We talk diversification, we don’t accomplish it

By Michael Mishak

Sunday, Dec. 21, 2008 | 2 a.m.

Identifying the challenge facing Nevada is a no-brainer for Jan Jones.

“We have to quit focusing on what we do well — we do resorts well — and focus on what we don’t do well: the quality of life and developing a city that is more than life support for gaming.”

In other words, diversify.

Jones, the former mayor of Las Vegas, issued that challenge not last week, as unemployment reached 8 percent, nor in January, when the recession was claiming its foothold on the Strip.

She made her assessment to the Los Angeles Times in 1997, when the gaming industry was halfway through an unprecedented 20-year expansion, opening at least a resort a year.

What’s changed in 11 years?

“Nothing,” said Jones, who’s now senior vice president of communications and government affairs for Harrah’s Entertainment.

Nevada’s efforts at economic diversification, however earnest, have failed. As one Nevada researcher put it, “We haven’t gotten very far. But we keep a lot of people employed working on it.”

Of course, there is no assurance, depending on the gravity of a recession, that a region with a diversified economy would weather an economic storm any better than a single-themed company town, as Las Vegas is with tourism.

But when a one-trick pony breaks its leg and there’s no horse in reserve, the ride can get a lot rougher. It’s an economic liability Nevada has acknowledged off and on over the years but never seriously addressed.

State leaders realized gaming wasn’t recession-proof more than a quarter-century ago, when the 1981-82 recession rocked the country and shook the casino industry, dramatically slowing Nevada’s growth. Exacerbating the problem, Atlantic City had just introduced gaming. Nevada lost its monopoly.

Richard Bryan, then running for governor, offered up a policy paper promoting economic diversification, titled “Nevada: Gaming and So Much More.”

But there wasn’t so much more.

“All of a sudden, we felt the impact,” Bryan said of the recession. “My first month in office, we weren’t sure the state payroll would clear.”

Diversification became Priority One and soon Bryan was on the hunt to lure nongaming companies here. Traveling to New York, he persuaded Citicorp executives to open a credit-card processing plant in Las Vegas. He even called a special session of the Legislature to repeal the state usury law, paving the way for Citicorp and a few hundred jobs.

Bryan instituted a jet-fuel tax to fund an office of economic development while, in Las Vegas, the Nevada Development Authority was trying to recruit new business to Southern Nevada.

There was talk of courting high-tech companies to Las Vegas when gaming not just recovered but exploded with a new wave of luxury resorts. On the state level, diversification was placed on the back burner.

Keith Schwer, director of the Center for Business and Economic Research at UNLV, summarized the prevailing view at the time: “We didn’t need anything other than gaming. It was on the ascendancy and we were very good at it. We were riding the fast horse.”

The Nevada Development Authority continued its efforts with scant funding, as did Henderson and North Las Vegas. The easy pitch: Nevada’s low-tax environment and business-friendly government. The state has no corporate income tax, no personal income tax and its worker compensation and power rates are considerably lower than those of adjacent states, such as California, says A. Somer Hollingsworth, president and chief executive of the Nevada Development Authority.

It seemed a simple elixir to attract out-of-state businesses here. Indeed, the recruiting agency’s phone number is 888-4-NO-TAXES.

Economists offer a more complex view.

Although recent economic studies show taxes are a rising concern for business, they generally remain low on the list of priorities of a company considering relocation.

More important is the availability of skilled, educated labor, says Robert Tannenwald, economist at the Boston Fed and director of the New England Public Policy Center.

And it’s usually found in communities with quality education, including research universities.

That’s why Colorado, with a first-class research university system, has emerged as a hub for the aerospace, biosciences and renewable energy industries.

Consider the past 18 months: Vestas, the Danish wind-power company, has committed to building three plants, employing up to 1,300 workers; RES, a British renewable energy developer, is setting up shop; and ConocoPhillips has purchased land to build a renewable-energy lab, employing as many as 7,000 people.

The synergy promotes still more economic growth.

“It feeds off itself,” said Gary Horvath, chief economist at the University of Colorado, Boulder. “That’s how it works.”

Nevada might seem a place to build a renewable energy industry, given its potential to power the entire country with solar.

And toward that goal, Nevada has had some success.

It’s home to Solar One, one of the world’s largest solar thermal power plants, and, this summer, Ausra opened a solar manufacturing plant in Las Vegas. But even those companies are building their new projects in neighboring states, partly because of Nevada’s weak workforce.

Johns Hopkins University recently characterized many of Clark County’s public high schools as “dropout factories,” meaning they lose at least 40 percent of their children between freshman and senior years. Just 13 percent of Clark County residents 25 or older have bachelor’s degrees, well below the national average.

Saddled with an educationally deficient workforce, the Nevada Development Authority’s overall recruiting successes are couched in terms of call centers (Citibank), warehouses (Amazon.com, Levi Strauss) and Ocean Spray’s bottling plant.

Soon, the authority will announce it has landed more call centers — including one with 1,000 seats — as those businesses return from overseas in droves because of language complaints from American customers.

In recent years, Hollingsworth’s staff has struggled to attract the three industries it most wants — high-tech, life sciences and renewable energy. Over the past year, the authority says, it has landed two renewable energy companies, one telecommunications company and 40 other companies, none with more than 100 employees.

And that is still small pickings by some civic leaders’ measure.

“The problem is we lack the appropriate infrastructure to hit home runs,” said Billy Vassiliadis, owner of the public affairs and advertising firm R&R Partners. “We hit a lot of singles.”

University system Chancellor Jim Rogers echoed the concern. “We have a first-class economy and a third-class culture,” he said. “And eventually a third-class culture will bring down a first-class economy.”

Investment in education must be paramount, said Rogers, who also serves as vice-chairman of the Nevada Development Authority’s executive committee. “The pitch we’ve always given is that we’re a no-tax state. It’s true people want to pay as few taxes as possible, but it makes no sense to pay no taxes and have no real education system. We are never going to get people to come here unless we’re serious about education.”

And if that means raising or introducing taxes, so be it, Rogers said. The chancellor promoted the idea of a lottery and a broad-based business tax in his weekly memo last week. He noted that more funding is particularly important for UNLV’s nascent research programs. Other schools, such as neighboring University of Arizona, are attracting hundreds of millions of dollars in research grants, he said.

“We started late, we have not adequately competed and we’re going to have to do extra things,” Rogers said. “If they’re going 80 miles per hour, we’ve got to go 100.”

Or not, says Steve Wynn.

Eleven years ago, the casino mogul challenged business leaders to think hard about where Las Vegas was going, and to consider diversification. Today, he seems resigned to the status quo.

“The rewards for the energy applied have been limited,” Wynn said. “Economic diversification is not going to take place here. Nothing new or startling is going to happen here.”

Jones was more optimistic, citing the planned performing arts center as one more recruiting tool. Jones said she hopes the economic crisis has been “real enough” this time to get business and political leaders to commit to a strategy of diversification.

“If you really want to diversify, you have to fix education, our competitiveness with other cities and states, build the cultural amenities. Quality of life is non-negotiable,” she said. “Are they really going to do it this time or are they just going to talk about it?”

For his part, Hollingsworth will march on. He concedes, begrudgingly, that the state’s educational system has been an obstacle to attracting his target industries. He recalled a recruiting trip to Silicon Valley, where he said entrepreneurs looked at him as if he were a “Neanderthal.”

But, UNLV’s science and engineering programs, in addition to the Nevada Cancer Institute and the Lou Ruvo Brain Institute, have changed that, Hollingsworth said. The Nevada Development Authority has newfound credibility when it recruits now, he said.

The state says it will try to help, but its Commission on Economic Development, like other state agencies, has been hit by budget cuts. Its executive director, Michael Skaggs, said 70 companies are thinking about moving to Nevada. Most are in the manufacturing sector and 14 are related to renewable energy, he said.

Still, he says, Nevada faces an uphill battle in part because “we just don’t have that name,” citing scientific research centers, such as Stanford University.

“We’re behind but it’s because we’ve started late,” he said. “We’ve got so much more to do to get this state to where it’s really diversified.”

Sun reporter Liz Benston contributed to this report.