Feature Stories - August 2008

Industry Focus: Economic Development

Recently, a group of Nevada’s economic development leaders gathered at Cili Restaurant in Las Vegas to discuss current challenges they face, including the state of the economy, gaming taxes and incentives. Connie Brennan, publisher of Nevada Business Journal, served as moderator for NBJ’s monthly event that brings industry leaders together to discuss issues pertinent to their professions. Following is a condensed version of the roundtable discussion.

Economic Impact

Economic struggles were discussed at length by the panel. They cited the high cost of oil and the declining value of the dollar, lack of resources for economic development, and diminishing land supply in the valley. All of the participants agreed that there were so many economic challenges present in the economy that choosing just one was a struggle.

Chuck Alvey: The biggest obstacle is not having the resources needed in these tough economic times with issues surrounding membership, state funding, local government funding and tax challenges. It is important to make sure that people realize that the way we build and recover from this is to have strong economic development.

Scott Adams: The biggest challenge over the next unique one-year period is really the convergence of the economy and its impact on financial markets. We have achieved a lot of momentum in our downtown redevelopment program. As a city, we have pretty much run out of land for business development. All of the business parks are built out so we are looking at vertical office and business development. The market is sideways at best. Once we get out of this mortgage issue, the financing markets will start to balance out again.

Bob Cooper: Our land prices which increased a lot from 2004 to 2006, have come down a little, but we are still not competitive with areas like Phoenix when their land prices are 40 to 60 percent lower than the Las Vegas Valley. Phoenix also has a larger geographic area and more opportunities, so if you are a distribution or logistics company, that is a challenge for us. People from the outside look at all this desert area around us, and say, “Wow, you have miles and miles of available land.” They don’t understand the BLM land issues we have, as well as the planning boundaries we have to stay within, which then also creates a false value because of supply and demand.

Michael Montandon: Over the last couple of years, our biggest challenge has been the big macro economic feature that our job growth was great, but our job growth and incomes did not match housing prices. And, of course, it’s adjusting itself now, which we knew it would. But it will come back and we assume it will work out. But the housing prices cannot absorb 100 percent of the gap by lowering the jobs. The better jobs have to come in and absorb part of the differential.

Monte Miller: The thing that’s troubling to our tourism-based economy is the high cost of oil and the value of the dollar. The dollar can go back up and attack inflation. A strong dollar will attack inflation and subdue the price of oil. This is the biggest economic decline that’s affected us directly with the price of oil or gas, and it’s the worst in our tourist corridor because of that, on room taxes and other taxes.

Nevada’s Tax Structure

In regards to the state’s tax structure, the participants agreed it is indeed favorable, however Nevada is not left without competition, particularly from other Southwestern states.

Adams: We do have this low tax structure but we’re not the only state in the U.S. that has a low tax structure. Two of the most competitive states in economic development are Texas and Florida. And they don’t have an income tax, just like we do. They don’t have business taxes like we do. They don’t tax their businesses, and then they go out and aggressively get them. Businesses do a matrix analysis of a location and if it’s a business that can relocate at its discretion, it could be in any one of 10 different places. When you add land costs to labor and wages, and roll it all into the total, we lose. The businesses we’re getting are the ones that absolutely have to be here and can do business here more cost effectively than in Southern California.

Miller: We have the best tax environment for business in the country. Our main goal is to keep it low, while it’s being attacked by people who do not understand taxation and its direct relationship with economic growth.

Incentives

The debate over whether or not the state should offer more incentives in their business recruitment efforts encouraged the group to share some innovative ideas. Workforce training, research and development incentives, and established business growth strategies were discussed.

Adams: It’s a hard thing to say we should have more incentives when we are in the middle of absolutely the worst budget crisis that this state has probably ever been in, but I think we could be more aggressive.

Cooper: Yes, but strategically. And a lot of states have figured out how to specialize, incentivize, training workforce and all of the things that need to go with it, instead of just trying to be vanilla across the board to everybody. Those days are gone. So part of our challenge, is to pick the areas and to be excellent in those areas. Then you can figure out the incentives that go along with it. It’s all about business recruitment. About two-thirds of our job is how we deal with local businesses and continued growth because they are already here. They already know the labor force, and we spend a large amount of time assisting them in the growth. So as we are talking about our strategic incentives for our state’s growth, we already have some really good players that are here and strategic incentives for them. It is not just business recruitment, because that will fill up our economic impact to a certain degree, but also focus on estimated business growth.

Alvey: Maybe we should be looking at research and development incentives. Maybe incentives for businesses that invest research dollars in the Nevada system of higher education. All of the incentives are designed basically at a break even point. If a company never comes, they never generate one tax dollar. But if you give them a little help making the move upfront and they stay like most of them do, they are going to generate long-term benefits.

Sin City Image

This topic prompted some differences of opinion on just how much that image has damaged business recruitment efforts to Las Vegas over the years. Most agreed that while the image has diminished as gaming has become more prevalent nationally, there is still a stigma that has to be overcome.

Montandon: We have a business in North Las Vegas that won’t put North Las Vegas on their business address. I think they call it Cheyenne, Nevada. It is shocking how many businesses we lose because of the Sin City image – it’s tough on economic development.

Miller: It’s getting better, but it’s still there and it’s very – well, it hurts. It hurts when you have a company or you have a customer here, and you hear that. But the trend is getting better and we have companies like the Jewelry Center and the World Market Center – these are unbelievable investments.

Cooper: There’s two sides to that coin. The international cachet that we are probably always, you know, the top five of this or the top five of that. So there is an international audience who loves Las Vegas, who sees it as a two million population and growing, it’s exciting to them, a lot of business opportunities. The international investors love this community to death. So there is a different market out there that sees Las Vegas in a different fashion. On the other hand the national market outlook of Las Vegas is Sin City – an adult playground where one can go for a drunken weekend. The “What Happens in Vegas, Stays in Vegas” slogan has really hurt economic development.

Adams: I think the Sin City image is diminishing a little domestically because gaming is so prevalent now throughout the country. You can go to almost any major city and there’s either legalized gaming or Indian reservations near the city limits. Globally, it’s a huge plus for investment groups. They love Las Vegas and want to be here.

Alvey: Business executives we have talked to are looking for four things: a sense of community, outdoor adventure, emerging business climate and an opportunity to get involved and make a difference. We are trying to connect with those people so they realize they can come here and do that.

Gaming Taxes

These economic development professionals took on one of the state’s most debated topics, gaming taxes and there was a general agreement that casino companies are in fact paying their fair share. They went on to elaborate why they believe this topic gets so much time in the spotlight.

Miller: I think gamers are paying their fair share. The industry is investing billions of dollars here. We want to attract investments and job growth that brings tax revenue growth. If you have a low tax rate, you get more investment, more job growth and more tax revenue growth. I don’t think we should be raising the room tax by 2 percent when casinos are lowering rooms from $250 to $150 just to get people to come. If we were to mess with this six-and-three-quarter percent gaming tax today, we would see how elastic it is. The reason we have the tens of billions of dollars of investment on The Strip is they crunch the numbers and get a good return on investment.

Alvey: I would agree that I think they are paying their fair share. There is a lot more that we have available because of that. Gaming is the largest industry in the state, so people think they should pay more. The more we diversify our economy, the less the spotlight will shine on the casino industry.

Montandon: I hear gamers claiming that they are paying too much, and that other industries ought to be taxed and I also hear people saying gaming isn’t paying their share. I suppose if we are hearing the same argument from both sides, it’s probably pretty close to balanced. Look at our economy, everything in the state is paid for by gaming. Well, it may be a smaller percentage than other states, but it is more than any other state’s total government expense is covered by gaming.

Cooper: Sometimes the use of the word “gaming” connotates something potentially negative, but we need to look at it as a primary industry. The primary industry is one that takes revenue from outside your community and deposits it inside your community, which then gets re-circulated in the service and retail industries before it escapes and goes outside of the community. If you look at the tourism component, both individual and business, you then start looking at the trade shows, the corporate retreats and all of the business activity. Tourism in Nevada is a business transaction and networking center of the world. More business is probably conducted in these trade shows than in all of Chicago. We are a networking business community that receives this tax benefit from a tourism perspective. I don’t like to shoot the golden goose – without them, we would be in much more trouble. Debating their tax rate is a fringe issue and doesn’t really get to the core.

Adams: If you look at the statistics, specifically of Las Vegas, gaming revenues and tourism are down slightly. So we really need to think about the risk of adding another negative to the current situation. If you just read the paper, you see that gaming stocks are not exactly gang busters right now. Timing is everything, and this may not be the time to be putting another straw on the camel’s back.