Bloomberg News

North Las Vegas Crisis Shows Fragility of Nevada Economy

June 08, 2012

North Las Vegas Crisis Shows Fragility of Nevada Economy

Abandoned Desert Mesa subdivision in North Las Vegas. The housing project by North Las Vegas Housing Authority stared in 2004 but the entire subdivision, which includes about a dozen finished houses that were never lived in, has since fallen into foreclosure and is now owned by the FDIC. Photographer: Jewel Samad/AFP/Getty Images

From the top of the nine-story City Hall that opened last year in North Las Vegas, the neon lights and redevelopment on the Las Vegas Strip show the economy of Sin City recovering just five miles away.

North Las Vegas, the fastest-growing large city in the U.S. just five years ago, hasn’t shared in the bounty. Nevada’s third-largest city, whose population more than doubled to 217,482 in 2010 from 1999, is on the verge of insolvency. Facing a $33 million budget gap, elected leaders last week declared a state of emergency and gave the city manager unprecedented powers to suspend union contracts.

The city’s travails mirror those of municipalities across the nation including Detroit; Providence, Rhode Island; and Stockton, California. They have struggled to contend with the costs of workers’ retirements and health care as the national economy fell into the longest recession since the 1930s, revenue flagged and population dwindled.

In North Las Vegas, as the largest U.S. casino market charted a modest recovery, the city is saddled with the consequences of a “false economy” based on ever-growing homebuilding, City Manager Tim Hacker said. Property values last year were half of what they were in 2007. One in every 216 homes was in foreclosure in April, three times the national rate, according to RealtyTrac Inc. in Irvine, California.

Building and Cutting

“This has probably been more costly and more devastating to North Las Vegas than any natural disaster that’s occurred around the country,” Hacker said in his office at the granite- and-glass City Hall. The offices, which opened in November, drew complaints about free spending while 800 positions were being cut.

The city fell victim to its own shortsightedness, said Jeff Hurley, president of North Las Vegas Firefighters Local 1607, one of the unions that rejected the city’s latest demands for contract concessions and is challenging the assertion of emergency powers.

“We’ve had foreclosure issues here,” Hurley said over a chicken sandwich at a restaurant near the civic plaza. “And they’re still spending $130 million on a new City Hall. They just kept trucking along. There were a lot of alternative solutions. The constant has been to attack the city employees as if they’re the problems.”

Blackjack and Beer

North Las Vegas is about 100 square miles of block-by-block contrasts. City Hall overlooks gas stations, discount grocery stores and a casino advertising $1 beer, a $2 “delicious” lunch, $3 blackjack games and free check-cashing.

Gambling, Nevada’s signature industry, has rebounded on the Strip, where gaming revenue increased 6.6 percent for the year ended March 31, according to the State Gaming Control Board. In North Las Vegas, gambling revenue decreased by 0.35 percent in the same period.

Just north of City Hall and the Silver Nugget Casino are bungalows with barred doors and windows. Beyond, abutting treeless mountains, are master-planned communities with names like Aliante and Eldorado that blossomed during the housing boom of the past decade.

With growth promising more tax revenue, the city’s payroll increased to 2,159 jobs in 2007 from 1,706 two years earlier, said Juliet Casey, a city spokeswoman. Multi-year labor contracts promised annual wage increases, according to a Fitch Ratings report. City leaders embarked on projects such as a water reclamation facility initially estimated to cost more than $300 million.

Sapping the Center

Development on the suburban fringe of the city drew attention away from poverty and decay in the central and southern sections of town, said Robert Lang, who teaches urban affairs at the University of Nevada, Las Vegas.

“North Las Vegas may sound suburban, but it is quite urban in its demographic composition,” Lang said by telephone. “It has a pretty large share of urban poverty and a high minority population.”

On May 25, Fitch Ratings cut North Las Vegas’s general- obligation debt to two steps above junk, citing the city’s “severe fiscal distress.” The company questioned whether the city’s attempt to suspend portions of union contracts by asserting a state of emergency would survive a court challenge.

‘Civil Disorder’

State law “permits the suspension of contracts in ‘situations of emergency such as a riot, military action, natural disaster or civil disorder,’” analysts led by Shannon Groff said in a report.

“The city plans to argue that the layoffs required following failure to achieve the needed concessions would create a public safety emergency,” according to the report.

In Henderson, another Las Vegas suburb and Nevada’s second- most-populous city, assessed property value dropped by 45 percent in the same period as North Las Vegas’s fell by half.

While Henderson and North Las Vegas experienced similar growth during the early and middle years of the past decade, Henderson braced for a crash, said Bud Cranor, a city spokesman.

Unlike North Las Vegas, Henderson paid more than was necessary into its workers-compensation and infrastructure funds and suspended all capital projects in 2008, Cranor said in a telephone interview. This year, Henderson adopted a 2 percent across-the-board wage cut for employees, he said.

“There’s just a lot of things we’ve done differently,” Cranor said.

To contact the reporter on this story: James Nash in North Las Vegas at jnash24@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


Later, Baby
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus