Economic Diversification on a Shoestring: Agencies Stretch Dollars to Bring in Business

In a state where gaming’s horse pulls the cart, it’s tough to snare funds for economic development efforts. While politicians say it’s crucial that Nevada diversify itscasino-dominated economy, they’re slow to put up money to lure new businesses to thestate. While it is true that serious budget shortfalls during the past two legislative sessions have hampered economic development groups’ efforts to garner more state dollars, even in good times, economic diversification efforts aren’t given high priority when it comes to funding. Many state agencies acknowledge that even in flush times, they’re often dealt meager funds to accomplish lofty goals.

The Nevada Commission on Economic Development (NCED), which works with 13 regional development authorities to help attract new business to Nevada, currently has a mere $3.8 million annual budget. To put that in perspective, consider that Arizona sets aside nearly $40 million each year to diversify its economy. Even New Mexico, with a population of 1.8 million people, budgets $6 million annually for economic development.

Still, despite small budgets and lean staffs, economic diversification groups remain upbeat about their efforts and claim they are making headway in luring new businesses to the state. One prime example of success is the Nevada Development Authority (NDA), which operates on a shoestring budget of $1.4 million. In its last fiscal year, the Las Vegas-based NDA played a role in helping to attract 55 new companies to the area. During that period, it also assisted in the expansion of nine companies already located in the region. Those efforts resulted in the creation of 7,560 new jobs that will have an estimated economic impact of some $713 million, according to figures released by the agency.

A sampling of NDA’s diverse newcomer’s list includes: Adspace, a digital mediacompany; American Tire, a maker of bicycle tires; Century Productions, a full-serviceproduction and post-production company specializing in commercials and corporatevideos; Lighting & Electronic Design, a maker of specialty lighting products;Travelswitch.com, an online travel service; and Health Imaging, a maker of a fluoride-glucose solution used in detecting cancer.

A. Somer Hollingsworth, NDA’s president and chief executive officer, says Southern Nevada’s medical industry is also heating up. Several new high-end treatment facilities have recently opened. And the upbeat Hollingsworth is confident that eventually Southern Nevada will house one of the country’s top-notch cancer-treatment facilities as well. “We’re already working with someone who has a presence in this market, and I’m extremely hopeful this can happen,” he said. NDA has also been speaking with several other notable medical institutions, which are considering moving a major division to Southern Nevada. Hollingsworth characterized them as “household names,” but declined to give more details at this time. “They’re giving us the glance, and I believe it’s a strong possibility we’ll see something happen,” he said.

In the meantime, one of NDA’s biggest challenges is luring more of Southern California’s frustrated business community to the Silver State. Hollingsworth says many companies are citing California’s energy crisis as the final impetus in a decision to relocate their operations. “The feeling for a lot of business people, especially since the state began implementing periodic blackouts, is that they need to leave California…. So we need to determine how to market to all the potential companies and get them here,” he said.

Nevada has set aside more than $300,000 specifically to fund marketing efforts to lure more California companies.  NDA will spend about $50,000 of that amount this year on a direct mailing campaign to Southern California firms. State subsidies cover only about 16 percent of NDA’s annual budget. The bulk of the organization’s operating expenses are covered by annual dues paid by its 600 members — Southern Nevada businesses.

Bob Shriver, who heads the Nevada Commission on Economic Development, admits that all 13 regional groups working with his agency are tight-pressed for funds. But he doesn’t envision that trend changing in light of the state’s small tax base. “One of the attractive features of Nevada is its low taxes,” he said. “So we must do work smarter with what we have and continue to develop strong local private and public partnerships to foster economic diversification efforts.”

In addition to working with regional groups scattered throughout the state, NCED also keeps a close watch on any legislation coming out of Carson City to ensure that it’s business-friendly and won’t hamper economic diversification efforts. In addition, the commission spends considerable time developing marketing campaigns to beef up the state’s image with the business community outside Nevada. “I think one of the biggest issues facing Nevada is how we brand ourselves in the marketplace. Our reputation is one of entertainment, so we need to figure out how to play off that to our advantage,” he said.

One effort touts the state’s high-brow cuisine, hotels and recreational opportunities in a punchy postcard campaign that the commission launched earlier this summer. It reminds business people that Nevada is a “better place to schmooze your clients.”  The agency has placed ads in various business publications in markets such as San Jose, Los Angeles and Vancouver, British Columbia. The advertisements capitalize on the state’s business-friendly environment with lines like, “You can get down to business for less in Nevada.”

NCED estimates that roughly 100 new businesses on average set up shop in Nevada each year. Some economic development experts believe Nevada lost out on a golden opportunity this past decade when Northern California’s high-tech industry experienced explosive growth. Soaring housing costs and congested traveling conditions, which accompanied the boom, prompted many Silicon Valley firms to look elsewhere in the ’90s to expand or relocate their operations. “We definitely missed out,” said one representative.

Ironically, now that the high-tech sector has slowed, Nevada is making some effort to determine what needs to be done to fill its technology void. Funds have been set aside for a task force to examine what steps need to be taken to lure more of the industry. Economic development experts hope the group’s findings will serve as a catalyst for

further action.

According to the Economic Development Authority of Western Nevada (EDAWN), the number of high-tech firms locating in Northern Nevada jumped 24 percent last year. That percentage is somewhat skewed, however, since so few were there to begin with. Nevertheless, representatives of the 140 firms that located in the Reno-Sparks and Lake Tahoe area cited a number of factors that attracted them to the region including a favorable tax climate, Northern Nevada’s quality of life and its proximity to Silicon Valley. “We’ve got a great business climate… and we’re close to the sixth largest economy in the world (California), but we’re not burdened with some of the problems California has,” said Chuck Alvey, president and chief executive officer of EDAWN.

Indeed, the Reno-Sparks area has been experiencing a real business boom the past several years. In 2000, EDAWN assisted 32 new companies locating to the area. Forty percent of those firms were from the West Coast. It’s conservatively estimated that the new companies will create some 640 additional jobs with average wages of $33,000 per year, or $16 per hour. The economic impact of the new firms is expected to be anastounding $238 million.  “It was definitely one of the best years we’ve ever experienced,” Alvey said.

The region’s recent scores include some heavy hitters such as: Michelin North America, barnesandnoble.com and amazon.com. The latter two established huge distribution centers in the Reno-Sparks market, and Michelin established a manufacturing and research and development operation. “When you get names like these and Microsoft, other companies tend to notice,” Alvey said. Microsoft Corp. has a licensing division in the area. Economic development experts expect the Truckee Meadows will continue to blossom in light of its accessibility to the Interstate-80 corridor, which is essential in servicing both Northern and Southern California. Interstate-80 also intersects with I-5, a crucial link to markets in the Pacific Northwest.

Vital transportation systems, meanwhile, are exactly what smaller Nevada communities like Ely sorely need. Hence, the White Pine County Economic Diversification Council is spending a significant portion of its efforts on purchasing the Nevada Northern Railroad, the last operating short-line railroad in the state. The system, which runs between Ely and Wells, closed in mid-1999 when the area’s copper mines shut down. The region has lacked freight rail service since. The White Pine council, which has an annual budget of  $113,000, wants to get the railroad up and running again, in part to bring crude oil in from other parts of the country. “It would generate new jobs in our area and enable other oil-related products to be made and shipped from this locale,” said Karen Rajala, coordinator for the agency. Rajala expects the deal to purchase the railroad will be finalized as early as this fall. The council has also been on a fishing expedition to determine if any energy companies would be interested in building a coal-fired plant in the area. Not surprisingly, in light of the country’s energy crunch, the council has received responses from numerous energy companies throughout the country. Still, purchasing the railroad is the agency’s primary objective at present. “It’s the key element, since we would need it to bring in the coal,” Rajala said.

Getting the railroad back on line could lead to a savings of 50 jobs and the creation of 250 to 300 new jobs, a substantial number for a small county like White Pine, which is home to some 10,000 residents. Roughly half of the county’s population resides in Ely, which sits about 250 miles north of Las Vegas at the crossroads of US 50 and US 93. Public employees constitute the largest base of the workforce in the area, which houses Ely State Prison.

While Ely is working to secure its own railroad, Elko is looking to the sky to foster further economic development. The city’s new airport terminal is expected to serve as a catalyst for light industrial development of the roughly 140 acres adjacent to it. Nancy Sheffield, executive director of the Elko County Economic Diversification Authority, said one of her agency’s biggest challenges has been getting Elko on the radar screen of prospective company transplants. In an effort to heighten more business interest in the area, the authority is using some of its $132,000 annual budget for a beefed up Web site-marketing effort called “Where in the World is Elko Nevada?”

The agency will soon have a bit more money to spread the word on Elko. The county recently passed an increase in the hotel-room tax, which jumped from 8.25 percent to 10 percent. The increase is expected to generate an additional $175,000 a year, which has been earmarked specifically for regional marketing efforts.

Meanwhile, in and around Carson City, a large manufacturing base has helped to fuel economic diversification efforts. The growth began some 15 years ago when the stateoffered companies bargain-basement leasing rates to set up manufacturing operations inthe area. “A couple of manufacturers moved here, and it began to snowball,” said KrisHolt, executive director of the Northern Nevada Development Authority (NNDA). Today, the capital region’s three counties are home to roughly 300 manufacturingconcerns. In Lyon County, those companies employ nearly 25 percent of the population. In Carson City and Douglas counties, manufacturing employees constitute 14 percent and 11 percent of the workforce respectively.

Holt estimates the region on average attracts roughly 25 new companies annually, resulting in about 500 new jobs. His two-man agency — Holt and his secretary are NNDA’s only employees — currently has a budget of about $300,000. The authority is responsible for fostering economic development in a region with a population of about 120,000. Like other economic development directors, Holt says NNDA could accomplish much more with increased funding. Agencies such as NNDA must often match dollars the state allots them. That puts pressure on the agencies to spend a lot of time on community fund-raising efforts. “The resources are already slim to none. And a lot of the businesses in smaller regions don’t have deep pockets. So that makes it extremely tough to go out and raise money,” Holt said.

If Nevada is really serious about diversifying its economy, Holt said, politicians need to loosen the purse strings. “Anyone who’s in business knows you have to spend money to make money. Everyone talks the talk, but I’ve yet to see the state lay out the kind of money (agencies) really need.”

Nevada Commission on Economic Development works with 13 local groups to promote business in local areas: