LV economic foundations ‘cracked,’ report says

By Buck Wargo

Fri, Jan 15, 2010 (3 a.m.)

A group of business leaders, academics and politicians doubts there will be a quick recovery for Las Vegas’s economy and suggested the future won’t be bright for Southern Nevada unless a greater emphasis is placed on diversification.

The sober analysis comes from a round-table discussion by the Lied Institute of Real Estate Studies at UNLV, which annually publishes a report on challenges Southern Nevada faces.

The draft white paper on Las Vegas’s economy, titled “What Happened? What’s Next? Can We Hit the Reset Button?” suggests the consensus is Southern Nevada has lost too much in intellectual talent, entrepreneurs, venture capital and institutional memory to recover quickly. And much of what has been lost won’t come back, according to the draft.

“The foundations upon which Las Vegas was built: growth without consequences, home values always rising, a limitless oasis of jobs and unbridled opportunity for a monolithic economy are cracked,” the report will say. “So much of our identity as a community has been created by the perception of steady, unparalleled and unprecedented economic growth that the challenges created by job loss, significant erosion in property values and greater demand for public services threaten the very essence of what is Las Vegas.”

That has shattered an illusion about Las Vegas because it is subject to the laws of economics and susceptible to further loss in value and confidence, the report said. The myth that Las Vegas was recession-proof can be healthy going forward, but the lesson must be heeded and leaders must emerge to take this crisis and turn it into opportunity, the draft report said.

“Until this community creates new partnerships within and without, re-examines its business and government models, creates valuable and lasting jobs for a diverse economy, the worst is yet to come,” the draft paper said. “But if, as every member of the round table believes is possible, this vibrant, unique and talented community faces the present with vision, maturity and wisdom, then the best is yet to be.”

Many of the 70 participants suggested Las Vegas’ economy won’t recover until 2012 and that the next two years won’t be easy. Panelists said they were concerned credit card defaults, which would hurt Las Vegas in particular, will deepen and widen the recession, the report said.

“So many believe the worst is yet to come for the overall Las Vegas economy,” the report said.

Several suggested a greater wave of commercial real estate foreclosures is coming in 2010 and 2011 and residential real estate won’t restore itself until 2013.

With CityCenter’s completion, participants expressed concern with how Las Vegas’ economy has been fueled by growth in the resort industry and questioned if the city can recover if no new significant projects are completed in the next decade.

“Banks are perpetuating a fear-based approach that is frightening off speculation,” the report said. “Speculation is essential to development and growth, and it is gone. Southern Nevada has always embraced risk and today, too many are reluctant to take a chance on a new business, new ideas and new industry. The only deals that are being done in the community are real and certain ones, and even among those, not many are being done.”

The round table was held in August and some of the immediate concerns about the economy have quieted a little, said John Restrepo, principal of Restrepo Consulting Group, who gave presentations on the economy. Long-term concerns, however, remain because the region has sustained itself on hypergrowth to which people have become addicted, he said.

“We are finding out that an economy based on discretionary spending is not built on a strong foundation for long-term economic and community sustainability,” Restrepo said in an interview last week. “The purpose of this round table is to start discussions of what is the community’s vision for its future — what does it want to be when it grows up?”

Las Vegas must do more to improve the quality of the workforce to make business relocations more attractive, he said. Las Vegas can’t be seen as a simply a tax refuge, but unfortunately, such issues are ignored when the economy is booming, he said.

That means making investments in education at the primary, secondary and higher education levels, Restrepo said.

Debra March, former Lied Institute executive director, who put together the round-table panel, said this week that this is a crucial time and potential turning point in the region’s future when it comes to creating a diverse economy.

Gaming and construction have been the driving forces behind the economy and no one is disparaging that, but other businesses and industries need to be lured to Southern Nevada, March said. That will strengthen the resort industry by providing additional customers, she added.

“We can and we must hit the reset button — not to recreate what we’ve had in the past, but to create something much better — a vibrant and sustainable community with a diverse economy, and a top-notch educational system that attracts new business for its ability to educate its workforce,” March said.

It’s striking that the Las Vegas Convention and Visitors Authority spends $90 million a year promoting the resort industry around the world, but the Nevada Economic Development Commission has only a $6 million budget to attract businesses, she said.

John Vorsheck, chairman of the group that produced the white paper, said Las Vegas is a household name similar to Coca-Cola, Apple or Nike. The region has a lot of offer businesses and needs to use this opportunity to let that be known.

Somer Hollingsworth, president of the Nevada Development Authority, a nonprofit group that helps lure businesses to the region, agrees more needs to be done to diversify the economy.

The problem has been the lack of money to compete against other states that provide incentives to lure companies and pay for marketing campaigns, thus getting the word out about the advantage of moving to the state. Nevada could take advantage of tax woes in states like California and New Jersey and even hire someone based in California to help lure companies, he said.

“You have got to put that message out there and let people know about it,” Hollingsworth said. “We have never put an emphasis on diversification (as a state).”

The Nevada Development Authority has a $1.3 million budget in addition to $1 million from the state for marketing, Hollingsworth said. Similar organizations in Arizona have more funding, he said.

“We hope this is a wake-up call to the more thoughtful members of our community — leaders both in business and elected officials — that once we get through this recession, we can’t go back to the old ways,” Restrepo said. “That is the hope. We shall see.”