Each year, Nevada Business Journal asks business owners and CEOs in the Silver State to respond to questions about Nevada’s economy and political environment. In the fifth annual Power Poll, those answering our 2007 survey expressed overall optimism about the outlook for their companies and also for the state as well. However, Nevada’s lackluster educational system, rising healthcare costs, an increasingly expensive housing market and perennial staffing shortages are among the many challenges that could present roadblocks along the state’s path to a rosy future. We interviewed several business leaders, to gain their insight and personal opinions on the issues so we could pass their observations on to our readers.
State’s Economy Looking Up
A solid 60 percent of Power Poll respondents think Nevada’s economy is on an upswing, with none at all checking the “much worse” option. Bill Martin, chairman, president and CEO of Nevada State Bank, said, “Nevada’s economy is already pretty strong, so it’s hard to say it will get ‘much better,’ simply because there isn’t room for a whole lot of improvement. A number of huge,high-end projects are in the works on the Las Vegas Strip. In fact, a recent report [from Deutsche Bank Securities] said the Las Vegas casino industry will need to hire more than 113,000 workers by 2012 to support all these new projects. So, growth isn’t showing any signs of slowing down. In addition, over the next year, the inventory of resale homes will approach more normal levels.”
David LaPlante, CEO of Twelve Horses, a marketing technology company based in Reno, also mentioned large-scale construction activity as a reason for optimism. “When you set out to develop a large project, you’re working on a 10- to 20-year outlook,” he said. “All the activity in both Northern and Southern Nevada is a sign of long-term confidence in the economy. Station Casinos’ two resort projects are going to put Reno back on the map for gaming. As for downtown revitalization in Reno, it’s not so much the projects, but the increase in cultural opportunities that has us excited. We’re bringing in the creative class – the 20- and 30-somethings who wouldn’t otherwise come to a sleepy, boring downtown. Now that they’re attracted to Reno, it bodes well for companies who are looking for that type of employee.”
“Northern Nevada is experiencing some really exciting trends,” agreed Ellen Oppenheim, CEO of the Reno-Sparks Convention and Visitors Authority (RSCVA). “In Reno, currently under development are several hotel expansions, downtown condo projects, new specialty retail venues, transportation projects, the downtown Events Center and the Downtown Ballroom building across from the Events Center. All these things show a growing confidence in the marketplace.”
LaPlante was also enthusiastic about the outlook for entrepreneurs in Nevada. “IBM’s acquisition of [Las Vegas-based high-tech firm] SRD in 2005 was big news, not only for Nevada’s tech industry, but also for entrepreneurship in Nevada in general,” he said. “It showed you can raise capital, grow your business and sell it in Nevada. Right now, the ability to raise capital is the best it’s ever been.”
LaPlante continued, “You know people are optimistic when they think what’s going on in the Legislature won’t be able to derail the economy.”
Bottom Lines Looking Healthy
More than 73 percent of the business owners and CEOs who esponded to this year’s Power Poll survey believe their company’s bottom line will improve this year. They cited various factors affecting their individual firms and industries, but also mentioned the positive outlook for the state’s overall economy. Kevin Rabbitt, president and CEO of GES Exposition Services, a convention support company with offices in Las Vegas and Reno, said, “In 2006, we increased our bottom line 10 percent, and during the coming year, we’re also expecting to expand, not only because of increased growth in conventions, but also due to our recent acquisition of Melville, a British company.”
Oppenheim said the RSCVA is developing a new strategic plan with input from the community and stakeholders, and predicted 2007 will be “a promising year.” J. Stuart Hitchen, managing principal of the Las Vegas office of WRG Design Inc., a civil engineering consulting firm, said, “I’ve been with the company for nine years, and the last half of 2006 was the best six-month period we’ve ever had. I’m looking forward to an even better year in 2007 as the overall market improves.”
Rating Nevada’s New Governor
In last year’s Power Poll, business leaders were asked, “If the election were held today, who would receive your vote for governor of Nevada?” Although more than 25 percent were still undecided when responding to this question in February 2006, Jim Gibbons led the pack of gubernatorial candidates at 34 percent. Having won favor with last year’s Power Poll respondents and voters alike, how confident are business leaders in 2007 that he will do a good job for Nevada?
Most people surveyed seemed to adopt a “wait and see” attitude as the new governor began his term and faced the challenge of dealing with budget and legislative issues. Martin of Nevada State Bank responded, “About the same,” commenting, “Saying I have the same amount of confidence in Gov. Gibbons as I had in Gov. Guinn is still pretty high praise.” Mike Beardslee, president of IT Strategies International Corp., a computer consulting firm based in Las Vegas, said he had more confidence in the new administration, citing the fact that the business payroll tax was implemented on Guinn’s watch. “Gibbons is trying hard to hold spending down and says he wants to reduce the percentage of the business tax,” he noted. “Whether this will happen or not remains to be seen, but at least he’s proposing it.”
LaPlante of Twelve Horses had less confidence in the new governor’s ability to accomplish his objectives, noting, “Gibbons came into the job with a big public relations issue hanging over his head, and it’s distracting. It reduces the propensity of the other side to listen objectively. Guinn had strong leadership and could get things accomplished. However, at the end of the day, our fate is really in the hands of the Legislature.”
Are Gaming Taxes Fair?
Of the nine questions on the 2007 survey, this one seemed to generate the most unease in respondents. Many preferred not to be quoted on this issue, and some returned their ballots with this question left blank. This would seem to indicate that perhaps business people don’t want to generate any potential ill will with the powerful gaming industry, which wields enormous political and economic clout in Nevada.
Martin of Nevada State Bank said, “I believe what they pay is pretty fair. It’s not as much as the taxes paid by gaming companies in other states, but we should remember that gaming has carried Nevada since the 1930s. As soon as people see that your business is successful and earning a lot of money, they want to tax away that money, and then you lose the incentive to be successful. During the last legislative session, I supported the movement to spread the tax burden over the entire business community instead of making gaming carry the entire burden.” Michael Dermody, president and CEO of DP Partners, a logistics company based in Reno, said, “I chose ‘disagree’ simply because if we look at other states with gaming, Nevada’s taxes are not nearly comparable. However, the gaming industry is the backbone of our economy, and we’ve reaped a lot of benefits from it.”
Business Climate Still Attractive
As in previous years, a vast majority of business leaders (more than 96 percent) agreed that Nevada is a business-friendly state, chiefly because of its lenient systems of taxation and business regulations. Bill Oakey, Southern Nevada regional president for First National Bank, chose “strongly agree,” explaining that Nevada’s business climate is good for his bank’s clients, which are chiefly local businesses. He remarked, “If I owned a company in California, I would seriously consider moving to neighboring Nevada for the tax advantages. In addition, we have good airports, a good freeway system and great weather, which are often factors for businesses that depend on shipping.”
Dermody of DP Partners noted, “The tax structure has historically been inviting. Many people don’t know this, but Nevada’s 1949 Freeport Law attracted distribution centers and logistics companies here. The Reno area now has the highest concentration of distribution and logistics companies per capita of any city in the U.S. We have good tax laws, but the favorable business climate is also fueled by employees who maintain a good work ethic and dedicated attitude compared to other areas of the country. We have a tight labor force, but a good one.”
Help Wanted in Nevada
More than 78 percent of firms reported some problems in recruiting and retaining staff, compared to 72 percent last year. Andy Katz, who heads Manpower Inc. of Southern Nevada, a staffing firm, reported he is not having problems attracting employees. “It’s a mixed bag. Recruiting is a challenge in certain areas, especially for skilled labor. There’s no problem finding entry-level or semi-skilled people,” he said. “Some of the problem areas are construction, healthcare, finance and high-tech. That’s one reason recruiting companies are becoming the way to go. Businesses are outsourcing to staffing firms for higher-level positions. Talented people are already working somewhere, so you may have to recruit them away from other companies locally, or bring them in from somewhere else.”
Oakley of First National Bank agreed with this assessment, saying, “Finding qualified employees is difficult in Las Vegas and Laughlin. Most of the good bankers are already working somewhere and getting well-compensated.”
Nevada companies have had to be creative in their efforts to attract and retain skilled employees. Jim Miller, president and CEO of Renown Health in Reno, said, “We commit to retaining staff by investing millions each year in salaries, benefits and training, as well as employee events and activities. Our community has to do more to invest in homegrown or locally-educated caregivers, because health professionals are more likely to practice in the communities where they trained. We have numerous partnerships with the University of Nevada, Reno to provide students and residents with clinical experience.” Miller said his company is also lobbying the Legislature to revise nurse faculty qualification requirements and student-to-faculty ratios so nursing schools can accommodate more students. Renown Health is also asking for additional state funding to double Nevada’s capacity to train nurses.
“It’s getting harder and harder to find and retain qualified staff,” said Beardslee of IT Strategies International. “I’ve been here 10 years, and it’s easier to get people to move to Las Vegas now, but the high-tech sector has grown so much during that time that we’re all competing for the same talent pool.” Beardslee is most concerned about skilled positions. “Being computer consultants, we don’t have entry-level positions. Consultants need to be experts, so we don’t have the luxury of training people,” he explained. “We have two full-time recruiters and one part-time recruiter who have technical backgrounds. We’ve been recruiting over the Internet and the telephone, mostly out-of-state.”
Rabbitt of GES said his company doesn’t have problems recruiting. Like Beardslee’s firm, GES is now doing its own recruiting. “Several years ago, staffing was a big problem for us, especially for middle management and senior management positions. However, we’ve done a lot better over the last three years,” he noted. “It’s getting easier to recruit people to come to Las Vegas, which is seen as a growing, exciting city. We’re past the point now where people were afraid to move their families here. And, as a growing company in an industry-leading position, we’re well placed to attract talent. We have created our own internal recruiting arm and assembled a database of potential employees in fields like IT, and those people can lead us to other potential recruits, as well. Now, the only challenges we have in staffing come when we have several large events happening at the same time, and that may cause us to run out of qualified labor in the short term. I can finally say that staffing has fallen off my Top 5 worry list.”
Housing Costs Cause Concern
Despite what many pundits have identified as a “housing slump” in 2006, Nevada business owners and executives expressed more concern than last year about the cost of housing, chiefly because of its effect on recruiting employees from out of the market. In the 2006 survey, more than 76 percent were either “somewhat” or “very concerned”, compared to almost 90 percent this year. One hundred percent of Northern Nevada employers surveyed expressed concerns, despite their proximity to northern California, where housing prices have historically been high.
Dermody of DP Partners, whose company is based in Reno, said, “Housing is very much a concern because of its effect on the labor market. Reno housing costs have increased 10 to 15 percent over the last couple of years. People look at whether wages also went up that much. We have to keep a balance between wages and housing costs if we expect to support the industry that’s here.” Oppenheim of RSCVA, a recent transplant to Northern Nevada, said, “It’s a matter of perspective.
Relative to the Bay Area or to the Los Angeles area, Nevada is reasonable. I lived in California from 1977 until 2006, and when I moved, the housing market in Reno looked really good to me. So, it has everything to do with where people are coming from.”
Katz of Manpower Inc. of Southern Nevada, said, “The cost of housing in Southern Nevada is not as bad as in California, but it’s catching up to other areas. Land prices are still going crazy, but homebuilders are starting to adjust by going to outlying areas like Coyote Springs and White Hills. That will mean longer commutes for workers. Southern Nevada still is a great place to live – we don’t have to shovel snow off our driveways in winter, and there are lots of activities and events. On the down side, it is becoming more costly to live here.”
Martin of Nevada State Bank, whose bank has branches in 18 Nevada communities across the state, said he is “very concerned” about housing prices. “The cost of housing affects Nevada’s ability to recruit employees from out-of-market. Unless you’re selling a house somewhere else that has a lot of equity, you’re going to have a tough time finding something affordable here,” said Martin. “It especially affects our ability to recruit teachers. In fact, I’m serving on a committee that’s trying to find ways to get reasonable entry-level housing for teachers. It’s possible to get deals now from homebuilders, but I don’t think housing prices will go down. The market will just normalize.”
Miller of Renown Health is also “very concerned” and said his company is taking steps to solve the problem of high housing costs. He said, “We recognize that the surge in local housing prices may be a barrier to retaining and recruiting employees, particularly in hard-to-fill positions. Our approach is to provide current and prospective employees with the opportunity to purchase housing that is more affordable and located close to Renown Regional Medical Center. We believe that we are the first hospital network in the country to try this. We expect the first homes to be made available to employees later this year, and we recognize more needs to be done.”
Education: Making the Grade?
Nevada’s education system received a disappointing 1.7 grade point average (C minus) from this year’s respondents. Like many others, Oakley of First National Bank gave Nevada’s schools a D grade. “I’m concerned that the Clark County School District is short hundreds of teachers each year,” he said. “This is caused by rapid growth, and also, because the cost of living is so high relative to teachers’ salaries, it’s difficult to attract them. We can’t expect teachers to come here if they can’t afford housing. To grow long-term and have a viable economy, you need a good education system.” Oakley suggested that the solution lies in “a substantial upward adjustment in teachers’ salaries.” He pointed out, “In private business, we make salary adjustments to keep pace with the marketplace and be competitive. We haven’t done that with teacher salaries. Teachers now earn between $25,000 and $30,000 a year to teach our kids everything, from the basics to more sophisticated studies. They should be considered almost community volunteers for doing what theydo for what they get paid.”
Dermody of DP Partners had a more optimistic view of the state’s education system. “Our customers need to have a well-educated workforce,” he noted. “Because of Kenny Guinn’s background as a former superintendent of schools, he has left us a legacy of a strong educational platform, one of the best our state has ever had, including the Millennium Scholarship program. I gave Nevada a grade of B because we’re making the effort to improve what we have. We have a lot of room for improvement, but we’ve come a long way from where we were 15 years ago.”
However, as Oakley, pointed out, the challenge of improving the education system will not be accomplished in one legislative session. “It’s a tough problem – if it wasn’t, it would have been fixed earlier.”
Ranking the Challenges
While problems caused by growth were the No. 1 concern last year, our Power Poll respondents chose education as the state’s most pressing challenge in 2007. This is supported by the C-minus grade they gave Nevada’s schools. Availability and cost of healthcare was a close second. “The price of healthcare coverage for our employees is becoming a challenge,” said Katz of Manpower Inc. “The cost of healthcare also ties in to recruiting and retention. In order to recruit good people, employers need to offer a competitive benefits package, and that’s becoming more and more costly. The same thing goes for keeping the good people you have; you may have to increase the benefits to keep them from being lured away.”
Hitchen of WRG Design agreed, saying, “Healthcare is a long-term problem that will affect whether the economy will stay strong for years to come. If healthcare is too expensive in Nevada, or not readily available, it may impact our ability to attract people to move here to work. We are self-insured, and we’re trying to be fair with our employees [in offering benefits], but it’s definitely affecting our bottom line.” Oppenheim of RSCVA added, “If I had to choose one thing, it would be healthcare, because it’s a national concern. The aging population base will strain an already fragile system.”
Beardslee of IT Strategies International chose growth as his No. 1 concern this year. “Growth causes a somewhat unstable environment. In some cases, this can be good for our company, because when people are confused, they turn to consultants like us for help. However, it also causes a shortage of employees, and we all experience problems with infrastructure, like traffic congestion and crowded airports.”
Availability of water, which tied for second place in 2006, fell to fourth place overall this year, although business people in northern and rural areas ranked it as their No. 2 concern. Most people, including Beardslee, mentioned that water is a long-term challenge, rather than a short-term challenge. “Keeping up with demands for water is going to be a big concern in the future,” he pointed out. Hitchen, an engineer, agreed, saying, “I support the construction of the proposed pipeline from White Pine County [to Southern Nevada]. I believe it can be managed effectively.”
Martin of Nevada State Bank chose concerns about the budget as his principal worry. “By state law, we have to balance our budget, so a lot of different programs are competing for our dollars, including vital areas like mental health facilities and education,” he said. “Throwing money at education isn’t the complete answer to problems in the educational system; however, we do need more money for teachers’ salaries and also for innovative programs like empowerment schools. In short, we’re not keeping up with the demands made by the state’s growth rate.”
Optimism Despite Challenges
Optimism can be an important asset for those seeking success in the business world. Therefore, it shouldn’t be surprising that the successful industry leaders we surveyed expressed confidence in the future, not only for their companies, but also for Nevada. Flexibility is another valuable corporate resource, inspiring innovative solutions in the face of difficult challenges, whether it’s offering affordable employee housing or hiring on-site recruiters to resolve staffing shortages. Our 2007 Power Poll shows that Nevada’s business community is facing the state’s challenges with a blend of down-to-earth realism, resourcefulness and positive thinking.
