High-profile California companies continue to join the wave of businesses fleeing a highly taxed, heavily regulated California for more business-friendly environments. You can add Colorado to the growing list of states that former California employers and employees now prefer to call home.
Virta Health, a biotech company that specializes in diabetes treatment, announced in late September that the company’s headquarters would be moving from San Francisco to the Denver area. Sami Inkinen, Founder and CEO of Virta, told the San Francisco Business Times the decision to relocate followed a trend set by the company’s employees: A growing number of Virta Health workers had visited Colorado and decided to stay.
Inkinen anticipates growing the Virta workforce in Colorado to add 902 jobs, bringing on software engineers, AI experts, and other highly skilled specialists, The Denver Post reports. Colorado Governor Jared Polis celebrated Virta’s move to his state. Patrick Meyers, Executive Director of the Colorado Office of Economic Development and International Trade, said his agency worked with Virta on the relocation. An incentive for the move: Virta is eligible to receive up to $6.9 million in job-growth tax credits from Colorado.
“[I]t’s easy to do business here in Colorado,” Inkinen explained to The Denver Post. “It’s getting gradually more complicated in other places.” He added that he was looking for a location with “sensible policies and no crazy surprises.”
Inkenen likewise told The San Francisco Business Times that the company needed an environment “that is very pro-business and has minimal red tape.” In other words, the opposite of California’s stifling regulatory environment. Inkinen described the move as “voting with [his] feet.”
Virta Health is not alone in its migration from California to Colorado. Shortly after Virta’s announcement, news broke that industrial technology company Trimble was moving its headquarters from California to Westminster, Colorado. CEO Rob Painter explained that the area “attracts a desirable, diverse and growing pool of tech talent and provides an attractive quality of life for our employees.”
In 2020, Denver welcomed Palantir Technologies, a data analytics software company. Palantir CEO Alex Karp cited the “increasing intolerance and monoculture of Silicon Valley” as contributing to the company’s relocation decision. He also listed real estate costs and zoning rules that make it difficult for a business to grow and thrive in California as a driving force behind the move.
FinTech investor Ron Suber also left California for Colorado in 2020. “Suber estimated that being a San Francisco resident came with a hefty personal price tag: $750,000 in extra costs…in addition to California’s top individual income tax rate of 13.3%…[on top of] property taxes and sales taxes,” reports The San Francisco Business Times.
Other California-based companies like The North Face, Xero and Localwise also made the move to Colorado.
The popular retailer North Face moved its headquarters to Denver in 2018, drawn to the state by “the job growth tax credits that represent a long-term commitment to our company.” North Face invited all of their associates based in Alameda, California to relocate to Denver and continue their jobs.
Localwise, a jobs site startup that was previously based in Oakland, also relocated its headquarters to Denver in 2018. Founder Ben Hamilton cited quality of life to be a major factor in the relocation, saying “our team members prefer to live in Denver versus Oakland.”
The headquarters for Xero, a cloud-based accounting software company, moved to Denver from San Francisco in 2017. At the time, company spokeswoman Alex Heber said Xero wasn’t abandoning operations in the Bay Area altogether, but CEO Rod Drury admitted: “It’s difficult to grow this business in San Francisco.” Much like Virta Health and Localwise, Drury said it made sense to move Xero’s headquarters because their workforce was already gravitating to Colorado.
Jobs, workers, and revenue are leaving California at a startling velocity, and the pace seems to be quickening. A Hoover Institution paper investigating the migration of businesses out of California found that the average number of headquarter losses per month are accelerating, with a dramatic increase in 2021 (Table 1 Courtesy of Vranich and Ohanian, Hoover Institution, 2022).
The 50-State Small Business Regulation Index ranked California’s business environment 50th in the nation due to the state’s burdensome regulatory structures. Colorado ranked much higher, placing 25th. The Index examined fourteen specific regulatory components found to affect the economics of business growth, including minimum wage laws, energy regulations, regulatory flexibility, and right-to-work laws. Not surprisingly, California scored poorly on each of these rankings.
In 2019, the Small Business & Entrepreneurship Council ranked Colorado as the 12th most entrepreneur-friendly state, while California ranked 49th. The Fraser Institute’s rigorously peer-reviewed 2021 analysis of economic freedom in North America assigned California 43rd place in the US, while Colorado ranked much better at 17th place.
When companies leave, Californians suffer from the resulting job loss as well as lost tax revenue that could have been reinvested in the state. (Interestingly, the Hoover Institution paper notes that the eleven states to decrease their income tax rates in 2021 saw increases in income tax revenues.) The exodus also spells trouble for commercial real estate markets. San Francisco, for example, is experiencing unprecedented downtown office space vacancies due to major employers moving or going remote.
But it’s not just the anti-business climate and high taxes that are driving the California Exodus. As seen with Virta Health, Trimble, Localwise, and Xero, the momentum to move is increasingly starting with employees migrating to other states in search of a better quality of life. Yet California’s politicians continue to enact policies that threaten to worsen the state’s economy, like the ban on gas-powered cars by 2035 (even as California’s power grid struggles to keep up with electric vehicle charging during heat waves) and the highest gas taxes in the nation.
Many Californians are simply throwing in the towel, attracted to states with lower taxes, less crime, better schools, and more affordable housing markets. From January 1, 2020 to July 1, 2021, California suffered an unprecedented population loss of 300,000, as reported by the Public Policy Institute of California. And from 2010 to 2020, California saw slower growth than the rest of the nation, experiencing “its slowest rates of growth ever recorded” since 2000. Joining the California Exodus are people of all backgrounds and income levels, from young adults frustrated with housing costs to large corporations escaping the morass of taxes and regulatory agencies. California even lost a congressional seat after the most recent census due to the decline in population.
California officials are beginning to realize that the mass out-of-state migration means dramatic revenue losses for the state. Last year, Governor Newsom told Bay Area business leaders that California has to do more to fight the overtures companies are receiving from other states. “We need to step up our game — time to be more damn competitive,” Newsom said.
Newsom may want to take a page from Colorado’s book.
Originally published by the California Policy Center. Republished with permission.
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