Business Unfriendly: The Regulatory Burden Crushing California Enterprises
Last month, Rubio’s Coastal Grill announced the permanent shutdown of 48 of their California locations. Ralph Rubio opened his first restaurant in 1983 in San Diego with a loan from his dad. After years of effort, Rubio’s expanded to approximately 200 locations throughout several states. Traditionally, this anecdote would serve as an example of the power of the American dream, but now the story of Rubio’s seems to be an example of the opposite: the harmful effects of California’s economic policy.
Rubio’s shutdown comes shortly after Governor Newsom signed into law a minimum wage increase for fast food workers (ensuring, of course, that his donors were strategically exempt), A spokesperson for Rubio’s Coastal Grill stated that though the decision was “painful,” the closures “were brought about by the rising cost of doing business in California.” This is a blow not just to the Rubio’s customer base and the employees of those 48 locations, but also the everyday Californians who are struggling due to the high costs of living and doing business in the state.
As California Policy Center President Will Swaim wrote in response to Newsom’s State of the State Address, “The hike in fast food wages has led to predictable outcomes – thousands of layoffs, stores closures and menu price hikes… the goal was always to create disruption in an industry that unions could not successfully organize in order to force other industries to compete for low-level workers with the artificially high wages in fast-food.”
The Bureau of Labor Statistics reports that from November 2023 to April 2024, the unemployment rate in California grew slightly from 5.1 percent (revised figure) to 5.3 percent (preliminary figure). While California has weathered worse unemployment, the state cannot afford to lose revenue from unemployment (because jobs mean payroll taxes) and business closures (because businesses mean taxes for both the state and local governments), not to mention unemployment payouts.
It is no surprise that California continues the trend of being ranked the worst state for business in 2024, according to a survey of more than 600 US CEOs by Chief Executive. Their 2024 survey ranks California at 50th place – unchanged in rank since at least 2014. The 2023 edition of the survey was very clear as to why California continues to rank so low: “The Golden State’s anti-business policies have been chasing enterprises to elsewhere for many years.”
Additionally, last year’s California Competitiveness Study found that among business executives, “a recurring theme [of the survey] centered on the concern for the state’s ability to remain competitive, given the high cost of doing business in the area and the chronic lack of housing affordability.” While some optimism about doing business in California remains, the business experts “mentioned concerns about taxation and regulation, as well as a sense that elected officials either ignore the needs of business or do not understand how business works.” This election cycle, Gov. Newsom and California’s leaders would do well to take the business community’s concerns seriously.
Last year’s “America’s Top States for Business” study, published by CNBC, found that although California was not the lowest scoring state overall, it continued to score low in a number of vital categories. California was ranked 45th for the cost of doing business, a category which will likely be much worse this year due to the increase in taxes and minimum wage. California also scored 47th for business friendliness, a marginal increase from its 48th place the previous year. And finally, and worst of all for the average Californian, the state ranked 49th for cost of living. This is not surprising, since Californians consistently pay more than any other contiguous state for groceries, gas, and many other basic needs. On June 27, John Lansner with the Orange County Register reported record California home prices, with a median home price of $908,040 in May.
The problem has become so undeniable that even prominent Democrats are finally addressing it. Speaker of the Assembly Robert Rivas said in a recent Fox11 interview that “you’re not going to convince me that residents today are better off today than they were a decade ago.” The question for Californians: who has presided over this trend? And the answer is clear: It is Speaker Rivas’s own party which has been holding the reins of the state for over a decade.
To fix the economic issues which are preventing California, and its residents, from achieving the prosperity the state used to promise, Californians should consider voting for legislators who prioritize hard-working Californians over special interests and government unions. California leaders should make simple changes to help businesses flourish. Lowering the corporate tax rate and easing business regulations would be good places to start.
Timothy Belev is a student at Jessup University and a Policy Research Intern at California Policy Center.
Sheridan Swanson is the Research Manager at California Policy Center.