Power Poll 2014: The Bounce Back

The 2014 Power Poll marks the twelfth year executives have weighed in on various issues that affect business for Nevada Business Magazine.Optimism characterizes the mood of Nevada executives this year. Whether it’s waving goodbye to the recession or already having moved on to bigger and better things, business owners and executives have officially brushed off the oppressive economy and are now working on the bounce back.

The 2014 Power Poll marks the twelfth year executives have weighed in on various issues that affect business for Nevada Business Magazine. Throughout the years, this poll has served as an indicator of the outlook of Nevada executives and provides a glimpse into Nevada’s business community. The survey was sent out at the beginning of this year to executives and business owners throughout the Silver State. The Power Poll is not a scientific poll; rather it asks decision-makers to share their thoughts on where Nevada’s businesses are headed in the next year or so. With hundreds of decision-makers weighing in on the 2014 poll, their observations are illustrated in the following pages as a side-by-side comparison with previous years’ polls.

This year, there was a fairly even split in responses between business owners and executives with the latter making up 51 percent of respondents. For the most part, respondents hailed from many of Nevada’s more seasoned companies, 80 percent of which have been in business for longer than 10 years. Respondent’s locations closely mirrored Nevada’s own population breakdown with the majority (73 percent) headquartered in Southern Nevada, 24 percent were located in Northern Nevada and the remaining 3 percent represented the rural communities.

Recession’s End

Positive news has been cropping up all over the Silver State as of late and that is reflected in the responses of this year’s poll. In regards to the end of the recession, Rob Hooper, executive director of the Northern Nevada Development Authority (NNDA) said, “We’ve hit it and we’re going back the other way now. There’s evidence for that just about everywhere. Look at the housing market, which was our big problem. We’re seeing new retailers coming in and companies expanding. Unemployment is going down. Every place you look, everything is going in the right direction. We’ve got a long ways to go, but we’re surely seeing the move going the right way.”

The majority of respondents agree with Hooper; 77 percent feel Nevada has seen the bottom of this recession. In the 2013 poll, only 58 percent indicated that we’ve hit bottom. In addition, this year’s poll shows that Nevada has seen a significant uptick in the economy from last year and executives have every expectation that trend will continue. An overwhelming 95 percent of those polled said that Nevada’s economy is doing about the same or better as compared to last year. As for next year, only 7 percent of respondents said that the economy would exhibit downward momentum.

“I think it will be improving slowly,” said Scott Muelrath, president and CEO of the Henderson Chamber of Commerce. “If you just take the economic impact of all these new projects, the construction value and the ripple effect that occurs, how could it not be better? I know from a small business perspective, which is largely our constituency, membership is growing. Small businesses want to market, they want to grow their business and they feel optimistic about the chances to do that now.”

Death and Taxes

It’s often said that the only sure things in life are death and taxes. Unfortunately, many executives agree that one proposed tax could result in the death, or at least severe crippling, of many Nevada businesses. Seventy-six percent of this year’s respondents indicated their concern over the possibility of a margins tax, which will be on the November ballots.

“The worst thing that could happen to us is a margins tax simply because you’re taxing revenue; you’re not taxing profit,” said Grant Sims, managing director of CBRE in Reno. “It’s taxing companies regardless of their ability to pay. We are involved in recruiting companies here and companies are starting to pick up on this ballot issue and are very concerned. I’m against it and I don’t think it is good tax policy; I hope it’s defeated.”

“It’s an ill-conceived tax and would really be a job killer,” added Tyler Corder, chief financial officer of Findlay Automotive Group. “We’ve done the math on it and what it would cost us if we paid the margins tax. The only way we can off-set the cost is to reduce expenses in other areas. Unfortunately, the only controllable expense that would make any significant impact would be employment levels.”

In addition, a state income tax is looked upon unfavorably by business execs; 89 percent answered that they would not support such a tax. David Melroy, president of MSA Engineering Consultants, an engineering firm with offices in Las Vegas, Reno and Phoenix, said the lack of a state income tax is “one of the things Nevada has going for it to draw both talent and businesses here. It’s definitely something we have over our neighbors in California and Arizona.”

“What’s critically important to me is that Nevada continues to be a leader in economic development,” added Greg Pike, managing partner for the Las Vegas division of LP Insurance. “I’m really opposed to any sort of taxes that would have an impact on the growth of businesses in our state.”

While the possibility of new taxes is an ongoing concern, 64 percent of respondents also felt that business’ current tax burden is already too much in the Silver State.

“We’re not the lowest taxed state per person,” said Suzette LaGrange, senior vice president of Colliers International in Las Vegas. “If you look at, on a state-by-state basis on tax revenues per person, we’re about in the middle of the pack. Our businesses pay most of that through the modified business tax which disincentivizes hiring because it taxes your payroll. That isn’t good when we’re trying to get our unemployment down.”

Many Nevada executives also agreed that both the mining and gaming industries were paying their fair share of taxes. Just over half felt that mining was contributing a fair amount of taxes and a hefty 72 percent of respondents said the same about gaming.

Ed Guthrie, executive director for Opportunity Village adds that the gaming industry “is the economic engine, especially in Southern Nevada. As much as we try to diversify, they are the economic engine that really generates revenue for all of us. We want to make sure that engine is protected.”

Opinions on the mining industry’s tax contribution are much more split. However, Tom Gust, the Elko branch manager of Nevada Bank and Trust applauds the industry.

“I know that the past couple of years they have actually paid taxes in advance to help the state commerce,” he said. “They paid taxes they haven’t even accrued yet. I do think they pay their fair share. I know they tried to help out when the state has had some shortfalls.”

What About Business?

Executives remain cautiously optimistic when it comes to their individual businesses. Just over half, 56 percent, of respondents said their business is doing somewhat or much better than last year, with only 13 percent doing worse or much worse.

When looking to the future, executives are even more hopeful; 70 percent expect their business’ bottom line to be somewhat or much better this time next year. In 2013, only 52 percent of respondents expected an uptick in their business’ bottom line.

Employment is another positive indication for Nevada’s businesses and many of the respondents have hired recently or hoped to hire soon. In fact Jeff Ehret, president of the PENTA Building Group said his business has been hiring since 2012. The polls agree and indicate that staffing levels are stabilizing. Seventy-one percent of respondents said they had no staff reductions in 2013.

“For LP Insurance, I see the future as extremely bright,” said Pike. “I think we will be much better off a year from now than we are today. We’re much better off this year than we were last year. We gain success as the community gains success.”

LaGrange prefers a more cautious outlook, waiting to see the results of November’s elections. “I think it’s going to be about the same. It’s going to be a really challenging year, primarily because my business relies on companies coming to Nevada and relocating here. Right now, with the margins tax looming, companies are very fearful of making that leap and move into Nevada with such a regressive tax,” she explained.

For now, the vast majority of executives feel that Nevada is a business-friendly state, though some, like LaGrange worry about the future. Eighty-eight percent of respondents said that Nevada is a business-friendly state with only 1 percent strongly disagreeing with the sentiment.

“I do think Nevada is a business friendly state,” said Guthrie. “We work hard at the local and state government levels to make it easy for businesses to incorporate, get licenses and file forms. In that respect, I think it is.”

“Absolutely,” added Muelrath. “We embrace business here. We support the infrastructure, the tax structure. It’s a great place to relocate a business. Our message about the opportunity to start or relocate a business sometimes gets lost in the powerful and necessary message of the gaming industry. A lot of the community-related perks and strengths of Nevada as a whole don’t get the proper recognition. It is a good state for your employees and staff to reside in as well.”

Healthcare, Education and Unions, Oh My!

In 2014, Nevada businesses face a multitude of issues that weren’t as much of a concern in previous years. Additionally, many executives agree that the landscape of business in the Silver State has changed dramatically after the recession. The Affordable Care Act (ACA), commonly referred to as ObamaCare, is one issue that is on the minds of many executives as the Act’s regulations for business begin to unfold. A majority of respondents (74 percent) indicated a concern about ObamaCare.

“I am concerned about it,” said Hooper. “I don’t think it was very well thought through as to what the implications are going to be. I don’t like the idea of having government run healthcare. From a business point of view it’s driving up cost. It will end up reflecting negatively on employees because businesses will not be able to afford the same level of healthcare they had in the past. I’m not comfortable with it at all. From a business point of view, I don’t know anybody that is.”

Others are adopting a wait-and-see attitude. John Restrepo, principal of RCG Economics in Las Vegas thinks that, “the jury is still out.”

He adds, “What I do know is the way healthcare was provided pre-ACA was not working either. The idea that a lot of people were using the emergency room as their insurance policy was not working well. I think it’s too early to tell. We’re probably not going to see the full impact of the ACA for another three to five years.”

Another hot topic, particularly as Nevadans work to diversify the economy, is education. The state notoriously and, unfortunately frequently, ranks low in a multitude of national rankings. Most executives (95 percent) indicated the state’s system should receive a “C” or below for the job they’re doing. On the bright side, Washoe County’s school district (WCSD) has been consistently better and the area’s graduation rates are high. In fact, WCSD’s class of 2013 recorded the highest graduation rate in the district’s history with 72 percent earning their diplomas last year.

“The Economic Development Authority of Western Nevada (EDAWN) went out and commissioned a study to look at the Washoe County School district’s performance,” said Sims. “The outcomes were very impressive.”

When asked what Nevada schools need, Sims added, “I don’t think throwing money at the education system is really the answer. It’s more reforms and other things.”

Corder felt that the system should have, “more accountability at the teacher level and rewards for teachers who are doing a great job. My sense is that there is not a great accountability and differentiation between poor performers and great performers in the education system.”

Unions are always a topic of discussion for Nevada business leaders with opinions on their usefulness varying by industry. This year’s poll indicates that 71 percent of executives feel they are not necessary for Nevada’s workforce.

“I think they provide very good training,” said Melroy. “They facilitate training for individuals and they are necessary for the purposes they serve with the bigger projects.”

“I understand why people are in unions and certainly we work closely with a lot of union employees. I’m not sure I would say they’re necessary,” added Corder.

Rating Elected Officials

As in previous years, this year’s poll asked respondents to grade elected officials based upon the job they are doing for Nevada.
President Obama received a “D”, which is consistent with the grade he’s received for his entire second term. LaGrange said, “I think he’s doing a horrible job. He’s never been in the private sector and he doesn’t know what it means to sign a paycheck. I don’t think he has any concept what these federal regulations do to a business or the impact that it has on the employee. That’s really doing a disservice to our country as a whole.”

Alternatively, Governor Brian Sandoval, has received a consistent grade of “B” (the highest overall of any elected official) for his time in office and many appreciate the work he’s done to diversify Nevada’s economy.

“I think Governor Sandoval has been fantastic,” said Guthrie. “He’s been very open and communicative about his vision. He is pro-business. I think his 50,000 job goal target is going to be met way ahead of schedule.”

Lieutenant Governor Brian Krolicki, Attorney General Catherine Cortez-Masto and Secretary of State Ross Miller will all be termed out this year. Krolicki received a “B” for his efforts, doing particularly well in the Rural and Northern areas of Nevada, and Cortez-Masto received a “C“.

Miller, who is running for attorney general, received a “B -” for his work on behalf of Nevada. Paul Steelman, founder of Steelman Partners, works with Miller quite a bit. He said, “I think he’s a good person. Nevada and the business community are definitely in his heart. I think he’s done quite a good job.”

Nevada’s federally elected officials didn’t do quite as well, with grades ranging from a “D +” for Senator Harry Reid to a “B –“ for both Senator Dean Heller and Representative Amodei.

Ranking the Issues

While Nevadans agree that there is no place like home, the state still faces a few issues that cause concerns for business executives and owners. Transportation is not one of those issues. Most respondents say that transportation, while vital to the economy, has not been a concern. This year, executives were most concerned about the quality of education.

Taxes, as previously mentioned, are also of a concern for Nevada businesses. “The biggest concern for the state of Nevada is the threat of taxes,” said Steelman. “I would say the second concern would probably be to make sure Nevada has a superior education system.”

Water issues and healthcare both ranked very highly as a concern for Nevada executives.

“Yes, I’m concerned but I have confidence that the state has its arms around the problem there and, ultimately, solutions.” Ehret said in regards to water issues. “I’ve been really impressed, having been in the Valley now 17 years, on how water conservation efforts have been handled. The results have been measurable, especially compared to neighboring states,” he added.

“The availability and cost of healthcare is probably the most important thing right now, in my mind,” said Gust. “Too many people have not been able to keep their healthcare provider contrary to what they were told. I’m even concerned about my own healthcare for next year. I’m good for this year, but I don’t know what’s going to happen in 2015.”

The state budget, especially in a depressed economy, oftentimes becomes a major issue for business executives. This year, budget shortfalls ranked somewhere in the middle.

“The state budget is, in many ways, just a child of the economy,” said Restrepo. “If you have an economy that’s growing slowly and not seeing rigorous growth, you’re not going to see the state budget grow very rigorously. We have to have a pretty healthy economy for it to produce healthy tax revenues and we’re not seeing that yet. At the state level, we’ve got a pretty good handle on the cost side of things. The state has done its best.”

Government in Your Business

In previous years, government intervention has been a big issue for Nevadans. That hasn’t changed in this year’s poll, though the questions did. For 2014, respondents were asked about specific areas of involvement and whether or not the federal government had any business in those areas. “Every businessman in the world is concerned about government involvement,” said Steelman.

Education ranked highest in this section as well in regards to how concerned people are with government intervention. “I don’t think the federal government needs to be involved with education. That, to me, is all state and local,” said Ehret.

Privacy concerns and gun control were next on the list. Non-ACA health issues, such as dietary concerns, and religion rounded out the bottom of the list of concerns.

Overall, government involvement remains a concern for business executives with varying opinions on how far that involvement should go. Hooper summarized his thoughts saying, “The government is just plain overreaching. That’s the personality of this administration, they think they can control lives from Washington, D.C. I’m very Nevadan about this. Nevadans are known for fierce individualism. Let us take care of our own business.”

From the looks of this year’s poll, taking care of business is exactly what is on the minds of many executives. The optimism of Nevada’s decision-makers will, hopefully, trickle down to the entire community and put the Silver State back on top.

Nevada Business Magazine would like to thank the hundreds of executives that took the time to participate in this year’s poll. The input of Nevada’s business community is a vital part of the magazine’s success.