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.
Tesla 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.
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.
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.