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The recent news that Chevron is leaving San Ramon, CA, for Houston, TX, is another example of what has been termed the California exodus. Many businesses have left the Golden State over the last several years.
Speaking with Fox Business, Shark Tank entrepreneur Kevin O'Leary explained what he thinks is happening. He noted that much of the shift has happened since 2019 when Gavin Newsom took office as California's governor. O'Leary called Newsom a great guy but someone who has "no executional skills and no idea what is going on here." He accused Newsom of turning his state into a version of Venezuela with broken policies.
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O'Leary pointed out that he has many food businesses but doesn’t touch California because of its minimum wage. California raised the minimum wage from $16 to $20 in April, which has impacted major food service businesses. Some companies, including Chipotle (NYSE:CMG), have raised their prices to compensate for the higher business costs. That can be a risky game in this economy with a price-sensitive consumer.
Is It Just Business Policies?
O'Leary called California a dumpster fire, saying that energy is the lifeblood of the economy and that losing a significant energy business like Chevron (NYSE:CVX) would be a big blow to the state. While he blamed Newsom, the problem may have been going on longer than his tenure as governor. The California Policy Institute found that over 237 businesses have left the state since 2005, and that doesn’t include some of the most recent announcements. On that list were 11 Fortune 1000 companies. Other factors beyond business policies may be influencing these moves. One of them is the high cost of living and the other is the cost of real estate, which makes it hard for many employees to afford a home. The Public Policy Institute of California found that California has higher rates of cost-burdened households than the U.S. as a whole, prompting some people to consider moving.
Overwhelmingly, companies are moving to Texas. Of the 237 companies mentioned above, 120 moved to Texas, and the state has more Fortune 500 companies than any other state. Commercial Property Executive rounded up the most popular areas for relocation, and the Dallas and Austin areas were the runaway winners. Florida was also on the list, with Orlando and Miami as destination cities. Both states are known for having no income tax and business-friendly policies.
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It's not just California that O'Leary says is bad for business. He mentioned that he recently optioned land for a data center in West Virginia, which is something he would never do in upstate New York because "you can't get anything done in New York."
O'Leary suggested that a "change in management" was necessary to turn the tide for California, but the reasons are more complicated than just who sits in the governor's seat. Much of it has to do with the high cost of living in the state, especially in the coastal areas. Despite the companies moving away from the state, it is still home to many big technology companies, including Apple (NASDAQ:AAPL) and Meta (NASDAQ:META). It is the fifth-largest economy in the world, with a GDP of nearly $3.1 trillion in 2023 and a growth rate of 6.1%. In April, the governor's office reported that California is still tops in the U.S. for new business starts and access to venture capital. The state is seeing a migration, but California still has business opportunities.
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This article Kevin O'Leary Says California Is A Dumpster Fire For Business. Is He Right? originally appeared on Benzinga.com