Growth controls would cost Nevada billions of dollars

Friday, Feb. 27, 2004 | 11:25 a.m.

A report presented to the Southern Nevada Water Authority Thursday warns of deep economic disruptions throughout the entire region if local governments impose restraints on growth.

The team led by Guy Hobbs and Jeremy Aguero of Hobbs, Ong and Associates told the board that growth restraints, depending on their length and severity, could lead to the loss of hundreds of thousands of "person-years of employment," which measures one person working one year.

In the worst case studied a severe restriction on development affecting 65 percent of the construction industry would lead to the loss of almost 2 million employment-years and $209 billion in economic output over 14 years.

Less severe restrictions affecting 10 percent or 30 percent of the construction industry -- the main industry that relies on growth and development -- would have correspondingly less intense but still significant impacts on the regional economy.

A 10 percent reduction in growth that would hurt the region for only 10 years, the most optimistic of the nine scenarios studied, would lead to the loss of $72 billion in economic output and $26 billion in labor incomes to the region. The construction industry alone, which is the second biggest single industrial sector after gaming in Las Vegas, would lose more than $36 billion, the study said.

The pain would not be felt immediately, Hobbs told the board of the water authority, which commissioned the $160,000 study in July in response to calls for restrictions on water to new development.

"It would not occur in the first year," he said. "It probably would not appear for a number of years."

Ultimately, as construction already under way dropped off, the impact would be felt not just by the construction industry, but by every nook and cranny of the economy, Hobbs said. The study looked at the impact 14 years into the future of any shock to growth.

"Few if any would be able to escape the impact," Aguero agreed.

Hobbs and Aguero warned that an intervention to control Clark County's growth, which leads the nation, could lead to "a race to the bottom," an economic downward spiral that would end in a deep recession.

"Everything has a cause. Everything has impacts," Aguero said. "By suppressing growth industries, or any industry for that matter, we have the potential for pushing the economy into recession."

One reason that the economic ripples would go well past construction is that growth is an outcropping of all economic development, Aguero said. Without new homes and businesses, "no other industry could grow."

The effect would not be just on Clark County. With 71 percent of the entire state population and a similar percentage of economic activity concentrated in the county, throwing it economically off-kilter would threaten the entire state, Hobbs said.

State and local governments both get about one-third of their funding from sales taxes, most of which come from Clark County, he said. In addition, a surge in unemployment would lead to increased demand for expensive government services such as police, welfare and other needs.

In addition, Aguero said, property tax rolls would decline as standard depreciation of about 1.5 percent occurred on existing property. Without new growth to sustain the property taxes, the county would expect a similar annual drop in property tax revenue, which supplies about 40 percent of Clark County's revenue.

Aguero told the board that if local governments did nothing to control growth through restrictive measure, growth will naturally fall off. In large part that would be because the overall size of the population and economy, which has grown quickly for decades and still is at about 5 percent annually, is so large.

That means the 5 percent now would naturally decline to under 2 percent by 2010, Aguero said.

"Our economy as a whole will adjust to that," he said. "Our economy will become more similar to the national average."

He warned that the shift to a slower growth rate through government intervention, economic evolution or some outside calamity could be painful. Many segments of the economy depend directly and indirectly on the growth, Aguero said.

"It's the shift from a fast growing economy to a slow growing economy that's going to get you," Aguero said. "It's the fall that going to kill you."

Board members did not see the results of the study before they met Thursday. They peppered the financial analysts during the presentation.

"Is this a given, that this takes place?" Las Vegas Mayor Oscar Goodman, also a water authority board member, asked the pair, referring to a natural drop-off in growth rates. "Do we have to accept this as part of our analysis?"

Aguero said the natural drop-off is "a generally accepted principle."

Board member and Clark County Commissioner Mark James, who has backed a county initiative to study the impact of growth on the region, asked if government could promote a "sustainable level of development."

"Everyone would agree that a catastrophic impact on the economy would be something to be avoided," James said.

Some observers say the impact of a government-led intervention in growth is overstated.

"These people are doomsayers," said Jane Feldman, an activist with the local arm of the Sierra Club, a national environmental group skeptical of unrestrained growth. "It just sounds tremendously extreme."

She said focusing on construction might not be the best way to study growth controls or to control growth at all.

Growth "is a very complex system," Feldman said. "Tweaking one parameter by itself is not good enough. There are a variety of things we should be trying."

Some studies suggest that there are better-paying, longer-term jobs in maintenance and repair of existing structures from homes to highways, she said.

And the study didn't address the important question of the way Southern Nevada is growing, Feldman said. Instead of vast suburban communities, regional governments should be doing more to encourage development of vacant land within the urban area and smaller, more efficient "cluster" housing and complexes and related business development, she said.

"I don't think they are looking at all the information that is available to them," she said.

Union members with the labor coalition Raising the Standard of Living, a group that has unsuccessfully sought to organize workers in the residential construction industry, said the Hobbs, Ong presentation was effective -- but they still argue that the way to control water use is to limit the number of new homes in the region.

John Wilson, a consultant for the group, said that restrictions on water use are affecting home and commercial property owners, but not residential construction.

Home builders dispute that, saying they have agreed to limit the amount of new grass at homes in developments throughout Clark County.

The argument over what is an appropriate level of growth, how and if growth should be constrained, and the economic impacts is not over. The Clark County Commission this month approved creation of a task force that will study the issue and should come back with policy recommendations to address the rate of growth at the end of 2004.

The "growth management initiative" had the backing of Commissioners Rory Reid, Bruce Woodbury and James. Reid and James also serve on the water authority board.

Reid said the study provides a tool for understanding the impact of growth on the community.

"When we do long-term planning, we need to recognize that there are a whole lot of people counting on us," he said. "That does not mean we should do nothing.

"This is the beginning of a long process," Reid said.