This new year will forever be characterized as the year that began in one of the worst economic recessions in history. With that discouraging note, many executives are choosing to focus on the possibilities evident in the future rather than the downfalls we’ve seen in the past couple of years. In the eighth annual Power Poll executives surveyed had a much more realistic view of the economy and what they can expect for their businesses in the next few years.
No one could have predicted the downturn would last this long or stay this strong and Power Polls from years previous are proof positive of that. In March 2009, executives expected the downturn to last anywhere from 12 to 18 months. This year, many are predicting Nevada will see at least another 12 months of economic downturn. On a positive note, many feel that a turn-around cannot be defined by a time period but will rather be a gradual increase throughout 2010.
The Power Poll survey was administered in December of last year to business owners and executives throughout the state. Respondents were headquartered throughout Nevada with 23 percent from Northern Nevada, two percent from Rural Nevada and the remainder from Southern Nevada, giving a fairly accurate reading of Nevada’s executives. Nearly half (47 percent) of the companies these executives represent have been doing business in Nevada for over 20 years and have been a part of the many changes the Silver State has gone through.
A sampling of the participants were interviewed to learn more about their views on Nevada’s economy and where they see us headed in the near future. The numerical results of this survey can be seen throughout the following pages. Previous years’ surveys are comparatively marked to provide a historical reference.
One new question on this year’s poll was, “How concerned are you with the trend of government intervention in our country?” For the most part, Nevada executives are very concerned about the role of government.
Mark Bailey, owner and managing partner of Mark Bailey and Co. said, “While there is certainly a need for government, we’ve far over-stepped what was ever intended by our founding fathers.”
“I’m concerned about our direction as a whole, where we are heading,” said Charlie Nguyen, director of University of Phoenix’s Southern Nevada campus. “I don’t necessarily think the solution will come from the government.”
Tyler Corder, CFO for Findlay Automotive Group commented, “I feel that government involvement never seems to improve anything. I’m much more of a private enterprise fan and letting the government oversee, but not get too involved.”
“I run along the basic philosophy that if something is not working very well, one thing is for certain, government intervention is not going to make it any better,” added Cary Richardson, vice president of Miles Construction.
The Bottom Line
Many executives are hopeful they will see an uptick in revenues for their businesses by next year. While there has been an increase in those who are less hopeful and feel things will be much worse next year, many expect things to improve.
“I think we’ll see a slight increase in overall business volume,” said Dominic Brunetti, a partner and vice president with NAI Alliance in Reno. “The indicators we look at from a transactional volume standpoint leading into the end of 2009 and the beginning of this year point towards a more active 2010.”
“We’re seeing that things are stabilizing,” adds Richardson. “Hopefully there will be some trending up but at the very least it has stabilized and there is less competition.”
There is also a correlation between individual businesses’ profit and the economy of Nevada as a whole. Executives feel that if Nevada and the nation can improve, their business will improve alongside it.
“A lot of it has to do with the local economy which I think will be better,” said Corder. “I think the national economy is going to get better and as people feel more comfortable with their income, they’re going to travel and spend more which is obviously going to benefit Nevada.”
“I don’t think it’s going to be a record breaking year, but I do see a lot more signs of hope than we saw this time last year,” said Tyler Jones, owner of Blue Heron Companies, a Southern Nevada homebuilder.
The primary consensus is that we have a long road ahead of us. “We dug ourselves a pretty deep hole and I think it will get slightly better, but it will be a long road back,” said Dr. Ronald Kline, a partner with Comprehensive Cancer Centers of Nevada and president-elect of the Nevada State Medical Association.
“Realistically, I don’t think we’ll ever get back to where we were a few years ago and hopefully we never will,” said Jones. “I think it was pretty clear there was a bubble and that was not going to be sustainable. I hope we never go back to that type of growth.”
Richardson added, “I’m hopeful we’ll start to see a slight improvement in 2010 and more improvement in 2011. My biggest concern is that it doesn’t truly rebound. We’re not in a position, at least in the construction industry, to be able to manage any sort of quick recovery. It would most likely boom to crash. I’m hopeful that it is a very gradual sustained recovery and we don’t come out of this too quickly.”
Nevada’s gaming community has certainly seen rough times. The slowdown in tourism has been detrimental to the economy and the state’s lack of diversification has caused Nevada to be one of the hardest hit throughout the recession. Slightly over 70 percent of respondents feel that the gaming industry is paying its fair share of taxes.
On the other hand, respondents also felt that businesses in Nevada have too high of a tax burden with almost 64 percent agreeing that the business’ tax obligation is too much.
Despite feeling that Nevada’s businesses are over taxed, almost 95 percent of respondents agree that Nevada is still a business-friendly state, but many are concerned it won’t remain that way. In response to whether or not Nevada is still business-friendly, Corder said, “A few years ago, I would have said an absolute, unqualified yes, but I think it has started to go the other way a little bit. But, it’s still more business-friendly than most of the other states.”
With the challenges Nevada is facing as far as the major shortfalls in the state’s budget, there is a very thin line the legislature must walk in order to keep our state business-friendly. Clearly, Nevada’s government has a rough road ahead of it.
“The legislature is going to have to look at anything and everything and put it on the table,” said Larry Charlton, senior vice president and Nevada regional executive of City National Bank. “Bluntly, the shortfalls are going to have to be solved by a combination. There’s only two ways to do it, you cut expenses or you increase revenue, that’s the way we do it in our own checkbooks.”
Bailey adds that, “It’s time for our legislature to make some hard decisions and to make some cuts, just like the rest of us do in our day-to-day business transactions and in our homes. They’ve got to live within their means. They are now answering questions they should have addressed, but they stuck their heads in the sand during the last legislative session.”
The question now becomes, how do we fill those gaps while keeping Nevada a state where companies want to relocate and do business? Many feel the solution doesn’t lie in creating a state income tax, with an overwhelming number of respondents, 89 percent, saying they do not support a state income tax.
Nguyen commented that, “As a state and as a community, we’re not healthy, we’re not doing well. Everyone has to shoulder the responsibility and everyone has to jump in and try to figure out what we need to do. Taxes are a by-product of the income. A lot of businesses in the community are struggling. Obviously when you are struggling you’re going to have to tighten your belt and take appropriate measures. But, I think taxes are just reactive at this point. If you’re looking to grow the economy, we need to look at measures that will stimulate the growth.”
“I think it [lack of income tax] is one of the advantages Nevada has; it makes us unique and makes us a friendlier state for people and businesses to relocate to,” said Corder. “Adding a state income tax will take away that advantage that we’ve got.”
Economic Recession and Turn-Around
In almost every indicator, Nevada has been one of the hardest-hit states which is evidenced in the over 13 percent unemployment rate as well as leading the nation in foreclosures with approximately one in every 82 homes in Las Vegas filing for foreclosure. This strain has taken a toll on business in the Silver State with almost 68 percent of companies having to reduce its staff. However, there are indications that the layoffs are reducing and companies will be able to start hiring again in the near future.
“Our staffing level is down from two years ago,” said Corder. “It’s been a gradual reduction over the last couple of years. I think it has stabilized over the last three to four months and I don’t see it shrinking. I suspect it will start to grow again.”
Bailey adds, “We’ve retrenched and I would say, at this point, I anticipate hiring in the next year.”
Despite being hardest hit in the nation, Nevada executives hold a cautious optimism that the recession has bottomed out or will in the near future., However, many maintain that Nevada’s recovery will be a slow, but hopefully, steady progression.
“From our business standpoint, it feels like we’ve hit bottom and we’re beginning to feel the resurgence of people wanting to do commerce,” said Brunetti.
“I think things are leveling off but it’s such a far reaching recession that there are still industries that haven’t seen the bottom,” said Richardson. “There’s still new issues that haven’t come up and we haven’t seen yet, but I think overall, things are stabilizing.”
For several years, Nevada’s education system has received some of the lowest marks in the nation and Nevada’s executives seem to agree. Almost 90 percent of respondents indicated the education system deserved a grade of C or below, with the majority of respondents saying it was below average.
“If you look at the statistics, actually we’re doing a pretty poor job in promoting education and having a culture of education,” said Nguyen. “With that being said, you can say that we’ve done a poor job and shame on us or you can look at it and say, ‘Wow, we have nowhere to go but up.’ What a great opportunity. I don’t think we’re there yet but what a great opportunity we have as a community and as a state to improve our education system.”
Nguyen is optimistic that Nevada’s era of being known as one of the states with the lowest quality of education will come to an end, but it will take a lot of hard work to get there.
“The leaders in this community are standing up and saying enough is enough,” said Nguyen. “We’re not pro-education in this state and we have to make long-term decisions and long-term investments into this community”
Charlton agrees that education is important to the growth of the economy. He said, “The way to grow and diversify your industrial/corporate business base is to have the availability of an educated workforce. If you want to gain some very high-end businesses, then we need to be able to supply those businesses with the educated workforce that they demand. To be able to get diversity of business types, we need to drive the tax revenue and employment numbers.”
A touchy subject these days, Nevada politicians remain a sore spot for many executives and with 2010 as an election year, many changes are expected. Governor Gibbons is not living up to expectations with many executives, most notably in Southern Nevada where executives gave a grade of F.
“I was a little disappointed in the last legislature because I felt that, at a time when we needed conservative leadership in a democratically controlled legislature, Governor Gibbons’ attitude seemed to be, ‘If you won’t play my game the way I want to play, I’m just not going to play,’” said Bailey. “He became reclusive from the process. Had it not been for Bill Raggio, I think we would have been in a lot worse shape. Raggio compromised and got the Democrats to compromise on a lot of the proposals they were trying to put forward. Gibbons tried to take a strong arm approach. I agree politically with his approach to governing the state, but I thought from a leadership standpoint he was ineffective.”
It’s generally agreed that while Senator Ensign has some strong political views, his personal problems have gotten in the way of his effectiveness in doing the job he was elected to do. Many agree that Senator Reid is no longer looking out for Nevada’s best interests but has rather decided to push through a political agenda that has little or no benefit for his constituents. Representatives Berkley and Titus both seem to be skating under the radar in this election year and received average marks for the job their doing. The politician with the most favorable record is Representative Heller who was the only elected official to receive an overall A grade in any area.
Kline summarized it by saying, “I’m disappointed that all of our public officials are highly partisan and that they are not working well together. What I would like to see is people working together to solve problems and I’m disappointed that all of elected officials haven’t found a way to work together to find some sort of middle road they can agree on. We send them to Washington or Carson City to get the job done and at the end of the day they are supposed to come to some sort of agreement or compromise and I’m not seeing that happening.”
Keep On Hangin’ On
While many Nevadan’s are struggling to stay in business, many business-owners and decision makers remain hopeful that the worst is over and we can look forward to a brighter future. The concern is slowly moving from, “When will this end” to “What can we do to keep it from happening again?”
“I’m concerned about the diversification of the economy,” said Corder. “When gaming falls off, that affects everything. We’re so dependent upon one industry that we are at risk of suffering worse in a recession like we are in now.”
“What is stable for business?” asks Nguyen. “In my opinion, it’s a diversified and educated workforce. I don’t think we have it. I think we’ve been leaning too far in one direction for the last 50 years and it’s hurting us right now.”
“I think we still have a ways to go,” said Bailey. “A lot of the businesses that failed initially were businesses that didn’t have the strength to withstand the initial recession. Unfortunately, this has gone on so long now that even well-run businesses, that shouldn’t have had any problems, can’t continue to sustain themselves without growth and a healthy economic climate.”
It is helpful to realize that coming out of this recession, Nevada will be a lot leaner, meaner and smarter. State leaders are learning that Nevada isn’t recession-proof and preparing for change will only serve to make us stronger. With that in mind, Nevada’s road to recovery will be a long and bumpy one.