Report says California is losing businesses to other state in droves

The study, which was released earlier this year, says the state lost more than 10,000 businesses during the eight-year period that ended in 2015. However, the U.S. Department of Labor says the state’s job count went up during that time.

Is California losing jobs in droves to other states as some people claim?

Yes says Joseph Vranich, president of Spectrum Location Solutions, a one-man consulting firm in Irvine that helps companies find the state or community where they can best conduct their business.

Earlier this year, Vranich produced California Business Departures: An Eight Year Review 2008-2015, a 426-page report that claimed that more than 10,000 businesses had either left the state, cut back their operations or reversed an earlier plan to locate here.

The first sentence of the report bluntly states the reasons for the state’s predicament: a terrible business climate caused by too many regulations and taxes that are too high.

“In California, costs to run a business are higher than in other states and nations – largely due to [California’s] tax and regulatory policy –  and the business climate shows little chance of improving,” the report states.

In 2014, despite being the third-largest state geographically and the state with the largest population – 38.8 million residents – California had only 170 new businesses open. That ranked 12th nationally, below Virginia, above New York and tied with Indiana.

Nearly 1,700  disinvestments – generally a relocation or closing of a business or the cancellation of a move into a market – happened in California during that time. Because those were the only disinvestments that were made public, the number could be much higher, the report stated.

San Bernardino County recorded 42 disinvestments during the time covered in the report, tied for ninth statewide with Sacramento County. Riverside County was 11th on the list, with 40 disinvestments.

Los Angeles County led all counties with 349 disinvestments. Statewide, disinvestments went from a low of 123 in 2008 to a high of 302 in 2011. One hundred and seventy six disinvestments were recorded last year, according to the report.

Those surveyed were asked how many companies leave an area – any area, not just California – without making that move known to the public, either through the media or by notifying a government agency.

Vranich included information from several businesses that have either moved out of California or are considering such a move, He found that nearly 1,100 businesses moved all or part of their operations out of California during that eight-year period.

The report, which was denounced by the Brown Administration shortly after it was released, is meant to counter the notion that businesses aren’t fleeing California, Vranich said.

“I got fed up with Gov. Brown and the state legislature misleading the public,” said Vranich, who said he spent the last five years collecting data before finishing the report’s first draft last December. “The governor’s office basically called me a liar, and they said any talk of businesses leaving California is propaganda.”

Vranich says he has no political party affiliation or ideological ax to grind. All he wanted to do was write a report that the “average Joe” could understand easily, he said.

The revised report, which was published in January on Spectrum’s website, has a receptive audience, because its findings are a mantra among the state’s business community. That’s especially true in the Inland Empire, which many believe is overburdened by environmental regulations.

But it is accurate to say businesses are being driven out of California because of too many regulations and taxes that are too high?

Maybe not, according to data compiled by the U.S. Department of Labor’s Bureau of Labor Statistics. The bureau reported that California added approximately 85,000 businesses and 1.2 million jobs during the period covered in Spectrum’s report, a time that includes the recession.

The number of jobs in California rose 6.7 percent during that time, according to the bureau.

One reason for the disparity is that Vranich’s research focuses on the number of businesses that left California during that eight-year period, rather than the number of jobs that might have been lost during that time.

“My report never gets down that deep,” Vranich said. ‘I never say anything about jobs, I only talk about businesses.”

The debate regarding California’s business climate has raged for years, said Robert Kleinhenz, an economist with the UC Riverside Center for Economic Forecasting and Development.

“It’s true that California is heavily regulated, but a lot of businesses have done well here because they’ve figured out how to work within those regulations,” said Kleinhenz, who said he is familiar with the Spectrum report. “That’s part of doing business, and even with all of the regulations, California is one of the largest economies in the world.”

Several well-known companies have left California recently, the best-known being Toyota, which moved its North American headquarters from Torrance to Plano, Texas last year, taking with it an estimated 1,000 employees.

High-profile moves like that receive a lot of media attention, and that helps create the perception that businesses are fleeing the state in droves, which is not necessarily the case, Kleinhenz said.

“I think they’re only telling you one side of the story,” Kleinhenz said of those who talk. “It’s true that a lot of businesses leave California, but a lot of businesses come to California, too. We lose them, but it’s not a flood.”

California’s economy has long been a revolving door of businesses coming and going, said Jay Prag, professor of economics and finance at the Drucker School of Management at Claremont Graduate University.

“We’re something like the sixth largest economy in the world, so it can’t be that bad,” said Prag, who said he wasn’t surprised by the difference between the Spectrum report and the Department of Labor data. “Yes, there are probably too many regulations, but a lot of them – like the environmental regulations, or earthquake safety – are ones that we need.”

Regardless of the numbers, California’s economy takes a hit, – now and in the future – every time a business leaves the state.

“If a business leaves here and goes to Texas, that means that when it’s ready to expand and hire more people it’s going to do all of that in Texas, not in California,” Vranich said. “So it’s not a good sign for the future when anyone leaves.”