Tuesday, July 12, 2011

The 'Gold Rush' Is On In Reverse, As Companies Flee California

The conventional wisdom has it that America's economic problems can't be fixed without California, because 'it's on sixth of the US economy'. That might not be true for too much longer.

Because of the state's high taxes, onerous regulations, expensive living costs and outright hostile climate towards business, companies are leaving the once Golden State in droves:
Companies are "disinvesting" in California at a rate five times greater than just two years ago, said Joseph Vranich, a business relocation expert based in Irvine. This includes leaving altogether, establishing divisions elsewhere or opting not to set up shop in California.

"There is a feeling that the state is not stable," Vranich said. "Sacramento can't get its act together...and that includes the governor, legislators and regulatory agencies that are running wild."

Stepping in to actively court these companies are states like Florida, Texas, Nevada, Arizona and Utah, contacting California firms and pitching them on how business-friendly they are in comparison.

The fracas between the State of California and internet giant Amazon over collecting sales taxes for online purchases is just the latest in a whole series of anti-business moves driving companies out of the state...with the accompanying drops in tax revenues and employment.

The state's agriculture , once one of America's strongest, is crippled by environmental regulations that have resulted in government induced drought and kept once fertile farms lying fallow in California's rich Central Valley in order to protect a bait fish called the Delta Smelt. In a year when California received rainfall 200% greater than usual, a significant amount of the water isn't being collected and stored in the state's expensive reservoir and irrigation system but allowed to run off into the ocean.

Anyone who's ever done business in the state, especially in Los Angeles or the Bay Area has their own horror stories to tell about dealing with the Franchise Tax Board, the Board of Equalization, the AQMD, The Employment Development Department, The California> Agricultural Labor Relations Board or a slew of other state, county and municipal agencies with their hands out. In fact, in Los Angeles and San Francisco, small businesses who can usually seek to establish themselves in nearby suburbs like Burbank, Glendale or Daley City to avoid as many governmental fees and red tape as possible. And the state's workers compensation and unemployment insurance taxes remain some of the highest in the country.

Another problem is the high cost of living and the declining quality. California is one of the highest taxed states in the nation. Real estate prices and rentals are still high in comparison to other states that are a lot more business friendly, the infrastructure is declining literally before your eyes and the public schools in Los Angeles and the Bay Area have some of the worst stats in the country in spite of being near the top in dollars spent per pupil.

There's also what Lee Miller, chief executive of Feel Golf, a company that relocated its headquarters to Florida earlier this year after it acquired Pro Line Sports referred to genteelly as 'a better work pool' in other states.

California is home to Silicon Valley and has some world famous universities, but a lot of their graduates are joining California's entrepreneurs in the trek out of state because of the high cost of living and the declining quality of life in much of the state's more populated areas. What's replacing them is primarily made up of three components; a mostly ill-educated blue collar work force, many of whom reside in the state illegally and who mostly participate in the underground cash economy; their children, educated in California's dysfunctional public schools; and a handful of highly skilled, specialized immigrants imported on things like H1B visas because of a lack of Californians around able to fill those positions.

Can the situation change? Perhaps , but the current political culture in the state makes it highly unlikely. Aside from a state legislature dominated by Democrats, California now has to contend with Jerry Brown as governor again, the man who created a decent part of the current mess by giving the public employee unions collective bargaining rights the last time he was in the governors office.

With unionized public employees making an ever greater part of California's work force, California is becoming a trendsetter for a lot of Blue states, where recipients of the public largess outnumber the people paying the tab for the party. As of now, the state is literally broke, with its debt relegated to junk bond status.

California has a lot going for it - some of the best weather in America, fertile soil, natural resources and a strategic trade location between Latin America and East Asia. But until the state settles its deep seated inherent l problems, absolutely none of that is going to matter and the rot will just continue.

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Will Profit said...

California is proof positive that ya getz what ya electz at local, state and federal levels.
And yet, Obama and the Dems/Libs/Progs will carry this bankrupted state in the 2012 elections.
Go figure.

louielouie said...

i must disagree with ff.
not on the content of his excellent essay, but on the result.
i believe all states listed as courting companies should pool their collective resources and build a 20', or higher, fence along the kahleeforneeah border.
keep those blue staters where they are, and don't let 'em pollute the rest of what is formerly known as the united states of america.
my apology to ff.