Why Silicon Valley goes to Miami and Austin, Texas

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Why Silicon Valley is going to Miami and Austin, Texas

Miami Mayor Francis Suarez has responded to numerous inquiries from top tech executives who have contacted us over the past few weeks – from Tesla CEO Elon Musk to Twitter CEO Jack Dorsey. He has reportedly met with former Google CEO Eric Schmidt and Palantir Chairman Peter Thiel, among others.

What does it offer that Silicon Valley cannot? The mayor tries to convince them that Miami promises a more business-friendly environment.

“There’s no other secret sauce than my Twitter account,” said Suarez as he shaved and prepared for another day of messages from inquiring technicians. “There is absolutely no doubt that a large part of the reason they moved is because they feel like there is an inhospitable environment for regulation and taxation.”

On Tuesday, Miami will attempt to respond to these Silicon Valley deals with the appointment of its first chief technology officer. Suarez said the new CTO will “provide concierge services,” like streamlining bureaucratic procedures, for high-tech companies when they come to Miami.

“There is an attitude that has been expressed by some executives: ‘We don’t want you and we don’t need you,” Suarez said, alluding to how entrepreneurs say they feel they are being treated in Silicon Valley. “It is the opposite of ‘How can I help?’ Attitude: “How can I let this ecosystem grow?”

Leaving cities

While Silicon Valley is by no means ceasing to be the center of the tech industry, an undeniable migration to cities like Miami is underway for some of Silicon Valley’s elite: Reddit co-founder Alexis Ohanian moved from San Francisco in 2017. A year later, Shervin Pishevar, a venture capitalist, bought a home in Miami Beach in 2018. In late 2020, Jonathan Oringer, who founded Shutterstock and became an investor, moved to Miami, as did other notable venture capitalists including Keith Rabois and David Blumberg.

It’s not just Miami that is experiencing this migration. Last month, technology giant Oracle announced that it was moving its corporate headquarters from Redwood City, California to Austin, Texas. Other such moves include Palantir, who camped for Denver while Musk said he moved to Austin last month. Hewlett Packard Enterprise also announced last month that it was moving its headquarters from San Jose, California to a suburb in Houston.

Hewlett Packard Enterprise spokesman Adam Bauer wrote in an email that tax considerations did not “drive” the decision to relocate the company to Texas and that “the move of Bay Area team members in roles identified as eligible, entirely is voluntary “.

“We made a decision to move our headquarters to the Houston area to meet business needs, long-term cost savings opportunities, and team members’ preferences for the future of work,” he also wrote.

Tesla and Palantir did not respond to NBC News’ request for comment.

It is telling enough that the rate of increase in the San Francisco Bay Area has still declined by over 35 percent – the largest decrease of any metropolitan area recorded – according to data reported by LinkedIn itself. Experts following this migration predict these numbers could rise.

“There is a mini exodus of tech companies leaving the valley and I think that will accelerate in 2021,” said Dan Ives, financial analyst at Wedbush Securities.

However, the reasons why many companies are moving are more complex than you might think. Tax experts say companies don’t necessarily move their corporate headquarters out of tax incentives. Instead, helping them pay workers relatively less at a lower cost of living can be a long-term game.

Corporations may also seek to circumvent or mitigate the effects of existing or future state and local laws in a known politically liberal state such as California.

“You will always have the vast majority of the tech companies that come down down the valley and you can’t do that anywhere else,” said Ives. “But if you look at an Austin, it creates a mini Silicon Valley at half the price for the average employee.”

Cheaper workers

Tax law experts say companies like Oracle, which have long had auxiliary offices in numerous American cities, including Miami and Austin, still have to pay the same taxes regardless of where they are based.

“From a corporate tax perspective, moving out of California doesn’t change the tax burden,” wrote Gabriel Zucman, economics professor and tax expert at the University of California at Berkeley, via email.

Deborah Hellinger, an Oracle spokeswoman, declined to comment.

However, tax experts suggest that over time, Oracle and its colleagues may phase out higher-paid California employees in favor of lower-paid Texas employees. These companies can also make it easier to give employee increases because they live in a location with a lower cost of living.

“While many companies say they can make people work from anywhere, most say we will slow the raise instead of dropping them,” said Brian Kropp, an analyst with IT service management company Gartner.

Kropp said he spoke to senior officials from several Fortune 200 companies who are considering moving their corporate headquarters. In short, moving employees from California to Texas could mean long-term savings in corporate costs, which means higher payouts for top executives at those companies.

“The compounding effect results in a margin of 3 or 5 percent that leads directly to profit,” said Kropp.

Darien Shanske, a law professor at the University of California at Davis and an expert on state and local taxes, said that by moving to cities like Austin or Miami, businesses will continue to leverage the “agglomeration,” the economic idea that companies have and economic Activities are physically grouped; companies can grow there more easily.

“I think Oracle is thinking, ‘Look, we can go to Austin and we’re getting an agglomeration because we need that talent,” he said, pointing out that Oracle doesn’t need to disrupt its existing workforce in California or California anywhere else.

“California screwed it up, but not because of tax policy – its decade-long problem of not producing enough housing,” he said. “It’s probably cheaper and easier to build this in Austin.”

Legal threats

Some companies also expressed concern about the growing number of state laws targeting wealthy people and businesses, Kropp said.

As an example, he cited the landmark California law of 2018 that requires companies headquartered in California to have at least one female director on their board of directors. By the end of 2021, companies with six or more directors must have at least three female directors. (In the case of Oracle, before moving east, the company had 15 directors, four of whom are women, as of its June annual report.)

In addition to state laws mandating increased representation of women, other industry observers pointed to the early efforts by California and New York to collect a wealth tax.

Last year, California Convention 2088 aimed to impose a new 0.4 percent tax on those with assets over $ 30 million and prosecute those who had left California in the past decade – which, however, failed in the legislative period. A bill will now increase income tax for those who earn more than $ 1 million annually, and also for businesses to raise billions of dollars to meet the needs of the state’s homeless population.

Cities like San Francisco, following in the footsteps of Portland, Oregon, have already imposed new taxes on large corporations that have high CEO salaries, regardless of where a company is headquartered or incorporated.

“Does it make a difference to corporate executives?” Asked Kropp. “Yes, because if there’s a tax for executives, it’s important to them.”

Miami’s bait

Miami seems to address many of these corporate concerns. Philippe Houdard, CEO and co-founder of Pipeline Workspaces, a collaborative workspace, said the business and technology scene in Miami has exploded in recent weeks. In fact, it has been so flooded with inquiring technology companies that a local WhatsApp group called “Miami Tech Life” reached its capacity of 256 employees.

“I’ve never seen anything close to what’s happening now,” he said. “It’s mostly California people, many from San Francisco, LA, and New York.”

But Suarez, the mayor, anticipates the calls will continue, noting that Miami’s perspective is shaped by the legacy of the Cuban revolution, whose authoritarian regime drove so many from the island decades ago.

“It’s a very stark contrast for us,” said Suarez. “We feel we should have the limited amount of government we need.”