglass's frustration? With the state ranking at No. 48, the answer is "plenty."

Back to the Tax Foundation. The organization compiles the Index each year to rank the 50 U.S. states across more than 100 variables in the areas of corporate income tax, individual income tax, sales tax, property tax, and unemployment insurance tax. The Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how states structure tax systems and provide a roadmap for improvement.

Improvement? There will be numerous proposals to increase business and personal taxes considered by the California legislature in 2016 as well as ballot propositions to do the same. I don't know of a single serious proposal to reduce state taxes in California.

Key findings from Tax Foundation

The top ten states are Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Indiana, Utah, and Texas. The bottom ten states are Maryland, Ohio, Wisconsin, Connecticut, Rhode Island, Vermont, Minnesota, California, New York, and New Jersey.


Note: The Tax Foundation, a non-partisan research think tank, based in Washington, D.C., is the nation’s leading independent tax policy research organization. Since 1937, its principled research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels.

Wednesday, November 11, 2015

'Chief Executive' notes California Business Departures

So pleased to report that Chief Executive Online today published a column by yours truly regarding businesses disinvesting in California. Such events occur when companies relocate out of state entirely or place facilities elsewhere that traditionally were placed in California. See the column here.

Tuesday, November 10, 2015

California Loses Jobs as Other States Eat its Lunchables

The Orange County Register in an editorial today noted that Kraft Heinz will close its Lunchables manufacturing plant in Fullerton, ending 430 jobs. It's part of a company consolidation of six facilities, including one in San Leandro. The piece said:
So, one-third of the company’s U.S. plant closures will come in California. AP reported the company also is planning a new plant in Davenport, Iowa, that will employ "at least 475 full-time positions." This news arrived at the same time as a new report, "Businesses Continue to Leave California: A Seven-Year Review," by Spectrum Locations Solutions in Irvine.
The report explains how and why 9,000 California companies opted to invest in facilities outside of the state because of the state's punitive tax and regulatory climate, as well as high housing costs. The editorial concluded, "That’s not going to change until the state gets a consistently pro-business legislature and governor."

See the full editorial Other states eating our Lunchables.

Monday, November 9, 2015

California Companies Head for Greatness – Outside of California

Why would companies located in one of the most beautiful states in the country – California – undertake the costly proposition of relocating to places with less scenic appeal and less-than-ideal weather?

There are three answers and they relate to California’s business environment: Regulations, taxes and anxiety.

Let’s take anxiety first. Corporate leaders and business owners fear what will happen in the future regarding proposals to raise taxes on business property, extend the Proposition 30 taxes that were supposed to be “temporary,” raise cap-and-trade fees to curb carbon emissions, and impose new workplace regulations regarding family leave and health care. We’re talking about billions of dollars in new operating and ownership costs.

Some of those proposals were defeated this year. But the energy level of zealots in California’s legislature means they are certain to rise again in 2016 and 2017. Projecting the resulting cost and complexity in future operations causes leaders in corporations and small businesses to worry – then they worry some more over the unpredictability of it all.

About taxes: This could be discussed for hours, but suffice to say that the Tax Foundation's 2015 State Business Tax Climate Index lists California at No. 48.

The regulatory environment can be brutal. Examples include fines for trivial errors such as a typo on a paycheck stub – not on the check, just the stub – and putting into law costly overtime provisions that in most states aren’t codified in a statute.

Last year, when Gov. Jerry Brown was asked about business challenges, he revealed his aloofness by saying, “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.” The Wall Street Journal responded: “California’s problem is that smart people have figured out they can make it better elsewhere.”

In short, California is so difficult that companies relocate entirely or, if they keep their headquarters here, find other places to expand.

In an effort to offset Sacramento’s head-in-the-sand approach to business concerns, my firm completed a new study that provides details of business disinvestments in the state. Over the seven-year period that includes last year, the study estimates that 9,000 businesses disinvested in California in favor of other locations.

The study shows that 1,510 California disinvestment events have become public knowledge and provides details on each and every event. Site selection experts I've been in touch with conservatively estimate that a minimum of five events fail to become known for every one that does. One reason is that when companies with fewer than 100 employees relocate it almost never becomes public knowledge. For that and other reasons it is reasonable to conclude that about 9,000 California disinvestment events have occurred in the last seven years.

Los Angeles County #1 in Losses

The study found that the Top Fifteen California counties with the highest number of disinvestment events put Los Angeles with the most losses at No. 1, followed by (2) Orange, (3) Santa Clara, (4) San Francisco, (5) San Diego, (6) Alameda, (7) San Mateo, (8) Ventura, (9) Sacramento, (10) Riverside, (11) San Bernardino, (12) Contra Costa tied with Santa Barbara, (13) San Joaquin, (14) Stanislaus and (15) Sonoma.

The report excluded instances of companies opening new out-of-state facilities to tap a growing market, acts unrelated to California’s business environment. It also points to shortcomings in Federal and state reporting systems that result in underreporting of business migrations. Those factors reduced the number of California losses.

It is easy to verify circumstances described in the report since every disinvestment event is public information, is outlined in detail and sources are identified in endnotes.

When a company launches a site search, it always wants to examine potential costs. I’ve seen many business people smile upon learning that operating cost savings are between 20 and 35 percent in other states. By the way, the appeal isn’t necessarily to the lowest-cost states, but to lower-cost states with the proper workforce.

Winning Locations

The Top Ten States to which businesses migrated puts Texas in the No. 1 spot, followed by (2) Nevada, (3) Arizona, (4) Colorado, (5) Washington, (6) Oregon, (7) North Carolina, (8) Florida, (9) Georgia and (10) Virginia. Texas was the top destination for California companies each year during the study period.

Metropolitan Statistical Areas (MSAs) benefiting from California disinvestment events, in the order starting with those that gained the most, are: (1) Austin-Round Rock-San Marcos, (2) Dallas-Fort Worth-Arlington, (3) Phoenix-Mesa-Scottsdale, (4) Reno-Sparks, (5) Las Vegas-Paradise, (6) Portland-Vancouver (WA)-Hillsboro, (7) Denver-Aurora-Lakewood, (8) Seattle-Tacoma-Bellevue, (9) Atlanta-Sandy Springs-Marietta and (10) Salt Lake City tied with San Antonio.

Offshoring still occurs, and the Top Ten Foreign Nations that gained the most put Mexico at No. 1, followed by (2) India, (3) China, (4) Canada, (5) Malaysia, (6) Philippines, (7) Costa Rica, (8) Singapore, (9) Japan and (10) United Kingdom.

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 1,510 events. Moreover, the top industry to disinvest in California is manufacturing, a capital-intensive sector, and more detailed knowledge of this industry alone would likely increase the capital diversion.

As California companies relocated or expanded facilities elsewhere they transferred more than capital – they also shifted jobs, machinery, taxable income, intellectual capital, training facilities and philanthropic investments.

Indicators are that California’s business climate will worsen, enhancing prospects that more companies will seek places that are friendlier to business interests.

The report is based exclusively on news stories and company reports to the U.S. Department of Labor, the Securities and Exchange Commission and the California Employment Development Dept. Although all entries are based on public information, it’s rare for so much data to be gathered into one report.

Full Study: “Businesses Continue to Leave California - A Seven-Year Review” available as a PDF (378 pages) here

This post originally appeared at NewGeography.com here

Joe Vranich is known as The Business Relocation coach while his firm is formally known as SpectrumLocation Solutions. Joe helps companies find great locations in which to grow. He also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier businesses environments. More information is available at Biography and SpeakingAvailability. On Twitter, Joe is known as @LocationConsultant.

© Excerpts may be used, but only if attribution is given to "Joseph Vranich of Spectrum Location Solutions, Irvine, Calif."