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Texas is a blue state. “What?!” you shriek. Texas is one of the reddest of the red Republican states. I mean that Texas is a blue-collar state. And its strategy for wooing companies to relocate there helps make it so. Texas governor Rick Perry goes all around the country trying to get companies to move to Texas, which, among other things, has no income tax. Texas holds down labor unions and wages, has a low cost of living with low housing prices, and has weak regulation, boasts Perry.

But, hold on. Perhaps lower taxes, cheap labor, low-price homes, and ineffective regulation aren’t what smart companies seek. Indeed, I recently came across some eye-opening data. The accounting firm PricewaterhouseCoopers each quarter publishes numbers on how much venture capital is invested in various metro areas around the United States.

Venture capital is money provided to early-stage start-up companies that often can’t get funds from traditional sources. The venture capitalist isn’t offering the young company a loan. He or she is giving the money in return for a stake in the budding firm. If the company is successful and goes public, the venture capitalist can rake in a bundle. If the company is not successful, the venture capitalist can lose. Most of these venture-capital investments go into cerebral companies — in high-tech, biotech, telecom, software, and the like.

Through the first half of this year, about $13.6 billion of venture capital poured into California. Texas took in $700 million.

Get this: San Diego collected $484 million — almost as much as the whole state of Texas. There were 52 deals in San Diego, 88 in Texas.

Silicon Valley got $12 billion of California’s $13.6 billion. The Los Angeles area, including Orange County, got more than $1 billion.

What do these numbers show? “There is not a lot of innovation going on in Texas,” says Philip Mattera, research director of the Washington DC–based Good Jobs First, an organization that opposes states trying to woo companies from other parts of the country. “Part of their appeal is low regulation, cheap labor, few unions. These don’t appeal to start-ups doing innovative things. Those companies want the most creative people, and there aren’t as many in Texas as there are in California.”

Says Kelly Cunningham, economist for the National University System Institute for Policy Research, “People want to live in California for the climate, ocean, culture, Pacific Rim location.” California is the home for “the freethinker, the outside-the-box thinker. California is a place of innovation, new ideas. Texas has a different mindset.”

Because Texas has lower wages, it’s attractive for the company “looking for the factory-type worker,” says Cunningham.

California has “intellectual capital,” says Cunningham. In my opinion, Texas has anti-intellectual capital. One proof of that is its governor, Rick Perry. The state runs ads poking fun at “big-government” (blue) states. But Texas woos companies in those “big-government” states with — you guessed it — big-government money. Texas showers money on companies that relocate there through the Texas Economic Development Act, the Emerging Technology Fund, and the Texas Enterprise Fund. They cost taxpayers tens of millions of dollars a year.

These subsidies have stirred up a lot of controversy within the state. As Mattera points out, the Texas Enterprise Fund and Emerging Technology Fund, controlled by the governor, have been widely accused of steering subsidies to companies that are big campaign contributors. Companies taking the relocation subsidies are supposed to create jobs. But when they don’t, Perry is likely to let them off the hook, says Mattera.

For the most part, companies relying on brainpower remain in California, even though the state isn’t generous with subsidies, compared with Texas.

From a purely economic standpoint, however, Texas has many advantages over California. Housing values and cost-of-living comparisons are startling.

For example, San Diego and Dallas have just about the same median household income — $47,000 a year. But according to the Council for Community and Economic Research, San Diego’s cost of living is 31.6 percent above the nation’s. Dallas’s cost of living is 4.3 percent below the nation’s. According to Zillow.com, the median home price in San Diego is $474,300. In Dallas, it’s $145,500. According to Payscale.com, if you earn $60,000 a year in San Diego, you can maintain the same living standard in Dallas for $44,099 a year and in Austin for $42,893.

Now look at Silicon Valley. The San Jose median home price is a whopping $815,000, highest among the nation’s 35 largest metro areas. In Houston it’s only $145,700 and in Austin $211,700. The people in Silicon Valley stay there because that’s where the jobs are and that’s where the lifestyle is. The companies want to stay because that’s where the talent is — and no thanks to cheap labor and low taxes.

Of course, the salaries are higher in the center of technology, too. Median household income in the Bay Area (San Francisco, Oakland, San Jose) is $63,024, highest in the nation. That takes some of the sting out of the high cost of living. Houston’s median household income is $44,761, and its cost of living is 1.8 percent below the nation’s.

California’s 13.3 percent top income-tax rate, 8.84 percent corporate-tax rate, and $1426 property-tax collections per capita make it one of the highest-tax states in the nation, says the Tax Foundation. Texas has no income tax, but its property-tax collection per capita, at $1557, is higher than California’s.

Warns Cunningham, “At some point, California’s attractive lifestyle, high home prices, [tough] regulation, and high taxes have an impact.” In fact, that may be happening now. “In the last five years, [San Diego’s] population of 35- to 49-year-olds has decreased 4.6 percent. Those wanting to buy a house and have a family are looking at the housing market and seeing they can’t afford it.” The population of those 0 to 19 years of age has declined almost 2 percent in the same period. Cunningham thinks those leaving are going to other Western states, including Texas.

But history shows that people go where the jobs are. And as long as the companies wanting creative techies stay in California, despite the costs, the best and brightest will continue to come to this state.

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Comments

danfogel Aug. 27, 2014 @ 11:31 a.m.

"San Diego collected $484 million — almost as much as the whole state of Texas." I guess if you call 69% "almost as much." To me that's like a kid who gets a C-on a test saying he did almost as well as the kid who got 100 on the test, though I do understand the comparison that you are making.

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Don Bauder Aug. 27, 2014 @ 2:40 p.m.

danfogel: Well, I guess you could call it hyperbole. But on the other hand, San Diego is the third largest metro area in California, and it gets 69.14 percent of what the entire state of Texas gets.

Dallas/Ft. Worth is the fourth largest metro area in the nation. Houston is the fifth largest. San Diego is seventeenth. San Jose-Sunnyvale-Santa Clara (Silicon Valley) is thirty-fourth. I think it is pretty impressive. Best, Don Bauder

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monaghan Aug. 27, 2014 @ 4:43 p.m.

Very interesting story, Don, thank you. I was just on a plane with a man who was contemplating a move from Temecula to Houston for exactly the reasons you describe. And I know an extended family of hard-working blue-collar Latinos who moved from Orange County to San Antonio where they have non-union jobs, houses with big yards and much lower taxes. Everybody loves California, but it exacts a price that some people cannot afford.

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Don Bauder Aug. 27, 2014 @ 6:51 p.m.

monaghan: I understand Houston gets so wet-hot in the summer that you walk one block and your clothes are soaked from the heat.

There is no question that Texas has a lower cost-of-living. Also, Kelly Cunningham is right to observe that California taxes and prices may come back to haunt the state. Best, Don Bauder

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Don Bauder Aug. 27, 2014 @ 6:56 p.m.

Richard Rider, No. 1: The factors you cite about California -- leading to artificial scarcity -- may partly explain why pooled investor money has poured into the state's three metro areas despite the extremely high prices. Housing prices in SF, LA, San Jose, and San Diego have absolutely soared since the end of the Great Recession, even though they were extremely high at the start of the downturn. Best, Don Bauder

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Richard Rider Aug. 28, 2014 @ 8:12 a.m.

Yes, housing prices in these primo locations have soared back to pre-recession levels. Of course, continuing low interest rates have helped.

But assuming that interest rates rise to a more normal level (1-2% higher than current rates), this housing boom will come to a screeching stop. People simply could not qualify for home loans and/or would choose not to pay such high rates.

Rising home prices has been great for us home OWNERS, but not good for our younger population which has to pay the government scarcity-created prices (or higher rent).

As a result, California ranks 49th worst for percentage of home ownership. http://riderrants.blogspot.com/2013/02/more-dismal-california-economic-rankings.html

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Don Bauder Aug. 28, 2014 @ 8:36 a.m.

Richard Rider: No argument here. Rising prices are great for sellers but not for buyers. And extremely high home prices could certainly be a major factor in California ranking low in percentage of families owning homes. Best, Don Bauder

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Don Bauder Aug. 27, 2014 @ 7 p.m.

Richard Rider, No. 2: I don't doubt that adjusted for cost-of-living, Texas salaries are higher than those in California. I think you can glean that from the charts here and in the print edition. Of course, housing prices are the biggest factor in cost-of-living. And there are a lot of people who have lived in their houses for a long time -- paid down their mortgage and maybe even paid it off. Best, Don Bauder

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Richard Rider Aug. 27, 2014 @ 8:51 p.m.

Don, it's okay to "doubt that adjusted for cost-of-living, Texas salaries are higher than those in California," but the evidence seems pretty strong that such is the case. Housing costs are a HUGE portion of a person's (especially a FAMILY's) COL. If you have statistics that refute this -- if the COL differential is significantly less than my sources say, please publish how much (with source, of course).

Here's more to consider: According to the U.S. Census Bureau, the 2012 median household income in California was $57,020. Texas was $51,926. Hence the median Texas household earns 91% of what a California household earns. Surely you understand that the COL differential is bigger than that 9% differential -- housing cost alone more than makes up this differential. Then there's that income tax difference to consider. https://www.census.gov/hhes/www/income/data/statemedian/

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Don Bauder Aug. 27, 2014 @ 10:47 p.m.

Richard Rider: You misread what I wrote. I said, "I don't doubt that adjusted for cost-of-living, Texas salaries are higher than those in California." I was agreeing with you. I also agree that housing is the biggest portion of cost-of-living stats, and I have stated that in response to your statements.

I did say -- and I doubt that you would disagree -- that for those who have paid down their mortgage significantly or paid it off completely, the c-o-l is not as bad as it is for the younger people. Best, Don Bauder

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Richard Rider Aug. 28, 2014 @ 7:56 a.m.

You ARE correct -- I DID misread it. My apologies.

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Don Bauder Aug. 27, 2014 @ 7:12 p.m.

Richard Rider, No. 3: Here is where we part company. As I have said many times before, I believe private equity investors are bandits, pure and simple. They take over a company, pile it with debt to pay themselves fat dividends, thus lowering their own investment sharply, then carve up the company as it dies from debt overload.

At least half of private equity operations are based in offshore tax havens, largely the Cayman Islands. They are avoiding United States regulations, and also, sometimes, our taxes.

It is a feather in California's cap that it has kept private equity bandits out of the state, at least as compared with Texas. You wait until you see what happens to those Texas companies that have been taken over by private equity firms.

Best, Don Bauder

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Richard Rider Aug. 28, 2014 @ 8:01 a.m.

I find this assertion puzzling. Apparently you consider venture funds pouring into California for tech a GOOD thing, but funds pouring into Texas businesses a BAD thing.

I don't understand the difference -- it's private funding. Should you not be railing against venture capital ruining our CA tech industries? Seems to me you are PRAISING this trend as a GOOD thing (which I agree with -- it IS a good thing).

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Don Bauder Aug. 28, 2014 @ 8:47 a.m.

Richard Rider: There is a huge difference between venture capital and private equity capital. Venture capitalists back a budding company and get a piece of the equity, win or lose. Private equity firms buy existing corporations or divisions of corporations, pile debt on it to pay themselves huge dividends, then carve up the debt-laden company or sell it for junk. There is huge jobs loss.

Venture capital financing is eminently legitimate, except in cases when a company that won't have a viable product rushes into the IPO market and everybody gets rich on a product that is not successful.

Private equity is a scam by definition. It is legal rape. Mitt Romney, whose Bain Capital is one of the worst, used to say the process was creating jobs. Utter balderdash. The purpose of private equity is to destroy jobs and make quick bucks for the crooks making the buyout. Best, Don Bauder

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Richard Rider Aug. 28, 2014 @ 9 a.m.

Don, you think private investment is bad, I think it's good. You see rape (is that an economic term?), I don't.

"Private equity is a scam by definition"??? I'm not sure what dictionary you are referencing. For one company to invest in another (profit making) company is a scam? Yet for a private company to invest in a start-up company is good? Oh my!

You claim some FUTURE meltdown in Texas as these nefarious corporate investors gut the companies -- which of course is impossible to refute, as there's ALWAYS the future -- it never gets here. So far -- in spite of this evil investing has been going on in Texas for decades -- your concerns seem to lack substance. Perhaps you can cite some gutting in Texas, along with the magnitude of such transgressions.

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Don Bauder Aug. 28, 2014 @ 11:45 a.m.

Richard Rider: I think you still don't grasp the difference between venture capital and private equity capital. Venture capital goes into emerging companies. Private equity capital goes into existing companies or divisions of companies. The private equity firms immediately piles debt on the company being taken over, and pay themselves a huge dividend. Thus, the private equity people have little of their own money at stake. But the target company is now laden with debt -- often destructive debt.

Venture capital normally serves a purpose. On balance, it creates jobs. But private equity capital destroys the target company and destroys jobs. Best, Don Bauder

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Don Bauder Aug. 27, 2014 @ 7:18 p.m.

Richard Rider, No. 4. I haven't studied the figures you provided on jobs, so I can't argue. They are similar to arguments Rick Perry uses. The important factor is the quality of those jobs, not the quantity. Since Texas median income is higher when adjusted for cost-of-living, I am sure you assume that Texas is providing better jobs.

But I, for one, would sure as hell not want to work on an oil rig in the Houston area. Best, Don Bauder

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Don Bauder Aug. 27, 2014 @ 7:21 p.m.

Richard Rider No. 5: There is no question people are leaving California, including San Diego. One person in particular stands out. John Moores took more than $1 billion out of San Diego and rode off to Texas (Sugarland, in the Houston metro area.) Best, Don Bauder

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monaghan Aug. 27, 2014 @ 10:46 p.m.

Gosh, I'd forgotten all about John Moores and his vaunted philanthropy that included largesse to city councilmembers who subsequently voted to provide taxpayer funds to finance building his baseball Padres Petco Park.

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Don Bauder Aug. 27, 2014 @ 10:52 p.m.

monaghan: Yes, that kindly John Moores showered gifts on the former city councilwoman Valerie Stallings. She got a wrist slap. He didn't even get that. But when someone slips lavish gifts to a councilmember, there are two people involved in the transaction: the giver and the taker. In San Diego, the giver got off completely, and the taker hardly suffered. Best, Don Bauder

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Richard Rider Aug. 28, 2014 @ 8:05 a.m.

As you well know, I'm no fan of John Moores. You and I were prominent critics of the Petco Park giveaway. He's a "rent seeker" -- trying to earn profits via government subsidies that he can't earn in the free market.

But I take no joy in the departure of wealth (and jobs) from California to Texas.

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Don Bauder Aug. 28, 2014 @ 11:50 a.m.

Richard Rider: Yes, we fought together on the Petco Park scam. We lost. I, too, do not like to see wealth and jobs go from California to Texas. Best, Don Bauder

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QueenMe Aug. 28, 2014 @ 10:27 p.m.

Well, don't forget that when one moves to another state such as Texas or Nevada with lower home prices, they will be paying much HIGHER utility bills for heating and especially cooling in the hot, summer months. At least a mortgage is tax deductible (for now, anyway). I personally would rather pay more for a house that will undoubtedly appreciate (in a coastal area) than buy a cheaper home, with an exorbitant utility bill and be stuck with something that will barely be worth what I paid for it. My opinion only.

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Don Bauder Aug. 29, 2014 @ 8:14 a.m.

QueenMe: You have a point. San Diego's cost-of-living is among the highest in the nation. But one component of the c-o-l, utilities costs, is only about 8 percent above the national rate. That's despite the fact San Diego Gas & Electric consistently has among the highest electricity rates in the nation. Reason: San Diegans use less electricity.

However, if you eliminate utilities from c-o-l, San Diego is still a very expensive place in which to live. Ditto for San Jose, San Francisco, Los Angeles. I doubt that you would be better off paying for a very expensive house in San Diego than buying a much cheaper one in Houston or Dallas. You might be better off if San Diego housing prices keep escalating at current rates. But I don't think that will last. Best, Don Bauder

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leolionlady Aug. 29, 2014 @ 1:37 p.m.

You derserve a MILLION KUDOS for this Comment. That's exactly how I explain it to friends. It's not WORTH the hassle to pack up and move to states like TX & NV. If in the long run , and after all Monthly expenses are Paid. It calculates out to be the SAME as what you THOUGHT you were running from. It makes no sense. Great Comment ☺

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Don Bauder Aug. 29, 2014 @ 8:22 p.m.

leolionlady; If thinking about leaving California, you have some important things to consider: 1. If you have almost paid down your mortgage, or paid it off, you have taken care of most of the high cost-of-living; 2. Moving, as you say, is a hassle; 3. You are taking a gamble on lifestyle. You may find prices cheaper but life less fulfilling. Best, Don Bauder

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leolionlady Aug. 29, 2014 @ 12:54 p.m.

FINALLY ! An article of substinance in the Reader. I was losing a lot of Faith. How long have we heard Texans BRAG, about having no regulations, lower tax rates, and just plain ole "ALL THINGS GO IN TEXAS?" We've seen their Governor tawt around this Country soliciting Companies to bring their Businesses to TX. Yet. Nearly a Whole Town was wiped out, due to NO REGULATION. Chemicals can be stored as close to a School or Residential Area as they like...due to NO REGULATION. And to solicit companies, as though he's CREATING new jobs for his State. Is as DUMB a thinking, as he looks and sounds. When you solicit a company to move to your state. They are then giving up the employess in THAT STATE. To go to Texas and get a whole new Staff . That will then be paid far less than the employees that got the AXE ! Great Article. It seems as though there's still some hope in the Reader.

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Don Bauder Aug. 29, 2014 @ 8:31 p.m.

leolionlady: I didn't mention that explosion in the Texas town because my memory tells me it was a failure of federal regulation as well as state regulation. But your point is well taken: regulation may be a nuisance to corporations, but it can save consumers. For example, I want securities regulation to be stronger federally and in the states. I want strong food safety regulation (mainly federal). I want tough utilities regulation (something California lacks).). Some regulation is essential to a civilized society. Best, Don Bauder

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