Published: Reuters
By: By Jim Christie
Date: July 27, 2011

* California companies look to Texas for growth
* Soul searching over why Golden State tarnished
* Less regulation, fast permits key assets for Texas

Texas is the heavyweight champ among states in luring businesses and it's likely to keep the title by treating California like a punching bag.

The beating has started to prompt some soul searching in California's capital, where heaping scorn on Texas is routine, and may gain wider attention in the near term should Governor Rick Perry, Texas' most prominent salesman, join the field of Republican presidential contenders.

Longer term, California risks more companies turning to Texas or other states, more trouble for a job market already weakened by the recession and the housing bust. Some executives say California has only itself to blame.

"I'm looking at a state that is shooting itself in the foot," said T.J. Rodgers, chief executive of Cypress Semiconductor Corp (CY.O: Quote, Profile, Research, Stock Buzz), noting that while the company's headquarters remain in Silicon Valley he looks beyond California for expansions because of the state's many and complex business rules.

Frustration over regulations likewise helped spur John Kinzell to move Xeris Pharmaceuticals to Austin, Texas, from Larkspur, California, last year.

"Texas has never created that kind of, you know, regulatory spaghetti bowl," said Kinzell, chief executive of Xeris, a start-up pharmaceutical company focused on diabetes.

STRIKING A CONTRAST

For California, every job lost to Texas or another state is another blow in efforts to turn around its economy. California, the most populous U.S. state which would rank as the world's eighth largest economy if it were a country, has the nation's second highest unemployment rate, at 11.8 percent in June. That's well above the national average of 9.2 percent and even further above Texas's 8.2 percent rate.

While Texas has its own concerns -- the nation's second most populous state faced a two-year budget gap of up to $27 billion earlier this year -- few doubt its growth. Economists at Wells Fargo Securities forecast Texas will see ongoing payroll gains across several industries.

Many of those jobs have come at California's expense. Texas tops all states in company moves and expansions from the Golden State, said relocation consultant Joseph Vranich.

"What Texas has going for it is not just a promotional campaign. That just brings to light what it has going for it: fewer regulations, lower taxes and no income tax and a welcoming attitude," said Vranich.

Texas also opens its wallet to woo businesses. Last year it announced a $3.1 million grant for a support center for PETCO, the pet specialty retailer, in San Antonio, and a $1.4 million grant for a Facebook facility in Austin. Both companies are headquartered in California.

To those outside California, Texas has long been a keen rival for business.

"You always have to compete hard against Texas," said Bill Jabjiniak, economic development director for Mesa, Arizona.

Still, many in California dismiss Texas and say its success at luring businesses is based on relative economic strength because it was spared the housing bust that has plagued California's economy.

They also point to some of California's great strengths, ranging from companies like Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) and Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz), to Silicon Valley and its venture capital hub, and Hollywood and gateway ports to Asia.

Some also say California's push for a clean-energy economy will revive its fortunes.

"The future of energy is not Texas oil -- it's California sun," Governor Jerry Brown tweeted this week.

GOING AFTER GROWTH

But some companies -- even those with roots in California -- say the future is elsewhere.

CKE Restaurants won't add to its count of Carl's Jr restaurants in California, where they got their start in the 1940s, because it is fed up with regulation and concerned about the state's hard times.

"You can stand in the restaurants and hear it," said CKE Chief Executive Andrew Puzder. "All the opening-week sales records used to be in California. Now they're all in Texas."

CKE may also move its offices to Texas, an idea that the Texas governor proposed to Puzder -- and which sparked a response by California's governor. After learning of Perry's pitch, Brown called Puzder at home to discuss keeping CKE in California.

"He obviously understood the issues," Puzder said.

But the appeal may be too little too late. "If things don't change materially, we'll seriously have to consider moving," Puzder said. "If Texas is where we're growing, Texas is where we need to be."(Editing by Peter Henderson and by Leslie Adler)