As Newsom Recall Vote Looms, Corporations Are Fleeing California On The Double

As Newsom Recall Vote Looms, Corporations Are Fleeing California On The Double

A study found that the rate of companies moving out of the Golden State in the first half of 2021 was double the torrid clip of the year before.
Chuck DeVore
By

California voters have started casting their ballots on their second gubernatorial recall ever and their first in 18 years, deciding whether to give Democrat Gov. Gavin Newsom a new lease on his political life. Polling shows the recall on a knife’s edge. At the time of this writing, “Yes” — remove — narrowly leads with 48 percent of Californians polled, while 46 percent plan to vote “No.” Both are within the poll’s margin of error.

If the recall passes, whoever has the most votes on the second question will replace Newsom, with longtime conservative radio talk show host Larry Elder out front with a lead of 11 percent.

I was running for the California State Assembly during the last successful recall election in October 2003, and five months later, I won the Republican primary election. So I’ve seen this movie before, and while things don’t look quite as bad for Newsom as they did for Gov. Gray Davis, a few headwinds may see the nation’s most populous blue bastion elect a thoughtful conservative governor with as little as 20 percent of the vote.

Political pitfalls for Newsom are on all sides. They include the state’s burgeoning crime rate, rampant street homelessness, a sputtering electric grid overly dependent on unreliable green energy sources, and a constant outflow of people and jobs to other states—with California losing a seat in the U.S. House for the first time since becoming a state in 1850.

Newsom has become positively prickly over the prospects of losing his gig and openly showed anger with what he felt was unfair media coverage during an editorial sit-down with the Sacramento Bee earlier this month. In response to a question about California’s declining prospects for the middle-class, Newsom bragged, “Middle-class families in Texas pay more taxes than middle-class Californians.” He then doubled down, defiantly saying, “Look that up. That’s a fact! I don’t know why that doesn’t get more d-mn attention.”

It’s not true, of course, although there are a couple of clickbait “studies” out there that support Newsom’s claim — but only by ignoring the effect of California’s high cost of living on home prices and incomes, and the subsequent taxes paid on both. Try finding a house at the U.S. median price in California and see how that goes for you.

High taxes are one reason businesses, both major corporations and family-owned firms, have been heading out of California at a record pace. A joint study by Spectrum Location Solutions and the Hoover Institution, released three weeks before the Sept. 14 recall, found the rate of companies moving out of the Golden State in the first half of 2021 was double the torrid clip of the year before.

The report, entitled “Why Company Headquarters Are Leaving California in Unprecedented Numbers,” found that 272 companies across most industries moved their headquarters to other states in the three-and-one-half years from Jan. 1, 2018 to mid-2021. Exits in the first half of 2021 alone hit 74 (exceeding all of 2020’s exits).

Report authors Joseph Vranich and Lee E. Ohanian say the economic factors driving this exodus include “raising business costs, reducing productivity, and reducing profitability.” They cite secondary factors such as “high tax rates, punitive regulations, high labor costs, high utility and energy costs, and declining quality of life for many Californians which reflects the cost of living and housing affordability.”

While California’s most populous county, Los Angeles, saw the greatest number of departures since 2018 at 54, even Silicon Valley was not immune, seeing companies such as Oracle and Hewlett Packard Enterprise (HPE) leaving, along with less well-known firms trying to grow like Smart Wires Inc. and Revance Therapeutics.

The authors found that the state most likely to gain a corporate headquarters relocation from California was Texas, followed by Tennessee. Neither state levies a personal income tax. Apropos of the report, the Los Angeles Times wrote last week that AECOM, a 47,000-employee global engineering and construction firm, will shift its headquarters from L.A. to Dallas on Oct. 1.

The report’s authors noted elsewhere that “Some of the small businesses of today will become the blockbusters of tomorrow, and California is losing far too many of these potential game changers.” They add in the report, “Unless policy reforms reverse this course, California will continue to lose businesses, both large legacy businesses, as well as young, rapidly growing businesses.”

California’s Sept. 14 recall may just be that opportunity for reversing course — or, more soberly (given that leftwing Democrats hold comfortable supermajorities in both chambers of the legislature), at least staunching the blood loss for a couple of years.

Chuck DeVore is vice president of national initiatives at the Texas Public Policy Foundation and served in the California State Assembly from 2004 to 2010.

Copyright © 2021 The Federalist, a wholly independent division of FDRLST Media, All Rights Reserved.