Feature Stories - April 2008

Power Poll 2008

Business Leaders Tighten Belts for Uncertain Year Ahead

by Jeanne Lauf Walpole

As the winds of an uncertain economy blow briskly over Nevada, the state’s business leaders expressed their concerns for future challenges as they responded to Nevada Business Journal’s sixth annual Power Poll. With Nevada’s meteoric growth rate slowing, many survey participants indicated they expect bottom lines to reflect that deceleration for most of 2008. Participants also expressed concerns about the shortage of qualified employees, an overcrowded educational system, future water shortages and an inadequate infrastructure.

Designed and analyzed by Precision Opinion of Las Vegas, the survey was conducted electronically in January. The majority of respondents were male with a split between business owners and executives. A sampling of the participants were interviewed to obtain more in-depth information concerning the status of Nevada’s business activity. Although none professed to have a crystal ball containing the answers to the 2008 economy, all provided valuable insights. Below are the numerical results to the survey’s questions, plus personal comments from the state’s business movers and shakers.

Greater Efficiency Molds Bottom Lines

With 88 percent of total respondents expecting their 2008 bottom lines to be at least as positive as in 2007, it would appear that in the face of Nevada’s easing economy, many executives have already taken steps to operate more productively. “I think my bottom line will improve because whether the economy changes or not, we’re doing business differently,” said Brent Wright, CEO of Las Vegas-based Wright Engineers. “We’ve downsized in staff to correspond with the reduced value of the work available. Compared to our peak in ’07, we’re down 25 percent.”

Kevin Parsons, CEO of Parsons Walls in Las Vegas, also said his bottom line will improve even though he believes sales will not increase. “I expect sales to be flat,” he said. “We were blindsided by the slowdown, so we’ve cut back on overhead and other costs. I believe our bottom line will increase by 5 percent because we’re running leaner.”

Other executives, however, have accepted the fact that their bottom lines in 2008 will be less than in 2007. “We’ll be down 10 percent this year,” said Tim Ruffin, managing partner of Colliers International in Reno. “I think we’ll pay for the fallout of a ripple effect throughout the construction industry. Clearly, we overbuilt to a phantom demand.” Because leases continue to expire regardless of the state of the economy, however, Ruffin said his company is in an enviable position because it is well established in that market.While most executives are adjusting to what they expect to be flat or slowing sales, a select few are gearing up for what they hope to be a very good year. Because many businesses increase their marketing efforts to offset a slowdown, Paula Yabubik, managing partner of MassMedia Corporate Communications in Las Vegas, is bullish about the year ahead for her firm. “Our January numbers were up 30 percent over December,” she said. “Developers, who haven’t had to market before, are doing it now. We’re in negotiations with eight to 10 new clients.” She expressed concern, however, about how the number of bankruptcies could affect her business. “We’re watching our receivables very closely because overnight you see clients file bankruptcy.”

Keeping the Faith in Growth

When it comes to the state’s economy, business owners and executives are less optimistic about what 2008 is likely to bring. Perhaps this is due to the fact that they have some control over their own bottom line, but none over Nevada’s economy. While 74 percent of survey participants believe the 2008 economy will be at least as strong as it was in 2007, the remaining 26 percent expect it to worsen. The level of concern might vary from business to business, but many people point to the overall strength of Nevada as the saving grace during this uncertain time. “I don’t know why people don’t describe it as a recession. Clearly the economy is not what it was 12 to 18 months ago,” said George Ogilvie, managing partner of the Las Vegas office of McDonald Carano Wilson LLP. “Bankruptcies are on the rise and businesses are tightening belts due to the current situation. Nevertheless, I think the economy is pretty sound so the recession won’t be long.”

With large projects for Reno Toyota and AT&T in the works, Pete Blakely, president of BJG Architecture in Reno, believes that 2008 will be a turbulent year partially due to misperceptions of the economy. “The conception is far worse than the reality, but the basic fundamentals are positive,” he explained. “There’s a hiccup due to subprime mortgages, but that’s a small portion of the market.”

Others point to the advantage of large gaming projects soon to come online. “Comparing our state to others, we are lucky to have gaming that’s fueling the economy. It will enable us to bounce back. With several new resorts, it’s going to kindle new job growth,” said Kevin Burke, president and CEO of Burke & Associates, Inc. in Las Vegas. Kirk Clausen, regional vice president of Wells Fargo & Company in Las Vegas, agreed. “I don’t think this is a bubble. Southern Nevada is better positioned because of the growth rate in jobs and new residents moving here from California,” he said.

Should Gaming Be Singled Out?

With 59 percent in agreement and 40 in disagreement over the appropriate level of gaming taxes, results appear to be mixed. Respondents who were interviewed expressed concerns that gaming might be unfairly singled out and advised that taxes need to be broad based. “This is a classic example of shooting in the heart the very thing that supports the state,” said Frank Martin, founder and president of Martin-Harris Construction in Las Vegas. “Gamers are very good citizens. Give it a few years after the new projects and I believe the goose will grow even more productive.”

Clausen is also concerned about the potential for unfairly overburdening the gaming industry. “I’m very worried about efforts to target a single industry, such as gaming, for increased taxes,” he said. “The answer is not to target one, but to distribute the burden so that everyone carries a little.” Ruffin agreed. “We need to create a broad-based approach where everyone pays his fair share,” he said.

Maintaining Our Reputation

Although results are split as to the intensity of agreement, 93 percent of respondents still believe that Nevada is maintaining its reputation for being friendly to business, in spite of growing concerns about increased regulations and bureaucracy. “It’s exceptionally business-friendly,” according to Marge Landry, owner of Landry & Associates, Inc. “I’ve worked in other states, and the only place I would have had the opportunity to start my own business is Las Vegas.” Landry acknowledges that the area has growing pains, but said they haven’t hurt her business yet. “I see the negative changes, but we still have 6,000 people coming here a month.”

Other survey participants cite problems they’ve experienced running the gauntlet of rules and regulations. “More and more Nevada’s becoming less of a business-friendly state,” Parsons said. “It took me over two years to get a permit for a mini-storage facility. There were a lot of hoops to jump through.” Martin expressed similar concerns. “I’ve sat in too many meetings where requirements were placed on businesses that could cause them to walk away. That didn’t used to happen.” Ron Hall, chairman of the board of SH Architecture in Las Vegas, is worried about the effect of new taxation. “Nevada continues to impose taxes on businesses which came to the state years ago to avoid such taxes,” he said.

Attracting Quality Employees

With 82 percent of survey respondents reporting problems, it appears that businesses find it difficult to attract qualified employees. “It’s still our No. 1 challenge and will continue to be,” said Burke. “We’re still in a tremendous building boom in our

industry [commercial construction] and there’s a limited pool of qualified people.” Blakely agreed there’s a shortage of qualified people. “Recruiting is harder because fewer people are graduating with architecture and engineering degrees. It’s a national issue, not just about Nevada,” he explained. Many survey participants expressed worry that Nevada’s rising cost of housing makes it more difficult to recruit qualified staff from out-of-state.

When it comes to retaining employees, however, more than half of the businesses surveyed report they have no problems, and more than 40 percent say they have just a few. Owners and executives report they work aggressively to retain qualified people once they are hired. “The key thing is to take care of current employees,” Burke said. “Our No. 1 asset is our people and that’s our mindset.” Larry Carroll, vice chairman of the board of directors and managing partner of the engineering firm Poggemeyer Design Group, agreed. “We’ve tried to strengthen our benefit packages, giving signing bonuses and providing a nice work environment,” he said.

Education Doesn’t Make the Grade

Of all the areas of the survey, the most dismal results were found in the question relating to education. With 47 percent of respondents assigning a failing grade of either “D” or “F,” it’s clear that many business leaders aren’t happy with their area school system. Citing growth and lack of funding as some of the biggest causes, respondents aren’t quick to blame school officials for the problems, however. “I think they’re doing the best with what they have. I think they’re struggling,” said Ruffin.

Several survey participants expressed concerns about the emphasis that has been placed upon the design elements of physical plants to the exclusion of their functionality. “Nevada’s schools are not getting the bang for their buck because of the way they’re designed. They’re designing schools just to win awards,” explained Wade Pope, regional vice president of operations for Las Vegas-based Roche Constructors, Inc. “The process has become more like a Los Angeles-based process. The school district could make changes that would benefit the entire program.”

Carroll shares that he is satisfied with Southern Nevada’s public schools, while he doesn’t seem to have concerns about the lower grades, he expresses concerns about the state’s higher educational institutions. “Both of my daughters attended schools in the Clark County School District, and they turned out fine,” he said. “However, we need to strengthen the higher educational system. It’s hard to compete with a tier one university.” On the other hand, Blakely (whose children are home-schooled), has a more positive attitude toward the system in general. “I think Nevada’s educational system is relatively good. Most of our employees are well prepared when they begin, and we only hire people with degrees,” he said.

When to Expect the Economic Upturn

The consensus of opinion about the length of economic slowdown is between 12 and 18 months, with 83 percent of survey participants marking one of those two choices. Only 18 percent believed the slowdown would be over before or after that time period. “We’re on the front end of construction. Construction itself will be another year out. I’m hoping that by the end of ’09 things will pick up,” Wright said. Hall looks to the winds of politics to return a sense of normalcy. “After the election, I believe fear will be replaced by a ‘back to work attitude,’” he said.

Elected Officials Receive Mixed Revues

Although the scores indicate that some elected officials are viewed more positively than others when serving Nevada’s needs, some survey takers were willing to give lawmakers the benefit of the doubt when discussing their job performance. “Overall, I would give the group pretty good scores. I would give a couple individuals excellent scores,” Ogilvie said. “Most are truly concerned and hold Nevada’s interests as their primary responsibility. We’re lucky to have these people holding these positions.” Ruffin also recognizes the challenges related to these positions. “I think they’re addressing [Nevada’s needs] as well as they can. They can’t anticipate the economy, they have the state’s best interests at heart,” he said.

Blakely singled Heller out for his work done in downtown Reno. “Rep. Heller has put a lot of time into getting ReTRAC land cleared for title in Reno,” he said. ReTRAC is the railroad trench that enables trains to pass through Reno without interrupting traffic on surface streets. Blakely expresses frustration, however, with the national prominence of U.S. Senator Harry Reid. “Sen. Reid is entirely too focused on national issues and become disconnected with Nevada’s issues,” he said.

Ranking the Largest Concerns

With more than half of survey participants ranking it either first or second, availability of water is the most troublesome issue on the list, followed rather closely by quality of education and then, transportation issues. Budget shortfalls are fourth, with 25 people assigning it one of the top two ranks, while of least concern is the availability and cost of healthcare, with 17 participants ranking it first or second. Although forced to comparatively rank the five issues, most respondents emphasized that all five were of concern to the state and needed to be addressed effectively for Nevada to continue to grow productively. “Successfully addressing each issue is paramount to the ongoing prosperity of Southern Nevada’s economy,” Pope said.

Even though business leaders worry about a water shortage, in general they give Southern Nevada Water Authority (SNWA) high marks for its work in dealing with the situation. “SNWA is doing a good job pursuing other water sources,” Carroll said. Clausen agreed. “I don’t know what the facts are, but water is always a concern is the availability and cost of healthcare, with 17 participants ranking it first or second. Although forced to comparatively rank the five issues, most respondents emphasized that all five were of concern to the state and needed to be addressed effectively for Nevada to continue to grow productively. “Successfully addressing each issue is paramount to the ongoing prosperity of Southern Nevada’s economy,” Pope said.

Even though business leaders worry about a water shortage, in general they give Southern Nevada Water Authority (SNWA) high marks for its work in dealing with the situation. “SNWA is doing a good job pursuing other water sources,” Carroll said. Clausen agreed. “I don’t know what the facts are, but water is always a concern in the desert. I think we’re moving aggressively to resolve it, and SNWA is doing all it can to address the issue,” he said.

Martin fears that transportation issues will negatively impact corporate profitability as goods and materials shipped via truck become increasingly delayed in traffic jams. “Proficient transportation and how fast we can move truck shipments will help us to become a more viable alternative to California,” he explained. “It will also improve our quality of life, because nobody likes to be stuck in a traffic jam.” In spite of the infrastructure frustrations, however, Clausen praises those who are wrestling with the problems. “The out-of-the-box thinking that they’re bringing to the table is amazing,” he said.

Looking Ahead

As they acknowledge a challenging year ahead, Nevada’s business leaders call on their entrepreneurial spirit to creatively chart a course through what could be rough waters ahead. Far from being down and out, however, they speak of running their businesses more efficiently, exploring new markets, and developing innovative business practices.

The general wisdom seems to be that today’s economic downturn is temporary, with the bright light of expansion and prosperity already bringing the tunnel’s end in view. “As my mother used to quote, ‘This too shall pass,’” Yabubik said. “We just have to weather it.

Jeanne Lauf Walpole
Jeanne Lauf Walpole is a freelance writer based in Northern Nevada.