Nevada needs more than low taxes to lure businesses


Economic development is all the rage these days in Nevada.

The state's reliance on tourism and construction bought it the nation's highest jobless rate. Averting similar disasters later will require diversification into new industries. The topic is so hot that Lt. Gov. Brian Krolicki just launched a task force of nearly 30 people to form recommendations on bringing in new businesses. The Nevada Development Authority just rolled out another campaign in its ongoing effort to filch disillusioned companies from California, and the city of Henderson's economic-development experts are busy trying to convince as many as 60 companies to move to Southern Nevada.

So now is as good a time as any to ask what relocating and expanding businesses want. What kind of message will draw them in for a closer look, and how should those wants and needs shape development officials' marketing efforts?

Up to now, the state's most visible marketing campaigns have focused almost exclusively on Nevada's relatively low taxes and lack of red tape. But diversification officials from around the country say that single-note song might need some fine-tuning.

Sure, taxes matter, and tax-centric messages can prove effective.

Consider the Golden State meltdown that ensued in 2009, when the Nevada Development Authority unleashed a tax- and bureaucracy-focused campaign that compared California legislators to chimpanzees and highlighted Nevada's lack of income taxes and its cheaper worker's compensation insurance. California legislators bit back, though, as the Los Angeles Times noted, California businesses might indeed be ripe for the picking.

"In a tough economy when companies are looking to slash costs, some industry leaders fear poachers will be more successful this time around," the paper wrote.

And in 2008, the authority's April 15 "tax bear" campaign reminded California business owners that they'd be free of state income taxes in the Silver State. The campaign threatened the state enough that California lawmakers evaluated the ads in a hearing of that state's legislative Revenue and Taxation Committee to show how tax policy is encouraging poaching from other states.

What's more, a recent survey from Chief Executive magazine handed Nevada the No. 5 position among the best states for business, thanks in part to the Silver State's tax and regulation regime. The magazine quoted several California company leaders who said they are disenchanted with doing business in California.

"California has a good living environment but is unfavorable to business and the state taxes are not survivable," said Bill Dormandy, chief executive officer of San Francisco medical-device maker ITC. "Nevada and Virginia are encouraging business to move to their states with lower tax rates and less regulatory demands."

But while taxes often land in the mix of factors that induce companies to relocate or expand, they rarely top any list of key issues pushing companies into action. Take a fall 2009 survey by diversification-industry magazine Area Development: A state's corporate tax rate came in at No. 5, after labor costs, highway accessibility and power expenses. A similar study from Site Selection magazine ranked taxes No. 3.

Even Chief Executive's list factored in the quality of an area's work force and its living environment. Nevada placed near the top partly because of its cheap housing and its bumper crop of affordable labor. When real estate costs peaked from 2005 to 2007, the Nevada Development Authority reported losing several deals involving major manufacturers, as lower taxes couldn't offset pricey land.

Businesses tend to consider taxes when other, more important factors are equal, said Geraldine Gambale, editor of Area Development.

"Companies first have to go where their primary needs can be met, and those needs would involve labor, access to transportation and energy costs," Gambale said. "They're going to look mostly at areas that have the type of labor they need."

Once a company narrows its options to two or three markets, executives will then compare tax climates and incentives, Gambale said.

Plus, every business carries different wants and needs, said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp.

Businesses in competitive sectors, where every little expense matters, are more likely to rank tax rates highly in any move, whereas companies peddling unique niche goods or services would tend to gauge the entire business-cost package, including utility pricing, Kyser said.

Many businesses also place a premium on high-quality colleges and universities for work force training, and they're especially interested in whether universities help generate startup activity, Kyser said. Basic services, including primary schools and police and fire departments, matter a lot, too.

And those educated high-tech workers Nevada's diversification officials covet? They care as much about world-class museums, quality performing arts and recreational opportunities as they do about taxes, Kyser said.

For a look at just how diverse companies' needs can be, talk to Bob Cooper, Henderson's economic development manager.

Relocators -- executives looking to move their headquarters -- have different priorities than expanding businesses, which are merely opening a branch office to supplement existing headquarters.

Relocators tend to be smaller companies led by owner-presidents, and they're usually pretty ticked off.

"They're frustrated, they're kind of angry, and they want to quit where they are and move to greener pastures," Cooper said. "Typically, they're coming from California, which is a poster child for over-aggressive, over-regulated environments. When they look at us, taxes are often the stimulus for saying they've had enough and they can't take it anymore."

Quality-of-life issues, including commutes, housing prices, health care and education also weigh heavily for smaller, family-owned businesses considering relocation, Cooper said.

Expanders, on the other hand, are some of the happiest people Cooper meets. For them, opening a branch isn't about lower taxes; it's about finding markets to maintain and grow their customer base. They might have burgeoning client pools in Phoenix, Las Vegas and Albuquerque, and it doesn't make sense to serve those patrons out of a Denver headquarters, for example. Convince them first that they can fill a void here, and layer the overall lower cost of doing business on top of that, and they just might come.

You can break down companies' demands further, by operation type, Cooper said.

For companies in the retail sector, the driving forces are transportation and income levels.

Office users look almost exclusively at the availability and cost of labor. They also ask about the depth of a market's software and computer-programming talent and evaluate the existing local customer base. Office operations need extensive telecommunications networks that will keep them online in an emergency or after an equipment failure, and they want to know how easy it'll be to fly customers in and out.

Manufacturers want most to be near the raw material they use to make their products. Then they'll look at the labor market and transportation networks.

Distributors place the biggest emphasis on the cost of land, with logistics and transportation a close second.

"I've had conversations get cut off in the first 30 seconds after a distributor will say, 'We need 40 to 60 acres that's rail-served.' I tell them we don't have that, and they tell us goodbye," Cooper said. "Our taxes don't even come up in the conversation. We don't get a chance to talk about it."

It's possible no economic-development officials will tout Nevada's taxes after 2011, when the state Legislature meets to plug what some lawmakers predict will be a $3 billion difference between spending plans and revenue. Legislators haven't yet called publicly for corporate income taxes, but observers say every solution is on the table, and lawmakers talk regularly about broadening Nevada's tax base. If some sort of income tax materializes, Nevada's business-development advocates will lose their main talking point.

So what does that all mean to how Nevada markets itself to relocating and expanding companies?

In short, counsel the experts, the Silver State needs to diversify its diversification message.

"The way I look at it, there are two Nevadas -- the Reno area, and Las Vegas," Kyser said. "There's a certain image of Las Vegas that might be off-putting to young professionals."

To overcome that reputation, Kyser said, marketing campaigns should point not just to taxes, but to amenities such as the $245 million Smith Center for the Performing Arts under construction downtown, or to the Center for Entrepreneurship at the University of Nevada, Las Vegas, which researches and promotes new businesses in Southern Nevada.

Added Gambale: "A state should talk about all their assets, and not just focus on one factor, because the decision to move is never based on one factor. It's not incorrect to tout the tax advantages, but that's not the whole picture."

Contact reporter Jennifer Robison at jrobison @reviewjournal.com or 702-380-4512.

Zappos.com

Online retailer Zappos.com moved its corporate headquarters and call center from San Francisco to Las Vegas in 2004 for many reasons, including lower taxes, more affordable workman's compensation insurance and easier commutes. Las Vegas also offered a strong pool of call-center workers. Affordable housing and plentiful office space near McCarran International Airport helped seal the deal, founder Nick Swinmurn said in 2006.

Swinmurn has advised local officials and businesspeople to market and promote life beyond the Strip, and to focus on showing potential relocators how Las Vegas is a suitable place in which to live.

"Any business move is also a personal move," Swinmurn said. "It's a tough sell for out-of-state people. All they hear about is the Strip. We need to spread the word that Las Vegas is like any other city. It has neighborhoods and things to do off the Strip."

Mobile Productivity

This developer of car-maintenance software, founded in Utah in 2003, moved its 95-employee headquarters to Las Vegas in 2004 after considering moves to markets in California and Utah. What grabbed the company's attention? The Strip's large number of auto trade shows, which reel in the company's clients. It's also easier to convince trainees using Mobile Productivity's software to come to Las Vegas for educational sessions. And McCarran's schedule of frequent, affordable flights makes traveling to pitch clients a breeze, and solid work-force availability also appealed to company managers, said Bob Pringle, executive vice president and chief financial officer, in 2006.

"The truth is, Southern California is a horrible place to do business," Pringle said. "It's a lovely place to live, but it's very hard to navigate business issues there."

Metl-Span

This Texas-based metal fabricator mostly considered location and labor as it began weighing a new West Coast operation. Its search took it to a 126,000-square-foot factory in North Las Vegas in 2005.

"We've found a willing and good work force in Nevada. For us, that and the location were everything," said Karl Hielscher, Metl-Span's president and chief executive officer. "We chose (Southern Nevada) for its overall business climate and its proximity to Southern California, which is the biggest single market in the western United States. And Nevada's highway and rail infrastructure makes it convenient for us to transport our products and materials out to the rest of the western United States. The pro-business approach Nevada has taken with us has been favorable and we look forward to taking advantage of it."

Murray Feiss Import

This Bronx, N.Y., lighting-products distributor needed a warehouse and logistics center on the West Coast because most of the goods the company brought into the United States came from Asia through California ports. I

n his evaluation of major Western markets, Chairman Murray Feiss sought analyses based on freight costs, taxes, available labor and real estate rents. Las Vegas won out mostly for its low taxes and affordable freighting. The company operates from a 250,000-square-foot warehouse in North Las Vegas.

"(Southern Nevada's) location to ports in Los Angeles, coupled with a lower tax base, attracted us here," said Tim McCubbin, director of operations. "The two biggest things for us were low outbound freight costs and the definite tax advantages over California."

Pediped Footwear/American Grating

The 1.5-hour Los Angeles commute drove the owners of these manufacturing and wholesale companies right out of Southern California and into Henderson in 2006.

Brian and Angela Edgeworth also considered cities in California and Arizona before settling on Southern Nevada. On top of the 2.5-mile commute they enjoyed after moving to Henderson, the Edgeworths moved to be near Southern Nevada's trade shows. Lower property taxes allowed them to buy a 50,000-square-foot building, use just 26,000 square feet of that space and lease out the rest until they're ready for growth. Also, the Nevada Development Authority helped the businesses land a total of about $200,000 in training dollars and tax abatements. The companies saved on worker's compensation and health insurance, and McCarran International Airport has abundant service to the destinations the Edgeworths visit on business.

"It was really a quality-of-life issue," Angela Edgeworth said in 2006. "We just like the lifestyle here. We travel every month, and when we looked at Phoenix, we couldn't get a direct flight to anywhere in the country."

Noninvasive Medical Technologies

This biotech business conducted its research and development from Auburn, Mich., until 2005, when it moved to Las Vegas after considering markets in California and Utah.

"Across the continuum, Nevada simply outranked the other states with its tax advantages and the worker pool," said President Ronald McCaughan.

McCaughan also said the area's temperate climate and the recreational parks around the Las Vegas Valley nudged his company toward Southern Nevada. Incentives from the Nevada Commission on Economic Development, including a dollar-for-dollar match of up to $50,000 for employee training, helped as well.

"The business climate here is very positive, our banking relationships are fantastic and the incentives we were offered were on-point and real," McCaughan said. "We have found the quality of life here to be superior to anyplace we've been."

Cord Blood America

The Las Vegas trade show scene helped draw this preserver of umbilical cord stem cells from Santa Monica to Southern Nevada in 2009.

President and Chief Executive Officer Matt Schissler said in June, at a joint event between the Nevada Development Authority and the Las Vegas Convention and Visitors Center, that he was already coming to Las Vegas every month to attend conventions and meetings. Easy airport access, shipping logistics and tax abatements sweetened the deal.

And there's more: "We have found a work force that is talented and eager to help a small company grow into an international powerhouse," Schissler said in a statement. "That is what Cord Blood America is all about and we appreciate the Nevada spirit that allows us to expand and succeed."

The company plans to employ about 75 workers by year's end inside its 17,000-square-foot building on Helm Drive.

Company officials say it could be the nation's largest cryogenic storage center and stem-cell lab.

Jennifer Robison/Las Vegas Review-Journal
 

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