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September 30, 2014

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OUR ECONOMY:

Local downturn a hiccup or augur of a bleak future?

THE ISSUES: Forecasts for air travel, school enrollment growth and gaming companies might mark the end of Clark County’s boom time.

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Steve Marcus / FILE PHOTOS

High fuel costs and the national economic slowdown have affected tourism, and growth in school enrollment has slowed, a sign of the imploding local real estate market. Gaming, which has seen Las Vegas and Clark County through hard times in the past, is experiencing its own slump, partly because of new competition.

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For more than a decade, Las Vegas has been the envy of the nation in at least one regard: its explosive growth.

Year after year, the region’s economy marched in step with fast-rising gaming revenue. And the population advanced at the same pace. As last year drew to a close, officials announced that Clark County had topped the 2 million mark — 620,000 people had arrived since 2000.

It’s a story Nevadans have grown accustomed to hearing. And its repeated tellings have fed the belief that such growth would never end, that Las Vegas was immune from the economic pressures that affect the rest of the country.

We may need to think again.

In the past week, several signs, read together, show that long-held assumptions about growth in Southern Nevada could be fundamentally changing.

On Wednesday, the region was hit with two negative forecasts.

The airlines serving McCarran International Airport urged the county to hold off on construction of a third terminal because of concerns there would not be enough flights to fill it. County officials rejected the request.

And Clark County School Board officials announced that during the 2007-08 academic year, the district finished with 4,281 fewer students than were enrolled in September. The district is now predicting abnormally low enrollment growth of about 1.5 percent for the 2008-09 academic year.

Also last week, Moody’s Investors Service downgraded its outlook for Nevada’s economy and two of the state’s top gaming companies, Harrah’s Entertainment and Station Casinos. In revising its bond rating for the state, from “stable” to “negative,” Moody’s cited “uncertainty” regarding gaming industry revenue, the national economic downturn, record-high fuel costs and weakness in the housing sector.

The firm also notified MGM Mirage and Las Vegas Sands Corp. that their ratings might be lowered.

According to the Nevada state demographer, this decline might be different from downturns of the past.

In his previous job, when he compiled Clark County’s population estimates during the 1990s, Jeff Hardcastle said people often approached him with the same question regarding the region’s growth: “How long can this go on?”

As long as four factors remained in place, Hardcastle would reply: the relative monopoly held by Nevada’s gaming industry; the lower cost of housing, especially compared with neighboring California; the stable local and national economies; and the availability of natural resources such as water and land on which to build houses.

“Since 2001, pretty much all that’s been changing,” Hardcastle said. “And now we’re seeing the culmination of some of these changes.”

Las Vegas is being challenged by a variety of competitors, from Indian casinos across the California border to Macau, the new king of world gaming revenue, Hardcastle noted.

The economy and housing markets are in terrible slumps. And natural resources in the area are almost exhausted. Water is running out, as is developable land.

Keith Schwer, director of the Center for Business and Economic Research at UNLV, concurred, raising the specter of the “R” word.

Rising oil and gas prices have made air travel more expensive and limited the number of tourists who drive here from California, Schwer noted. As a result, visitor volume and gaming revenue dropped during the first four months of the year — marking the first recession to hit all sectors of the economy since the early 1980s, Schwer said.

“When it costs more money to fill up your tank and a lot more to fly to Vegas, your billfold is not going to be as full as it previously was and you are going to spend less,” Schwer said.

As a result, commercial development here — which is driven by travel and tourism — has slowed dramatically. Associated General Contractors reported the value of commercial projects permitted during the second quarter of 2008 dropped 66 percent, to $131 million, from the second quarter of 2007.

At the end of the second quarter of 2008, the office market had a vacancy rate of 16.1 percent, up from 11 percent at the end of June 2007, according to Colliers International and Restrepo Consulting. That’s nearly double the vacancy rate of two years ago.

William H. Frey, a Brookings Institution senior fellow and a demographer, cautioned not to read too much into the depressing numbers. Once the economy and housing market improve — and if the price of gasoline and other fuels can stabilize — growth might pick up close to where it left off in Las Vegas.

“It’s too soon to put out the ‘Last person, turn out the lights‚’ sign,” Frey said.

Some help may be around the corner. Boosters point to the opening of new resorts on the Strip, which will create more than 50,000 jobs through 2010. About 27,000 rooms will be added to an existing inventory of 136,000.

By the end of 2008 Steve Wynn is scheduled to open Encore, his companion project to Wynn Las Vegas. MGM Mirage is on track to open its CityCenter, a more than $9.2 billion development, by the end of 2009.

Both MGM Mirage and Harrah’s Entertainment executives say they’re confident the economy will eventually rebound and the airline industry will find a way to ferry visitors to the attractions opening in the next few years.

“It’s pretty clear that Las Vegas is going to grow steadily over the next decade,” said MGM Mirage President and Chief Operating Officer Jim Murren. “There’s no doubt we’ve been affected by the economy. (But) 2009 will be a better year than 2008, and 2010 will be better than 2009.”

Las Vegas has historically defied the economic rules of supply and demand. As the home of some of the world’s largest and most elaborate resorts, the Strip has created its own demand, building upon previous successes and defying skeptics.

But with fuel prices sky high, the airlines appear to have grown skeptical of Las Vegas’ build-it-and-they-will-come business model.

“Those decisions to build 30,000 hotel rooms were made several years back,” when times were good, said Linda Macey, properties manager for Southwest Airlines. “We’re not sure if anyone knows whether all those rooms will be filled.”

Few are certain regional population trends will resume their steep trajectory.

Declining population growth has extended to Las Vegas as well as Clark County. For the city, 2006 and 2007 brought the slowest rates of growth in some time — 2.7 percent and 2 percent respectively.

Clark County’s population growth has exceeded the city’s. From July 1, 2007, to June 30 of this year, the county grew by 4.4 percent. But that growth rate, as well as those of the two previous years, was less than the county’s average annual growth rate over the past decade, 5.5 percent.

Indeed, from 2004 to 2008 enrollment growth in the Clark County School District has dropped year by year. The projected 2008-09 growth of 1.5 percent would be the smallest increase in 25 years.

Dusty Dickens retired in 2005 after 10 years as director of zoning, demographics and real estate for the School District. Even before her retirement, Dickens said, there were indications growth was slowing. During the peak of the housing boom, teachers and families were selling their homes and relocating to cash in on the bonanza.

“Now you flip it the other way, and families are leaving because they’ve lost their homes,” Dickens said. “Did we see this coming two or five or seven years ago? I don’t think anyone would have seen this sharp a downturn was coming.”

Sun reporters Liz Benston, Emily Richmond and Phoebe Sweet and In Business Las Vegas reporter Brian Wargo contributed to this story.

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