[Source: Joseph Vranich] If your business is in California and you’re wondering if companies continue to leave the state, the answer is, “Yes, and anecdotal evidence is that the numbers are growing.”
Before I identify the latest companies to depart California – 24 of them, which I’ve learned about only within the last three months – consider the deterioration in the once-golden state.
California continues to lose companies because of the state’s miserable treatment of businesses and the continued lowering of the quality of life in San Francisco and Los Angeles – parts of those cities have declined into squalor, which is spreading into other communities.
Every time a company departs the state, or does a U-turn and abandons its plan to move to California, the state loses capital investment projects, future tax revenues and jobs. Winning states have lower taxes, sensible regulations, reasonable energy costs and a better quality of life.
Business-flight appears to have gotten worse since I issued my recent report, “Why Companies Leave California,” which found that at least 13,000 companies moved out of state during the 2008-2016 period (the latest available figures). The cost: $76.7 billion in capital was diverted out of California along with 275,000 Jobs – and companies acquired at least 133 million square feet of space elsewhere. All of those findings are greatly understated because relevant information often went unreported in source materials.
Departures are understandable when year after year CEOs nationwide surveyed by Chief Executive Magazine have declared California the worst state in which to do business. The state has a high-cost business tax climate, with the Tax Foundation in 2019 ranking California at No. 49 – the second worst in the nation, ahead of only New Jersey.
Three previous California Governors – Gray Davis, Pete Wilson and George Deukmejian – cited findings from an earlier edition of my out-of-California report when expressing concerns about companies shifting their activities and expanding their operations out of state.
California’s current crop of politicians point to the occasional economic development “win” with pride while ignoring the overall business migration to other states. Let’s be candid about who they are – business-hostile Democrats who’ve never run a business, never raised capital, never built a building, never met a payroll, never arranged for employee health-care policies, never sold a product or service, never competed with lower-priced foreign competitors, and never paid any of the countless taxes and fees imposed by various levels of government.
It’s worth noting that the facilities most often relocated out of state are company headquarters, which means numerous high-paying jobs move elsewhere.
With that, the most recent business disinvestment events that I’ve learned about are as follows:
Aeromax Industries, an aircraft parts manufacturer, is relocating its headquarters from Canoga Park in Los Angeles to Texas. “After looking at a few other locations, Fort Worth made perfect sense for us” said Tom Brizes, chairman and president of Aeromax. “It’s an aerospace-friendly community with many local companies that we’ve been doing business with for years. With no state income tax and reasonable fuel and property prices, we look forward to moving and growing our operation here.” Some California politicians claim that only low-paying jobs are moving to other states, but this company’s departure is but one of many that involve high-paying jobs. The company has more than 30 years of technical experience in advanced manufacturing. Relocation should conclude by September 2019. Operations will include management, shipping and receiving, aerospace engineering, marketing and administrative.
Apple Inc., based in Cupertino (Santa Clara County), selected Austin, Texas, as the location for its new $1 billion, 133-acre corporate campus that will create up to 5,000 new jobs in the short term and add up to 15,000 once the site is built out. The campus expands the Apple footprint in Austin, already its biggest corporate presence outside of Cupertino. The new campus will be located less than one mile from an existing Apple campus. The influx of additional jobs is expected to make Apple the largest private employer in Austin. Jobs created at the new Apple campus will include engineering, R&D, operations, finance, sales and customer support. Tim Cook, Apple’s CEO, said, “Talent, creativity and tomorrow’s breakthrough ideas aren’t limited by region or ZIP code, and, with this new expansion, we’re redoubling our commitment to cultivating the high-tech sector and workforce nationwide.”
Apple, Inc. has only one data center in its home state but is building and expanding them in Iowa, North Carolina, Arizona & Nevada in a five-year, $10-billion plan. A big factor in choosing locations is that electricity costs can be up to 60 percent lower in other states. The $10 billion includes the cost of a new data center in Waukee, Iowa. No jobs number reported.
Berkley International, a custom molded fiber packaging company, is relocating manufacturing from Los Angeles to Reno, Nevada. “We use quite a bit of water, power and gas in our process, along with quite a bit of labor doing assembly for displays, and when you take those four pieces of business and look at cost structure in California versus the state of Nevada, along with the location of Reno, it was a very, very simple decision for us,” said company founder Jeff Berkley. The Inc. Magazine 5000 list ranked Berkley International as the 17th fastest growing company and 1 Manufacturer in America in 2016. The company was also named the fastest growing private company in Los Angeles for 2016 by the Los Angeles Business Journal. On May 17, the company held its groundbreaking at Tahoe Reno Industrial Center.
Blue Buffalo, an all-natural dog & cat food maker – here we should say “avoiding California– leased 540,000 square feet in Goodyear, Arizona, near Phoenix. The location won out over a number of unknown markets in California due in part to affordable housing, according to a commercial real estate agent representing the company.
Chatsworth Products (CPI), provider of information and communications technology (ICT) infrastructure products, opened its new Electronics & Software Technology Center not in its home base of Agoura Hills (Los Angeles County) but in Round Rock, Texas. The state-of-the-art, 34,000 square foot facility will allow CPI to have a dedicated location for the research, development, testing and manufacturing of the company’s intelligent power management solutions. The new center “will provide the manufacturing footprint for CPI to support the anticipated growth rates over the next five years,” says Ted Behrens, CPI’s Executive Vice President of Global Engineering, Product Management and Marketing.
Checkr, an artificial intelligence firm located in San Francisco, will open a large facility in Denver, Colorado and create 1,500 “high quality” jobs. CEO and co-founder Daniel Yanisse said the company wouldn’t be able to grow as it needed in the Bay Area where the median price of a home is above $1.3 million, more than triple the metro Denver cost.
Core-Mark Holding Co., a company that distributes fresh products to convenience stores and others, is relocating its San Francisco headquarters to Westlake within the Dallas-Fort Worth area in 2019 to better meet company growth. CEO Scott McPherson said, “The cost of operating out of the San Francisco Bay Area is high and while San Francisco is our long time home, the business has expanded dramatically over the years.” Dallas offers a better operating cost, lower taxes and is a central location for what is now a nationwide business. With more than 8,400 employees, Core-Mark already has a small office in Fort Worth, a data center in Plano and a distribution center in the San Antonio area. Core-Mark traces its roots to a San Francisco tobacco shop in 1888. Today, it serves 45,000 customer locations in the U.S. and Canada, including convenience stores, grocers, drug, big box and supercenter stores, liquor stores and specialty stores.
Crocs, a non-athletic footwear company, is another business relocating a facility to another state. The company will move its North American distribution operation to Dayton, Ohio from Ontario (San Bernardino County). The new Crocs facility is 40% larger than its California site and is where the company will hire 130 full-time employees. “When we looked at their workforces, their ability to draw on talent, we felt like the geographic location and then the talent within the market seemed to be a fit for our growing business,” said Shannon Sisler, Crocs senior vice president of global human resources.
Diamond WTG, a wind turbine engineering firm and unit of Mitsubishi, is relocating its headquarters from Newport Beach (Orange County) to Oregon. Diamond has been in the process of moving its offices to Portland since 2017 and completed the transition in early 2019.
DJO, a global provider of medical technologies, relocated its global headquarters from Carlsbad (San Diego County) to Lewisville, Texas, near Dallas. In addition to the relocation of many employees to the new headquarters, DJO is creating hundreds of new job opportunities in the Dallas area, including many at its new distribution center in Fort Worth which opened a few months ago and already employs over 200. “We made the strategic decision to move our headquarters to Dallas to expand our presence into a market with a strong and larger pool of talent, gain greater and more efficient customer access and take advantage of what we believe is a better corporate environment for our company as we grow,” said Brady Shirley, DJO’s President and CEO. Some work will remain in Carlsbad. After the relocation was announced, DJO was acquired for $3.15 billion by Colfax Corp.
EnerBlu Inc., a lithium battery maker, is relocating its headquarters and R&D from Riverside (Riverside County) to Lexington, Kentucky The company is creating more than 100 new STEM jobs as it prepares to open its Lexington R&D center. Constructing a new manufacturing plant in nearby Pikeville, Ky. apparently is awaiting re-financing.
Fox Factory, a racing vehicle component maker, will move its headquarters from Scotts Valley (Santa Cruz County) to Hall County, Georgia, by the end of 2018. The company will purchase of a 23-acre site where it will house new manufacturing, warehouse, distribution and office space. The first phase is expected to be completed by early 2020. Over the next five years, Fox expects to invest $50 million in the site and employ up to 800 workers. The company makes shock absorbers and suspensions for bicycles, motorcycles, off-road vehicles and snowmobiles; the new facility would provide additional capacity for growth in its powered vehicles group. Also, Fox also intends to shift aftermarket bike products operations from Scotts Valley and nearby Watsonville (Santa Cruz County) to Reno, Nevada. Fox CEO Larry Enterline said the decisions resulted from “extensive research” by the company and would allow it to “better support the needs of our growing business over the next several years.”
Google like most California-based digital companies built a new data center out of state. The latest, a $600 million facility, is in Clark County, Nevada, specifically Henderson, Nevada. Google will run the data center while its subsidiary, Design LLC, will own the property. Last year, for another project Google bought 1,210 acres of land at the Tahoe-Reno Industrial Center for $29.1 million. Google’s actions aren’t surprising because high-tech firms can be stung by California’s electricity costs, which are among the highest in the nation and continue to rise because of carbon emissions-related cap-and-trade costs and policies that restrict generation of electricity. When the time comes for these companies to build data centers – which rely quite heavily on electricity – states with lower electricity costs have a significant advantage.
Latexco US, a Belgium-based manufacturer of latex foam and mattress products, is moving operations from Santa Fe Springs (Los Angeles County) to Phoenix an 88,000-square-foot facility in southwest Phoenix to accommodate company growth. Upon evaluating their customer base, Latexco found that relocating to the region would provide significant opportunity. The noted the region’s business-friendly attitude, high energy and dynamic atmosphere as well as its talent pool. With 40 jobs, the Phoenix facility will serve as a hub for Latexco’s fulfillment services and cutting-edge advanced manufacturing facility.
Lottery.com, the digital lottery provider, moved its headquarters from San Francisco to Austin, Texas. Also, the company recently opened operations facilities in Dallas and Waco and has plans to expand across the state. CEO Tony DiMatteo said in a written statement. “We have big plans in this state, as well as for expansion both domestically and internationally.” A company spokesperson gushed about the Lone Star State even more, saying that “Texas’s low cost of living, unbeatable tax rates, and friendly business environment made it a clear frontrunner in Lottery.com’s decision to relocate its headquarters to Austin.” Lottery.com is a unit of Autolotto, Inc.
McKesson Corp., currently ranked 6th on the Fortune 500, is a global provider of healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information technology. It is relocating corporate headquarters from San Francisco to the Las Colinas section of Irving, Texas, expanding upon its presence in the Dallas area. John H. Hammergren, chairman and chief executive officer, McKesson Corporation. “Making this move will improve efficiency, collaboration and cost-competitiveness, while providing an exceptional work environment for our employees.” McKesson’s Las Colinas campus is already a key hub for the company. Employees at the North Texas location perform vital functions for the company in areas such as operations, information technology, finance and accounting, marketing and sales, administration and support, purchasing, and project management. San Francisco-based employees are being offered the opportunity to relocate to Las Colinas and other hub locations. The move should be completed by January 1, 2021.
Milestone Technologies, Inc., a managed service provider based in Fremont (Alameda County), will create at least 100 new jobs in Arizona, in east Phoenix. Milestone’s new Artificial Intelligence & Automation Center of Excellence will also be located on the site, not in Silicon Valley. The company provides advanced business services and IT support for international corporate clients. Milestone uses technology to make IT infrastructures smarter and streamlined. “The opening will facilitate expansion outside of its Silicon Valley home in order to meet the growing demands of our global customers,” said Nelson Eng, President & CEO of Milestone Technologies, Inc.
Parsons Co., an engineering firm, moved its headquarters from Pasadena (Los Angeles County), where it’s been for 45 years to Centreville, Virginia. Chairman and CEO Chuck Harrington, who has traditionally split his time between Pasadena and Charlotte, N.C., will now shift between Charlotte and Centreville. The company said it wanted to be closer to its government customers, which makes sense, but failed to identify any cost savings to the business as well as substantial income tax savings to the well-compensated executives who relocate.
rfXcel, a software company, moved its corporate headquarters from San Ramon (Contra Costa County) to Reno, bringing 200 jobs to Northern Nevada with an average salary of $100,000. For years the company had been looking to relocate to a city with a lower cost of living, a high quality of life, and a growing technology sector. Glenn Abood, founder and CEO said, “This has been something that we’ve been working on for a while in terms of where we wanted to relocate, and we finally found the place.” The company will hire in many areas, including software engineering, technical support, sales and marketing, accounting, human resources and more. rfXcel’s technology optimizes supply chain operations with serialization software, regulatory compliance management, supply chain visibility software and Internet of Things (IoT) monitoring. Their technology enables products and goods to reach consumers without the threat of contamination, adulteration or diversion.
SpaceX will no longer build its Mars spaceship and rocket booster system at the Port of Los Angeles but will move the work to Boca Chica, Texas. It’s a reversal of a deal Los Angeles officials had touted as a win for the area. SpaceX initially leased about eight acres at the Port of L.A. that it used for recovery of Falcon 9 first-stage boosters and Dragon capsules, which arrive at shore via droneships. A new deal, approved last year, would have given SpaceX use of a 19-acre site on Terminal Island for an initial 10-year lease at the port with two additional 10-year extension options. Last year, SpaceX told the L.A. Board of Harbor Commissioners that production and fabrication of the Mars rocket could begin there in two to three years. But in a letter dated Jan. 7, SpaceX Chief Financial Officer Bret Johnsen said the company would terminate the Terminal Island lease agreement. Space X will continue other activities at its Hawthorne and Vandenberg Air Force Base facilities.
The Icee Co., a frozen drinks brand with revenue estimated at $350 million, is moving its headquarters from Ontario (San Bernardino County) to La Vergne, Tennessee, near Nashville. The company will invest $10.3 million to make the move, creating more than 200 jobs in Rutherford County over the next five years. Icee is a subsidiary of New Jersey-based J&J Snack Foods Corp.
Zoho, an international software company, is moving its headquarters from Pleasanton (in Alameda County) to Austin, Texas, where it will open an office on a 375-acre campus. Executives said up to 500 employees will eventually fill a 100,000-square-foot building the company is planning to open in 2021. According to Zoho executive Raju Vegesna, as the company prepared for more growth, the firm began looking for a central location with lower costs for business operations and living, but one that had an attractive talent pool of workers and high quality of life for employees. “One of the things we value is quality of life for employees,” Vegesna said.
Many more California business exits can be found in “Why Companies Leave California” which in 2019 has been given recognition by The Wall Street Journal, Investor’s Business Daily, Forbes and countless local media outlets. The exposure is due in part to the report’s clarity about the top ten states that gained the most from California migrations. They are: (1) Texas – the most popular destination, a distinction it has held for at least a decade – (2) Nevada, (3) Arizona, (4) Colorado, (5T) Oregon, (5T) Washington, (7) North Carolina, (8) Florida, (9) Georgia and (10) Virginia.
The report’s painstaking research identifies departing companies by name and tells their stories; categorizes companies by industry; specifies which municipality and county in California they left; ranks business costs for utilities, workers’ compensation and other factors; and quotes what company leaders have said about their motivations for disinvesting in California.
Source: Joseph Vranich/Spectrum Location Services
June 5, 2019
