CORPORATE MIDTERM ARBITRAGE

WASHINGTON - The results of the US midterm elections delivered the once unthinkable: After several pivotal flips, Democrats ​will soon control the governors' offices of 9 of the 10 largest state economies. Republican-imposed ‌business-friendly policies that attracted Elon Musk and others to move their corporate empires to Texas from California, however, won't just fade away.

For decades, Republican governors crowed that their states were magnets for investment. They painted California, New York, and ​Illinois — longtime Democratic strongholds — as high tax, crime-ridden, and hostile to innovation. They’ve often succeeded: of ​late, the list includes software company Palantir(PLTR.O) and hedge fund Citadel relocating to Florida, ⁠ditching Colorado and Illinois, respectively.

Corporations' first reason for transferring headquarters was to consolidate operations, per a CBRE survey ​followed closely by lower taxes and a cheaper cost of living. Their top destinations were Dallas, Miami ​and Austin.

Even so, companies won’t just stop choosin’ Texas because Democrat Gina Hinojosa won the governorship. The oil and gas sector made Houston their global capital, luring Chevron in 2024 from California, and also enticing ExxonMobil (XOM.N) to move within the ​state, from Dallas, and redomicile from New Jersey, its legal home since the 19th century. Devon Energy (DVN.N) ​and Expand Energy (EXE.O) are headed to Space City too from neighboring low-tax Oklahoma. Beyond network effects, Texas has no state income ‌tax, ⁠a fact enshrined in its constitution restricting lawmakers no matter their political affiliation.

The status quo won't prevail everywhere: development and environmental reviews, especially for data centers, are likely to get stricter. Texas is home to Oracle (ORCL.N), Musk's Tesla (TSLA.O) and SpaceX (SPCX.O), and construction giant Caterpillar (CAT.N) — a recent arrival from Illinois. Georgia, which houses a longtime ​Google site and Ohio, ​the fifth largest state ⁠for server farm investments, will have new Democratic governors elected to rein them in. A swap in party of the state attorneys general may lead to ​more investigations. Wage and labor laws could also change.

Years of growth have transformed these states and shifted demographics. Texas adds over a thousand new residents a day. The Atlanta, Georgia area, home to Coca-Cola (KO.N) and Delta Air Lines (DAL.N), grew by 94% between 1990 and 2020. Success ⁠brings ​new problems, and new politics — but Houston wasn’t built in ​a day.

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