Why companies born, raised in California are leaving state

Piper Heath and Caroline Petrow-Cohen, Tribune News Service

Last month, billionaire In-N-Out owner Lynsi Snyder announced her move from California to Tennessee, where she plans to open new restaurants and continue raising her family. It’s a dramatic shift for the leader of the beloved West Coast brand, which has become the latest company to signal its dissatisfaction with California in recent years. And she didn’t mince words in explaining her decision. “There’s a lot of great things about California, but raising a family is not easy here. Doing business is not easy here,” Snyder said during a recent appearance on the “Relatable” podcast, hosted by conservative commentator Allie Beth Stuckey.

In-N-Out’s headquarters will remain in California, but the company is consolidating its operations in the state and opening a regional headquarters in Franklin, Tenn. Other high-profile companies have more formally exited the state. Tesla moved its headquarters out of Palo Alto in 2021, the same year that financial services firm Charles Schwab relocated from San Francisco to north Texas. Elon Musk moved the head offices of his other companies — SpaceX and X — to Texas last year, as did Chevron, the oil giant that was started in California. The departures have contributed to a narrative pushed by some media and politicians that the state’s economy is in trouble and is unfriendly to businesses.

Conservative commentator and Silicon Valley entrepreneur Steve Hilton, who announced his bid for California governor this year, recently wrote on social media that the state has the “highest rate of poverty, highest housing costs” and the “most hostile business environment in the country.” Experts and economists interviewed by The Times paint a more nuanced picture. Although California’s steep taxes and stringent environmental regulations have pushed some firms to leave, the state remains the fourth- largest economy in the world, boasts a diverse pool of talent and is a hub of technological innovation, they said.

“The popular media narratives have characterized California as one-dimensional,” said William Riggs, a professor at the University of San Francisco School of Management. “We continue to be a magnet for investment in tech, biotech, entertainment and green energy, as well as being an agricultural hotbed for the planet.” The artificial intelligence boom has new companies flocking to Silicon Valley, Riggs said, leading to the highest rate of corporate office leases in San Francisco since before the COVID-19 pandemic. The corporate departures, although generating significant media attention, represent adjustments to California’s$4.1-trillion economy rather than signs of systemic decline.

“It’s being overhyped,” Christopher Thornberg of Beacon Economics said of the purported mass exodus of companies. “California is a big, competitive economy. We’ve got lots of great stuff here.” To be sure, the state is facing some serious challenges that could threaten its competitive perch if they are not addressed. In fact, California has been losing more companies than it’s been gaining since 2014, according to the Bureau of Labor Statistics. The net out-migration of firms from California peaked in 2022 at 741 firms, after economic disruptions and strict regulations related to the pandemic. In 2023, the net out-migration was 533, meaning that 533 more companies left the state than entered. California has ranked among the top three states with the highest rates of firm out-migration since 2015.

One persistent complaint: Corporate executives have cited California’s tax burden as a driver of their decisions to relocate. The state taxes its highest earners at 13.3% on their regular income, and unlike most states, applies the same rate to profits from the sale of investments or business assets. Joe Lonsdale, the Palantir co-founder who moved his venture capital firm, 8VC, from the Bay Area to Austin, Texas, in 2020, partly framed his decision around California’s high taxes. “I could either put that money toward things that are fixing the world, or give it to the California state government,” he said.

Companies also face California’s complex regulatory environment, with authorities governing matters including environmental standards and workplace safety. Many businesses must navigate multiple layers of licensing, labor and compliance requirements. “When businesses complain about dealing with regulations in California, they’re not kidding,” said Kevin Klowden, executive director of the Milken Institute. “There are lots of overlapping authorities and a lot of businesses find it really hard to operate.” Before fast-food chain Carl’s Jr. announced it was relocating its California headquarters to Tennessee in 2016, then-Chief Executive Andrew Puzder said it takes about five times as long to open a new location in California than it would in Texas or other states.

According to Klowden, states including Florida and Texas attempt to attract businesses from California with lower tax rates, fewer regulations and other incentives. In June of this year, Texas Gov. Greg Abbott awarded hair-care brand John Paul Mitchell Systems $640,000 in grant funds to support the company’s expansion into Dallas County. “Texas is the headquarters of headquarters,” Abbott bragged at the time. In 2021, Florida topped the list of states with the highest net firm migration, followed by North Carolina, Nevada and Texas. When firms move their headquarters out of California, it doesn’t mean they’re eliminating all business operations in the state, said Thornberg, a founding partner of Beacon Economics.