Revenue – money flowing in – is the life’s blood of any household, business or organization. For the state of Nevada, revenue forecasts for 2012 and beyond are mostly positive… but continue to hinge on a variety of factors close to home and half a world away.
Progress is being made on a number of fronts to generate new and perpetuate existing revenue streams, even as dark and menacing economic clouds continue to loom on the horizon.
“As we’ve heard and seen recently, the economy in Nevada has bottomed and is slightly improving,” says Steve Hill, the executive director of the newly created Office of Economic Development in Nevada, a cabinet-level position in Governor Brian Sandoval’s administration. “I think we will see continued improvement in 2012 and beyond, and I would think that would translate into additional, somewhat growing state revenue going forward.”
“Business right now is booming,” says Somer Hollingsworth, President and CEO of Nevada Development Authority (NDA) in Las Vegas, the non-profit economic development agency whose mission is to attract companies to Southern Nevada that diversify, expand and nurture the business environment. “We’ve got a lot of expansions that have contacted us locally, which is always good. It’s easier to expand than it is to go bring a company in from the outside. And if you’ve got companies that are expanding it means business is getting pretty good for them.”
Rob Hooper, Executive Director of the Northern Nevada Development Authority (NNDA), says he’s seen “a lot stronger focus on our economy from the top down, with the governor’s new commitment to it, and looking at it as a broad-based economic growth program.” The programs are designed to improve the economy – not just relocations but looking at workforce education, capital acquisition, working with current companies in a much more committed way to help them with their bottom lines. “Obviously, if you bring the economy back you bring the revenues back. That new focus, that new sense of teamwork, is what’s being done to increase the revenues.”
The state, Hill points out, is reliant on gaming, sales and modified business taxes. “So, as tourism continues to pick up, as consumer confidence and the confidence of people in Nevada continues to improve, as the employment picture hopefully continues to improve, those are the three real driving influences for state revenue.”
One of the primary advantages Nevada offers businesses is its geographic location, which is not only next to one of the largest marketplaces in the world – California – but centered in the middle of the fastest growing region in the United States; the Southwest. Las Vegas’ McCarran Airport is a major plus for Southern Nevada, allowing easy access to customers and businesses from all over the world.
“Currently,” Bob Cooper, Economic Development/Redevelopment Manager for the City of Henderson points out, “we also have an under-utilized workforce that has talent and skill sets not recognized by outside companies, which still believe that Las Vegas is a singular economy with everyone employed in hospitality and gaming. As we all know, Southern Nevada is a vibrant commercial center of two million people with unique assets.”
The largest disadvantage associated with Southern Nevada, Cooper suggests, is that “the old-style marketing of Las Vegas as an adult playground – What happens in Vegas…” He maintains that what he calls “this cute little branding has done more harm than good from an economic development perspective.”
Taxes and Taxes
The State of Nevada, of course, has traditionally been dependent on two primary sources of revenue: retail sales taxes and property taxes. Thus, these two taxes are also the primary sources of revenue for local units of government and educational institutions. The retail sales are dependent on consumer spending, and property taxes on growing residential and commercial real estate developments.
The recession has had a “dramatic and negative impacts of these two taxes,” according to Cooper. “The State is doing what it should do to increase these two revenue sources by, one, increasing its tourism activities in both urban and rural areas, which provides more consumer spending.” These include activities such as events — NASCAR, rodeos, marathon runs, boxing, basketball tournaments, sporting events and more — and business promotions such as conventions and international meetings.
Second, Cooper points out, the State is working with businesses to expand within or relocate their operations to Nevada, creating new jobs and real estate transactions. “The cities have been aggressive with their redevelopment programs to encourage more business activities in their downtown areas.”
The growth of the Las Vegas downtown has been “spectacular” over the past five years, he insists, “and more is to come with the Zappos.com relocation and their entrepreneurial programs, the growth of the arts programs and the new Smith Performing Arts Center coming on line very soon.”
Henderson’s downtown welcomed 22 new businesses last year through its creative tenant improvement programs, façade improvements, sign grants and housing assistance programs, Cooper points out.
Economic development is usually divided into three broad categories: job creation through expansion of local businesses; the recruitment of new companies into the state; and the creation of new start-up businesses. Different factors affect each of these different types of job creation venues.
For local businesses, which create approximately 80% of all new jobs in a given area, the primary factors are usually labor force availability and costs, along with financing options to grow their companies. Due to the recession there has been a good availability for labor at good rates. Financing, however, has been a negative for many companies that use real estate as collateral for their business loans, as the appraised values of these assets have dramatically decreased, making the loans difficult to obtain.
As for new businesses wanting to relocate to Nevada, “they get both good news and bad news at the same time,” says Cooper. “They receive lower taxes to make them more profitable, but they get an under-funded educational system that does not bode well for their future workforce and their own families’ education.”
Due to the recession, the traditional number of relocations from California has decreased this past year. Companies are clearly nervous about the national economy and what the Congress will or won’t do to impact their taxes and customers. The growth in alternative energy should continue in both California and Nevada, presenting opportunities in solar development in both Clark and Nye Counties.
Diversification in Nevada has been a decades-old goal. Currently, Governor Brian Sandoval and legislature have responded to this need by passing AB 449, which reorganizes the state’s economic development programs. The bill seeks to align new State diversification strategies more closely with the regional priorities within the state.
The regional economic development objectives and actions planned are now required to match the local cities and counties. The reorganization at the regional level will be accomplished through an agreement on certain industry targets for job growth, and a commitment to include more entities in the process, such as trade organizations, the chambers of commerce and higher education. The new State economic development plan will be completed soon, and will utilize the research reports by Brookings Moutain West and SRI International on how Nevada should be more productive and accountable in its job creation strategies.
No single business segment appears at present to be leading the way, Hollingsworth explains. “It’s across the board, a little bit of everything. We’re seeing some manufacturing, which is looking both for personnel and to purchase some more capital equipment, which is good. That tells us that probably the banks are lending, which is not all bad.”
New business has likewise been coming “from all over,” Hollingsworth continues. Though NDA has focused its advertising efforts on Southern California, much of the interest continues to come from businesses in Canada. One is called Beyond the Rack, a private shopping club for both women and men who want designer brand apparel and accessories at prices up to 80% off retail. “They’re about two years old and they’ve literally just blown the doors off. This is their U.S. distribution center.”
NDA is also working with a pair of co-location centers, which house companies’ servers. Hollingsworth calls their addition “always nice because they usually use a lot of square footage.”
“It looks like we have a deal – and I say that because they’re never done until they sign a lease, and I’ve had them walk right up to the final door with a pen in their hand and then decide not to do it – with a company in the process of closing on a fairly large piece of property,” Hollingsworth recounts. “They’re an East Coast company, and they would be doing manufacturing and distribution in the food industry, which is nice.”
This past summer, it was announced that Nevada had ranked first in export adaptability according to a ranking by Ball State University’s Center for Business and Economic Research. “Our state is producing what the world demands,” said Lt. Gov. Brian Krolicki at the time. “As the domestic economy slowly emerges from the recession, Nevada has recognized that expanding to foreign markets will accelerate the state’s recovery.”
Ball State’s research showed Nevada had increased exports in sectors such as pharmaceuticals, chemicals, machinery, electrical and medical products. The state also showed “substantial” growth in exporting technology-based products such as lithium for batteries, ore for electronics, aviation-related components, primary metals like copper, gold and silver, electrical machinery and optical and medical equipment.
The growth of such projects as the Smith Performing Arts Center, The Lou Ruvo/Cleveland Clinic, the new St. Rose Hospital partnership with Stanford University, and the proposed 165-acre healthcare campus of Union Village in Henderson are all evidence of a diverse and growing community.
The Jobs Piece
“We’re in the job attraction, retention and entrepreneurial growth piece,” says Mike Kazmierski, President and CEO of the Economic Development Authority of Western Nevada (EDAWN). “If we bring jobs into the region, it tends to bring in capital investment and significant impact on the tax base. So, indirectly, we bring in revenue, but our focus is on jobs for Northern Nevada.”
Kazmierski insists that a key element of his group’s mission is working hand in hand with other organizations dedicated to Nevada’s success; in effect, being part of a team. “The team includes our partners at NDA, the State, the many business people in this region, the Chamber (of Commerce), the university. As a team we can, I think, do a much better job of telling businesses why Reno-Tahoe, or why Northern Nevada, or why Nevada anywhere.”
Teamwork is more than a well-worn phrase, Kazmierski says, but the key to very real, palpable and needed efficiencies. “We need to coordinate our efforts so we don’t have something like we have coming up: a trade show with three booths — one from NNDA, one from EDAWN and one from Nevada Energy.”
That sort of duplication of efforts and needless expenditure of resources can only retard progress and impede efforts aimed at rejuvenating the state’s economy. “That part, to me, is really the first phase,” Kazmierski underscores, “to get the team members to agree on where we’re going and how we do that.”
The greatest impact on what EDAWN and its team members do in 2012 and beyond will, of course, be the national economy. “From an attraction perspective, I think what California does to scare businesses can be helpful as well,” Kazmierski notes. “But we look beyond that and ask, ‘Why would a business want to relocate to or expand in our region?’ We identify those advantages and promote them aggressively.”
Weaknesses are also being assessed, he adds, “and that’s where our other partners get involved. What’s causing a company to think, ‘Maybe not Nevada, maybe not Reno or Tahoe, maybe somewhere else’? Let’s look at those issues and see what we can do to mitigate them. The strengths here are significant, but have not been marketed or promoted in a way that I think maximizes their impact.”
In Reno, Dermody Properties, Nevada’s largest industrial developer, is in the process of developing a 462,000 square-foot facility for Urban Outfitters. The total project, when complete, will be $60 million. Its 10-year economic impact according to EDAWN, will be $101 million, with $3.5 million in new net taxes. The project also means 160 new construction jobs plus 110 employees inside the finished facility. Also under construction is a 130,000 square-foot facility for Now Foods in Sparks, which will have an estimated five-year economic impact of more than $5.5 million.
Chairman and CEO of Dermody Properties, Michael Dermody, says he hopes to see much more projects in the year ahead. “These are exactly the kind of companies we’re trying to attract: technology based, not just traditional warehouse distribution.”
Dermody emphasizes that while filling existing facilities helps stabilize the state’s economy, new warehouse facilities such as the ones his company develops actually builds it’s tax base.
Top of mind for most management teams, of course, is finding and developing qualified workers with the proper job skills. NNDA brought and sponsored the Dream It! Do It! initiative, a program of the Manufacturing Institute, the nonprofit organization of the National Association of Manufacturers (NAM). The Manufacturing Skills Certification System is a plan to certify 500,000 community college students across the country with skills that are critical to manufacturing operations. NNDA is working with NAM and the President’s Skills for America’s Future program to implement the system, which provides nationally portable certification through competency-based education and training.
“So there is a joint effort focusing on education,” says Hooper, “combined with workforce development and economic development, a very strong partnership. I think that’s one of the most exciting programs in the state right now, that whole matrix of different assets being focused on that key element.”
Among the negatives, Hooper points out, is the fact that Nevada is “linked directly to the California economy, and of course the national economy. We are suffering from being married to this consumption bubble without really looking at the broader context of economic development.”
State and Cities
The Governor’s role “should be very active in economic development,” says Cooper, “and he recognizes that his new Office of Economic Development needs to work in concert with the regions and local city economic development professionals.” His selection of Steve Hill, a successful private sector businessman, has “sent the right message – that he is serious about this topic.”
Hill, Cooper adds, has been “very collaborative with the local cities, chambers, and trade associations. The private sector will continue to drive job creation, and the state’s role is to create a positive business environment for their success.”
Hooper praises both Governor Sandoval and Hill. “The teamwork and leadership that’s being brought to the state is helping us make quantum leaps right now as far as putting this whole thing on the right track.”
Since taking office, Hooper says, Sandoval has lived up to his promise to be a leader in economic development. “He’s done just that. He’s set a tone of teamwork throughout the state, which was much needed, and he’s brought the teams together.”
The governor’s hands-on approach has led directly to bringing companies to Nevada, he adds. “I’ve been in his office on numerous occasions with large companies from out of state considering Nevada as their home, and he’s done a stellar job of presenting Nevada and his passion and love for this state. In one company’s case for sure, their CEO, after meeting with the governor, said, ‘Prior to coming to Nevada we were going to Utah, but now we’re coming to Nevada.’ So the governor has made a huge difference and continues to do so, not only through that direct representation but by setting the policies.”
Indeed, upon taking office, the Governor’s first executive order was to put a freeze on all new regulations and to have every agency and department go through every regulation on their books “and say which of them are not business friendly, and how can we make them so,” Hooper recounts. “That is a huge, huge difference.”
Nevada’s cities can only secure revenue through the powers that the State allows them, and these activities are limited compared to other cities in other states. “The State Legislature stymies the opportunity to be more self sufficient by the cities,” says Henderson’s Cooper. “It also does not reward cities for being creative or innovative when it comes to generating new revenue.”
The universities have the same legal problems as the cities, he adds. “Creativity is not directly rewarded. For example, when UNLV successfully recruits numerous foreign students and their higher tuitions they do not get to receive their proportionate share of those new revenues.”
The issue of Home Rule, Cooper contends, is one at which the Legislature needs to take a fresh look — especially in light of the ongoing recession “and the recognition, finally, that the state is too dependent on so few revenue sources. Constant cutting of education budgets, reduction in public safety budgets and constraining innovative ideas by the local units of government will not solve our state’s budget problems. In fact, it has done just the opposite.”
Municipalities across the state, Hooper believes, appear married to the same concept as the state. “We’ve got to have a broader approach to economic development. We’ve got to look at all elements of that ecosystem, make them work with each other. It’s like the first rule of ecology: everything is connected to everything else, so you’ve got to make the whole work. And it’s that new focus on the economy, in all of its different attributes, that is going to raise revenues.”
Nevada, from what he has seen at both the local and state levels, “does not embrace the idea of popping up tax revenues,” says Hooper. “We are just not going to do that. It’s been discussed in a couple of counties, new gas taxes and things like that, and they’ve been summarily dismissed.”
Instead, the mindset seems to be “making the economy work,” he adds. “We’ve already got the right combination here in Nevada. It’s just that we’re a victim, like the rest of this nation, of the economy, and probably will get it a bit worse because we were so dependent on the consumption model of growth. Over a number of years we’ve let that dominate us, and now we’re having to kind of go backwards and do some heavy lifting. But that’s okay, we’re going to get through it.”
Hill, as others have before him, warns that Nevada’s economy “is not going to improve overnight. I think most people understand that. We’ll be working to help speed that recovery. But yes, we’ve got a lot of work to do.”