Tech Firms and Titans Leave California for Texas. Does It Matter?

The recent news that Oracle, the second largest software maker in the world, plans to move its corporate headquarters from Silicon Valley to Austin has resurrected familiar headlines suggesting that California is finally going to pay for its so-called hostility to business.

Coming on the heels of the recent announcement by Hewlett Packard Enterprise, another Silicon Valley marquee company, to move its headquarters to Texas, along with Tesla founder Elon Musk's exodus to the Lone Star State, Oracle’s decision has shaken some Bay Area business leaders.

“You know, it's very troubling news because it's not unexpected,” said Jim Wunderman, president and CEO of the Bay Area Council, a business and civic leadership group. “We've been hearing from a lot of companies, from individuals who are talking about this, and it's been on the agenda for a while now, even pre-pandemic. But I think the pandemic really expedited a lot of organizations thinking about their future strategy and remote work. And the wildfires didn't help.”

Based in San Francisco, the Bay Area Council advocates for policies that make the region hospitable to businesses and its workforce, but is also mindful of regional politics, which lean heavily Democratic and progressive. The council often supports taxes to improve infrastructure and transit, and it also endorsed Proposition 30, Gov. Jerry Brown’s 2012 sales and income tax increase measure aimed especially at high-income earners.

But Wunderman says too many politicians, especially in Sacramento, are not in touch with the needs of business.

“So what we see is numerous pieces of legislation that sort of further restrict businesses’ ability to function the way business would prefer to function,” he said. “The regulatory scheme is really tough to work through. Everything takes much longer, costs more money.”

Of course, not everyone agrees that recent high-profile corporate departures signal a kind of comeuppance for California.

“I think folks have been complaining about California's hostile business environment for decades, and that certainly hasn't prevented the state from being one of the biggest economies in the world and attracting entrepreneurs and businesses for decades,” said Molly Turner, who studies the interface of technology, urban policy and economic development at UC Berkeley’s Haas School of Business.

“I think it's important for us to distinguish between the executives of these companies moving out of state versus the employees and the offices,” Turner said, noting that Elon Musk and Oracle’s Larry Ellison, who are both among the wealthiest people in the world, did very well in California and are now leaving for places with lower income taxes.

There’s no doubt California is disproportionately reliant on the top 1% of income earners.

"Just that 1% is responsible for generating over 45% of all the personal income tax revenue,” said H.D. Palmer, spokesman for the California Department of Finance, noting it “comes from things like capital gains and stock options and other income sources that are reliant on the stock market.”

People like Ellison, the world’s fifth wealthiest person according to Forbes, understandably don’t like California’s progressive tax structure. But as the recent initial public offerings of Airbnb and DoorDash show, the state is always going to benefit from dynamic companies who make it their home.

“There's always going to be activity that's going to be generated from companies going public, that's like seismic activity in California,” Palmer said.

Palmer also said it’s very difficult to evaluate the overall impact that the departure of major companies like Oracle and HP will have on California’s bottom line. But he says it by no means tells the entire story.

“The other side of the coin is we are seeing corporations and entities in California that are continuing to grow, continuing to hire, continuing to expand, continuing to go public and generate revenue as well,” Palmer said. Still he says, “We want to retain as many of those individuals here as we possibly can and to continue to create the environment where we can see more of these types of activities.”

In addition to taxes, some businesses howl at laws like Assembly Bill 5, directed at companies like Lyft and Uber, as well as a recent one signed by Gov. Gavin Newsom requiring specific levels of diversity on corporate boards.

“It's not that companies don't want to diversify. They do. But they don't like government telling them to do it and how to do it, you know, that sort of intrusion,” said Wunderman of the Bay Area Council.

But the way UC Berkeley’s Turner sees it, California’s biggest problem isn’t taxes or regulation, but rather the lack of affordable housing.

“I think that's really the Achilles' heel of this state. We can't continue to build a booming economy without providing enough affordable housing for everybody here,” Turner said.

Recent data from the state Department of Finance shows that despite the pandemic and a paltry rate of population growth, year-to-date home prices are up more than 8%, with a median home price, in October, of $711,300, close to a record high.

Turner says that with the demand for housing remaining so high, and the ongoing obstacles to building more of it, the exodus of some tech jobs isn’t all bad.

“To the extent that some percentage of jobs are redistributed to other parts of the country, that may in fact make the Bay Area and the state slightly more accessible and affordable to more folks, which I think at the end of the day is good for our innovation economy,” she said.