Feature Stories - March 2006

Industry Focus: Economic Development

Laying the Groundwork for Nevada’s Future

by Kathleen Foley

In its monthly Industry Outlook series, Nevada Business Journal gathered with economic development agencies in the Nevada area to discuss the various challenges and benefits of their organizations. They confronted concerns such as funding for economic development, competition, economic diversification and recruiting employees to rural areas. Connie Brennan, publisher of the Nevada Business Journal, served as moderator for the roundtable discussion, which was held at the Stirling Club in Las Vegas. Following is a condensed version beginning with introductions.

Michael Majewski: I’m with the Economic Development Department in North Las Vegas. My responsibilities include economic development, redevelopment and special projects. Economic development is responsible for all the Bureau of Land Management (BLM) land sales, acquisitions and negotiating of contracts. We’re responsible for creating the new UNLV campus in North Las Vegas and the Veteran’s Administration campus in North Las Vegas. We have responsibility for a broader range of activities than those considered traditional economic development.

Bob Cooper: I’m economic development manager for the city of Henderson. We do business recruitment, assist our local businesses in retention and do expansions. We have an incubator program that we share with the Chamber of Commerce and we are involved in a lot of special projects. We have over 500 acres near the Henderson Executive Airport that we’re working with BLM, specifically reserved for business relocations and expansions. We’re working through Congress to designate that area as an employment zone. This is something the BLM has never before done.

Somer Hollingsworth: I’m president of the Nevada Development Authority. My board has decided to concentrate on the jobs that create quality wages and benefits; you’ll see us working with life sciences and technology. We just formed a new “green committee” that will try to attract solar and geothermal companies. The transportation sector is also important. Our job is to solicit businesses like other development agencies, but we locate them anyplace in Southern Nevada. We’re getting ready to break a big ad campaign along with EDAWN and the state at the end of January and again in May. That’s been successful in soliciting businesses from all over the country.

Paula Elefante: I represent the Economic Development Authority for Esmeralda and Nye Counties. Their main source of economic development is tourism. Pahrump is growing incredibly, and we have a tentative subdivision map for 12,000 to 15,000 homes. Las Vegas is running out of affordable land, and we have a lot of land opportunities in Nye and Esmeralda Counties.

Tim Rubald: I’m the executive director of the Nevada Commission on Economic Development. We are known for our business development activities and incentives. We have a number of other divisions in the agency, including the Nevada Film Office, Procurement Outreach Program, Community Development grants for all the state, excluding Washoe and Clark Counties, and the Made in Nevada program. We participate with EDAWN, NDA, Northern Nevada Development Authority and Sierra Pacific in the California Co-op Campaign, which is where we focus most of our marketing dollars.

Chuck Alvey: I’m from the Economic Development Authority of Western Nevada (EDAWN), working closely with Reno/Sparks, Washoe County and NNDA. Our mission is to recruit, retain, expand and help start businesses that add to the quality of life in our region. We find high-quality jobs with good benefits for the community. We’re in the middle of a project called “Target 2010” geared to help us understand our region. It’s like going to the doctor to get a physical. We need to see how we can use what we have to do a better job of getting those high-yield companies. We are involved in a statewide marketing campaign with the Commission on Economic Development, the NDA, NNDA and the power company, a collaboration which ought to set an example of how such organizations can work together.

Why Do We Need Diversification?

Brennan: The first item on the agenda is diversification. How do you argue with people who say we don’t need more people?

Hollingsworth: NDA is not about growth, but about jobs. If all of us here go away tomorrow, you’ll still have 5,000 people a month who move here. Somebody must create quality jobs with good benefits. Nearly 99 percent of employers we bring in provide benefits for their employees. In 1995 we did an analysis that showed 29 percent of the workforce was employed in the gaming industry. Ten years later, 22 percent of the workforce was gaming. The non-gaming sector not only kept up with the growth of gaming, but also outgrew gaming. We not only support gaming, but protect it. If gaming is the only dog in town and this place goes sideways, we don’t have any choice but to go to gaming companies for more taxes. That is exactly what they don’t want. If we diversify the situation, we can leave them alone as far as the tax base, and a corresponding tax base can be created on the other side to balance things out.

Brennan: Could you argue that if you don’t create the jobs, the 5,000 people won’t come?

Hollingsworth: All 5,000 aren’t looking for jobs. Some are retired, some of them are looking for a job and some already have a job.

Cooper: Population growth and economic growth are not dependent on each other. They represent two separate things. For example, Riverside County, Calif. has a very fast growth rate, but it isn’t an economically sound region. People are living there and commuting to jobs in other areas.

Majewski: We work with the grammar schools and the higher education system in Nevada to train the existing population for the new jobs. Economic development is not growth for the sake of growth – it’s improvement in the quality of life. Our workforce education is not that high, so we work with the educational institutions to create programs with the existing population to achieve a higher quality of life, such as higher skills and better pay.

Rubald: Economic development is the creation of wealth, and diversification is the tool to accomplish that. The more diverse your economy, the more times that dollar turns over within your community before it leaves. The only 100 percent diversified economy is the world, because the dollars never leave; they get shifted back and forth all over the world. The idea is to keep those dollars within a regional economy. That’s a basic economic premise that drives diversification and certainly one of the reasons we want to diversify.

Alvey: It’s arguable that we’re going to grow bigger, and our goal is to get better. This year, more small companies have come than we’ve ever seen before. We tend to think that’s a good thing, because if we have smaller companies, then there isn’t a single industry that can yank the rug out from under you.

Hollingsworth: Nevada is the least diversified state in the United States and Las Vegas is probably the least diversified city. But we’re getting there. Diversification absolutely is working. If building on the Strip slows down, the construction industry in Southern Nevada immediately goes down. Huge amounts of sales tax and property tax go away because construction people are migrant. So you always come back to diversification.

Cooper: If you ever lived in a community or state that has experienced an extreme slowdown, it isn’t just a business slowdown. The immediate unemployment effect is followed by social ills. The media and the public don’t see the social ills that come from a lack of diversification unless you’ve been there. I lived in the Pacific Northwest when the forest industry started closing down. The first thing we recognized was the loss of sales tax revenue that came from those large timber and forestry companies. The second impact was that we had high divorce, child abuse and juvenile crime rates. The social ills over-stressed the social services system. We want to go the opposite direction, providing good benefits. We want the children to go to school and have a good environment in which to live. That’s what diversification brings. It’s not only good for business, but for the quality of life.

Majewski: Economic development is community development. We cannot just bring in companies and put them wherever we can find space, but see how they fit with housing, the transportation network and things of that nature. The Cheyenne Technology Corridor has been successful. We needed a partnership with an employment center for our master-planned community Aliante. We started looking for an area that would attract technology-based companies. We looked at the commuting patterns and at the commuting times from our new master-planned community. It’s not putting industry or jobs anywhere, but it’s seeing how they fit into the community and ensuring it comes together to lessen negative impacts.

Hollingsworth: Economic development differs for every community. A lot of the rural communities have survived on tourism.

Elefante: Nye County’s major employer is mining, yet the mine in Beatty closed. Unemployment skyrocketed, and to top it off, the owner of a hotel bought out the other hotels in town and closed them. We have a “green energy” project currently on the drawing board and, if it comes to fruition, it will bring jobs to the people in that community. Without the opportunity of diversification, Beatty could ultimately become a ghost town.

Hollingsworth: For seven years we’ve been waiting for the power plant in Laughlin to close. That means losing 350 jobs, an $87,000 average annual wage and a huge negative economic impact for Laughlin. We asked them seven years ago to pick up some industrial property to try to offset this, but they haven’t done a thing.

Cooper: When you mentioned industrial property, you opened up the question of challenges. We face the same challenge in the Las Vegas Valley and statewide, as I’ve looked at some of the statistics up in Reno. The land costs in the state of Nevada have risen dramatically and will impact most of the public here in a positive way, because their housing values will double and triple. The negative effect of development is that high land prices will keep out industrial purchasers and users. Industrial property is at a low inventory because industrial land is being sold to residential developers, not to the industrial developers.

Who Pays the Tab?

Brennan: The next issue is funding. Does growth pay for itself or is it the taxpayers and businesses? Who pays for economic development?

Alvey: In our case, it has been the private sector. Businesses get into it for different reasons; some because they want to develop leads and network through the organizations like NDA, NNDA and EDAWN. Some of them for altruistic purposes because it’s the old “rising tide” theory: if the economy grows, and if good businesses and good people come, their business will do better. Ultimately, it is the people, whether it’s through taxes or through private investments. You have to spend money to make money. People who come here with good paying jobs, benefits and everything else, they pay into and get involved in the economy by purchasing homes and cars. Funding does pay for itself.

Hollingsworth: We have an “econometric” monitoring system that we (NDA), EDAWN and the state of Nevada use to tell what kind of tax dollars companies will generate at the local and state level. We can tell how long it takes for money to be put back in the system from a certain company. After a year, all of the money in sales tax we didn’t make them pay by offering a tax exemption is back in the system. When we talk about growth paying for itself, look at what it’s doing for the economy. When we bring a company in and we can show the tax dollars generated, the benefits the company offers and if they’re not looking to the state to take care of medical, we can see how each company is throwing cash into the coffers, and that’s what we’re all about.

Rubald: If you separate growth from economic development, with Nevada’s tax structure, growth probably does not pay for itself. Does economic development pay for itself? Absolutely, because you get the spending factor of the higher wage earners that we specifically focus on. We don’t focus on anything that is less than statewide average wage, currently $17.39 an hour. When you bring in a company that supports those employees and pays their wages, you also get the taxes that company pays. We did a study back in 1998 or 1999 that addresses that question, “Does growth pay for itself?” We used an econometric modeling program that’s more dynamic than the one we use for the incentives. With the tax structure, growth does not pay for itself. Does economic development? In this state, absolutely.

Brennan: Are the private economic development agencies like EDAWN and NDA primarily funded by businesses that willingly make a donation?

Hollingsworth: Chuck (Alvey) and I returned our state-funded economic development grants. Now here’s the catch: The money we got from the governor cannot be used to run the agency, it has to be spent on marketing and advertising. So we still had to keep all of our membership in place. We still raised funds to make sure the operation of the organization is there.

Brennan: How much did you get from the governor? I remember reading it was staggering.

Hollingsworth: It’s staggering to us, but not in the overall state budget. It was a total of $10 million over two years, and $1 million of that went into an urban job program in Southern Nevada. In total, I receive $5.5 million over two years to operate NDA, and Alvey receives $3.5 million to operate EDAWN.

Brennan: Was it just EDAWN and NDA?

Alvey: Over that two-year biennium, the marketing grants that Somer (Hollingsworth) and I received totaled $1 million dollars and that went back into the pool to NCED; they were able to use that to promote other development agencies.

Rubald: We provide that now to rural communities.

Nevada’s Competitors

Brennan: When companies are considering relocating to this state, what other areas are on their short list?

Alvey: Phoenix, Utah, Boise and California. California has the fifth largest economy in the world; people want to be there, but can’t afford it.

Hollingsworth: Phoenix has us up against the ropes as far as energy prices; as far as housing prices, they have a lot of land. Kingman is a competitor for us. It has a gorgeous airport and acres of land, which no one owns except them.

Brennan: How do you overcome that?

Cooper: The best long-term incentive is our state tax structure. You can do short-term incentives that Kingman may have for a year, but long term, if a business is going to be successful and be around for the next 10 to 20 years, what they will save without having to pay corporate income tax, unitary tax or inventory tax is tremendous. We have to look at the bottom line over a longer period and not just the icing on the cake.

Elefante: The fact that there’s no state income tax for the employees, depending on their numbers, is a huge difference.

Cooper: The second part of that equation is operational costs. The core of most companies’ success is their employees. Beyond what everybody has to pay for the cost of doing business, and it’s different in every state, we’re extremely competitive. You can talk to site selectors, and the quality and quantity of workers are always number one and two. Las Vegas, in general, has a great talent pool. Our workforce and the skill sets are improving every year. One of our target industries has been private education; we’re building skill sets with 12 new private colleges and universities. When we talk about operating costs, we back it up by saying we have great employees. Kingman and parts of Phoenix don’t.

Alvey: There’s two key points. One is to listen carefully. Rather than sticking with what you think is important, listen to what the customer actually wants. The other point is proximity. Phoenix can’t be more proximal to California than Nevada. That’s why everybody focuses on retaining. Recruitment of big companies gets the headlines, but we focus as much as we can on retaining and expanding what we have. If they’re already here, you don’t have sales problems or objections.

Majewski: Companies are going to come to places where they not only feel welcome, but also where there’s the least resistance to getting started. We’re helping them through the bureaucratic maze. In Southern Nevada, our telecommunications system is also an advantage. Las Vegas has probably one of the best in the entire world, and I think that’s one of the reasons we are able to attract some of these well-known technology-based companies.

Rubald: Private business is very anti-risk, looking at moving, expanding, etc. In a way, we are all risk managers by cutting through what relatively little red tape we have, compared to a lot of other states and localities.

Lobbying Solidarity

Brennan: How closely does the universe of economic development professionals in the state of Nevada work together when there’s a political issue?

Alvey: When it’s something that’s universal, we work together. Cities have their own particular issues and economies they’re dealing with, but there have been a number of things where we work together.

Rubald: We’re working on improving that through an organization called NEDA – Nevada Economic Development Association.

Cooper: It’s a statewide organization of economic development professionals. Legislative issues are one of the top priorities. Most states have a professional association of economic developers, and the networking on those kinds of issues is very important. Our state Legislature “gets it,” and has always been very pro-business. California’s state association spends a tremendous amount of time on anti-business rules and legislation. Compared to what’s called a “competitor,” we’re miles and miles ahead of the game with the type of Legislature and pro-business attitude we have.

Brennan: How active are the private organizations in taking a position and notifying their membership about something that may be anti-business?

Alvey: We pay attention and listen to it. We keep our members informed, but we try not to use up the political capital or take positions. We never endorse candidates. The trick is to understand that everything that comes before a city council, economic commission or state Legislature, can be connected back to economic development.

Hollingsworth: We follow the same suit and are careful politically. We’re careful about what we get involved in because the chambers down here already do a great job. The Henderson, Las Vegas and North Las Vegas Chambers of Commerce are focusing on those kinds of things, and they’re prepared to make a stand. If they want to talk to our board, we think it’s important to listen.

Brennan: If something’s important enough, you will take a position?

Hollingsworth: We testify, “This could be the end result if you do this, and can you live with that?” This, in many cases, is more effective than testifying for or against a position.

Alvey: We cooperate in terms of leads, by working to keep them in the state. If a company does not fit our region, we send them to the rural communities. We work together and make sure they stay in the state.

Brennan: What’s on the top of the list for recruitment? Does it differ by city?

Majewski: We have agreed upon, locally, the medical types of industry. Whether you call it biotech or medical delivery services, we’ve all cooperated. There are some very broad-based industries that the Las Vegas Valley can embrace; and then you need to look at the new technologies that are coming out. In a state with the sunshine and wind that we have, it makes sense to start looking at alternative energies. We’re engaged in a study with the Southern Nevada Regional Planning Coalition and Economic Development Organization for what will be called a “cluster study” to determine what offers the best potential of the industry-wide clusters we should be attracting. The study will identify their strengths and weaknesses, identify where the technology is headed and advise us with ways to improve.

Cooper: We work with land-use planners to get a handle on where some of these growth industries are going and locate the acreages that would be appropriate for them. We can project employee growth and reserve land for economic development. It’s such a competitive environment that we want to help our elected officials know that if they want to continue to grow in this pattern, they’ll probably need to set aside space for employment centers to provide jobs for these commercial endeavors. The city of Henderson follows NDA’s leads by targeting life sciences, healthcare, technology companies and education. Our simplistic selling proposition is basically like an IPO. Business persons understand that if they come to our area, they’re going to make money and get in on the ground floor of this growth opportunity, versus wishing they had come here 10 years ago. If approached from a very businesslike proposition, it works well.

Hollingsworth: North Las Vegas, Henderson, Las Vegas and Mesquite provide suitable incentives if they want a company within their municipalities. It creates a great synergy for the company and for us. The incentives offered by other communities around the country are starting to disappear because cities and states have realized they don’t pay for themselves. We have no cash incentives, no corporate taxes, no personal taxes, no inventory taxes and no unitary taxes. When you put all those in place, we’re in a great position to do some competitive damage. One of the problems that we have educating the representatives of these prospective companies is, often, the executive with whom we met has a two-year life span with that corporation; his bonus is based on how much money the firm makes that year. This leads to short-term versus long-term thinking that can’t see past those short-lived inducements. Once the incentives offered by other states are gone – in a year and a half or two years – so is that executive. It’s bad for the company.

Majewski: The beauty of incentives is that we don’t have to spend any money out front. For companies to continue to get incentives, they have to prosper and grow. They don’t get big cash or free land up front so that after two years, they’re gone. To get the types of incentives we have in Nevada, they have to stay here, remain open and continue to grow. There is no direct out-of-pocket expense for Nevada’s development authorities.

Brennan: Paula, because you represent more of a rural area, are you looking to bring in industrial companies?

Elefante: The county right now is in the process of preparing a land act to sell the disposable BLM land along the I-95 corridor, which is almost wholly in Nye County. But it’s not quite that way for our area. Amargosa would love to get a grocery store and a bank. Beatty desperately needs a grocery store. In EDEN country, many basics are needed for the communities so people don’t have to travel 50 miles to the grocery store. Though I’m looking at industrial jobs, I have to consider that, too.

Hollingsworth: We’re involved with EDEN on a daily basis. If the land’s available and everything’s in place, we can always show the company; if they can sell it and make it work, that’s great.

Elefante: We don’t have the infrastructure in place that bigger cities have. In Amargosa, everyone is on a well and a septic tank. Once a company buys water rights, they have go to the state and get a commercial well permit. This takes a year, and it’s hard to get somebody to invest $1 million or $2 million in a piece of property when they don’t know whether or not they’re going to be able to drill a well.

Kathleen Foley
Kathleen Foley is a freelance writer based in Southern Nevada.