In the thirty-four years since 1990, thousands of companies have left California for more affordable cities in other states. The magnitude of these departures has been well documented in the media, with major news outlets referring to it as a “corporate exodus.” Some CEOs have cited strict local regulations and cost of living increases as the cause of the migration, but additional factors have played into it. Notably, more than half of these companies headed to the same three cities: Austin, Phoenix, and—most often—Las Vegas. What was it that made these cities appear more ideal than California? And do they actually live up to all the hype?

As is sometimes the case, the headlines don’t tell the whole story. Ultimately, it all came down to cost, or, at least, assumed cost. These cities seemed “more affordable” to strained companies seeking relief. Sure, when assessed on a single issue like office rent, Arizona is cheaper than California. However, conducting business involves more than just paying for office space. 

Claremont McKenna College’s Rose Institute of State and Local Government recently released their 2024 Cost of Doing Business Survey. The study included 216 cities in the Western United States, 174 of which are in California. The cities were ranked from least to most expensive based on several factors: sales tax, utility tax, business license fees, average office rent, FBI crime index, median home value, and minimum wage. Each city was assigned a score between one and five, with five being the costliest. Two of the Survey’s top 30 least expensive cities are part of our region: Menifee and Wildomar. We’ll highlight the significance of that soon. First, let’s look at how the Temecula Valley stacks up against a few of these popular relocation destinations.

Our region was given an overall composite ranking of 2.25, which came in lower than Austin’s (2.29). This is important because a relocation within California to the Temecula Valley would cost substantially less than a relocation out of state. The companies that left for Austin may have had the impression that Texas was more affordable than California, but it’s clear from the comparison chart that they’re competitive. If these companies had conducted a thorough analysis of what our region has to offer versus the alternative, they likely would never have left the state. After all, Southern California is home to the second-largest logistics and distribution hub in the country as well as more than 30 colleges and universities educating more than 110,000 graduates a year.

We can look at the individual numbers to determine how these cities performed in the study. Taxes are a major consideration when starting a business. While our combined sales tax rate was higher than that of Austin, Las Vegas, and Phoenix, it was lower than both Denver’s and Seattle’s. Our region is not subject to utility taxes, while Austin, Las Vegas, Phoenix, and Seattle pay a rate that ranges from 0.58% to 6%, which can greatly impact a manufacturing facility’s bottom line.

Establishing a business can be expensive, but it depends entirely upon where you set up shop. Although Austin, Denver, and Phoenix don’t charge fees for business licenses, they can range from $200-$500 in Las Vegas and from $68-$3,011 (depending on taxable revenue) in Seattle. Meanwhile, our regional average business license fee is only $74.80.

Renting office space is more expensive than Temecula Valley’s average price in all but one of these cities. Our average office rent per square foot is $28.87, while Austin ($41.81), Denver ($36.45), Las Vegas ($30.23) and Seattle ($43.13) all charge more. Only Phoenix beat our average cost by $2.26 per square foot ($26.61). 

Median home price varies between locations, but not as much as you might think. Las Vegas has the lowest at $435,000, followed by Phoenix at $453,000 and Austin at $455,000. Denver is next at $560,934, with our region at $630,500 and Seattle at $885,000.  Like in many other desirable locations, home prices in the Temecula Valley have risen since the pandemic, as people have discovered the high quality of life, amount of open space, and success rates of schools. Throughout the region, thousands of homes are under construction in all categories, including apartments, townhomes, starter homes, and larger estates. This has contributed to holding prices steady while keeping up with the ongoing demand.

Naturally, the minimum wage varies across the country, largely due to the cost of living. While our regional average is $16 per hour, Seattle’s minimum wage law guarantees their workers at least $17.25 per hour and $19.97 for workers in certain sectors. And as of January 1st, 2024, Denver’s minimum wage is $18.29 plus CPI. On the other end of the pay scale, Phoenix’s minimum wage is $14.35, Las Vegas’s is $12, and Austin’s is a mere $7.25.

Thus far in our exploration, Phoenix is beating us in the numbers game. But there are areas where they didn’t come out on top. The local crime index is an important consideration for any move, and our region has the lowest rate of these cities.  This is one area where Phoenix can’t measure up to the Temecula Valley. Our crime index rate is 22.19 while Phoenix’s is 37.36. In fact, the crime index rate in all five of the cities we’ve covered is markedly higher than ours. The Temecula Valley’s safety and its family-oriented communities are two key factors that have contributed to the expansion of its neighborhoods and businesses for years.

How else is our region a better choice for companies than Phoenix? When it comes to access to business capital, the Southern California region has more to offer. In CNBC’s 2023 Top States for Business ranking, California received an A+ in access to capital and was ranked #1 in the nation while Arizona received a C+ and was ranked 17th. Statewide, California had $58B in venture capital investments for 2023. More specifically, Southern California raised $12.3B in venture capital while Phoenix merely raised $1.6B. Globally, venture capital prospects decreased following the 2021 pandemic boom. Nationally, states saw an average decrease of 28% in venture capital in Q1 2024. However, Arizona was hit particularly hard, raising only $273.9M in Q1 2024 compared to $636.7M in Q1 2023.

What about the local workforce? Our region is more educated: census data shows that 89.34% of our residents have a high school diploma compared to 83.9% of Phoenix’s. We’re also better equipped to accommodate higher learners given our proximity to colleges, universities, and research institutes. According to the U.S. News & World Report, five of the nation’s Top Ten public universities are in California. Additionally, we provide upskilling resources to the community through workforce training funds that cover costs for training new employees and upskilling existing ones. The Temecula Valley also has the distinction of having over 122,000 residents who commute out of the area each day. While this may not sound like an advantage, it means that employers don’t have to look far to find highly skilled workers who would gladly give up their four-hour daily commute to work closer to home.

As mentioned earlier, Menifee and Wildomar made the Survey’s list of the top thirty least expensive cities, with Menifee at number 12 and Wildomar at number 27. As the largest city in our region and one of the fastest growing in the state, Menifee has over a million square feet of industrial space in development. It continues to be a top destination for families seeking a safe community where they can buy an affordable home. Wildomar represents one of the only cities with commercial development available on the 15 freeway. A quiet community with huge room for growth, it’s extremely accessible yet still provides the opportunity to live a rural ranch lifestyle. These two cities have helped to put our region on the map, and now that they’re among the list of least expensive cities for companies, they are right on the money.
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California is a large state that is home to a richly diverse group of regions, cities, people, and assets. While the media might like to paint the entire state as too expensive for businesses, our region is seeing record growth at prices that are clearly competitive. We remain an ideal area for companies to thrive while providing access to world-class talent, infrastructure, and logistics, safe communities, high-quality education and—inarguably—the best weather in the country. It seems there are more than just a few good reasons to choose Temecula Valley.