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Why firms pick up stakes from our costly state

 

It shouldn’t come as any surprise that three of the four states most moved to by business owners leaving California in the last 30 years are Arizona, Nevada and Oregon.

After all, those are the three states that border our own. Simply by being closer, they are easier to move to.

But the fourth state is Texas, which isn’t particularly close by.

It’s obvious why business owners move there: Texas is a low-regulation, low-cost state, and businesses are not in love with regulation or higher costs.

The 2022 Kosmont-Rose Institute Cost of Doing Business Survey, released this month, finds that the cost of doing business in California is higher than anywhere else in the western United States. The annual survey has been published since 2003.

There are other reasons for moving a business — customer base, access to talent, world market forces. While Las Vegas, with its lower cost of living and increasingly good access to transportation for products, was the city most often relocated to from California from 1990 to 2019 — 2,832 businesses moved there during those three decades — somewhat counter-intuitively, New York City was the second choice, with 1,455 companies moving there from California.

Since the Big Apple has never been known as a place where bureaucratic red tape was easily cut, or rent was cheap, obviously other factors are at play than real-estate costs and regulation.

But if California lawmakers and regulators continue to increase the cost of doing business in our state, it doesn’t take a consultant from McKinsey to tell us that the economic situation for all citizens here — not just business owners — will worsen. It’s not just CEOs who are relocating — it’s jobs for the rank-and-file. And that’s bad for all of us.

The survey looked at 158 cities — most of them in Southern California — to rank the costliest cities for doing business.

“Doing business in Southern California has many benefits, but the costs make it increasingly hard to pull off,” said Ken Miller, director of the Rose Institute of State and Local Government and an author of the survey report. “Rising home values, office rents, labor costs, and burdensome new state and local laws were variables to watch this year as these costs continue to escalate.”

The survey found that the cost of doing business is more expensive in Los Angeles County than in Orange, San Bernardino and Riverside counties. And if the city of Los Angeles’s Measure ULA, which adds a large new transfer tax on the sale of properties over $5 million to fund homelessness programs, is allowed by the courts to go into effect, the business climate there will continue to suffer. It’s not just mansion owners who will pay the price — lots of small businesses work out of properties that would sell for that much.

Nationally, the survey found that some Inland Empire cities rank among the least expensive cities for doing business, including Yucaipa, Yucca Valley and Hesperia.

“California remains an attractive place to do business despite the out-migration of businesses to other western states,” said Larry Kosmont, chairman and CEO of Kosmont Companies, which aided the Claremont-based Rose Institute with the survey. “Businesses that want to stay in California should ask themselves if they have a strategic or operational reason for being in California; otherwise, the state’s higher prices pose a real challenge to running a profitable enterprise.”

We would also ask those business owners to continue to lobby their local lawmakers about the cost of doing business before they pull up stakes, in the interest of all Californians.

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