California Exodus Cost $1 Trillion in Financial Firm Flight Alone

A new Bloomberg analysis of over 17,000 corporate filings shows that the exit of financial companies from California is estimated to have cost around $1 trillion, when measured by assets under management.

A homeless encampment lines a street in the Skid Row community in Los Angeles, Calif., on Dec. 14, 2022. Mario Tama/Getty Images

A new Bloomberg analysis of over 17,000 corporate filings shows that the exit of financial companies from California is estimated to have cost around $1 trillion when measured by assets under management.

The flight of individuals and businesses from California has long grabbed headlines, with many of those fleeing the Golden State citing factors like red tape and high taxes.

Now, the latest analysis from Bloomberg has put a dollar figure on one segment of businesses leaving California, namely financial firms.

The analysis shows that from the beginning of 2020 through March 2023, over 370 investment companies with some $2.7 trillion under management moved their headquarters to a new state. The vast majority of those leaving were relocating from California and New York, with an estimated value of assets under management at around $1 trillion each.

Texas was the top destination for headquarter relocations from California, according to the analysis, with companies attracted by factors like no state income tax and lower living costs for employees.

50 Percent of Businesses Thinking of Leaving

It’s not just finance firms that are leaving but all manner of businesses, and many of those staying put for now are thinking about an exit.

“As many as 50 percent of CEOs are suggesting they’re planning to leave California,” Jim Doti, professor of economics at Chapman University, said in EpochTV’s documentary, “Leaving California: The Untold Story,” citing high taxes, regulations, and housing prices as key motivating factors.

Mr. Doti said it’s not just about a loss of tax revenue.

“The greatest loss to a state is the loss of human capital, not just jobs or businesses,” Mr. Doti said. “If graduate students move to Texas and Florida, it will have a negative impact that is magnified because we’re losing our best and brightest.”

The latest estimate from Bloomberg, which puts a dollar figure on one part of the exodus, builds on other data, such as from the Internal Revenue Service (IRS), which showed that California lost a total of $47.1 billion in taxable personal income in 2020 and 2021 as hundreds of thousands of residents left.

According to IRS data, California lost $29.1 billion in taxable personal income in 2021 as 332,00 more taxpayers left the state than entered it.

More Businesses Leaving

A study commissioned by the Los Angeles Area Chamber of Commerce shows that the number of companies departing California nearly doubled between 2012 and 2019.

“The Golden State’s luster appears tarnished in recent years,” said the study authored by economists and academics with the Inland Empire Economic Center. “A seemingly endless stream of firms is leaving the state, citing high taxation, heavy regulation, other business costs, and anything but a business-friendly environment.”

For the study, CEOs were asked what they think are the most significant challenges to running a business in California.

The typical immediate response to this question was, “California is a very difficult place to do business,” the report states.

“CEOs perceive California to have an anti-business culture, where business is perceived by the media, lawyers, and politicians at the local and state levels as ‘evil’ and ‘caring only about profits,” according to the report.

Company executives feel that the relationship between public and private organizations is “adversarial” rather than “collaborative and supportive,” the report’s authors say, making it hard to meet consumer needs while, at the same time, creating opportunies for business innovation and for employees.

“I have dealt with governments around the country, but the most business unfriendly adversarial government is California,” was a typical response by CEOs, as cited in the study.

Another major challenge to doing business in California, as mentioned by CEOs, was taxation “which is seen as excessive.”

This view is supported by various studies, including one by the Tax Foundation, which ranked California #48 in the country on its state business tax climate index, which is based on a combination of individual income tax, sales tax, corporate income tax, property tax, and unemployment insurance tax.

$500 Billion in Lost Income

Over 700,000 people left California from April 2020 to July 2022 to relocate to other U.S. states, according to U.S. Census Bureau data.

The following map released on March 30 by the U.S. Census Bureau shows net domestic migration for the United States, by county, for 2021–22.

Each red dot shows 100 people leaving, while each blue dot shows 100 people arriving. The map drives home the point that states like California and New York are hotbeds of people fleeing for states like Florida and Texas.

Screenshot via U.S. Census Bureau

“People are leaving [California] to go to places that once were known as ‘hell-hot Texas’ or ‘desert Nevada’ that have become paradises in their mind—and we took paradise and turned it into hell,” Victor Davis Hanson, a historian at the Hoover Institute, said in EpochTV’s recent documentary, “Leaving California: The Untold Story.”

In an interview on EpochTV’s “California Insider,” Mr. Doti estimated that between 2016 and 2021, the exodus of people from California cost the state almost $500 billion in lost income.

“Cumulatively, we’re talking about nearly a half-trillion dollars in income lost in five years between 2016 and 2021,” Mr. Doti said.

Regulatory burdens and red tape around permits for various business activities were common complaints on the part of businesses leaving the Golden State.

“The need to bring down regulation was cited by CEOs as the number-one reason for leaving because it hamstrings operations, making it difficult to expand,” Mr. Doti said. “This needs to be dealt with expeditiously and with a high level of priority.”

Travis Gillmore contributed to this report.