Nevada up two spots in business cost index

A new national survey suggests that it's getting more expensive to operate a business in Nevada, but local economic developers and business executives said they're not too concerned about the upward trend.

The Milken Institute's Cost of Doing Business Index ranks Nevada as the 14th priciest state in which to do business, up from 16th a year ago.

Wage costs in Nevada fell slightly when compared with national averages, but the state's tax burden leapt from 8.4 percent below the national average in 2006 to 2.2 percent above the national average in 2007. Power costs also fell slightly, but Nevada saw noticeable gains in rents on industrial and office space.

Armen Bedroussian, a research economist with the Milken Institute, said Nevada's jump in the index "doesn't say that the state got superexpensive in the matter of a year." Nevada might have climbed up the list partly because costs in other states dropped, he said.

But because Nevada's costs now outpace business costs in 36 other states, the expense gains do bear watching, Bedroussian said.

"It shouldn't cause a great deal of concern, but people should keep track of (the ranking)," he said. "Ultimately, moving up in the index could impact regional growth and whether you have companies moving into the area at the same rate."

Nevada still ranked below California, New Jersey and Massachusetts, the feeder states that economic-development officials have targeted for their marketing efforts. Other Western and Southwestern states that compete with Nevada for new business bested the Silver State in the low-cost race, though. Arizona, Utah, Texas, Colorado and New Mexico all had cheaper operating climates, Milken's index showed.

The Milken index goes to government officials, economic-development agencies and business executives. Government officials use the list to monitor their states' business advantages and to develop policies aimed at moderating commercial expenses. For economic-diversification agencies, the index is a promotional tool that shows off a state's attributes. And business leaders look to the index to assess costs in states they're considering relocating or expanding to.

Somer Hollingsworth, president and chief executive officer of the Nevada Development Authority, said he wasn't too worried that Nevada's rank would convince companies to avoid the Silver State.

No company executive has ever shown Hollingsworth a Milken study -- or any other business index, for that matter -- and asked him to explain Nevada's ranking. Nor have any corporate managers ever told Hollingsworth that such a roster was a deal breaker that would keep them out of the state.

Also, an internal study the authority conducted earlier this year found that Las Vegas was the country's least-expensive city for business among markets with 2 million or more residents. The report used measures including the cost of salaried labor, power expenses, land and construction costs, heating and air-conditioning bills and outlays for corporate travel.

And while the state's tax burden per resident might look high, Hollingsworth noted that much of Nevada's revenue comes from tourists who live elsewhere.

"People look at our total taxes raised, and they forget how much of that comes from the outside," he said. "It looks like an ungodly amount of taxes per person, but it's not the case. We have a lot of imported tax revenue.

"I think we're much cheaper than what this list would indicate."

Besides, most executives don't consider only cost when they're contemplating relocation, Hollingsworth said.

Tim McCubbin, director of operations at Murray Feiss Imports-A Generations Brand Co., said an index like the Milken list wouldn't have swayed his lighting-design and -manufacturing business from opening a distribution center in North Las Vegas.

Costs are a critical factor in expansion decisions, McCubbin said, but New York-based Murray Feiss wanted quicker access to West Coast markets, so company officials were determined to open a Western operation. Managers compared markets in Southern California and the Las Vegas Valley, and found that Nevada came out ahead of the Golden State in its lower taxes.

Murray Feiss hasn't seen its local business expenses change dramatically since it opened its area operation in 2004, McCubbin said.

"I don't think (costs) have moved that much where we would have had a different decision today," he said. "We still feel good about being here in Southern Nevada."

His one caveat: power rates, which he said outstrip electricity costs in many parts of the country. For businesses with big warehouses or extensive manufacturing operations, Nevada's pricey power could be a deterrent.

Despite expensive utility bills, executives of Murray Feiss have found local advantages.

The labor pool is plentiful, and agencies ranging from the Nevada Development Authority to the city of North Las Vegas have been supportive, McCubbin said. The contractors who built Murray Feiss' 250,000-square-foot warehouse in the Golden Triangle Industrial Park have been helpful, as have the staffing agencies the company has worked with.

"What I admire about this city is, when you need something done, they get it done for you," McCubbin said. "People here realize we do need to diversify the economy, and they don't take folks coming to town on the core industrial side of things for granted."

Murray Feiss also has taken space inside the World Market Center to peddle its home-decor items to professionals in the furniture industry. The company has enjoyed two successful shows there, McCubbin said.

Bedroussian acknowledged that the cost of doing business is just one component of a company's decision to relocate or expand.

Some of the most-expensive states -- California and Massachusetts, for example -- still attract droves of new enterprises because they have deep pools of skilled labor, Bedroussian said.

Also, companies often give great weight to individual costs, such as personal income taxes, that could dissuade potential employees from moving to a state. Business owners also look at whether a state has an existing cluster of similar companies or support services, and what kinds of distributors are in a market. They'll look at the availability and quality of higher education, too.

"We're just looking at cost, and most companies don't just look at (relocation) on a cost basis," Bedroussian said. "There are always trade-offs."