Texas and California Go Head to Head Over Businesses

September 1, 2014

Every state wants to attract businesses. Whether it is an existing business, or a brand new startup, politicians are always courting business people to move to their jurisdiction. While there are usually many states (or cities within states) vying for a new business, it used to be uncommon for states to directly attack one another in these quests. However, that is all starting to change, as evidenced by a current battle between Texas and California.

The Los Angeles Times recently reported on the ongoing battle between California and Texas over businesses. This battle has been going on, in a one-sided fashion, for more than a decade. It began with recently-indicted Texas Governor Rick Perry publicly pushing California businesses to move to Texas. And, his public statements along with pro-business government programs have been effective. One out of five businesses that relocated to Texas in 2011 and 2012 were previously California Businesses.

One of Texas' pro-business programs is something called the Enterprise Fund. Through that fund, Texas has given more than half a billion dollars to businesses to move to Texas. This is in addition to hundreds of millions of dollars in property tax breaks given to the businesses.

California is now following Texas' lead and fighting to keep the businesses we have and return the ones we have lost. California now has a $750 million plan that mirrors many aspects of Texas' methods. The first tax credits were awarded as part of this program in June. Those credits were worth $29 million, and roughly 40% of the companies receiving them received similar offers from Texas.

California's plan is not a direct carbon copy of Texas' programs. The Dallas Morning News reports that the California Competes program is based on tax credits, rather than giving businesses up front cash grants. California officials supported this plan in part because it gives the state more leverage and control if the businesses do not ultimately decide to move to California. Additionally, if the business in question does not meet certain goals laid out in the program, the state only has to revoke the tax credit, rather than trying to get actual cash back from the company. Additionally, the California program lays out more structured goals for the business recipients, rather than using Texas' amorphous template.

While the press certainly sees a competition heating up between Texas and California, with headlines like "California takes on Texas in fight to attract and retain businesses," the California governor's office is downplaying any direct competition, A spokesperson from the governor's office, Brook Taylor said of the matter, "California is the eighth-largest economy in the world. . .When we're talking about California's competitiveness, it's about continuing to attract the best and the brightest. We want to recruit companies and people from around the world." And that sums up exactly why California is such a great place to start a new business. With our large and diverse population, there is an opportunity for anyone to succeed in this state.