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January 24, 2021 09:48 pm

More Companies Are Joining 'Tech Exodus' From California

This week Digital Reality data center services announced it was also relocating its headquarters from the San Francisco Bay Area to Texas, citing factors like a low cost of living and "supportive business climate". (Though it will still maintain a "significant" presence in the Bay Area.) And Align Technology (makers of the Invisalign orthodontic dental aligners) also announced it had relocated its global corporate headquarters from San Jose, California to Tempe, Arizona, citing a "favorable corporate operating environment, low cost of living and overall quality of life." NBC News writes that "while Silicon Valley is by no means ceasing to be the center of the technology industry," there's still an "undeniable migration" that's happening:Shervin Pishevar, a venture capitalist, bought a house in Miami Beach in 2018. In late 2020, Jonathan Oringer, who founded Shutterstock and became an investor, moved to Miami, as did other notable venture capitalists, including Keith Rabois and David Blumberg. It's not just Miami experiencing this migration. Last month, Oracle, the tech giant, announced it is moving its corporate headquarters from Redwood City, California, to Austin, Texas. Other such moves include Palantir, which decamped for Denver, while Elon Musk said last month he had moved himself to Austin. Hewlett Packard Enterprise also announced last month it was moving its headquarters from San Jose, California, in favor of a Houston suburb... It's significant enough that while the San Francisco Bay Area continues to gain tech workers, the rate of increase is down by over 35 percent — the single largest drop of any tracked metropolitan area — according to self-reported data tracked by LinkedIn. Experts following this migration predict these numbers may grow. "There's a mini-exodus of tech companies leaving the Valley, and I think that's going to accelerate in 2021," said Dan Ives, a financial analyst with Wedbush Securities. But the reasons many businesses are moving are more complex than people may think. Tax experts say companies aren't moving their corporate headquarters necessarily for business tax incentives. Instead, it may be a long-term play to help them pay workers relatively less where the cost of living is lower... "You're going to always have the vast majority of tech companies coming out of the Valley, and you can't create that anywhere else," Ives said. "But when you look at an Austin: It's creating a mini Silicon Valley at half the cost for an average employee..." Tax experts suspect Oracle and its peers may over time phase out higher-paid employees in California in favor of lower-paid employees in Texas. These companies can also ease off giving employees raises because they are living somewhere with a lower cost of living. "Even though a lot of companies are saying they can let people work from anywhere, most are saying we're not going to cut salary, but we're going to slow the rate of increase of salary," said Brian Kropp, an analyst with the IT service management company Gartner. Kropp said he spoke with high-level representatives from several "Fortune 200 type companies" who are exploring moving their corporate headquarters. In short, shifting employees from California to Texas could represent long-term corporate cost savings, which means larger payouts for these companies' top executives. "The compounding effect translates to a 3 or 5 percent margin that moves straight to profit," Kropp said... Kropp says some companies are also worried about the increase in state laws targeting businesses and executives. But there could be another culprit, argues Darien Shanske, a law professor at the University of California, Davis who NBC identiies as an expert on state and local taxation. "California has blown it, but not because of tax policy — its decades-long problem of not producing enough housing," he said. "It's probably cheaper and easier to build that in Austin."

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