Toyota's Move from Torrance to Texas: California's Wake-Up Call?*

Toyota's April 30th announcement that it would take its headquarters from Torrance to Plano, Texas is proof-positive that California's high regulatory, high tax, and high cost of living environment is unfriendly to business. Or is it?

3 minute read

May 5, 2014, 8:00 AM PDT

By Irvin Dawid

(Updated 5/12/2014) Correction: The Los Angeles Times reported on April 28 a correction on this news story. "Although 2,300 Toyota employees will remain in California, none will be at the Torrance facility."

For Torrance, a city of 147,000 and eighth largest in Los Angeles County, the debate as to whether California is business-unfriendly or not is irrelevant now.

"Figuring out how Torrance can fill the 101-acre hole the giant auto maker will leave behind when it vacates its sprawling campus," write Tamara Audi and Mike Ramsey, is one of many new concerns that Mayor Frank Scotto must deal with now that the city's largest employer with 5,300 workers, unexpectedly announced their relocation to Plano, Texas, population 272,000, "located within the metropolitan area commonly referred to as the Dallas–Fort Worth metroplex" (per Wikipedia).

As to whether the Toyota relocation says anything about California's business climate, the answer is clear.

California was never considered in the search for a new headquarters site, these people said, but its location—far from Toyota's other operations in the U.S.—was a bigger factor than its business climate, which has been criticized by some for its high taxes and myriad regulations.

In fact, a more relevant question would be why Toyota chose Texas over Atlanta, Charlotte., N.C. and Denver, as those cities were Plano's competition, according to those familiar with the search.

I'm sure it didn't hurt that "Texas offered Toyota $40 million to move, part of a Texas Enterprise Fund incentive program run out of the governor's office. At $10,000 a job, it was one of the largest incentives handed out in the decade-old program and cost more per job created than any other large award," write the Journal's Mike Ramsey and Joseph B. White (article also available in MarketWatch).

But If we shift the discussion to Texas - whether it is "business friendly" and attractive to companies like Toyota, the answer is also clear.
(Jim Lentz, chief executive of Toyota's North American operations) has cited Texas' business-friendly climate, as well as no personal income tax. He also said California wasn't offered an opportunity to counter Texas' offer, saying to do so would have been "disingenuous" since the decision to leave that state had been made.
A May 1 Los Angeles Times editorial addresses the charge that California is unfriendly to business from a different angle. Noting that "the state continues to attract more manufacturers and create more jobs than almost any other," it advises "lawmakers to stop acting as if businesses have nowhere else to go."
Unlike Texas, however, California can no longer absorb the kind of growth that characterized the state through the 1980s. Its enormous population strains its infrastructure and safety-net programs, demanding ever-larger investments in roads, water, schools and healthcare. Its topography traps smog, requiring costlier efforts to clean emissions. The results are a cost of living [sixth highest in U.S. per CNBC rating] and a cost of doing business that are among the highest in the country.
The Tax Foundation map shows that California has a corporate income tax rate of 8.84%, tenth highest in the country, while Texas has none.
Many in Texas might take issue with the editorial's first assertion - not that California can't absorb the growth, but their claim that Texas can, as was made clear here earlier: Texas is not investing in the water and transportation infrastructure to accommodate the rapid growth in jobs and people.

Wednesday, April 30, 2014 in The Wall Street Journal - U.S. News

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