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San Francisco was awesome—until it wasn’t. Silicon Valley and San Francisco became the epicenter of the technology revolution that changed the world. Moving to San Francisco was like the Gold Rush all over again. It was the mecca for young people to earn their fortunes. They could find themselves the CEO of a fast-growing company going public and reap multimillions or billions in a hot IPO.
As time passed and greater numbers of fortune seekers arrived, the rents and home prices became exorbitant and taxes relentlessly increased. As the costs rose, the quality of life deteriorated. Commuting was miserable. The streets were dirty and residents had to deal with a frightening level of crime and open drug usage.
Residents could deal with it all—until the pandemic hit. Then, they were left with all of the bad stuff—stuck in a cramped over-priced apartment and unable to avail themselves to all of the amenities, cultural events, restaurants, concerts and nightlife that the city used to offer. Slowly, then suddenly, people started leaving.
The first wave of high-profile people and companies departing California included Elon Musk, the wealthiest man in the world for a brief moment, supplanting Jeff Bezos. Musk, the CEO of Tesla, grew weary of fighting petty political bureaucrats and jumping through oppressive regulatory hoops. Musk told the Wall Street Journal, "For myself, yes, I have moved to Texas." He continued, "We've got the Starship development here in South Texas where I am right now. We've got big factory developments just outside of Austin for Giga Texas as well."
The New York Times reported, “California, with its steep housing costs, raging wildfires and strict business regulations, has been losing residents to other states, with Texas as the most popular exodus destination. Of more than 653,000 people who left California last year, about 82,000 went to Texas, more than any other state, according to census figures.”
Hewlett-Packard, the eponymously named company of the two original founders and grandfathers of Silicon Valley, who started their company in a Palo Alto garage back in 1939, will relocate its headquarters from San Jose, California to Houston. Coincidently, Drew Houston, the CEO of Dropbox, said the company is moving to Austin. Oracle, led by billionaire Larry Ellison, moved its headquarters to Austin because of California’s high tax rate, exorbitant living costs and the ability to have remote workers.
After a while, Miami, seemingly out of nowhere, started capturing the attention of the California tech migrants. Venture capitalist Delian Asparouhov may have started a relocation movement from Silicon Valley to Miami in a tweet, writing, “ok guys hear me out, what if we move silicon valley to miami?” Francis Suarez, the Republican mayor of Miami, answered back, “How can I help?”
“The tweet got 2.3 million impressions,” Suarez said. “It was organic, it struck a nerve—lightning in a bottle.”
Since the initial tweets, Suarez has been actively courting top-tier tech executives. He has communicated with Elon Musk, Twitter CEO Jack Dorsey, former Google CEO Eric Schmidt and Peter Thiel, the chairman of Palantir.
The mayor is on a charm offensive. Suarez is hyping the fact that Miami will offer a business-friendly environment and be responsive to the needs of the incoming tech companies. Suarez, to demonstrate his sincerity, promises to hire the city’s first technology officer to provide “concierge services” to the companies once based in Miami. This is part of the strategy to show that they want to help companies, while California doesn’t show them the love and attention—except when it comes to raising taxes.
It's likely that we’ll see this story playing out all across the country. Unless city and state-elected politicians make changes, the flight out of high-taxed, expensive cities will continue unabated. As corporations and well-paid, white-collar workers leave, the cities will bear the brunt of plummeting tax revenue. The decline will force mayors to drastically cut costs. This will include massive layoffs of teachers, police officers, firefighters, garbage collectors and other municipal workers. With less services, the cities become dirtier, crime increases and living conditions worsen. This will prompt even more people to move. A cascading downward spiral could occur, making places, like San Francisco, dangerous and inhospitable.
The absence of a state income tax, plus warm weather and a business-friendly mindset, has already prompted hedge fund billionaires and native New Yorkers Paul Singer and Carl Icahn to relocate their respective businesses to Florida. Leon Cooperman, the billionaire former hedge fund manager and CEO of Goldman Sachs Asset Management, previously moved to Florida. He said of his move, “I suspect Florida will soon rival New York as a finance hub,” due in part to the “Tax and Spend” policies of New York.
A number of bankers told their boss, Ken Moelis, the CEO of his eponymous investment bank Moelis, that they wanted to leave New York City for Florida. In response to their request, Moelis replied, “We’re a talent business. I want to attract, I want to motivate and I want to retain the greatest talent in the world. And if that talent wants to do it in Florida, that’s where we’ll support them.” Moelis, according to a Bloomberg interview, will consider opening or expanding offices, as his employees decide to relocate to cities where tax rates are lower, the climate is warmer and the government is friendly to business.
Charles Gasparino, the long-time chronicler of Wall Street, wrote in the New York Post, “Many other banks and financial businesses are now seeking to move out of the once-friendly confines of New York City, which isn’t so friendly anymore.” He added, “The trend has been a slow burn over the past two decades, but now it has kicked into high gear thanks to [Covid-19], spiraling costs and a feckless political class that runs this city and state.” Gaparino said about JPMorgan’s CEO, “[Jamie] Dimon, I am told, vetoed a plan several years back to move a swath of the bank to south Florida because he didn’t think the schools were good enough. Now, he appears to have changed his mind and is considering plenty of relocations outside New York City.”
Forward-looking places, like Miami, that have business-friendly mayors, like Suarez, low taxes and incentives for people to move—including beautiful warm weather and beaches—will see their cities flourish.