Texas outcompetes other states vying for California companies, study finds

As the exodus from California continues, Texas sees the most businesses relocating from California, a new Stanford University study shows.

Texas is beating every other state as a destination for California companies by a ratio of 4:1, according to the study by McKinney-based Spectrum Location Solutions and Stanford University’s Hoover Institution.

California company headquarter exits have more than doubled in 2021, study authors Joseph Vranich and Lee Ohanian write, noting, “Every month in 2021, twice as many companies are relocating their headquarters as in the prior year.”

“California is experiencing a serious loss of company headquarters to other states,” they said. “The phenomena, which includes business in nearly all industries, has gone virtually unrecognized by the state’s elected officials and governmental agencies.

“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.”

In the timeframe analyzed, 265 California companies exited, with Texas receiving 114, followed by Tennessee receiving 89.

Texas Gov. Greg Abbott said of the findings, “Our business-friendly climate, with no corporate or personal income tax, along with a young, skilled and diverse workforce, easy access to global markets & predictable regulations attract businesses to Texas from across the nation and around the world. That means jobs!”

The majority, 57, moved to the Austin area. The next largest group, 47, relocated to North Texas, primarily in the Dallas, Fort Worth and Irving areas. Nine moved to Houston; six to San Antonio.

The majority of California companies left San Francisco and Los Angeles, followed by a range of other cities.

The authors of the Spectrum/Stanford report point to several factors contributing to businesses leaving the state. They include California’s real estate taxes that impose strains on business owners, the state’s litigious climate and need for tort reform, a “Sue Your Boss Law,” regulatory burdens and bureaucracy, labor costs and regulatory burdens associated with them, as well as high workers’ compensations costs, high energy costs, and several other factors.

The findings support previous findings by other companies and publications over the years. For 17 years in a row, Texas has ranked first by Chief Executive’s Magazine’s Best and Worst States for Business ranking. This year, California once again ranked last.

The Tax Foundation’s 2021 State Business Tax Climate Index ranked California 49th, highlighting policies that continue to increase income taxes, property taxes, and sales taxes on top of increasing county and municipal taxes and fees, as factors for leaving.

The Small Business & Entrepreneurship Council’s 23rd annual report, which analyzed how state policies affect entrepreneurship, small businesses, and the economy, ranked Texas first and California 49th.

Its president and CEO, Karen Kerrigan, said, “States that provide better business environments and continuously improve their policy climates are in the best position to attract new investment, entrepreneurs, and business relocation opportunities. People are also moving to these low-cost, business-friendly states, which provides for a ready workforce.”

One of the latest California companies to announce it was leaving was Los Angeles-based engineering giant AECOM. It’s relocating to Dallas.

Other California companies relocating to Dallas include Wiley X, a military-grade eyewear company, First Foundation Inc., a financial services firm, and MD7 LLC, a mobile infrastructure consulting firm.

Last year, nearly 70 companies relocated or expanded to the Dallas-Fort Worth area, the Dallas Regional Chamber reports, with 50 more relocating this year.

So many people and companies have relocated to Texas in the last decade that Texas gained two additional Congressional seats and California lost one after the 2020 Census. California also reported the first ever population decline in the state’s history in 2020.