Amid the recession caused by the COVID-19 pandemic, dozens more companies are leaving California for other states where their money goes further.
“Rather than being a straw that broke the camel’s back, it’s more the accumulation effect – even when Elon Musk and Oracle and Big Tech companies left during this past year, you saw a lot of response from legislators on social media, saying good riddance,” Adrian Moore, vice president of policy at the Reason Foundation, told the Northern California Record.
“And when you take an environment pretty heavy on regulation and the response of those in power is, ‘We need lots more regulations,’ a business is going to see where things are going in this state,” Moore said. “It’s only going to be another compliance report, another cost, another expense. It’s death by a thousand cuts in a lot of cases.”
A new report by the Center for Jobs and the Economy includes a list of “CaliFormers” – companies that have recently departed or scaled back operations, opting for states with lower taxes and fewer regulations.
“The result of the investments from these competing states and the tech industry itself have transformed other states’ economies into new and more competitive tech hubs,” the center’s website said. “With these new and burgeoning hubs established, an increasing number of tech businesses, and the state taxes they and their employees pay California each year, are now leaving.”
While such departures have been on the rise in the past two decades, the list is unique, particularly as a wake-up call, Moore said.
“These are not businesses going out of business, they’re businesses choosing to leave the state,” Moore said. “Maybe that will help raise awareness.”
California’s AB 5 worker classification law, backed by union groups, has also been a deterrent to businesses and workers.
“If you’re in the gig economy, or any business that employs independent contractors, they don’t want you to,” Moore said. “That’s a big deal, and interesting that it’s played out in an ironic fashion. All sorts of things that go on every day, for example, community theater – they have independent contractors – and it basically put the kibosh on community theater, which is why they’ve had so many AB 5 exemptions, and why voters then voted to create a big AB 5 exemption in the November election with rideshare drivers.”
Proposition 22 was overwhelmingly approved by voters, 59% to 41%, a decisive win for gig economy workers over unionization.
The pandemic also has given shuttered businesses time to strategize their future, Moore said. “When you ask someone, ‘Why are you leaving?’ The answer is, ‘Well, I got tired of spending all my time filing regulatory reports, and I cut my tax bill in half by leaving California.’ That’s a pretty straightforward calculus,” Moore said.
What happens next to stem or propel the relocations depends on legislative action and what shape California’s pandemic economic recovery takes.
“There’s so many dynamics at work that the tipping point is hard to see or reach, it’s a perpetual process,” Moore said.
“It’s difficult to find an example of people leaving Texas to go to California, but plenty of people are leaving California for Texas,” Moore said. “It’s pretty obvious that there’s one direction of preference.”