Best & Worst States: California At The Bottom—Again

Many CEOs in the Golden State—particularly those who make things—are running as fast as they can.

The piece below is part of Chief Executive‘s annual Best & Worst States for Business ranking. Read the full report

Last year, California Governor Gavin Newsom rapped Chief Executive by name because the state once again finished last in the magazine’s annual survey of CEOs. No word from him so far on how he feels about his state finishing No. 50 in this year’s survey, too.

“Our GDP growth outperforms every damn one of those other states they highlight,” he said at a conference in San Francisco in late June, bashing Texas and Tennessee along the way. “I get it. We’re not going to be the cheapest place to do business. But you knew that 50 years ago. Come on. Stop.”

The problem is, owners of businesses in California aren’t stopping. Many are still running away as fast as they can, especially those who make things. Newsom’s comment summed up why, implicitly saying this to CEOs: As long as California can count on spectacular growth from tech companies in Silicon Valley and movie studios in Hollywood, don’t expect the state to reverse any of its attitudes and policies that chase many companies away.

John Kearney is one CEO who’s actually been trying to hang onto his company’s California factory. Advanced Training Systems, which makes driving simulators for truckers and other specialty drivers there, has been eyeing a move. “California is so tough to work in and getting worse,” Kearney says. “It’s a good assumption that our manufacturing will be leaving there” for Florida.

Economic-development consultant Larry Gigerich believes that California “can’t rely anymore on the idea, ‘We’ve got really smart people here, so you should be here too.’” In fact, the managing director of Ginovus, based in Fishers, Indiana, believes the current recession will exacerbate the hollowing out of California’s middle class. “You could have only the super-rich and super-poor left in California.”

Others are more sanguine about California being able to hang on to its status as a very prosperous and huge economy despite disdain by so many business chiefs. “Everyone’s leaving California, people have been saying,” says Rick Weddle, head of the Site Selectors Guild. “But California has continued to grow for 40 years. And there aren’t a lot of people moving there either. It’s been sheer organic growth.”

Nevertheless, some CEOs will be heartened by the fact that in early March, California voters soundly rejected the largest borrowing proposal in the history of the state’s schools, a $15 billion bond for repairs. They also rejected more than half of the 237 local tax and bond measures on the same ballot.

Did concern over Covid-19, a teetering stock market and a likely recession make California voters nervous? Or was it a way to register pent-up frustrations over soaring housing costs, an expensive boondoggle in the high-speed rail system and the state’s booming homeless population? Many CEOs will be waiting to find out.