Influx abates as California business conditions improve

California long has been the driving economic force behind growth in Nevada, but some observers think the influx may be slowing.

Kris Holt, an advisor with Grubb & Ellis Nevada Commercial Group in Carson City, says industrial brokers with whom he talks informally have all seen a decline in inquiries in the last year or so.

The reason? Rising property prices.

"It's not the deal it was," says Holt.

Plus, the cost of labor and materials in the United States prompts more manufacturers to move to Mexico or overseas rather than locate in Nevada.

Holt, the former executive director of the Northern Nevada Development Authority, points to a single Carson City industrial area developed a decade earlier: Arrowhead Drive, with 17 companies, breaks down to three firms from the East Coast, two from Northern California and 12 from Southern California.

"We used to take prospecting trips to recruit companies," he recalls."When 80 percent came from California, 80 percent of those came from Southern California."

And now, the growing interest comes from the Midwest."They want to be in California, but don't want to live in California,"Holt says.

Even with the slowdown, he acknowledges, "California is our bread and butter."

In Reno,meanwhile, office broker Tim Ruffin of Colliers International said recently that rising housing prices appear to be bringing second thoughts to some California companies that otherwise would be leasing office space in northern Nevada.

Bill Miles, president of Miles Bros.

Construction, has seen a bit of a slowdown at the Comstock Industrial Park in Mound House but he doesn't make much of it.

"I've been doing this for 20 years; there's always a summer slow down," he says.

The two or three inquiries fielded by his staff each week don't come from California companies, but rather from companies already based in Northern Nevada.

Another who sees increased movement within the market rather than an influx of new companies is Paul Perkins, senior vice president, industrial properties, at Alliance Commercial Real Estate Services.

In the early 1990s, Perkins dealt with an influx of companies from the East wanting to serve the California market."Now we see a lot of local companies moving into larger space," he says.

Still, he thinks that in the long-term scheme of things, California companies will continue to drive northern Nevada's economy.

When Arnold Schwarzenegger was elected governor, out-migration from California almost stopped, recalls Ray Bacon, president of the Nevada Manufacturers Association.

"People had hope that he would fix things." A year later, that still hasn't happened and the out-migration has started up again, he says.

The cost differential between California and Nevada for manufacturers was 15 to 20 percent, says Bacon, who sees that narrowing as the California governor gets the state's budget under control.

Slowing increases in workers compensation rates in California also play a role.

On the other hand, he says, rising fees for services such as fire inspections continue to force some California manufacturers to move from the Golden State.

Others, however, see no change.

Stan Thomas, vice president of sales and marketing at Wade Development Corp., says the California influx hasn't slowed down at all as his company markets industrial property in Fernley and Dayton.

"They still have the workman's comp issues," Thomas says.

Development executives also are optimistic that the flow of companies out of California will continue unabated.

Ron Weisinger, executive director of the Northern Nevada Development Authority, sees 40 percent of his agency's new businesses coming from California and says,"It's growing." Tim Rubald, executive director at the Nevada Commission on Economic Development, sees no dip in the level of interest.

"Applications for incentives are strong," he says.

And the Economic Development Authority of Western Nevada released statistics on California company relocations that show a strong influx of companies from the Golden State: 15 newcomers in the fiscal year 2004- 2005, up from six the year before, which was up from four the year before that.

The viewpoint from over the hill is sanguine.

"I don't see a big surge going on right now," says Wayne Schell, president and chief executive officer of the California Association for Local economic Development, based in Sacramento."But nobody tracks who's leaving."

When he's asked how to keep firms from going to Nevada, Schell said he laughs and assures questioners that the percentage of total California business wanting to leave the state would fill a thimble.

That doesn't mean California doesn't care when companies jump the border.

Of the 700 local economic development organizations in his association, 90 percent came about the last 10 years, says Schell, as local municipalities grew pro-active about keeping hometown companies.

Because Nevada can offer a lower tax structure, Schell says,"What we have to do here is give the best public service we can.We must overcome the pull Nevada has for some companies." Most likely to jump the border? "Labor-intensive companies are most likely to move out," says Schell."It's true that worker's comp costs dropped 20 to 30 percent, but it's already 130 percent higher here than in Nevada." Still, he says,Nevada serves a useful role as an enterprise zone for California, because those firms that do jump the border still do a majority of their business in the Golden State.