15 Dec 2020 21:31 IST

Goodbye California, and hello Texas!

Texas flag is displayed in a music class at Tibbals Elementary School in Murphy, Texas.

No state tax and friendly approach to business are some of the reasons why Texas is a solid replacement

In the contest to attract large multinational companies to a state, Texas won again last week. The big catch this time was the announcement that the database and enterprise software giant Oracle was moving its headquarters from Redwood Shores, California, to Austin.

The earth shattering news shook the technology industry in an area that precariously sits on an active tectonic fault. But unlike seismic events that are largely unpredictable, corporate relocations from California to Texas have been going on for years. And the storyline gained cultural heft when the world’s second richest billionaire, Elon Musk, a long-time California resident, said that he has himself moved to the Austin area. Tesla and SpaceX have huge operations in the Lone Star State.

Two weeks ago, it was the giant HP Enterprise division that announced that it was moving to Houston, a blow that struck Bay Area types really hard. Bill Hewlett and David Packard were the first to create the cookie-cutter story of technology success associated with Silicon Valley. They graduated with degrees in electrical engineering from Stanford University (in 1935); started their company in a Palo Alto garage under the tutelage of a Stanford professor who became their friend; and began innovating and developing technology products that the world had yet to see. Most historians credit HP as the symbolic founder of Silicon Valley.

Shifting the spotlight

In the last four years, so many corporations have moved to Texas that it is hard to keep track of the numbers. Toyota, whose North American headquarters were in California’s Bay Area, is now well established in Plano. McKesson Corp., the nation’s largest pharmaceutical distributor, relocated its headquarters from San Francisco to Irving. Google, Apple, Amazon, and Dropbox are expanding campuses in Austin. Fifty seven Fortune 500 companies call Texas their home, up from 52 just four years ago, and tied now with California.

Covid-19 unearthed a few secrets of the workplace. Employees could be just as productive if they could work from home (WFH). Employers realised that workers prize precious hours that are otherwise wasted, such as during office commutes. Rather than multi-task in a train, bus, or car, workers could spend commute hours to keep fit, help children with homework, or pursue a home improvement project which was previously only possible during weekends.

But workplace choices are hardly binary. People who chose WFH options still want to gather in the office for an occasional meeting by the water cooler or to put out project fires. The ideal solution was to allow employees to largely decide for themselves.

Affordable costs

For decades, Bay Area companies have been struggling to address two big gorillas in the room: Help reduce crazy commutes and improve opportunities for affordable housing in the proximity of their huge campuses. Today, many Bay Area employees live two hours away from their offices because the outlying areas are the only ones that provide affordable housing. Northern California’s age-old zoning regulations and peculiar geography, with nearly 180 degrees of space unavailable for housing because of the Pacific, have forced sprawl to grow east, north, and south.

When companies move to Austin, Dallas, or Houston both problems are solved in an instant. Texas is huge in size and there’s plenty of land available in a 360-degree sweep around the large metros. Because of milder winter weather, home construction happens year-round resulting in more inventory and lower prices. A new 4-BR home with a two-car garage and 3,500 sq.ft of living space, with a large backyard, sells in the suburbs of Dallas or Houston for about $425,000. A similar home in California can cost over $2.5 million.

Texas has an excellent road transportation network — with many private-public-partnership-run tollways — that the state continues to invest in and improve. A two-hour commute in California can drop to 30 minutes in Texas if a relocating family chooses wisely. If Texas commuters complain about long driving times at all, it is not because the state is not investing in its infrastructure. It is that Texas is growing much too fast.

If affordable housing and commutes were the only considerations, tech companies could move to Kansas or North Dakota. What makes Texas such an attractive place is the construct of the state and it’s very philosophy of existence.

Ease of doing business

Texas cherishes its small-government culture. In part because of its huge oil wealth, it has no state income tax. Residents of California, New York, New Jersey, Illinois Connecticut, Rhode Island, and Massachusetts pay steep income taxes to pay for numerous government programmes. New Yorkers pay the highest rates of about 12.7 per cent of income. Politifact estimated that in 2012, a single New Yorker earning $250,000 paid nearly $100,000 in federal, state and city taxes. The same person living in Texas would have paid $32,000 less.

Texas’s approach to business is extremely friendly. Suing a doctor’s office for wilful malpractice is not an easy thing to do in Texas. Tort laws punish litigants, because the loser pays the cost of frivolous lawsuits. During the Great Recession of 2008, Texas created more jobs than the remaining 49 states combined.

Texas invests heavily in education. Its K-12 curriculum is among the nation’s best. The Texas Education Agency (TEA) significantly reformed standards in 2015, adding numerous courses to get students to be career-ready after high school or college-ready. Introducing endorsements in STEM, business, and humanities for high school graduates was innovative as companies could hire based on student interests, knowledge, and skills.

The higher education system is among the nation’s best. The University of Texas at Austin, the state’s flagship, is a tier-1 public Ivy League research university for over 35 years. Selectivity rates for students admitted in the holistic pool drop to five per cent, on par with elite schools such as Stanford or Harvard.

One hundred miles away is Texas A&M, in College Station — another huge tier-1 public research university which runs its own nuclear facility and is a NASA space-grant institution. Sixty miles further east is Rice, a premier private research university known for its leadership in engineering, sciences, and the arts. The University of Texas MD Anderson Medical centre in Houston is the world’s most-recognised facility to fight cancer.

The Dallas-Austin-Houston triangle can rival Bay Area resources at a fraction of the cost for both companies and employees. Texas is an outdoor enthusiast’s paradise. The state is large, the weather is bike-friendly for nearly eight months in a year and when it comes to natural sights to explore, there is something for everyone.

“I have been on the phone on a weekly basis with CEOs across the country, and it’s not just California,” Texas Gov Greg Abbott told CNBC, referring to how companies in other states were actively considering moving to Texas.

We know why.