Gun Company Stock Stats Reveal Odd Political Angle

It has not escaped our attention that the Obama era was a boon for gun manufacturers. News stories throughout his Presidency chronicled the record pace of gun sales, especially in the wake of elections and pushes for stronger gun control measures. Fears of massive gun confiscations and restrictions during the Obama administration pushed firearm and ammunition sales to new heights, with the demand surges causing stores to run out of inventory and prices rising in response (click the graph to enlarge):
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But now, that has all been replaced by confidence that the Trump administration will boost law enforcement and fight to preserve and expand access to guns. Ironically, it looks like the election of the NRA’s champion is leading to a decline on stock prices for arms manufacturers. The following chart is pretty telling.

President Obama Was Gun Manufacturers’ Best Friend

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Source: HighTower Advisors based on Bloomberg data
Note:  AOBC = American Outdoor Brands Corp., RGR = Sturm Ruger & Company Inc.
During George W. Bush’s eight years as president, starting with his election (11/7/2000) and ending 11/4/2008, the stock prices of two publicly traded U.S. arms manufacturers changed significantly. Specifically, they fell by 21% for Ruger (RGR) (from $8.94 to $7.04), while rising by 470% ($.50 to $2.85) for American Outdoor Brands (AOBC, formerly Smith & Wesson). Why the gain-loss difference between the two firms you might ask?
According to our Stat Pack and Fact Pack partner, Mike PeQueen, there are a variety of factors in play when discussing stock prices other than who is POTUS. For example, one company might have introduced more popular products during that period and, as a result, saw its sales rise. It’s also possible that one company expanded its distribution system, which also could have increased sales. Finally, one company might have had a different level of debt and higher/lower interest rates, which would have had a bigger impact on its bottom line compared to the other. You get the drift. All this said, as the chart shows, there does seem to be a correlation during the Obama years and the turnover of Congress, and, very clearly, the day after Trump was elected.
You might think all those possibilities wash out our hypothesis, but consider this: between Obama’s election on November 8, 2008 and Trump’s on November 8, 2016, RGR’s stock price increased from $7.04 a share to $64.40, or by a whopping 815 percent! In the case of AOBC, its stock price jumped by an even more massive 898 percent from $2.85 a share to $28.45.
Since the 2016 election, the stock prices of the two companies haven’t done quite so well. RGR’s price fell by 23 percent to $49.50 between November 8, 2016 and March 8, 2017, and AOBC saw a 32 percent drop to $19.21 during the same period. On an annualized basis, these declines hypothetically equal a 69 percent loss for RGR and 96% for AOBC.
The upshot? This is one of the few instances we can think of where it’s actually in the economic interests of a company to have their political adversaries in power.
We’ll monitor these stock prices and sales figures moving forward. It will be particularly interesting to see if this all leads to layoffs in the industry’s manufacturing and retail sectors, turning the new President, at least in one area, into a job-killer. In the meantime, that assault rifle you’ve been eyeing may finally come within your budget.
 

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Study Shows Nevada Among Least Prepared States for Economic Downturn

Nevada ranks 43rd out of 50 states for its readiness for an economic downturn, according to a new study authored by Erick M. Elder and published by the Mercatus Center. The study’s ranking system was based primarily on the potential for a budget shortfall as determined by the size and stability of each state’s revenue stream, average expansion growth rates, average elasticity, and current rainy day fund (RDF) balance.
The following map shows how all 50 states rank in terms of preparedness for another economic downturn:

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In 2006, prior to the beginning of the Great Recession, state budgets as a whole had a 30-year high balance (that is, a combined general fund balance + rainy day fund balance) of 11.5 percent of total expenditures.
In 2008, the total amount of state savings in RDFS was approximately $60 billion. (All but three states have some form of RDF:  Colorado, Montana, and Kansas.)
Even so, on-tap funds were not enough to cover the decline in state revenues that began in 2008. The total shortfall experienced by states in 2009 alone was $117 billion, according to a study by Pew Charitable Trusts. As a result, RDFs were completely wiped out during the Great Recession. A whopping 41 states enacted budget cuts in 2009, and 39 states made cuts in 2010. In addition to the cuts, states collectively enacted tax increases amounting to nearly $24 billion in tax revenue in 2010 alone.
No one knows when the next recession may hit, nor do we know what its severity may be when it comes. Some economists believe a downturn seems imminent, while others think the U.S. is in relatively good shape.
Elder’s study concludes that Rainy Day Funds of 25% of total state expenditures would stave off 90% of the effects of even a severe recession. His research shows that a number of states – including Nevada – are nowhere near that number and are thus ill-prepared should another recession occur anytime soon.
Elder’s final word of caution is one that states like Nevada can confirm:  increasing tax rates or reducing government spending in times of economic downturn can exacerbate business cycle volatility, rendering the time to recovery greater than it otherwise would be. The slow economic recovery in Nevada in recent years could be Exhibit A for Elder’s warning.
Nevada’s RDF totaled $267.6 million at the end of Fiscal Year 2007. The Legislature tapped the account to fill budget gaps in 2008, 2009, and 2011, and reduced the fund to zero in 2013. At the end of fiscal Year 2014, the state’s RDF totaled $28.1 million.
In accordance with Senate Bill 490 (passed during the 2015 Legislature), $28,061,106 was transferred from the Rainy Day Fund to the State General Fund for unrestricted use on August 12, 2015. The account had a zero balance at the end of Fiscal Year 2015. 
In advance of the 2015 legislative session, the Stat Pack and RCG Economics published a policy piece on Nevada’s Rainy Day Fund, formally known as the Account to Stabilize the Operation of the State Government. The article recommended funding the account at a rate of 2% of annual revenue as forecast by the Economic Forum each year, up to a total balance of 20% of total General Fund appropriations.
 

What Keeps the CEO of EDAWN Up At Night?

Since his election in 2010, economic development has been at or near the top of Governor Sandoval’s agenda, and the Reno-Sparks area has chalked up some big wins. Following is our attempt to get a snapshot of where things stand and an indication of where they might be heading via a Q&A with Mike Kazmierski, CEO of the Economic Development Authority of Northern Nevada. Don’t miss our Q&A with Jonas Peterson, CEO of Las Vegas Global Economic Alliance, as well.
the Stat Pack:  What are EDAWN’s projections for new jobs in Northern Nevada in each of the next three years?
Kazmierski:  We project 4,000 new jobs in 2015, 3,500 new jobs in 2016 and 3,000 new jobs in 2017.  (As a point of reference, our five- year average from 2008 to 2011 was 840 new jobs per year.)

Reno skyline from Wiki Commons
Reno skyline | Source: Wikimedia Commons

the Stat Pack:  Does EDAWN project that those jobs will primarily arise in the sectors and industries targeted by the Governor’s Office of Economic Development (GOED)? Which other, non-targeted industries are most likely to organically contribute to job growth in Nevada?
Kazmierski:  Yes, the vast majority of these jobs will be in advanced manufacturing, logistics/distribution, e-commerce, data centers and technology.
the Stat Pack:  Which states are Nevada’s biggest competitors for attracting companies in GOED’s targeted industries?
Kazmierski:  The competitors for Northern Nevada are mostly in the West:  Texas, Arizona and Utah.
the Stat Pack:  How does Nevada’s economic development budget compare with those of competitor states?
Kazmierski:  We generally offer far less in incentives because we have other business advantages. Additionally, our incentives are primarily the abatement of taxes along with training funds.  We generally do not provide cash or up front incentives like other states.
the Stat Pack:  Would you recommend any changes to the incentive and support programs that exist at GOED?
Kazmierski:  It would be helpful to build incentive programs for entrepreneurs and start-ups as our current incentive program has job creation minimums, so these small companies often do not qualify.  These companies, with a little help, can grow up to be big companies someday.
the Stat Pack:  What are Reno-Sparks primary metro competitors doing that we might emulate, in terms of workforce development, abatements, incentives, etc.?
Mike Kazmierski addressing Reno residents at a press conference in August 2014. Photo courtesy of EDAWN.
Mike Kazmierski addressing Reno residents at a press conference in August 2014. Photo courtesy of EDAWN.

Kazmierski:  Other states put much more emphasis on workforce training and development.  More than 80% of the jobs we attract require only a vocational certification or a two-year degree, yet funding for our community colleges in the north continues to decrease. Additionally, other states offer training incentives in greater numbers and amounts than we do; the incentive is considered an investment in the skills and education of citizens in the state. We tend to look at it more as an incentive to the company and thus provide far less in funding support, if anything.
the Stat Pack:  What are Northern Nevada’s top three competitive advantages in the region?
Kazmierski:  1.  Strategic location (we can get ground transport to the eleven Western states in one day) and proximity to California, especially Silicon Valley.  2.  Lower cost of doing business. This includes many variables, including labor, taxes and real estate.  3.  Business friendly government, which includes reasonable inspectors, pro-business elected officials, a right to work state, and responsive government via processes and systems.
the Stat Pack: What are Northern Nevada’s three biggest negatives?
Kazmierski:  1.  Our investment in education has been a concern. Companies depend on a quality education system to prepare the employees they will need in the future.  2.  Our downtown is not what it needs to be to attract and retain the talent we will need in the coming years.  3.  Adequate and affordable housing is a new issue that we must address.
the Stat Pack:  What are the three biggest, best present-day economic development opportunities EDAWN is pursuing?
Kazmierski:  1.  Revitalization of our downtown, the only real chink we have in our armor.  2.  Better community engagement with the University in an effort to make our community more of a college town.  3.  Facilitating 1 gig fiber connection to every home, which – with SWITCH’s enhanced overall connectivity in the region – will help as we rebrand the region as an up-and-coming technology savvy community.
the Stat Pack:  In most regions, economic development agencies work closely with the business community. Give an example of how EDAWN is working with the Reno-Sparks-Northern Nevada Chamber to advance Northern Nevada’s interests.
Kazmierski:  We work closely with the Chamber, especially on legislative issues.  Our current involvement in SB 411, an initiative to increase funding for our school capital needs, is one example of that cooperative effort.
Groundbreaking ceremony at the Petco distribution center in Reno on October 16, 2014. Photo courtesy of EDAWN.
Groundbreaking ceremony at the Petco distribution center in Reno on October 16, 2014. Photo courtesy of EDAWN.

the Stat Pack:  What challenges has your agency faced that are unique to Northern Nevada?
Kazmierski:  The one challenge we face is the attitude by some in Southern Nevada that we are not on the same team.  In my view, it is Nevada against the world and the better we cooperate with and support one other, the stronger we will be as a state – and the better the economy will be for all Nevadans.
the Stat Pack:  Nevada has one of the most highly centralized systems of higher education in the country. How does this affect workforce development efforts? Would local autonomy of the governance and administration of the state’s two and four-year colleges allow for more effective engagement between these institutions and the business community?
Kazmierski:  We do not generally engage in legislative issues that do not directly impact on our ability to attract, retain, and grow quality jobs. That said, my experience in general is that the more control and engagement the local citizens have in anything, the more ownership and support they provide, so decentralized government has its advantages (and I’m sure some disadvantages as well).
the Stat Pack:  Despite recent development successes and a headline unemployment rate of around 7%, Nevada’s U-6 unemployment rate – a number that includes not only the jobless but also discouraged workers and part-time workers who would rather be working full-time — is the second highest in the nation at more than 15%. Why is this so number so rarely talked about? How important is it to Nevada’s overall economic success to bring the U-6 rate down?  
Kazmierski:  In my experience, the headline number used at the national level and by the media is the only one that the general public is aware of.  And even that number is only a factor if it is moving up or down.  Unemployment, regardless of how it is measured, is important as it reflects on the economic vitality of the state.
the Stat Pack:  The Kids Count profile just released by UNLV and the Annie E. Casey Foundation reported that 34% of Nevada’s children and youth live in families without secure employment, which is defined as a household in which no parent has regular, full-time employment. What is primarily driving the lack of employment security in Northern Nevada, where it exists?
The Nutrient Foods building in Reno.
The Nutrient Foods building in Reno.

Kazmierski:  We are still recovering from a difficult recession and the jobs we are attracting do not in many ways fit or replace the jobs that were lost.  So there must be a realignment of our existing employee skills to our incoming employer needs.  That is where training funds and educational alignment will help.
the Stat Pack:  The June 2015 Reno-Sparks visitor total, on a 12 month moving average (MMA), increased by 1.3% over last year to 388,810. However, the visitor count was slightly lower than May’s 12MMA and visitation has not seen the turnaround that Las Vegas has experienced. The Reno-Sparks 12MMA peak occurred in May 2004, when 467,904 visitors came to the region. What are the challenges and what is the solution? 
Kazmierski:  Reno-Sparks is in transition from a visitor economy to a business economy driven by advanced manufacturing and entrepreneurial growth. We will likely see, at best, modest growth in visitor count with so many competitors nationally in that space, yet we are experiencing significant job growth in our target sectors:  advanced manufacturing, logistics/distribution, e-commerce, data centers and technology. Our rapid business growth will more than replace any loss of visitor traffic and provide a more sustainable economy for the region.
the Stat Pack:  And finally… our signature question: What Keeps You Up At Night?
Kazmierski:  Creating a place where our kids and our grandkids can find a quality job and enjoy the quality of life in the years ahead. Our success in attracting quality companies to the region is providing us the desired growth to reinvent the region in a more sustainable way – but with growth comes challenges. There are many anti-everything advocates who have apparently forgotten what it is like to have 14% statewide unemployment and who are using the challenges as an excuse to rail against growth and put at risk the real opportunity we have to become the next great technology center and advanced manufacturing hub in our region.
 

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Mike Kazmierski is the President & CEO of the Economic Development Authority of Western Nevada, aka EDAWN. He leads a team of economic development professionals who recruit, expand/retain, and grow through entrepreneurial support, primary businesses that create quality jobs in the Reno-Sparks region.
Prior to his position at EDAWN, Kazmierski managed a 14-person non-profit economic development corporation in Colorado Springs, Colorado, as the head of the Regional Economic Development Corporation of Colorado Springs.
Mike is a retired Army Colonel and former garrison commander of Fort Carson, Colorado, when it was recognized as the best of the 270 installations in the Army. He holds a Bachelors Degree in Engineering from the U.S. Military Academy (West Point), a Masters degree in Business Administration, and a Masters degree in Military Arts & Science.

What Keeps the CEO of LVGEA Up At Night?


In light of Nevada receiving its first Golden Shovel award, we thought it appropriate to pick the brains of two team leaders who helped make it happen. We hope you enjoy the following in-depth Q&A with Jonas Peterson, CEO of Las Vegas Global Economic Alliance, along with a separate Q&A with Mike Kazmierski, CEO of the Economic Development Authority of Northern Nevada.
the Stat Pack:  What are LVGEA’s projections for new jobs in Southern Nevada in each of the next three years?
For 2015, most economists predict Southern Nevada’s rate of job growth will be between 2.9 and 4.3 percent. Based on the early indicators we’re seeing at LVGEA, I lean toward the more optimistic end of that range and expect our metro area to gain around 35,000 new jobs.
In 2016, I expect our trend of robust job creation to continue. The recent surge in industrial buildings coming online should continue to fuel new projects. By the end of 2016 a 6% unemployment rate should be within our reach.
If we can continue to position our market for high growth industries, build new industrial and office product, improve our education and workforce system and improve internal/external transportation access, we have a very bright future. In fact, we simply have the most opportunity of any market in the southwest.
That said, we need to stay focused on community and economic development as a region. Our strategy is paying off and now is the time for us to prepare for the next, inevitable market downturn.
the Stat Pack:  Does LVGEA project that those jobs will primarily arise in the sectors and industries targeted by the Governor’s Office of Economic Development (GOED)? Which other, non-targeted industries are most likely to organically contribute to job growth in Nevada?
We expect job growth to continue to be broad-based. Target industries such information technology, logistics & operations, manufacturing and health care are showing improvement and we are gradually becoming more diverse, and we still have really promising growth opportunities with unmanned systems, additional technology applications, everything gaming, and renewable energy. Interestingly, many of the sectors that we are becoming more diverse in are also related to our main industry – tourism. One great example is the gaming technology industry. With major expansions going on at Scientific Games, Konami, and Ainsworth, and with several other companies working on skill-based gaming applications, there is now no doubt that we are the global capital of the gaming industry but also the global capital of the gaming technology industry.
the Stat Pack:  Which states are Nevada’s biggest competitors for attracting companies in GOED’s targeted industries? How does Nevada’s economic development budget compare with those of competitor states?

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The LVGEA building in Las Vegas. Photo courtesy of LVGEA.

Our team is passionate about helping Southern Nevada do everything possible to emerge as an economic leader in the Southwest. When we do this well, we’re also doing our part to help create Governor Sandoval’s New Nevada and helping the Intermountain West to become one of the most attractive regions in the U.S.
Economies are interesting in that they don’t necessarily follow political boundaries. So, in many ways Southern Nevada’s economy actually benefits from robust economies in neighboring markets. That’s why we’re continually looking to improve connections to markets like Southern California, Phoenix and Salt Lake City.
Here’s what’s interesting:  when it comes to business location decisions, the process for high-value companies is increasingly global. Yes, we have competition in the southwest – Phoenix, Los Angeles, Denver, Salt Lake City. But in many industries, we also have to compete with London, Singapore, Shenzhen, and regional economies across the globe.  As a region and state we need to set our sights on being globally competitive. If we get that right, we’ll win more than our fair share of companies.
the Stat Pack:  Would you recommend any changes to the incentive and support programs that exist at GOED?
At the Legislature this year, we recommended that legislators endorse an incentive program for the aviation industry. Gov. Sandoval ultimately signed this into law and we saw immediate local business expansions because of that law. We also monitored legislation that tightened eligibility requirements for incentives. This new law will restrict state incentives to companies that pay higher-than-average wages. We were generally pleased with the results of the 2015 Legislature when it came to incentive and support programs like the Catalyst and Knowledge Funds, both of which were funded at the same level as in the previous biennium.
Our board hasn’t adopted priorities for the 2017 legislative session, but there are definitely a few changes to consider. Our domestic manufacturing base in Nevada could really benefit from coming into alignment with 37 other states and eliminating sales and use tax on manufacturing equipment. When expanding companies are spending large sums on expensive manufacturing equipment to start-up or expand operations, our 8.1% makes that piece of equipment that much more expensive than Arizona, Utah, California, Texas, Oregon, or Washington.  We’ve actually lost expansions to neighboring states because of this.
Another change to consider is a dedicated revenue stream for economic development. Stability and predictability would enhance our planning ability and support a long-term vision that will pay off during the next, inevitable economic downturn. For example, Ohio has seen success by dedicating alcohol tax revenues to economic development. In my opinion, another improvement would be to enhance the Catalyst fund. Through a relatively small investment in Catalyst ($10 M/year statewide) has led to company locations with over $100 million of economic impact in southern Nevada alone. With an ROI that high, I think we should try to do more.
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Attendees at LVGEA’s 2015 PERSPECTIVES event in Las Vegas. Photo courtesy of LVGEA.
the Stat Pack:  What are Las Vegas’s primary metro competitors doing that we might emulate, in terms of workforce development, abatements, incentives, etc.?
In 2016, we’re planning to launch a Community and Economic Research Center. I believe information is the currency of economic development and the Research Center is designed to help us create more currency.
There are only a few peer organizations that already have a successful research center. One that has been quite successful is the Los Angeles County Economic Development Corporation’s Kyser Center for Economic Research. I’ve seen firsthand how this group produces valuable economic development research for the region, and I think the LVGEA can adopt a similar approach. We’ve been working with their team to learn what has worked well in L.A.
Also, most of our neighbors exempt manufacturing machinery from the state sales tax base. Among the 50 states, Nevada is one of nine who tax manufacturing machinery in addition to the final product. From a regional competitiveness perspective, an exemption like this may be something for the state to consider in 2017 or beyond.
the Stat Pack:  What are Southern Nevada’s top three competitive advantages in the region?
Southern Nevada has a unique value proposition right now. We have relatively low costs in the Intermountain West and high quality of life reported by residents. Most markets have one or the other. To be able to offer both is great positioning. If I had to pick three key advantages right now, I’d say companies look to Southern Nevada for workforce availability, market access and operating environment.
the Stat Pack:  What are its three biggest negatives?
We’ve got opportunities to continue improving workforce quality, education, and access to capital.
the Stat Pack:  What are the three biggest, best present-day economic development opportunities LVGEA is pursuing?
If you look only at what’s hot right now, I’d say attracting Faraday Future, capitalizing on the upcoming surge in speculative industrial development and creating a roadmap for southern Nevada’s future industrial needs are all at the top of our list.
the Stat Pack:  In most regions, economic development agencies work closely with the business community. Give an example of how LVGEA is working with the Las Vegas Metro Chamber to advance Southern Nevada’s interests.
The LVGEA and Metro Chamber have partnered on numerous fronts. We meet regularly to coordinate programs, services and events. One recent example is the Clark County School District Superintendent’s Executive Advisory Committee. In addition to other partners like Nevada Succeeds, Metro Chamber and LVGEA members chaired subcommittees that advised the Superintendent, Pat Skorkowsky, on three projects.
Generally, it’s natural that broad, general business membership organizations with regional focuses are going to have a lot of alignment of interest, and the education advisory committee is just one example of how that alignment plays out in the community.
the Stat Pack:  Is Southern Nevada even coming close to keeping up with Northern Nevada in terms of new companies coming in and new well-paying jobs created? If not, why not? What challenges has your agency faced that are unique to Southern Nevada?
When you dig into the actual numbers, similar growth has occurred in Northern and Southern Nevada. Take job growth rates for instance – both regions have been largely the same at about 3.5 percent year-over-year growth, according to the latest state numbers. If you look at average weekly wages for Q1 of 2015, both markets are similar with Washoe County at $820 and Clark County slightly higher at $831. Even when you take cost of living into account, you find similarities with Las Vegas MSA about 1.2% below national average and Reno MSA about 0.9% below.
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Gov. Brian Sandoval speaking at the LVGEA annual dinner in Las Vegas. Photo courtesy of LVGEA.

Here’s what’s important – both regions are doing their part to help create the New Nevada. Together, with help from all the regions, Nevada has very real shot at becoming the fastest jobs producing state in the country next year. To get there we’re going to need continued growth in all corners of Nevada.
the Stat Pack:  Nevada has fared poorly in attracting federal workforce training resources and the money the state has captured is largely being spent in the north through the Nevada College Collaborative. How is your agency facilitating work force training efforts in Southern Nevada? Are you engaging both the public and private (professional) schools? Are there any updates on this front?
We know that workforce is the No. 1 concern for our economic development clients, so naturally workforce is a major priority for us. That’s why our policy director, Michael Vannozzi, is now on the board of Workforce Connections, the Southern Nevada Regional Workforce Board. That’s why we supported legislation that funded STEM Challenge Grants, which will help fund workforce training efforts statewide and in Southern Nevada. I am also on the CSN advisory board.
That said, I think there’s more we can do with regard to connecting regional public and private schools to local industry leaders. We’re in the process of working with CCSD’s Career and Technical Education and Magnet School program to do just that. To return to the earlier point about information being the currency of economic development, a regional workforce skills gap analysis will better help us identify training opportunities. Such a study would also assist in attracting federal workforce training resources.
the Stat Pack:  With the UNLV School of Medicine coming online, there will be a boom in healthcare spending and investment, which will require hundreds if not thousands of healthcare professionals. What is your agency doing to help on that front?
Our board of directors wholeheartedly endorsed fully funding the UNLV medical school and lobbied for such funding during the 2015 legislative session. More broadly, through engagement and partnerships, the LVGEA has stayed involved in regional health care discussions with groups like Las Vegas HEALS and the City of Las Vegas Medical District advisory committee. In addition, we worked with a broad group of stakeholders in 2014 to publish a medical tourism report identifying opportunities to enhance our health care market through medical tourism. Last year, we also added Shelley Berkley of Touro University to our board of directors, and we are committed to supporting both Touro and Roseman University as they help our region train tomorrow’s health care workforce. Generally, we have a smaller health care sector than most U.S. metros of a similar size to the Las Vegas MSA, so health care is a big growth opportunity for us.
the Stat Pack:  Nevada has one of the most highly centralized systems of higher education in the country. How does this affect workforce development efforts? Would local autonomy of the governance and administration of the state’s two and four-year colleges allow for more effective engagement between these institutions and the business community? 
This is an interesting question that has been playing out for several years now in Nevada. I’ve been a part of that discussion as a member of the CSN Institutional Advisory Committee. To a certain extent, changes to board structures and governance are not going to automatically lead to better industry partnerships. The current structure where the Board of Regents oversees all of the state’s two and four year colleges and isn’t having a negative effect on our ability to work with state higher education institutions. At the LVGEA we work within the current structure by having higher education Presidents on our board of directors. We also work directly at a staff level with UNLV, Nevada State College and the College of Southern Nevada. The community emphasis on education and workforce development has forced our relationships to be stronger and the LVGEA looks forward to even closer relationships with our higher education system partners in the future.
the Stat Pack:  Despite a recent development successes and a headline unemployment rate of around 7%, Nevada’s U-6 unemployment rate – a number that includes not only the jobless but also discouraged workers and part-time workers who would rather be working full-time — is the highest in the nation at more than 15%. Why is this so number so rarely talked about? How important is it to Nevada’s overall economic success to bring the U-6 rate down?

The unemployment rate can be measured in several different ways, and it’s federal and state-level officials who report the headline rate, which I think the media writes about more often than the other measures of unemployment, including the U-6 rate. That said, it’s critical for us to bring that U-6 rate down and increase labor force participation. If you look at highly successful metros around the United States, there’s a direct connection between education — oftentimes at highly specialized research institutions and technical education programs — and industry. Developing that education to workforce pipeline here is critical if we want to see a labor force that is empowered to work full-time in industries that are globally competitive.
the Stat Pack:  The Kids Count profile just released by UNLV and the Annie E. Casey Foundation reported that 34% of Nevada’s children and youth live in families without secure employment, which is defined as a household in which no parent has regular, full-time employment. What is primarily driving the lack of employment security in Southern Nevada?
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Asurion ribbon cutting ceremony in Las Vegas in October 2014

It’s very unfortunate that about one in three children live in that situation. Part of what is driving that higher percentage is what we just discussed above in the context of the U-6 unemployment rate. Those who are in part-time or itinerant work situations are more likely to live in poverty. So to the extent that these are the types of jobs available in the community, we’re going to see people in the workforce in these untenable situations. To solve for that, we need to address education and workforce training.
To the credit of the Governor and the Legislature, we make sure that the companies we bring in through the state incentive process meet state qualifications for average wage and health insurance. The average starting wage of the new companies we’re bringing to the market right now is north of $23/hour. That’s pretty good, but to make it even better, we need to make sure that the companies that are here know we have the skilled workforce to meet their needs. One example of this was our recent work with Barclaycard. Last year, they moved a significant amount of call center employees here from Delaware. This year, they worked with both us and our partners to look at the workforce. They ultimately decided that we could support some of their higher tech operations, so they’re moving hundreds of more people here. The average wage of those jobs is $33/hour. That is the type of change we need to see to really make a dent in rankings like Kids Count.
the Stat Pack:  LVCVA’s June numbers were a mixed bag. Visitor volume was up 2.4% and hotel occupancy rose 0.4% over last June, but the average daily room rate was down 0.7% and convention and meeting attendance was down 16.6%. Are we losing our “mojo” due to competition from other convention destinations?
I’m confident that the LVCVA and the Strip properties are more than competent when it comes to forecasting for our future as the nation’s top convention destination. We’ve had that title for two decades now, and it’s no secret that other major convention destinations have taken notice and are planning or implementing upgrades in their metro areas. Whether it’s Phoenix with their new light rail connection or the Orlando with their transportation connectivity project that’s getting underway now, our competition is moving forward with major projects around connectivity and facilities. Phoenix, for instance, just passed a sales tax hike to fund $31.5 billion in transportation projects. At the same time, we have our own initiatives moving forward. I have full confidence in Steve Hill at the Governor’s Office of Economic Development as he leads the Southern Nevada Tourism Infrastructure Committee. What I hope we see from that is consensus and a path forward for improving our own facilities and connectivity.
the Stat Pack:  Do you agree or disagree with the following statement?
“While I-11 is an important project, improving I-15 is even more important to Southern Nevada because of the size of the California economy and its ports.”
I agree with that statement in the short term. Our residents want to see improved connectivity between Southern Nevada and Southern California, and we have long recognized that our relative global position is as a satellite of the massive Southern California economy. That said, what’s important in the long-term is diversifying that relative position to make Southern Nevada the true crossroads of the Southwest. The Interstate-5 corridor is very congested. From Canada to Mexico, you’re likely to hit major congestion around the many thriving urban centers that the Interstate-5 passes through. It’s critical that we keep up the pressure on Interstate-11 and ensure that, first, we have better connectivity with Phoenix, and, secondly, that we have better connectivity with the Reno and Tucson markets. We need I-11 for our long-term economic sustainability.
In the shorter term, what steps can we take to facilitate the development of I-11? Where can we partner with Arizona to make sure that the highway from Vegas to Phoenix is four-lane divided freeway with no stoplights? How can we better connect to I-40?  These are questions that we have to answer if we truly want be that alternative north-south corridor that can relieve the congestion on I-5. .
the Stat Pack:  And finally… What Keeps You Up At Night?
Missed opportunities keep me up at night. When a company should be a win for southern Nevada but another state or region wins out simply by offering more incentives, that’s frustrating. However, what allows me to get back to sleep is the incredible commitment by public, private and education leaders we have to support economic development.  With the leadership we have in place, we have a very bright future ahead!
 
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Jonas Peterson currently serves as President and CEO of the Las Vegas Global Economic Alliance (LVGEA). Prior to joining LVGEA, Peterson served as President/CEO of the Santa Clarita Valley Economic Development Corporation (SCVEDC).
Jonas received a M.S. in Community and Economic Development from Pennsylvania State University and a M.B.A. from North Dakota State University. He is a Certified Economic Developer (CEcD), graduate of Oklahoma University’s Economic Development Institute (OUEDI), graduate of Stanford University’s Executive Program, Leadership Series graduate at Harvard’s Kennedy School of Government and a Certified Business Retention and Expansion Consultant.
Peterson has conducted considerable research on comparative advantage and quantitative marketing. Previous publications include “Vegas 2.0: Rebooting Nevada’s Economic Engine” and “Minding Our Own Businesses: a Practitioner’s Guide to Regional Business Retention.”
Photo courtesy of LVGEA
 
 

What Keeps A Nevada Education Reform Advocate Up At Night?

After the raft of education reform bills passed by the 2015 Legislature, what better topic for the latest installment in our Q&A series with Nevada business and community leaders?
Happily, we found someone willing to give us his three cents with even more candor than we’d hoped. Please enjoy our worthwhile conversation with Brent Husson, executive director of Nevada Succeeds, a non-profit, nonpartisan coalition of business leaders committed to improving the state’s education system. If you have questions for Brent or want to get involved, you can email him at brent @ nevadasucceeds . org
The Stat Pack:  Of the education reforms passed this session, which one do you believe will have the biggest impact?
Husson: In my opinion, the Read by 3rd Grade law (SB 391) is one that has very high potential to positively affect student outcomes. The biggest reason for this is that it addresses the core issue of literacy. If a child cannot read by 3rd grade, he/she is virtually assured to fail in school. Anything we do to make students more literate will have an outsized impact on their achievement for the rest of their school years, and really, on the rest of their lives. The hope for this bill comes from knowing that similar bills were passed in both Colorado and Florida, and in the school districts that implemented them well, we saw great gains. So the caveat here is that solid implementation is a must, but not a given. Nevada Succeeds is currently working with all involved parties to help ensure excellence in implementation.
The Stat Pack:  There are no real teeth in this new “Read by Three” initiative right now, so social promotion can still occur in the short-term. As such, can we really hope to see a substantial difference in statewide reading scores? How long before we see results?

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Governor Brian Sandoval with lawmakers and elementary school students at an education bill signing in June 2015 / Photo provided to The Stat Pack courtesy of NDOT photographer Sholeh Moll on behalf of the Office of the Governor
Husson: Actually we learned a lot from Florida on this. Our law was written with a delayed implementation of the retention piece, or so-called “teeth”, specifically because the states that have tried to retain kids without first providing the interventions proscribed in the law have since changed their laws due to unforeseen problems that threatened to derail the law entirely. In any event, a successful Read by 3rd Grade law is one that eliminates the need for retention; that is the focus of the new Nevada law and of Nevada Succeeds. I believe the initiative will help our reading-challenged kids, even with delayed retention, precisely because it is the interventions and not retention that affect literacy. Retention is simply one last chance for the adults to get it right. If we focus on getting the children what they need long before retention is necessary, then retention will be what it is supposed to be:  a last resort. In Colorado and Florida, reading scores have increased significantly, especially in districts that have adequately embraced the interventions.
My concern about when we will see results from this policy does not come from the efficacy of the policy proscriptions, for they have been proven time and again. Rather, I am concerned that we do not have enough highly qualified teachers to move the policy into practice. We have thousands of very good teachers in Nevada, however, in CCSD alone, we are likely to begin the next school year with 1,000 teacher vacancies. These positions will either be filled by long-term subs or not filled at all. In addition, we will be employing over 1,000 first-year teachers. It doesn’t take much imagination to see that this poses a huge problem.
The Stat Pack:  Many conservatives who objected to more funding for all-day kindergarten say that while adding it has been shown to have some positive effect on student achievement in grades one and two, any positive effects disappear by later grades and that it is therefore a waste of public money. Is there any data to support that contention?
Husson:  The only study I am aware of that discusses the lasting effects (or lack thereof) of early childhood education was a federal study that looked at Head Start, which is a federally funded pre-K program, not full-day kindergarten. In any case, the truth is that education, at any level, is only worth the money if it is quality education, and quality education comes from quality educators. The quality and lasting impact of full-day kindergarten will truly depend upon the quality of Nevada’s teachers. If we have systems that can support our teachers so they can get the most out of each and every student, then the investment will be worthwhile. If it turns into babysitting, then we have made a poor investment for our kids.
The Stat Pack:  Is ending a cookie-cutter approach to class sizes worthy of further discussion? Don’t the benefits of smaller class sizes depend on numerous factors, like the age of the students?
Bonner Elementary, Las Vegas / Photo by Es715 via Wikipedia Commons
Bonner Elementary, Las Vegas / Photo by Es715 via Wikipedia Commons

Husson: I think it is worthy of discussion. There are many variables that effect quality of instruction, and class size is just one of them. When small class sizes are used to provide more targeted help for at-risk kids, the research shows that significant impact can occur, especially in the early grades. However, when class size becomes an end in itself, I think we unnecessarily cut ourselves off from many other creative approaches that can have tremendous impact on kids as well.
In some countries (including countries that have higher achievement than Nevada) they actually encourage larger class sizes, because it allows them a larger sample size with which to examine new methods. My point is that high student achievement should be the goal and class size can be one strategy, not the only strategy.
The Stat Pack: What do you think will be the effects of the new Education Savings Accounts? What about recently publicized private school concerns that they are losing enrollment while parents/kids jump through the hoops necessary to qualify?
Husson:  I’ll take the second question first. There is likely to be some short-term disruption for some of the smaller, less financially sound private schools. If they lose significant numbers of kids because they have to comply with the 100-day rule (which has yet to be clarified by the legislative commission), they may not have enough revenue to operate. These schools will have to figure out a way to bridge that gap, or get the rules changed to help them manage that issue.
The answer to the first question is a little more complicated. In general, the effects of this policy will be to shift some education resources, and some kids, out of public schools. At Nevada Succeeds we always evaluate policies relative to their effects on student achievement. In this case, we think it is important to consider not just the achievement of the students who are able to use the money to leave the public schools, but also whether the shifting of resources has any effect on the achievement of the kids who remain in the public system.

“If a child cannot read by 3rd grade, he/she is virtually assured to fail in school.”

In my opinion, it is too early to draw any conclusions about what the results will be for either group of students. In the first case, there are too many unknowns about who will use the resources and how they will use them. In the latter case, we do not know if the resources that are left at the school are enough to cover the fixed costs that don’t go away when the child does. I believe the most important thing we can do now that the law has passed is to pay very close attention to the implementation and insist on transparent evaluation of the results for both groups of kids. That is why we are glad that all students who use an ESA must take a norm-referenced test so we can measure their outcomes in comparison to other students in the state.

A substitute teacher spending time with a student / Photo provided courtesy of Washoe County School District

The Stat Pack:  The lodging and hospitality industry accounts for about 28% of the Nevada workforce. Do you think hospitality’s choice not to require that its workers have a high school diploma or even a GED is detrimental to improving the state’s work force?
Husson:  Since the beginning of the recession, we have seen more companies starting to require a high school diploma or a GED for more jobs, especially in the hospitality industry. I believe it is a step in the right direction for our state, as we want to continue to attract a skilled work force in all industries. Growth in the skilled workforce will produce positive ripple effects for Nevada.
The Stat Pack: What crucial reform and/or funding subjects within education have still not been addressed by the Legislature? Is Nevada’s education system adequately funded with the new spending? If not, where is more money needed, or from where can money be cut and reapplied?
Husson:  Nevada Succeeds believes that the next issue that must be addressed in Nevada education is teacher effectiveness and since 90% of our districts’ operations budgets are spent on personnel, we think the adequate funding issue is directly related. This issue is incredibly complicated, and I could not do it justice in the space available here, but what I would like to do is let your readers know that Nevada Succeeds is targeting this issue in the run up to the 2017 legislative session. We are convening community leaders to come up with a plan to address the many issues that affect our teachers’ ability to do their jobs well.
At this initial stage, we have recruited what we are calling the Leadership Group. The group will be co-chaired by Lt. Governor Mark Hutchison and former Secretary of State Ross Miller. In addition, NSHE Chancellor Dan Klaich, State Superintendent Dale Erquiaga, CCSD Superintendent Pat Skorkowsky, CCEA Executive Director John Vellardita, WCSD Superintendent Traci Davis and I will all be serving on the committee. The purpose of this group will be to help focus the state on this important issue and to convene the folks necessary to get the problems fixed. This is the kind of issue that will take a united community effort to address, and I am excited that these fine leaders are gearing up to take on the challenge.
The Stat Pack:  Overall, is the “New Nevada” actually going to produce substantially better educational outcomes for our students? How long will it take for the state to show results?
Husson:  I believe the “New Nevada” will produce results. What we have at the moment are a host of policies that have a lot of potential. The reason I am bullish is that I have a tremendous amount of confidence in Dale Erquiaga and his team over at the Nevada Department of Education, as well as in the processes they are putting in place relative to rules, regulations and implementation. If we get the teacher effectiveness piece right, we should start to see signs in the next 2-3 years, but it will probably take 4-6 years for real outcomes to change. This year, only 37% of kids in the state were able to take the Smarter Balanced tests, so we don’t have widespread testing data. Next year will be our new baseline. Therefore, we won’t be able to measure growth until the 2016-2017 school year when we will update the star rating system.

“If we get the teacher effectiveness piece right, we should start to see signs of improvement in the next 2-3 years, but it will probably take 4-6 years for real outcomes to change.”

The Stat Pack:  What is the role of Nevada businesses in all this education reform work? Does the business community do enough?
Husson:  I believe it is the duty of all Nevadans to take ownership of our education issues, and business is no exception. When the national news stories report that we rank 50th in one category after another, they do not report Brian Sandoval’s literacy rate, or Pat Skorkowsky’s graduation rate, they report the failures as Nevada’s failures. This reality negatively impacts business’s ability to recruit quality employees and the state’s ability to recruit more business. If we want this to change, we must all work to help fix the system.
The Stat Pack:  And finally… What keeps you up at night?
Husson:  The same statistic that caused me to get involved in this work in the first place:  40% of Nevada 4th graders are functionally illiterate. We have an obligation to educate these children, and we are failing. When the work we are doing moves that statistic significantly in the right direction, I will feel like we have accomplished something as a community. We are on the right track, but to get to the finish it will require all hands on deck.
 

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In addition to being president of Nevada Succeeds, Brent Husson has been a small business owner in Las Vegas since 2001. His current venture, a partnership with Employee Benefit Management Services Inc., brings value based health benefit management to large employers in the southwest. Their main mission is to lower health care costs for their clients at a time when the rest of the industry is increasing by double digits.
The mission of Nevada Succeeds is to bring a business perspective, through policy and advocacy, to the education debate. The organization is actively involved in the formation and implementation of education policy designed to improve student achievement in Nevada.
You can contact Brent at brent@nevadasucceeds.org
 

Ask HighTower

Dear HighTower,
Is massive inflation on the horizon due to all the government borrowing?
Liz T.

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Ms. T,
There is no question that the national debt in the U.S. has risen dramatically over the past five years, as the government spent tremendous amounts of money in an attempt to pull the economy out of the great recession. According to the IMF, net national debt in the United States at the end of 2010 was roughly $10 trillion. At the end of 2014, that figure stood at nearly $15 trillion.
A significant amount of the debt issuance was purchased by the Fed, effectively creating money out of thin air. So why would the Fed embark on such a program? Simply stated, the Fed was terrified of deflation. While excess inflation can cause significant problems for an economy, deflation is by far the more feared outcome. Deflation leads to a vicious pattern of behavior in which economic activity grinds to a halt as everyone avoids purchasing goods and services for as long as possible due to the likelihood of prices being even lower in the future.
The Fed’s actions seemed to have removed the threat of deflation, but we are nowhere near a point of massive inflation in the U.S. economy. In fact, with current core PCE inflation readings of 1.2%, we are still running well below the Fed’s inflation target of 2%. There are a variety of factors for the weak inflation picture in the U.S., but two major economic forces are likely to keep inflation low in the U.S. for quite some time.
First, China’s investment slowdown is putting downward pressure on global commodity prices and this phenomenon will probably last for several years if not a decade or two. China simply over-invested in housing, commercial real estate, and infrastructure over the past 20 years and are now facing unprecedented levels of excess capacity. This will take a long time to work off and in the interim, commodity prices will stay under pressure.
Second, the strength in the U.S. dollar is effectively lowering the price of all imported goods. The U.S. imports nearly $3 trillion dollars of goods and services and a stronger dollar makes these imports less costly. We believe the dollar’s strength is here to stay as the U.S. economy is outperforming most of the other developed nations.
Given the macroeconomic backdrop, we don’t believe inflation is a major threat. In fact, the Fed would like to see inflation about 1% higher than it is today. In the event inflation begins to heat up, the Fed has never been better armed to combat it. The Fed has always controlled short rates, which can be raised to combat inflation, but the Fed’s influence on long rates has been less direct. After compiling a war chest of long-term treasuries over the past couple of years, the Fed is now armed with the ammunition to directly influence long rates as well.  Thus, we believe the Fed has more tools at their disposal today to stop inflation in its tracks if it begins to rise to concerning levels.

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HighTower Las Vegas provides successful families, businesses, and non-profit organizations a white glove wealth management experience that focuses on financial planning, investment management, estate planning, business retirement solutions and philanthropic consulting.
 

Does a Dipping Market Mean I Should Swap Out Stocks?

Following is a new monthly feature called “Ask HighTower.” We hope it provides valuable perspective and informs your thinking about the markets.

Dear HighTower Las Vegas,
Should I be worried about this week’s dip in the markets? What, if anything, should I change about what I’m doing with my investment dollars?
Sincerely,
Liz T.

Dear Liz,
The market has been choppy so far this year, but what we are seeing is actually quite normal. It’s just a matter of perspective. We’ve been a bit spoiled by a period of extremely low volatility. Over the past 25 years, approximately one out of every four (25%) trading days saw the S&P 500 move up or down by more than 1%. However, from 2013-2014 that number fell to just 15% — so people began to expect consistent returns that are not actually the norm. So far in 2015, we’re back to a period of movement on roughly 25% of the days. It’s nothing out of the ordinary, but it feels much different than a couple of years ago.
The return to more normal market conditions is actually quite positive in our view, but investors need to understand or relearn what to realistically expect. On average, the market corrects (i.e., falls by more than 10%) about every 15 months, according to the Stock Trader’s Almanac. While those episodes can be painful, they are actually quite healthy. Corrections keep speculators from running rampant and help prevent bubbles from forming, which in the end are far more painful than the average correction when they pop.
Despite corrections and bear markets, stocks have proved time and time again to be a great source of wealth creation over time. The important thing to remember is those last two words:  over time. At 44 months since our last major market correction, we are due for a market pullback. Should you run for the hills? We think not, unless your time horizon is too short to handle market volatility. Instead, we believe sticking to a well-crafted asset allocation that is consistent with your financial planning objectives is the better course of action.
Sure, there will be trying times along the way, but if you keep your emotions in check and remain committed to a well-designed strategy, you’ll have the odds of investment success strongly in your favor.
HighTower Las Vegas is one of the most experienced and well-respected wealth management firms in the region with $700 million in assets under management. Feel free to call 702-567-5100 or email the HighTower office anytime for a friendly conversation with a HighTower advisor.
 
 
 

What Keeps Bank of Nevada CEO John Guedry Up At Night?

This month The Stat Pack is honored to feature a Q&A – including our signature question, What keeps you up at night? – with Bank of Nevada CEO John Guedry.
GuedryTesla aside, how is Nevada really doing in terms of economic development? 
We are seeing pockets of recovery that have been ongoing for more than two years now. Specifically, the resale housing market is getting healthy with a relatively limited inventory of about 3 to 6 months, depending on sub-markets and price points. Jobs on the hospitality side, i.e. gaming and tourism, have been recovering steadily for that same two-year period with the construction industry also showing notable job recovery over the last 3 to 4 quarters. Since these two sectors represented the majority of the job market pre-recession and were by far the hardest hit by the great recession, it is important that they continue to gain momentum through the recovery, which they are starting to do – though we are seeing only approximately 60% of the employment levels in these respective industries compared to pre-recession levels. I have likened the last economic cycle in Nevada to a long fall off a very steep cliff resulting in severe injuries that has led to a long, slow crawl out of a very deep hole. Today the patient hasn’t reached the crest but can see the light above – and the injuries have healed enough to possibly walk the rest of the way out.
Analogies aside, the improving employment market has also pushed CRE values, rent rates and vacancy rates in the right direction over the same two-year period, particularly in the industrial and retail categories – and specifically in the master-planned communities of Summerlin and Green Valley, as well as along the I-215 corridor connecting these two communities. The downtown office market and the Strip retail markets have also improved significantly in the past couple of years.
The banking industry in Southern Nevada has seen an overall more stable economy with some depositors still focused on a flight to safety, keeping their deposits at larger and/or national institutions, which may not be the best spot for them today. Borrowing activity in the construction market is increasing but is still well below peak levels. Commercial/business borrowers are still a little slow to increase debt for inventory, facilities and equipment needs. Overall confidence levels in local, national and global market conditions seems to continue to hold back growth/expansion decisions for many, resulting in a more protracted recovery.

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Colonial Plaza Office Center on S. Ft. Apache in Las Vegas

Are you seeing differences between economic development efforts in Northern and Southern Nevada? If so, how so?
Northern Nevada seems to be a bit ahead of Southern Nevada, as organizations like EDAWN and NNDA in the north have been operating longer than the more newly formed LVGEA in Southern Nevada (even though LVGEA has really just picked up where NDA left off and enhanced their mission). I think LVGEA’s transition to its new mission and new organizational structure has created a dip in activity while the organization refocuses its efforts. Also, Northern Nevada made a decision many years ago to diversify as their dependence on gaming became less optimal for their growth prospects, providing them more tools in their bag to rely on than Southern Nevada, which became accustomed to consistent and substantial annual growth in the gaming sector. Finally, the Northern Nevada market is more nimble due to size, thus making it a bit easier to make a meaningful impact to their economic prospects when they are successful in landing a company like Tesla or an expansion plan from a company like Switch. While both of those success stories would make an impact in Southern Nevada, proportionately it would be less impactful.
The expansion of the LVCVA/Convention Center will have a major impact for Southern Nevada, as will the ground breaking of the multi-billion dollar Genting resort and the completion of the $350M events arena by MGM. In short, both economies are heading in the right direction, but Northern Nevada has felt its recovery just a little bit sooner and the change up north is more noticeable due to the scope of the growth compared to the size of the respective markets. LVGEA hitting on all cylinders will be critical to keeping the momentum going in Southern Nevada, especially as it relates to diversification for the long term stability and viability of that growth.
In your experience, what are the primary reasons companies choose to – or choose not to – move to Nevada?
Primary reasons to move here include (but likely are not limited to) the following:  Reasonable tax climate, favorable business climate related to regulations and overall openness for outsiders coming in, value proposition specifically related to facilities (whether owning or leasing), relatively low energy costs compared to neighboring markets, availability of space (in most categories, with the exception of large 400,000 sq. ft.+ industrial space), affordability for owners and employees, opportunity for growth, dry and warm climate, great international market for flights, good and improving ground transportation options including the ability to cost effectively export products due to low outflow costs (i.e., empty trucks and rail cars leaving the region), and good proximity to major markets like Southern CA, Phoenix, Salt Lake City and the Bay area.
Primary reasons not to move to Nevada:  Lack of a trained and educated workforce, water constraints, changing (and therefore unknown) tax environment, concerns about the education system for families, weak higher education system, perception of Las Vegas as “Sin City” (so:  brand perception), poor health care ranking, and lack of economic diversification.
You are the incoming Chair of the Las Vegas Metro Chamber. What would you like to see the LVMCC accomplish in the next two years?
Continue their great work with local, state and national elected leaders to help Nevada achieve our goals of a vastly improved education system and a more diversified economy. Work with our members to make sure we are addressing any issues – from policy to resources, personnel to capital – that could be constraining their success or ability to achieve goals. Make sure the business environment in Nevada is conducive to adding jobs and growing the economy in order to help all businesses benefit from that growth; a rising tide raises all boats.
Financial institutions are spending a great deal more on regulatory and compliance issues these days. How has this had an impact at Bank of Nevada and your ability to serve your customers?
In most instances, better regulatory oversight has strengthened the banking industry including Nevada banks. Stronger capital requirements, better risk management controls, and supportable loan loss reserves based on longer historical trends and more data are among just a few of the material changes that have caused banks focus on stronger balance sheets in order to better serve their markets. That said, anytime the regulatory oversight pendulum swings too far, we wind up with well-intended regulations with unintended consequences – i.e. a situation in which there were too many mortgage loans to unqualified buyers has now swung so far in the other direction that many mortgage lenders have exited the residential mortgage market, leaving a supply shortage.
Are you seeing the lending climate change for small businesses and the real estate industry in Nevada, as well as the other markets in which Western Alliance Bancorporation is involved?
Western Alliance Bankcorporation (WAL) and our other divisions, including Bank of Nevada, did continue to make loans throughout the recession and recovery. That really hasn’t changed. What has changed is that more businesses are now looking to borrow, and more are qualified such that they can repay the loans they are requesting. The last thing any bank wants to do is to provide a borrower with a loan they can’t repay. Unfortunately, during the worst of the recession, many borrowers did not have the revenue or cash flow to repay the loans they may have wanted. Providing a loan in those cases would have compounded the problem that led to the recession in the first place. A more significant recession-related issue was that business owners were not interested in expanding their businesses such that they did not want to increase inventory or receivables, buy equipment, or add facilities or staff – so they did not need to borrow.
It is a change in both of these factors that has led to a recent increase in borrowing activity.  WAL experienced this change sooner in our other markets – such as in CA (Torrey Pines Bank) and AZ (Alliance Bank of Arizona), where demand increased because their economies began to recover a few years ahead of Nevada – resulting in more business and real estate loans, there.
What are your thoughts on the various tax bills that are being discussed in the Legislature? Do you like any of them? If a “hybrid” bill is passed, what should it include — or not include? Do you think the additional budget money proposed by Governor Sandoval is needed? 
Honestly, no one “likes” to pay more in taxes. That said, I am pleased to see that the discussion at the Legislature isn’t only about increasing tax revenue but is also about how many accountability measures will come with the increase as well as how they will be implemented and maintained. I credit the Governor with getting into a discussion of the details, rather than just focusing on, do we or don’t we raise taxes, he has already got most business owners to agree additional revenue is required. Obviously, there are many opinions about the need for more taxes. I’m in the camp that an increase in taxes that creates revenues which is then properly invested can actually improve returns to Nevada businesses and residents alike.
So, with that as a foundation for my subsequent comments, let me say that I do not like the idea of a brand new business tax, i.e. the Business License Fee (BLF) introduced by the Senate. This looks and acts very much like a business margins tax and would divide the business community into 30 distinct industries with different margin calculations and different tax rates – in some cases for good reason but in others, the reasons are not so good. I do understand why a high margin business should pay a higher tax rate than a low margin business, or why a business that has fewer tangible commodities should have a different standard for calculating its margin than a business that has easy-to-identify differences between gross sales and cost of goods sold (like a grocery). So, using different margin calculations and tax rates makes some sense. That said, every business model in every sector has some nuance that will make any tiered structure less equitable and therefore make it more difficult to determine a truly fair formula for all. Also, implementing the BLF will be a labor-intensive, time-consuming collection process for the state, resulting in higher costs to collect and administer the tax than might otherwise be the case.
I also have very serious concerns about any business tax that divides Nevada’s industries into separate camps that must fend for themselves in subsequent legislative sessions when more revenue is being sought. I witnessed this issue first-hand when in 2003 the new Modified Business Tax (MBT) was implemented and Financial Institutions were singled out to pay more than three times the tax rate of all other Nevada industries, based on payroll costs plus a franchise fee that no other industry had to pay. Since we were singled out in a way no other industry was, we didn’t get much support from the business community despite my insistence at the time that once the Pandora’s box was opened, other industries would eventually see their rate go up as well. Sure enough, six years later everyone else in the state saw their MBT rate jump from .67% to 1.17%. So, I do not favor a tax that makes it easier for the Legislature to single out an industry whenever more revenue is desired, which seems to be always.
So… my long-winded answer is, if we are not going to look at a broader-based tax that is spread out sufficiently, such that it reduces the impact on a smaller, select group of taxpayers – like a broader tax on services, which would also allow for a lower sales tax rate and would thus make us more competitive with neighboring states – then I would suggest not creating a whole new tax and just looking at the minimum tax increase needed to achieve our objectives in education and to appropriately fund safety-net services like mental health, i.e. increasing the existing MBT (i.e., the Assembly’s bill) to the lowest possible point.
I do want to caution that we should not be having tax discussions without, in the same breath, discussing both accountability and spending controls in order to ensure that these are not tax dollars wasted but rather tax dollars invested to truly improve our K-12 and higher education system, as well as vocational training for adults so we can meet the more diverse employment training needs for our state. In the past, we have increased education spending with few meaningful results. We should tie spending to results and hold those receiving the funds accountable. I know education reform and accountable spending is a centerpiece of the governor’s plan, and I applaud the governor and legislators for having and continuing that discussion – but we need to be sure we take it to the finish line along with any tax increases that may be approved.
Long term, I hope we look at the portions of state and local government tax structures that are not fair, transparent and/or beneficial to all Nevadans and make the necessary changes, even if those aren’t politically the most popular decisions. I also favor any group that wants to offer a revenue alternative that may be more feasible to administer, such as gaming and tourism businesses possibly agreeing to a flat licensing fee in lieu of a percentage increase in payroll taxes (i.e., MBT). This seems better than creating a new taxation structure that will impart a tax on industries that do not favor the make-up, never mind the rates.
And finally…  What keeps you up at night?
Literally, what keeps me up at night is my twin four-year old grandsons who live with us. Figuratively speaking, it is those things beyond our control. The economy, or a terrorist attack, or some foreign country harboring computer hacking rings whose sole purpose in life to bring down or disrupt our business. The traditional concerns are less significant, as I am fortunate to be surrounded by very talented colleagues working for a business brand that has developed a strong reputation of service to our clients – and great clients who have been loyal to us by sticking with us through the worst of times.

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John Guedry has over 27 years of experience in financial services and related industries in Nevada. Prior to joining Bank of Nevada, he was CEO and President of Business Bank of Nevada until it was purchased by City National Bank in 2007, where he remained as Executive Vice President before joining CB Richard Ellis as a Managing Partner. Active in a number of civic and community endeavors, Guedry serves as a board member of Opportunity Village, the Public Education Foundation, NAIOP, Las Vegas Bowl and Women’s Development Center. He is also a past chairman of the Nevada Bankers Association and Leadership Las Vegas Council for the Las Vegas Chamber of Commerce. A native of New Orleans, Mr. Guedry moved to Las Vegas with his family in 1974. He graduated from University of Nevada, Las Vegas, in 1982 with a bachelor’s degree in business management. 
 

Water Crisis in the Southwest U.S.

Earlier in April, Gov. Brian Sandoval stood on the shores of a shrinking Washoe County lake and signed an executive order creating the Nevada Drought Forum. The group is comprised of water experts and officials from around the state; it will study Nevada’s ongoing drought and recommend state policies. Though not as badly off as California, where Gov. Jerry Brown has ordered a 25 percent reduction in water use, Nevada is the driest state in the nation—and is getting drier with each passing year.
Washoe Lake has shrunk from about 8 square miles to less than a quarter acre. Lake Tahoe dropped below its natural rim last fall. Lake Meade has dropped more than 120 feet since 2000. None of this is good news. Happily, due to drought restrictions and water-efficiency programs, Southern Nevada’s annual water consumption decreased by more than 32 billion gallons between 2002 and 2013, despite a population increase of nearly 500,000 during that same time span.
The challenge of water scarcity in Nevada and the nation has both economic and political ramifications. Water shortages are already straining relationships between states and portions of states, and industries that use a lot of water are coming under fire in headlines and news reports. For agriculture, extended drought is disastrous; scarce water can threaten the viability of billions of dollars worth of crops. The corresponding potential loss of jobs in agriculture and other industries heavily reliant on water is staggering. Additionally, meat prices – the production of which accounts for approximately 30% of U.S. water use – are directly tied to water supply.
If good policy is to be implemented, it is important for the facts to prevail and panic to be kept to a minimum. Here are a few realities:

  • Per capita rates of U.S. water use are comparatively high. Domestic water use is approximately 100 gallons per person per day compared to 37 gallons in the United Kingdom and 32 gallons in Germany.
  • The net consumptive water use in Southern Nevada in 2014 was 118 GPCD. (This number includes all customer sectors but refers only to the portion of water that is consumptively used since direct and indirect reuse allows the water to be used more than once. Net GPCD is more representative of Southern Nevada’s water footprint on the Colorado River.)
  • On average, 70% of U.S. water use occurs indoors, with the bathroom being the biggest consumer, followed by the kitchen.

LakeMeadJuly2014How can these facts help us shape wise water policy?

First, conservation efforts can make a big difference. Reducing U.S. per capita water use by even 25% – never mind by two-thirds, which would bring us in line with other developed countries like the UK – would make a tremendous impact. Second, we can no longer rely on traditional supply-related solutions like building dams and reservoirs, diverting rivers, and drilling wells. Reallocation can play a role, but many long-standing legal agreements and management norms along with scarcity limit the trading of water. Third, we have to acknowledge that in too many places in the U.S., water pricing is based neither on the actual cost of providing water nor on its relative scarcity in a geographical area. Low costs have led to elevated use and have also limited the money available for provider-driven conservation efforts and investment in new water technology and infrastructure. Prices need to come up while being balanced with other economic considerations.
In summary, many of the economic mechanisms that are typically used to allocate a scarce resource—such as trading, pricing, and investment in technology—are largely absent from our nation’s water markets. It is time for that to change. We can’t control the weather, but we can to some degree mitigate water shortages and foster sustainable systems. Pragmatic regulations that encourage or require more efficient use of water combined with incentives for technology innovation can also position our economy to handle the demands of the growing imbalance between water supply and demand.