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May 22, 2019

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Out of the depths of the Great Recession — a new, more resilient Nevada emerges

What a difference four years makes. In Fall 2010, Brookings Mountain West began program planning for a statewide gathering to discuss the broken Nevada economy. In January 2011, UNLV hosted an event—Nevada 2.0—in coordination with Brookings Mountain West, the Las Vegas Metro Chamber of Commerce, the Secretary of State, and newly elected Governor Sandoval’s economic development advisors. Nevada was the state most damaged by the Great Recession. The state’s GDP stood well below its 2007 high and there appeared no immediate path to restore prosperity. But the Great Recession also provided Nevada a chance to rethink its entire approach to economic development.

The Nevada 2.0 conference proved a watershed. Speakers from Denver, Salt Lake City, and Dallas offered Nevadans advice on how to plan and promote economic development. A key message from the meeting is that our state needed to understand the competitive advantage that each of its regions maintained in the U.S. and global economies. Another clear message from Nevada 2.0: the state needed to fully reform and update its economic development platform at both the state and regional levels.

In 2011, the Nevada State Legislature addressed the economic policy recommendations from Nevada 2.0. In June 2011, the legislature passed Assembly Bill 449 authorizing a “Governor’s Office of Economic Development” (GOED) and switching the reporting line for the head of Nevada’s economic development division to the governor from the lieutenant governor. Among the first actions GOED took was to commission a full state-wide economic development study from the Washington-based Brookings Institution, Brookings Mountain West (Brookings branch at UNLV), and SRI International located in Arlington, Virginia. The resulting report—Unify, Regionalize, Diversify: An Economic Development Agenda for Nevada—was released in November 2011. At the rollout of the report, Governor Sandoval referred to it as the “gold standard in [economic development] blueprints” and added, “Now, it’s about implementation.”

As one of the three principal organizations responsible for Unify, Regionalize, Diversify, Brookings Mountain West is gratified that GOED adopted almost all of the report’s recommendations. The Brookings Team suggested a “sector strategy” that zeroed in on Nevada’s current and future competitive strengths in seven key areas: tourism, health care, information technology (IT), clean energy, mining and manufacturing, logistics, and aerospace. The report also crafted an entirely new governance structure for a locally focused economic development strategy led by “regional development authorities” such as the current Las Vegas Global Economic Alliance.

The idea that there is “One Nevada” may be a useful rhetorical cliché for promoting state-wide unity, but the Brookings Team observed that the state contained three economic spaces: Greater Las Vegas, Reno-Carson City, and rural Nevada. Politically, there may be one Nevada, but economically there are three Nevadas. Like all other American states (with the possible exception of Rhode Island) there is no one state economy; rather states are collections of metropolitan economies (sometimes split between two or more states) and extended rural districts. More importantly, each Nevada region needed a customized economic plan that played to its specific strengths. Thus the word “regionalize” in the title of Unify, Regionalize, Diversify refers specifically to the locally based blueprints for the three Nevada regions as each seeks to diversify its economy.

Finally, the report applied the “megapolitan” model developed by Arthur C. Nelson and Robert Lang in the 2011 book Megapolitan America to both the Las Vegas and Reno metropolitan areas. Both regions are part of larger extended urbanized complexes extending from states such as California in the north and Arizona in the south. Specifically, we find that Las Vegas is part of a Southwestern cluster that includes Southern California and the Sun Corridor (Phoenix-Tucson) and Reno is an eastern extension of the Sierra Pacific megapolitan area, which also includes the Bay Area and Sacramento metros.

In a practical sense, Nevada is blessed that its two main metropolitan areas form subsections of larger and increasingly integrated urban clusters. In fact, the Reno region is far more economically integrated into Northern California than it is with Southern Nevada, while Southern Nevada connects closely with Southern California and Central Arizona. This larger megapolitan geography factored in when developing the economic blueprints for Reno and Las Vegas. For instance, the deepening of Oakland, California’s port in the Bay Area, provided Reno a boost in its growing logistics industry. Likewise, building I-11 between Las Vegas and Phoenix (a specific recommendation within the report) will draw more people and commerce to Southern Nevada.

Perhaps Reno’s most important strategic advantage was its proximity to Northern California’s emerging green-tech industrial cluster. The siting of Tesla’s planned lithium-battery “giga factory” in the Tahoe-Reno Industrial Center reinforces our view that supply-chain and technology linkages within the larger Sierra Pacific megapolitan area would help remake Reno’s economy. The Unify, Regionalize, Diversify report assumed that the loss in Reno’s gaming/tourism base was likely permanent and therefore the region should focus on manufacturing in sectors such as green tech, green energy, and next generation aerospace such as unmanned aircraft systems (or drones). In September, Northern Nevada gained new manufacturing plants by Tesla (green tech), Sierra BioFuels (green energy), and Ashima Devices (a drone manufacturer) announced the move of its headquarters from Pasadena, California to Reno. At build out, these and other new tech industries will expand Reno’s gross regional product well past its 2007 peak and would likewise greatly diversify the region’s economy.

Rural Nevada will also benefit from Reno’s rebirth. The key play for the state’s rural areas are manufacturing and logistics spillovers from the metros, green energy production (such as solar and geothermal), and mining (from precious metals to lithium). As the nation’s only lithium mine, the Chemetall Foote Lithium Operation in Silver Peak (in Esmerelda County) will boom when the Tesla plant goes into production. Best of all, perhaps for the first time Nevada will benefit from a natural resource that goes from raw material to high-tech finished product all inside its borders. Again, every job and economic benefit will be captured within the state as Reno and rural Nevada join in a mines-to-manufacturing supply chain.

Las Vegas is also primed for economic growth that will soon see the region recapture and then greatly exceed its 2007 peak economy. The Unify, Regionalize, Diversify report developed a very different set of sectors and strategies for Southern Nevada from the rest of the state. Las Vegas has one of the strongest and best positioned tourist/entertainment complexes in the U.S., with only Orlando, Florida as a rival. One reason for this success highlighted in our report was the fact that the region diversified its economy within the sector by moving well past its original core of gaming and adding conventions, shopping, live entertainment, food and beverage, destination resorts, ecotourism, media and film, and even the manufacture of gaming equipment. Make no mistake; Southern Nevada’s tourist complex is and should remain Nevada’s single most valuable economic asset. In fact, despite the hype over Tesla, the City Center project on the Las Vegas Strip delivered into the teeth of the Great Recession in December 2009 still stands as the largest private real estate development in U.S. history and employs more people and has greater economic impact than will a fully built-out Tesla battery plant.

From its position as a global center for tourism and entertainment, Las Vegas has enormous potential for economic diversification. The Brookings Team reported that expanding medical services in metro Las Vegas to simply match the predicted regional scale was the best and fastest path to an immediate restoration of Southern Nevada’s economy. The most shocking statistic in Unify, Regionalize, Diversify is the fact that Las Vegas generates less than two-thirds its expected health service economy. While excellent medical and health care services exist in Las Vegas there is simply too small a supply for the still growing population. We identified the lack of a state-supported MD-granting medical school as by far the single most important investment Nevada could make in the region. A follow up study by The Lincy Institute confirmed that an independent UNLV medical school will deliver a giant lift to health services in Southern Nevada—adding over 12,000 jobs to the state—4,000 north and 8,000 south—and $1.5 billion per year in economic activity.

Like Reno, Las Vegas can expand manufacturing, logistics, and especially its IT sector. The report noted the location of Switch Communications in Enterprise and its role in developing the highest capacity node in the U.S. Internet as a clear economic advantage for “business IT ecosystems.” Tech manufacturing in aerospace and green energy can further diversify Las Vegas. Finally, improved surface links via I-11 to Phoenix would enhance logistics and operations in the entire Southwest megapolitan cluster. Las Vegas needs to pursue these diversification strategies with the same intensity as Reno and rural Nevada for the state to ensure its overall economic resilience in the face of future downturns.

Just four years ago, Nevada was an economic basket case, its housing industry collapsed, unemployment rates spiked, and historic growth engines—tourism and construction—looked impossible to restart. Arguably, with the announcement of Tesla in the north and Southern Nevada’s tourist economy back at peak scale, the state has passed a tipping point and is now on a path to a more robust and expansive economic recovery. But Nevada has even better prospects if we invest in the assets and strategies that sustain growth. By targeting and, at first, subsidizing industries via tax relief where we have clear competitive advantages and then building on these new businesses by doubling down on training and innovation from kindergarten to graduate school, a new, more economically resilient Nevada will emerge.

Robert E. Lang is the UNLV Director for Brookings Mountain West, Executive Director of the Lincy Institute, Professor of Public Affairs in the Greenspun College of Urban Affairs, and a Senior Fellow of the Brookings Institution in Washington, D.C. William E. Brown Jr. is Assistant Director of Brookings Mountain West.

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