California Businesses Continue to Leave California

A recently released report finds that businesses continue to relocate to more business-friendly states but offers recommendations to help California stem the tde.

The report "California’s Competitiveness: A Regional Approach" was undertaken by leading researchers from some of the state's finest colleges and leading economists and examined the issue from a Southern California perspective.

Los Angeles, CA – JUNE 5, 2023 -- A recently released report has found that businesses continue to choose to leave California, especially in Southern California, for more business-friendly states, because of the state’s lack of affordable housing, cost of living, high taxes, and stringent regulatory environment. However, the report also sees an opportunity to mitigate this trend as it identifies the problem with the state's homogeneous approach to stem the exodus of businesses from one of the largest economies in the world.

The report - "California’s Competitiveness: A Regional Approach" - was released as California's state budget deficit has reached an estimated $31.5 billion at a time tax collection is expected to fall short of the money allocated for programs essential to millions of Californians. The state is facing a deeper deficit than projected at the beginning of the year as the fortunes of its wealthiest residents wane, exacerbating the fiscal situation of a state already struggling with businesses leaving, tech layoffs, and banking upheaval adding to the revenue shortfall.

Commissioned by the Los Angeles Area Chamber of Commerce and produced in collaboration with the Inland Empire Economic Center (IEEC) and funded by a grant from Bank of America, the report looks at California as a whole but with a focus on Southern California, citing the experiences elsewhere in the state where applicable.

The report outlines steps California must take to maintain its advantage over other states in the coming years. Some of the report’s recommendations to create innovation and improve competitiveness for the state’s regions and, in turn, stem the outbound migration of businesses include:

• Develop an economic strategy which considers and supports regional differences.
• Develop partnerships between higher education and industry that promote occupational upskilling to satisfy the demand for talent and skills from the local industry clusters interconnected with the rest of the world.
• Define business attraction and retention strategies at the regional level that drive innovation in leading regional clusters and are supported by a statewide plan.
• Leverage the state’s regional assets to compete for workers and firms. California can do so more effectively by addressing the state’s high cost of living and ensuring community amenities are on par with those in other states.
• Build entrepreneurial infrastructure and support, which will attract new firms while lowering the barriers to entrepreneurship for its homegrown talent.

“We wanted to look at why California-based businesses continue to leave and whether the state was doing enough to stem the flow of business outbound migration,” said Maria S. Salinas, President and CEO of the Los Angeles Area Chamber of Commerce. “This report is unique because it examines the issue from a Southern California perspective and finds that to stay competitive, California’s economy and its evolution over time are best analyzed and understood by looking at its regions. The report offers several recommendations to strengthen California's competitiveness among other states and suggestions to develop regional strategies to help businesses prosper.”

“The state’s diverse regions are distinctively successful and impactful when we learn from each other and work in collaboration,” said Raul A. Anaya, Bank of America President of Business Banking. “We know this study will shed more light on the reasons why California should be optimistic about the future - while also calling us to be more alert and prepared for the changes in population and business dynamics which will challenge our economic competitiveness.”

The report also includes interviews with 23 Southern California CEOs who assess California’s competitiveness relative to other states. There was an explicit acknowledgment of the benefits of their firm’s presence in the Southern California market. It included recognition of a talented regional labor force, an excellent higher education system, a diverse and dynamic economy, and extensive resources to support their businesses.

However, a recurring theme in the report centered on the concern for the state’s ability to remain competitive, given the high cost of doing business and the chronic lack of housing affordability. Executives also mentioned concerns about taxation and regulation and a sense that elected officials either ignore the needs of businesses or do not understand how business works. Indeed, these concerns prompted some firms to explore investment and job creation opportunities outside of Southern California and the state.

“As previously reported in earlier reports, California has seen an exodus over the past years of businesses to states with more business-friendly environments,” said Manfred Keil, Chief Economist, Inland Empire Economic Partnership (IEEP). “We wanted to take a deeper dive to examine how California could curtail businesses leaving the state and arrived at several recommendations, including the state must take a regional approach and perspective to economic development if it is serious about keeping California-based businesses.”

The report noted that other states are catching up to California partly because their regions more closely resemble California regarding industry composition, workforce opportunities, and amenities. Given the acceleration in business and population migration over the past decade, it appears the gap between California and its closest competitor states has narrowed significantly since the Great Recession.

The report also found that to understand California’s competitiveness, the state must take a regional approach and perspective to economic development. Economically, there is no “one-size-fits-all” policy for the different regions within the state. Each region and its key industry clusters must compete with, and fend off, competition from other regions. Economic policy must be tailored to meet each region’s needs to be effective.

This study has also gone to great lengths to separate perceptions from realities. The more perceptions are anchored in data and reality and reflect the complexities of California and its regions, the more likely the state can compete effectively with other states in the coming years.

“Policymakers across all levels of government need to commit to an economic plan which serves the various regions of California,” Maria S. Salinas continued. “Without it, we will continue to see further business erosion and investment outside California.”

Copies of "California’s Competitiveness: A Regional Approach" can be downloaded at the following link. https://www.dropbox.com/s/7yqv1hf80u2cavi/California%20Competitiveness-Study.pdf?dl=0

About Los Angeles Area Chamber of Commerce

The Los Angeles Area Chamber of Commerce represents the interests of a broad spectrum of organizations across the private, non-profit, academic, and public sectors, including the business community, job creators, and innovators in the Los Angeles region. Our mission is to design and advance opportunities and solutions for a thriving regional economy that is inclusive and globally competitive. As the oldest and largest business association in the region, the Chamber has a long-standing history of convening business leaders, communities, and policymakers to promote a vibrant economy. The Chamber’s vision is A Thriving Region for All. For more information, visit www.lachamber.com.