California’s Business Climate Continues to Receive Poor Scores

California’s Business Climate Continues to Receive Poor Scores

California has lived on the trope of being the hub of technology startups and innovation for decades. California’s economic success has long been touted and celebrated, none more so than the technology gold rush in the Bay Area.

But despite California’s seemingly never-ending economic growth, the Golden State is now being recognized as one of the worst places to do business in the nation.

CNBC recently released the America’s Top States for Business in 2019. The annual study reviews each state, poring over more than 60 measures of business competitiveness to rank categories like cost of living, business friendliness and access to capital.

You can see where this is headed, right? Overall, California is ranked 32 out of 50. Not bad. But doubling down on a couple of key categories show that the state is at the bottom of the barrel when it comes to nurturing a pro-business environment.

California ranked last in the cost of doing business and business friendliness categories. California also ranked 49 out of 50 in the cost of living category. The study byline for California stated, “Companies come here to get in on the gold rush of venture capital, but high costs and regulation can stifle the dream.” Yikes.

CNBC’s study is the latest in a long string of surveys and polls that highlight California’s pursuit of an anti-business climate. Last fall, the Tax Foundation gave California a dismal ranking of second to last in the nation for the 2019 State Business Tax Climate Index.

Other notable mentions include Forbes ranking California 43 out of 50 in business costs in the Best States for Business list and Chief Executive Magazine ranking California last in the nation in the 2019 Best & Worst States for Business, stating that, “On the other hand, California has it real bad, with the state’s ideal climate and digital-tech dominance simply not able to overcome CEOs’ impressions that the Golden State just doesn’t care about how expensive and difficult it is to do business there. So, it keeps hogging the bottom of the Chief Executive list.”

California’s anti-business climate is no secret. Business leaders and industries have been sounding the alarm bell for years, consistently sharing their frustrations about doing business here. PRI discovered as much in a 2018 survey of business executives in clean technology, research and development, and manufacturing who said the high costs of housing and real estate and expensive costs to do business hamper moving to or expanding in California.

The state’s ever growing state budget, hub for technology, and record number of technology unicorn IPOs, or companies worth more than $1 billion, mean that California is still on the up and up, right?

California may continue to maintain its powerhouse status as a world economy, but a couple of cracks are building that may be worth keeping an eye on.

Late last year, the San Francisco Business Journal published a list of startups and companies either leaving or expanding outside of California. Some of these may not be household names, but it shows that startups and founders are becoming more comfortable growing outside of California. Name brand companies like North Face and Jamba Juice, among others, have moved their company headquarters in the past couple years to more affordable parts of the country.  Governor Bill Lee of Tennessee recently welcomed two new additions to the Nashville area. Pilot.com, an account management software company, and Mitsubishi Motors Headquarters are the latest to move or expand out of the state.

What may be most troubling to California is that other regions are slowly building their own tech hubs, offering a lower cost of living, lower tax rates, and geographic diversity.

A recent Axios article shared the experiences of several entrepreneurs who started growing their companies outside of California.

While the Golden State is often the starting point for many startups and entrepreneurs, emerging tech hubs like Atlanta, Northern Virginia, and Indianapolis can compete with California by offering affordable business and living costs, where employees don’t have to pay $3,720 a month for a one-bedroom apartment.

Let’s not forget that California has slowly been losing residents since 2001 and those leaving the Golden State topped new residents in 2017.

California’s long-standing as the tech and startup leader will probably be here to stay, but these minor issues may be something to watch as the economy is impacted by the future of work, technological innovation, and workforce changes.

Evan Harris is the Pacific Research Institute’s media relations and outreach manager.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.