Texas vs. California

The competition between the two states for jobs and economic growth isn’t as one-sided as you might think.

Farmer Bros. has called Southern California home for more than a century, ever since founder Roy E. Farmer started roasting coffee beans and selling them door-to-door in 1912. But next year, the company will plant new roots in Northlake at a headquarters complex being built across from Texas Motor Speedway.

The move is one in a string of relocations from California to North Texas, highlighted by Toyota shifting its North American headquarters and about 4,000 jobs to a new campus in Plano. Kubota Tractor has also announced plans to leave the Golden State and build a 200,000-square-foot corporate center on land across from Grapevine Mills mall, where it will employ 345 workers. (Coincidentally, all three of the companies are abandoning the same city: Torrance.)

These are notable economic development victories and certainly worthy of local chest-thumping. But some leaders, such as former Gov. Rick Perry, who famously traveled to California to lure businesses, want to paint this corporate migration as evidence that the Texas governing model—low taxes and light regulation—is prevailing economically over less business-friendly places like California. That’s a stretch.

Despite an exodus of some companies, California remains an economic titan. In fact, according to the Bureau of Labor Statistics, California actually created far more jobs than Texas in the past year: 465,700 in the 12 months ended in May, compared with 286,400 in Texas.

While that may surprise believers in the Texas economic miracle, the decline in oil prices and subsequent pullback in drilling has taken a toll on our state economy. Texas job growth came to a halt this spring after more than four years of gains as oil companies cut back. (Job gains returned in May and unemployment remains lower in Texas, 4.3 percent vs. 6.4 percent in California.) 

Steve Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto, brushes off Perry’s rhetoric as “bluster,” adding that relocations are simply part of the business fabric in California.  

“There are always companies that move, most of which either because they got payoff money or because their customer base moved,” Levy says. In Toyota’s case, the company received a $40 million grant from the Texas Enterprise Fund, although the company’s executives said the primary incentive was a desire to be closer to car-making operations in Texas and Tennessee.

Sure, the high cost of doing business in California is a disadvantage. By any measure, the cost of labor is higher and the state has both a corporate and personal income tax, making Texas attractive by comparison.

But Kim L. Moore, a former marketing manager with the City of Dallas Office of Economic Development who now helps businesses relocate, said companies that decide to pull up stakes are motivated by internal pressures, not state policies.

“You don’t relocate a company unless there’s a couple of other issues you’re trying to address,” says Moore, managing director of Newmark Grubb Knight Frank. “Either you’re looking to expand or you’re looking to consolidate, or it’s as simple as not being able to find the labor force you’re used to drawing.”

Both Texas and California are “powerhouses,” she says, and businesses must decide which environment suits them. In the case of Farmers Bros., a leading distributor of coffee and tea to food service operators, new management decided to leave after several years of losses prompted a need for consolidation.  

Updating its 65-year-old complex in Torrance just didn’t make sense. The company considered multiple options before settling on Northlake, where it could build a state-of-the-art facility designed to streamline processes and cut costs, CEO Michael H. Keown told analysts. Farmers projects annual savings of between $12 million and $15 million. 

Texas and Dallas-Fort Worth have a long history of attracting corporate headquarters. American Airlines, BNSF Railway, ExxonMobil, J.C. Penney, and AT&T all moved here over the decades because of our central location, cost of living, major airport, and strong labor force. That’s nothing to sneeze at.

But California and the Silicon Valley are magnets for talent and capital. According to Levy, the state nabbed 57 percent of U.S. venture capital funding in 2014, compared to 3 percent that came to Texas.

That money is critical to upstart technology companies, and California’s roster now includes innovators like Apple, Facebook, Google, eBay, Twitter, and Tesla, all changing the way we live in the 21st century.

In Texas, we’d be wise to figure out how to get more of that action, too.   

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