How Texas stole California’s tech crown

More than 465 corporations have moved their headquarters within the US since 2018, with Texas welcoming the lion’s share (209), according to data compiled by real estate firm CBRE. By contrast, 79 companies left California’s Bay Area over the same period. 50 departed Los Angeles and 21 moved away from New York City.

So what? The epicentre of American entrepreneurialism has shifted 1,500 miles east. Austin is now home not only to Elon Musk’s X, SpaceX and Tesla but to other Silicon Valley-raised tech firms like ABBYY and Larry Ellison’s Oracle. Meta is moving its fact-checkers to Texas because of “bias” and Chevron has decided it’s the best place to benefit from an energy boom under Trump.

It’s ideological, too. The Lone Star state is ground zero for conservative legal attacks on “woke” policies related to ESG, DEI, reproductive rights and corporate purpose.

• This month, a district judge from northern Texas ruled in federal court that American Airlines had failed pilots by picking BlackRock to manage part of its pension scheme, claiming it was tainted by “ESG activism”. The case could have a chilling effect, with more red states expected to cut ties with the world’s largest asset manager.
• When Texas enacted a near-total ban on abortion, 51 companies signed an amicus brief led by dating site Bumble, arguing the law was ambiguous and would restrict hiring.
• Texas Governor Greg Abbot this week threatened to sack the president of the state’s largest university for hosting a conference that limited participation to people who were Black, Hispanic or Native American.

Despite all that, plus July temperatures that rarely drop below 35C in the daytime, US companies like the look of Texas, for two key reasons.

Business climate. Among the 465 corporations surveyed by CBRE (which also moved from California to Texas), 110 cited business climate and lower taxes as the main reason for relocation. Benefits include

• no corporate or personal income tax;
• more diverse and accessible incentives like the Texas Enterprise Fund; and
• a generally lower cost of living and real estate (bar Austin, where rents are rising fast).

For Musk the upside has several commas. Bloomberg calculates he has already saved $500 million in personal taxes from the move. But it’s also true that his companies have received over $3.2 billion in direct and indirect California subsidies over the years.

Climate business. “In Texas, we're welcome… The policies are welcoming of energy companies. And quite frankly, it's lower cost of living," said Andy Walz, Chevron's president of American products, when the oil major left California in August. Oil executives in the US’s biggest shale patch are buoyant with Trump’s promise to “drill, baby, drill”, but also have Biden to thank: research estimates 34 carbon capture and storage projects in Texas, many owned by oil producers, could receive up to $33 billion in annual tax subsidies from his Inflation Reduction Act.

Tech and energy aren’t the only sectors fed up with the west coast. LA’s wildfires have underscored the intractable issue of large insurers fleeing the state. American National, AllState, AmGUARD and Chubb have all reduced or cancelled policies available to Californians, citing profitability issues and rising payouts. Employment in financial services increased 3.4 per cent in Texas 2024. In California it declined 0.3 per cent.

Silicon Death Valley? California’s total income tax collections dropped by a quarter in the 2022-23 fiscal year, due in large part to out-migration from the state. Wildfires will leave scars on the economic landscape too. But it would be foolish to write off the Golden State.

California is still the number one state to raise funds. Its venture capital volume reached $106 billion in 2023, dwarfing Texas’s $6.7 billion. Directors may feel pressure to shift their policies – or even their physical operations – to fly on the coattails of Trump and Musk, but they should be aware of the risks. If the last week has revealed anything, it’s that climate and business can be capricious.