Economist gives report on Nevada business climate

by Rachel Dahl -- Nevada State Bank hosted their President’s Roundtable luncheon recently in Reno, with several members of the Fallon community in attendance.  President of the bank, Terry Shirey welcomed Jeremy Aguero, a principal with Applied Analysis and a member of the bank’s Advisory Board, to make a presentation on the state of the Nevada economy. Aguero gave a brief report of the results of the legislative session, saying that over 700 bills were passed by the legislature this session touching business, our economy, and our way of life. He reported on the increase to the minimum wage which will go up to $12 an hour over the next five years and that there is already discussion that it won’t be enough. Another bill that passed requires any business that has more than 50 employees to provide 40 hours of paid sick leave for their employees. Additionally, much of the conversation during the 2019 session was about the census of 2020 and the redistricting of legislative districts that will happen during the 2021 session. “Making sure there is control retained of the legislature,” said Aguero, “because if you can survive to 2021 with control of both houses, you can control the redistricting in a manner that gives you a much higher probability of having control over the next decade.” In terms of education, Aguero reported on the passage of SB 543, a modernization of how education is funded in the state of Nevada. He said it was passed with two minutes left in the session, and was the last bill passed. “Until this session we funded our education through the “Nevada Plan” which was created in 1967, in 1967 there were fewer people living in Nevada than we have in schools in Nevada today.” “We have a huge challenge in Nevada with how to fund school because there are 320,000 kids in Clark county, and Esmeralda has 70,” said Aguero. There are only six districts in Nevada that have more students than even one high school in Clark County. Aguero was instrumental in writing the legislation and expressed his frustration with the process. “No one could tell me how much in total we are actually spending on K-12 education – because no one actually knows,” he said. “We include local revenue, state revenue, we have a convoluted calculation that takes two pages from top to bottom to work through the math to figure out how the dollars get distributed.” It turns out, according to Aguero, we are spending $5.1 billion per year on K-12 education. The number that is regularly reported is between $5 and $6,000 for basic per pupil support, “which has exactly nothing to do with how much we are actually spending.” In contrast he says, Nevada actually spends $10,300 per student when all variables are taken into account. With the creation of a Nevada commission on education funding, which is a combination of private sector individuals and school district financial officers who will have to go through the formula and all its nuances in public, Aguero expects the “greatest degree of accountability for schools that has ever existed in Nevada.” He explained that first, the Nevada Department of education will have to report how much should be funded to every school in the state under the governor’s budget and the number the budget approved by the legislature so everyone is clear where the dollars should go. Every school district will then have to report how much money is going to every school and every child in that school. Those reporting requirements will begin in 2021. Aguero then addressed the national economy and current commentary that focuses on the yield curve inversion, with the federal reserve and the president at odds over the interest rate, and the continuing conversation about when a recession could take place. He talked about the trade war with China and he said, “we are seeing a slowdown in the rate at which jobs are being created, and the reason is we are running out of people to take the jobs.” Addressing our state climate, Aguero shared that Nevada is at or near the nation’s highest in every major metric – “we’re number one in population growth, number one in employment growth for eight consecutive months, top five in wage growth, level of investment, and leading the nation in housing price appreciation.” He said that things in Nevada are relatively positive overall. “But, do we need to be concerned because sustainability is going to be an issue,” he asked. Nevada has huge number of projects under way. In southern Nevada there are approximately $20 billion worth of projects under way in construction. In northern Nevada there are $14.2 billion worth of projects that are planned, proposed, or under construction. “Pound for pound there is more investment and economic activity happening in the greater Reno/Sparks area than there is anywhere in the U.S. today,” said Aguero. “The northern Nevada economy today is the most prolific economy in the United States at this point in time,” he said. “In terms of population growth, in terms of employment growth, in terms of labor and in terms of investment. It is remarkable.” He said he has issue with the state demographer who puts growth at 1.9%, “and I think that is dramatically underestimated of the actual growth. If we look at electric meter connections, where taxes are paid last year versus this year, those numbers are higher.” He also said the employment growth in northern Nevada is two times what the state is with nearly 13,200 jobs over the past 12 months, which for a market of this size, is remarkable. The recent numbers that just came out for the state of Nevada for 2018, show that northern Nevada grew in excess of 11% while during that same period, U.S. growth is 2.5 to 3.5%. In addition, there is new data that shows wages and salaries increasing in excess of 20% in this market over the past 12 months. “That is a phenomenal amount of wage inflation and a reflection of too few employees and too much demand for their services,” said Aguero. He said added to that is the increase in the cost of living with Nevada at 105% of the national average. Since April of 2013 we have seen massive increases in growth from all sectors, housing, groceries, utilities, and health care. “The housing index used to be 80%, the number of how many households can afford the median home prices, and that number is now in the mid-30% range,” he said. “We are pricing folks out of the market, these are unsustainable levels of growth, but this is also the substantial growth that leads to financial prosperity.” Employment growth has been mainly construction, manufacturing, and health care, all of which pay higher than average wages and drive the $14.2 billion worth of aggregate investment and economic growth. Besides the growth at USA Parkway with the giga-factory, Google has started their facility, Park Lane in downtown Reno is being built utilizing Opportunity Zones, and Ranchera is moving forward with 147-unit master planned community. “Which leads to the other side of the development equation – housing, and that there is not enough of it,” said Aguero. The holding costs to build a residential development, are preventative, running from 12- 24 months before a project can actually start being built. There are also not enough apartments, with too few units and high demand which has driven almost two consecutive years of double digit over double digit growth, with the average price being $1,200 a unit. Inventory in terms of vacancy is hovering around 3%. Aguero wrapped up his discussion by saying, “the value proposition that made this community so attractive for the people who live here, who have moved here, and the people who invested here is eroding and that leaves us some degree of concern.” He wonders if this growth is sustainable relative to water, education, air quality, and having multiple generations of family living here. “I hope the community has the ability to preserve what made it so wonderful to come here.”     Sign up to receive updates and the Friday File email notices. Support local, independent news – contribute to The Fallon Post, your non-profit (501c3) online news source for all things Fallon.