Feature Stories - April 2006

POWER POLL 2006: Business Leaders Speak Out

by Kathleen Foley

For the fourth consecutive year, Nevada Business Journal has asked business owners and CEOs from around the state for their opinions on economic and political issues so we can let our readers, as well the general public, know what the business community is thinking. In general, the people responding to our survey were optimistic about the immediate future, although they expressed concern about issues such as population growth, affordable housing and the educational system. Opinions on political issues were divided, with one quarter of them still undecided about the upcoming gubernatorial election. We asked some of the respondents to explain their answers in detail to add a more personal touch to the statistics.  

Business Outlook Optimistic

A resounding 79 percent of respondents expect their bottom line to improve during the coming year, with fewer than 8 percent expecting business to get worse.

Doug Roberts, a partner in Panattoni Development, said his company is bullish on the Nevada market. Panattoni, a national commercial real estate developer, has traditionally focused on major markets. “In the 10 years we’ve been doing business in both Southern and Northern Nevada,” said Roberts, “we have enjoyed success and are now comfortable in this market. We have had a phenomenal construction year, and next year look forward to leasing out the properties we’ve built and reaping the fruits of our labors.”

Dan Paulson, president and CEO of Weststar Credit Union, said his organization’s bottom line will be “about the same,” explaining, “As long as the economy stays good, we should do at least as well as we did this year.” Interest rates were a concern, however. “An increase in short-term interest rates makes consumer loans more expensive, and the demand for them goes down, which impacts our business. When long-term rates go up, it puts a damper on the housing market, which is a big driver of the state’s economy.”

Roel Construction, a general contracting firm, expects to do better in the coming year because of contracts for several new projects in its Nevada service area, which extends from Mesquite, through the Las Vegas metropolitan area, and down to Laughlin and Bullhead City, Ariz. Steve Roel, the company’s chairman, said, “These new jobs will boost our revenue significantly. We’re building clubhouses, tilt-up projects and tenant improvements, in addition to the big facility we’re doing for QualComm in North Las Vegas. We’re especially enthused about that.”

Saint Mary’s Regional Medical Center underwent a reorganization and “right-sizing” last year, according to its president and CEO Larry O’Brien. This effort to streamline operations and increase efficiency paid off by reducing the costs of materials by $4 million a year, consolidating external leased space and reducing the workforce – primarily through attrition – by about 200 people. O’Brien said the Reno hospital is now planning to expand its emergency room, which was originally designed for 35,000 visits per year, but is now experiencing approximately 50,000 visits.

Nevada Economy Improving

Most business owners and executives believe the state’s economy will improve during the coming year, although they were not as optimistic about the state’s bottom line as they were about their own.

Robert Hemsath, president of Northern Nevada Bank, expected the economy to remain about the same. “We are coming to the end of an interest-rate cycle,” he explained. “There may be a couple more increases, but after that, rates should stabilize. Our economy is growing and healthy, especially in Northern Nevada, and we should be able to maintain a strong economy through the coming year. Homebuilding will continue at a healthy pace, although it will probably slow a little from last year. Commercial real estate will continue to be strong, due to economic diversification efforts. The Summit Sierra shopping center opened this spring, which is evidence that the retail market is maturing. The Airport Authority is doing a good job increasing the flights to and from Reno, which helps our tourism base. I foresee job growth and continued strong employment.”

Roberts, who joined the majority in expecting a “somewhat better” economy, said the predicted housing slowdown will be good for the economy, because it may enable more people to afford to buy homes. He also supports economic diversification efforts, saying, “We don’t want to be too heavily reliant on any one industry. Diversification will create more opportunities for non-gaming jobs. In Las Vegas, Panattoni’s recent projects have not been related to gaming.”

Nevada’s economy will “much better” next year, according to Ron McMenemy, CEO/owner of NAI Horizon, a commercial real estate agency based in Southern Nevada. “There are big players out there with huge plans for new projects and developments,” he reported. “People are coming from all over the world to invest and develop in Southern Nevada. Just recently, I’ve had inquiries from as far away as New Zealand, and Asian influence is rebounding. I believe we’ll see more Pacific Rim money in the near future. The usual commercial real estate cycle is to rocket up, then plateau and make adjustments before rocketing up again. Last year, we had a flurry of activity, especially in mixed-use projects, so right now we’re in that plateau, and we’re set to rocket up again next year.”

How Business-Friendly is Nevada?

More than 95 percent of those surveyed agreed that Nevada is friendly to the business community, which is down slightly from the 2005 figure of almost 99 percent, but still a ranking most states would envy.

Cornelius Eason, president of Priority Staffing USA, “strongly” agreed that Nevada is a business-friendly state, from two perspectives: regulation and taxes. He said, “I’ve been in Nevada eight years, and feel that business is currently paying its fair share of taxes, the average citizen is not overburdened, and the property tax problem was handled fairly in the last legislative session. There seems to be a balance between the forces who want to avoid taxes, and others who say we need to fund infrastructure and social services to keep up with growth. However, the potential for changing the tax structure is always there, and business is an easy target for taxation. People need to realize the impact taxes have on businesses and how it can affect the entire economy. In addition, we shouldn’t discourage companies from coming to Nevada by upping our taxes, because we need economic diversification.”

Dealing with government rules, regulations and bureaucracies can be challenging for business people. “In my dealings with the state labor commissioner as head of my industry trade organization, I found that office to be open to input from the business community,” Eason said. “In some states, regulators will go ahead and make rules and judgments regardless of the consequences for the people involved.”

Experience with a different set of state regulators caused Mark Howard, CEO and president of MountainView Hospital in Las Vegas, to “strongly disagree” that Nevada is business-friendly. “When we opened MountainView in 1996, we were the first new hospital to be built in 20 years, and we were brought online very quickly and efficiently,” he explained. “I’m amazed how much slower things have become in the last 10 years. Now, if you want to open up or expand a facility, the state inspections take weeks and weeks, and the licensing and accreditation process is a major frustration. Regulators live in a whole different world. If the law gives them 10 days to respond to something, they take the entire 10 days instead of trying to get things processed more quickly. We should work together to solve the shortage of hospital beds. There should be some way to expedite the process, even if it involves paying some kind of fee.”

Roel selected “somewhat friendly” as his response, explaining, “In any business environment, there are inherent problems specific to that area. No place is perfect.” However, he said Nevada is “far superior” for his construction business, compared to Northern California, where it also has ongoing projects. He stated, “The local officials here try to expedite paperwork for us, and I have no complaint on that account.”

Finding and Keeping Employees

At NBJ’s monthly Industry Focus roundtable meetings, a recurring theme in all industry segments – from healthcare to engineering to banking – has been the difficulty in finding qualified employees in the current low-unemployment situation, and keeping them satisfied once they are onboard. This is confirmed by our Power Poll survey, which found more than 72 percent of respondents experiencing staffing problems. It is interesting to note the problem seems more severe in Southern Nevada.

McMenemy said he’s having trouble both with recruiting and retention in his real estate office. “The talent pool for commercial real estate people in Southern Nevada is shallow,” he said. “There are good people out there, but most of them are firmly entrenched where they are, and we don’t believe in trying to lure local people away from other companies, so we’ve been looking out-of-state. We recently hired brokers from New Mexico and San Francisco, and another person from Florida. Our new managing director is from Ohio. Retention is also a challenge, especially with younger people in Generation Y. We have several talented young people at the firm, but it’s sometimes difficult to keep them on task and in focus when there are so many other opportunities out there. They expect to come right out of college and be the president of the company, driving a new BMW. In reality, developing a commercial real estate career is a long process of building up a client base and learning the ins and outs of the market. People sometimes aren’t willing to put in the necessary time and effort when it’s easier to work in a casino for more money, at least in the short term.”

In contrast, Roberts said his office is not having problems recruiting and retaining staff. “We don’t have a large staff, so we’re not recruiting every day,” he explained. “If we do need someone, we spread the word and the position is usually easy to fill. The people who work for us are one big happy family. We offer them opportunities to grow within the company.”

Doug Fries, president of Mellon Financial’s Henderson office, replied that he is having “a few problems” finding staff – largely because he is looking for employees with a certain skill set. “We provide financial services for high net-worth individuals (people with more than $1 million to invest),” he explained. “We need highly qualified people to serve our clients. The talent pool is increasing somewhat – as more wealthy people move to Southern Nevada, those who specialize in advising them will follow. But most of these people are content where they are, working for other financial services firms and making good money in this market. This makes it somewhat difficult to recruit the people we need.”

Housing Costs a Concern

More than 82 percent of respondents were worried that the cost of housing was adversely affecting their business, especially as it impacts their ability to attract employees to move here from other states where housing costs are lower.

“The cost of housing affects our [credit union] members, especially young families just starting out and those on fixed incomes,” said Paulson. “It also makes it hard to attract employees. However, keep in mind that the housing market was very slow to react to increasing demand, and in the 1980s and ’90s home prices only increased about 3 percent per year. So, rather than being in a “housing bubble,” some of the recent increases are just catching up. Over the long term, the price increases are not that unusual.”

Greg Korte, president of the Las Vegas division of The Korte Company, a commercial contracting firm, reported he is “very concerned” and knows firsthand the effect housing costs have on recruiting. “On three separate occasions over the last year and a half, we had good candidates from the Mid-West turn us down after they went home and reviewed housing costs in Southern Nevada,” he said. “These were people we were almost certain would accept positions here. As I get more deeply involved in community affairs though United Way and the Chamber of Commerce, I realize that this affects other problems we’re facing – namely, education and healthcare. I keep hearing, ‘How can a nurse or a teacher afford to buy a home here?’ If nurses and teachers won’t come to work here, it affects the quality of healthcare and of our school system, and that feeds into the recruiting problem again, because potential employees want good schools and medical facilities for families. So, it’s all inter-related.”

Howard said high housing costs have created a “double whammy” for employers. “Not only does it make this market less attractive to potential employees thinking of moving here, but it also hurts our retention,” he said. “People who have been here for five or 10 years realize they can cash out the equity in their home and get a wonderful house in the Mid-West or in Texas, with money left over for a nest egg.”

Grading the Educational System

If a Nevada student brought home a report card with grades like those the school system received, he or she certainly would not qualify for a Millennium Scholarship. Most respondents gave Nevada’s educational system either a C or a D.

“In Northern Nevada, most high schools do a decent job overall,” said Burr, who gave Nevada schools a C grade. “The biggest problem is in the technical arena. The AGC [Associated General Contractors] is the primary sponsor of a charter school here that focuses on construction trades. It teaches regular subjects, too, but math classes relate problems to construction, and the same with English. A good many kids don’t have much interest in regular classes, so this is one way to engage their attention. Some will go into building trades after they finish high school, but others may decide to go to college as engineers or architects. We need to find more ways to interest kids so they stay in school.”

Eason also gave schools an “average” mark. “As a staffing agency, we test a lot of young people who are looking for jobs,” he said. “In most cases, their math and writing skills are marginal, and they aren’t articulate enough to present themselves well in an interview. The easy answer is to say the school districts are under-funded, but it’s more than that. The tremendous growth we’ve been experiencing is overstressing the entire educational system. There have been some recent efforts, led by University Chancellor Jim Rogers, to bring businesses into the process of educational change and reform. I think this is good, because business people tend to be more pragmatic.”

Burr remarked, “The Millennium Scholarship created a big problem. It encouraged kids to go on to college who weren’t ready for it, and now the system is overloaded with kids who shouldn’t be there. University classes are teaching students things they should have learned in seventh grade. So, it’s not all it’s made out to be.”

What Keeps Us Awake at Night?

The No. 1 concern for business owners and executives we surveyed was “problems caused by growth,” which feeds into many other problems, including lack of available land, overcrowded schools, traffic problems and infrastructure challenges.

Commercial contractor Greg Korte voted with the majority on this question, stating, “Developers need to have large parcels of land. The lack of available land is causing prices of remaining plots to skyrocket. The industrial market is shrinking rapidly. Developers are having trouble getting projects to pencil. It requires creativity on everyone’s part to make both residential and commercial projects work. For example, commercial developers are doing land-leases instead of purchases, and homebuilders are going vertical.”

Jones, an engineer, chose “availability of water” as his No. 1 concern. “Southern Nevada will be out of water in 10 years,” he warned. “We could stretch it to 20 years by using conservation techniques, but they only go so far. I was disappointed to hear that [Interior Secretary] Gale Norton is retiring. Norton and Pat Mulroy of the Southern Nevada Water Authority provided a great one-two punch in getting the seven Basin states to adjust their water allocations so Southern Nevada gets the water it needs.”

Healthcare was a major concern for Hemsath. “The problem is not the providers, although we probably don’t have the numbers of healthcare workers that our population warrants. It’s not very profitable to service our area, due to the low reimbursement rate and the high cost of malpractice insurance,” the banker said. “But, the real danger is on the health insurance side. The cost of providing health insurance for employees is rising much faster than the inflation rate. In our business, we’ve seen 20 percent to 25 percent annual increases in healthcare premiums. We’ve been able to keep our coverage so far, but at some point, it becomes uneconomical to provide coverage, and then what does an employer do?”

Education was a concern for O’Brien, who explained, “As a hospital, we’re naturally interested in the quality of education, especially in the sciences. Are students graduating from our high schools able to read medical journals? Do they have the skills to get into a nursing or pre-med program? According to people I’ve spoken with in the community, our students are not prepared. In fact, many of them need remedial classes in the basics before they qualify for entry-level science courses in college. This is a big concern.”

President Bush’s Report Card

In most of our survey questions, the difference between the responses of business owners and of executives was not significant enough to report. However, in judging George W. Bush’s performance as president, business owners gave him considerably better grades than executives did.

Chuck Burr, franchise principal at Accountants Inc. in Reno, gave President Bush an “excellent” rating. “Overall, he’s done an excellent job,” he stated. “There are two main ways to judge him, and that is the economy and the progress of the war. The healthy economy shows he’s doing a good job there, and although everything isn’t going exactly as we would like in Iraq, I think he deserves our support.” Burr, a Vietnam veteran, said, “President Bush has to face resistance from politicians, including Harry Reid, who put themselves and their party before the interests of the country. It’s a big problem. Bush is in the middle, and he has to have a thick skin to survive these daily attacks.”

Among the minority of people giving the president a failing grade was Mark Jones, CEO of Southwest Engineering, based in Las Vegas. “I’m a staunch Republican,” he explained, “and I gave him an F for his failure to reduce government involvement in the private sector, reduce taxes and eliminate wasteful programs. He hasn’t stopped the growth of big government.” Jones also expressed disappointment that the U.S. is still “stuck in Iraq,” asking, “If we intend to leave in a year, as the president has indicated, does that mean we cut and run? Do we really think the Iraqi forces are capable of providing security there? If not, we should stay.”

Governor’s Race Up for Grabs

While Jim Gibbons received the most votes from our respondents in the upcoming governor’s race, “Undecided” ran a close second, indicating that – as of mid-February, when most ballots were returned – many business people hadn’t made up their minds who they want to elect as the next governor.

Fries explained why he was still undecided. “I’m relatively new to Nevada, and so far, no one candidate has jumped out and captured my attention. I’m waiting to see what happens in the coming months.”

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