Author Gray: California Takes ‘Business for Granted’ — and It’s Leaving

Saturday, 06 Oct 2012 08:12 PM

By Todd Beamon and John Bachman

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The “fiscal deterioration” of California has led 3.4 million residents to flee to other parts of the country over the past 12 years, award-winning author Tom Gray tells Newsmax TV.

“The 1990s were a real interesting turning point for California. It shifted from a state that attracted people by the millions to one that sheds them to other parts of the country almost by the same amount,” Gray, who examines the state’s exodus in a new book — “The Great California Exodus: A Closer Look” — tells Newsmax in an exclusive interview. “Since then, it is pretty consistently an out-migration state.

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“What happened around 1990? There were some events that were outside of the state’s control, like a recession — a severe recession compared to the rest of the country. There were high housing prices. There was also a shift in policy, which accelerated California toward becoming a less fiscally manageable state.

“Taxes have been high all along, but the biggest factor has been the fiscal situation and the fiscal deterioration of the state.”

Gray’s book is “published by the Manhattan Institute for Policy Research in New York. has written for The Los Angeles Times and Investor’s Business Daily, where he also served as senior editor. He has written three books on online investing.

Clearly the reason so many people have fled the Golden State is economic, Gray said.

“Most people who cross state lines have some economic reason for doing so. It’s not strictly just because they like the climate somewhere else. Even retirees have an economic reason. They’ll tend to go for cheaper housing, for instance. Among people who are working age, that economic opportunity, i.e. jobs, is the primary driver.”

And Texas has been most attractive to those leaving California, he said.

“The most popular state, for people leaving, is Texas. That’s not really a retirement state for California. That’s a jobs state. And the other fact that indicates Texas is winning the job derby with California is their unemployment record and the job-creation record over the past decade.

“At the beginning of the decade, they were roughly even,” Gray added. “Texas had a slightly lower jobless rate, about a half percentage point. By the end of the decade, 2010, they were more than four percentage points apart.

“In other words, California’s jobless rate was 4.2 percent higher than Texas in 2010, which suggests that Texas was creating jobs, employers were going to Texas to set up shop or to expand. They were either leaving California or not expanding in California — and the jobs were going with them.”

The exodus from blue state California to such red states as Arizona, Nevada, Colorado and Georgia could be seen as a repudiation of the state’s broader economic policies, Gray said.

“What you are seeing, maybe is not a rejection of politics per se, but you are seeing the states that have low business costs, favorable regulation, factors that tend to encourage economic growth winning,” he said. “And the governments in those states are also, on the whole, much more solvent than California’s. Their fiscal management’s much better, their spending is under control.

“California’s had at least a decade of very serious structural deficits. Even when they balanced the budget, it was more through tricks than anything else, because right now they have a tax increase to try to bail it out again.

“You could say that it probably does reflect the dominance of certain interests — especially public-sector unions, which of course are also a mainstay of the Democratic Party. Whereas, in other states, such as Texas and Arizona, the unions are rather weak.”

California, however, still remains a great place to start businesses, but entrepreneurs may face other issues down the road.

“There are a lot of start-ups and certain kinds of businesses. It’s a very good place to start a business because you have venture capital. You have a very, very highly skilled workforce, especially in technology and entertainment. If you want to do anything related to those industries, California’s the place to be.

“The problem is not so much starting a business in California as is growing a business past a certain size,” Gray added. “If you want to be the next Apple, you’ll find a lot of sympathy, a lot of help and a lot of money in Silicon Valley. If you have reached the point where you want to find places to have production facilities or major call-center facilities, where you employ thousands of people, then you’re running up against California’s regulations.

“There are high rates for almost everything: electric power, commercial rents, high taxes, overtime rules — all these things that get in the way of a business — and you’ll find states, such as Texas, willing to offer incentives.

“They can offer incentives for relocating to their state, like tax incentives, even investment from the state. Apple went to Austin this year because they offered them a fairly generous package, something over $30 million in various incentives. California, because it’s so financially strapped, and the local government’s so financially strapped, they just can’t do that.

“Expanding a business in California is probably what’s least favorable,” Gray said.

And the only ones who can change that climate are California’s legislators and regulators.

“They have to stop thinking that businesses will just come to California to set up shop and expand without any changes in the way the state operates and the way governments operate in California,” Gray said. “California has to stop taking businesses for granted. People may come here, businesses may not.”


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