Taking the economic pulse of the Lakes Region
Originally posted Friday, June 19, 2009NHBR’s editors recently met at the offices of the Belknap County Economic Development Council in Gilford with Lakes Region businesspeople to get their take on how the region’s economy is faring during the recession, and what their expectations are for the future. The participants were:• Jennifer Boulanger, executive director, Belknap County Economic Development Council, Gilford• Tom Clairmont, president and chief executive, LRGHealthcare• Tom Garfield, executive vice president, Laconia Savings Bank• Sam Laverack, president, Meredith Village Savings Bank• Rusty McLear, president and chief executive, Inns and Spa at Mills Falls, Meredith• Leslie Sturgeon, president, Women Inspiring Women, Bristol• Russ Thibeault, president, Applied Economic Research, Laconia Q. What’s going on in the Lakes Region from an economic point of view? Russ Thibeault: I think it continues to be a nice diverse regional economy with a tourist and manufacturing element and a retail services element. That’s been the case over the long term and continues to be the case. I think that right now the tourism sector is being hit to some degree — we’re not sure by how much – with the economic downturn and people being a little more careful with the amount of money they spent. The market for real estate, like the rest of the state, is soft, including the market on the lake for higher-priced properties. There are a lot of listings and not too many sales right now. The biggest challenge that I think the regional economy has is we need good quality jobs, like the rest of New Hampshire, and they’re hard to come by. We have a lot of part-time jobs in the retail industry. The tourism industry provides good jobs, but a lot of entry-level jobs during the summer. Our challenge in Belknap County is doing a good job in marketing and in providing the support we need to create those good jobs. But it’s a tough national economy too. Tom Garfield: It’s different than, let’s say, in 1991, when everything was hit with the housing industry — over-development, over-building. This time I think there’s more diversity. I think that what we are seeing is that, even though there’s been a downturn from our perspective, the bar has been a little bit more resilient than what we would have anticipated. I think we’re starting to feel the effects of what’s happening out there, and it’s trickling down. But we’ve held on a lot longer than we thought we would have. I think we’re a lot stronger and a lot more diverse than back in 1991. Jennifer Boulanger: The Belknap County Economic Development Council was formed in 1992, and there was a concerted effort to bring jobs in to the area, whether it was a concentrated effort to bring diversification, I don’t know that it was purposeful as much as that we certainly want to retain our manufacturers, along with the nature and beauty of our area so that we will always have a strong tourism and hospitality base. So trying to keep those in balance was probably more of the effort than a concerted effort of a particular industry. Sam Laverack: I agree with Tom completely. It’s not in the residential area this time, but we got so carried away in 1991 with the residential. The number of jobs in this area that are connected to the residential real estate construction industry is a big part of this business and this area. And that’s why some of the smaller retail businesses are starting to get hurt now. The mom-and-pop grocery stores, the gas stations — where the contractor would stop for lunch every day. They’re OK, but they aren’t doing business like they were three years go. Thibeault: One of the big changes between now and the early ‘90s — about 1990 or 1991 the outlet center opened at Exit 20 in Tilton. Actually that was around 200,000 square feet of new retail space there. Now there’s 2.5 million square feet of retail space there. There’s been a major transformation of the retail sector. What the function of that economically is, it pulls more dollars out of the tourist’s pockets. We couldn’t possibly support that much new retailing on the year-round regional economy here. The second major impact is that it makes it harder for the mom-and-pop retailers that Sam talked about. It’s becoming very difficult to find a wide range of goods in any of our downtowns. Some of the downtowns are doing OK, but you’ll find a preponderance of tourist-oriented retail and restaurants. Leslie Sturgeon: And we’re hearing that businesses are able to survive. They’re not going out, but they may be cutting down to a 30-hour workweek or a four-day workweek or some furloughs. They’re making flexible changes to stay in business without letting everyone go all together. They’re also coming up with different and innovative ways to come up with a new product line or a new business, whether it be to the government or overseas. There does seem to be a lot more tolerance for the decline and a lot more flexibility to kind of ride it out. Rusty McLear: A lot of the ski areas and restaurants did come out having a good winter. The hospitality businesses had a pretty rough winter. But if you’re going to have a double-digit decline, it’s nice to have it in January rather than July or August. The market fell apart so quickly last September. October ’08 had gone down 7 or 8 percent. November and December went down 20, and then 25 percent. January, February and March were like that too. But now we’re on the bottom and we’re going up. In our reservations, we look out 16 months so that at any given day we can see how many dollars and how many reservations we had. May is going to be ahead of last year. June is going to be behind last year. July and August are going to be a little behind last year, but October, November, December and January will all be ahead of last year. So our outlook is OK. Q. What about health care? Tom Clairmont: For a lot of the services we provide, demand is going to be there. There may be some people putting off the things they can put off, but for the most part the real challenge in our business is that it’s so dictated by the federal and state policy for reimbursement. The sorry news that you hear from Washington is that there’s going to be more and more of this cost-shifting. People complain about the drivers of health-care costs — as you look at the business and you look at the cost of production, those types of things, and they’re running in the low single digits compared to the other end, insurance and those types of things, are running in the double digits. We’re in an economy where a good chunk of the business is controlled by an industry that basically walks away with 30 percent of the cost of the premium, for all different types of reasons. But that’s the world and the reality that we have to deal with. The labor pool is certainly different. We don’t have any openings within our organization – not one nurse opening. That means people are hanging on to positions and you’re not seeing the traditional turnover, people are hanging on to their jobs. McLear: It is an interesting time, though. Cash flow is one thing to look at, but the cost structure of being able to get things done and the time structure to get these things done is a world of difference from how it was 12 months ago. I’m just finishing up a project in another part of the state, and there was so much less cost pressure. Costs are going down. There were guys coming to the site every day looking for work, which made the guys there work a little bit harder. As a matter of fact, in Meredith we exceeded our capital budget for 2010-2011. We took all the projects of those two years and brought them into this year and we’re saving on average somewhere over 30 percent. Sturgeon: I’m on the board for a child-care center, and it wasn’t until this past month that we lost families due to them losing their jobs. We still have a really long waiting list, people are still employed and still need to have their children in day care. But, interestingly enough, those that are still there have been more generous with their donations. We’ve had to increase tuition. I don’t know if they are prioritizing with their donations, but they seem to be more generous when times are tough. It’s the first time that we’ve lost children but our donations have gone way up Clairmont: We’re seeing more what we call charity care, but it’s more actively promoting that you can come in and receive services and we’ll make some modifications of what you need to pay. Technically, we only collect 10 or 15 percent of personal balances, so it’s not a big amount of money and that’s another caution. There’s probably a higher level of what you would call bad debt and in our business it’s just people that don’t connect and don’t tell you what their situation is. Another factor is that that we’ve always been classified as a rural referral center because we have a lot of specialists who reach out to other areas, but they come back here. But you’re getting pressure from people affected by the economy and you’re getting pressure from the federal and state folks. It’s not a healthy situation. Thibeault: We’ve got a disproportioned number of people who work retail that seldom have health insurance — many of them are part-time. And in restaurants, the lodging industry where it’s particularly for the summertime peak. And in the summertime we have a lot of eastern European people, young people, who spend the summer, work in one of our seasonal businesses. They don’t have insurance. So I think the structure of this economy where there’s a lot of entry-level, part-time, seasonal positions will impose a bigger burden on the hospitals. Boulanger: I think that there’s a conscious decision to make a choice on how they spend their dollars, and for some insurance has cost more and more, and some people have very consciously decided not to have it. It doesn’t mean they’ve lost their jobs. They could be employed — they just made the decision to wing it. Sturgeon: I think per capita the Lakes Region has more self-employed folks than other parts of the state, and that might be part of the reason some of them don’t have health insurance. They just can’t afford it. Clairmont: There’s a component of your health insurance that’s a tax. Those who choose and are not able to pay shift it on to other people. They talk about the New Hampshire advantage, but from where I sit there are a lot of disadvantages to New Hampshire. When I bring people here, I tell them you’ve heard there’s no tax here don’t believe it – there are taxes all over the place. McLear: I heard someone say there aren’t a lot of people moving, which I assume that means the houses aren’t selling. But I read something the other day that made it seem that those statistics were wrong. They seem to say there are a lot of sales going on here. Are you financing a lot of residential and second homes? Laverack: Our refinancing of homes right now is huge. Mostly it’s refinancing because of rate, but at the same time that’s one of the things that is keeping us busy and keeping the income coming in. The last statistic I heard was 20 to 25 percent of our mortgage business now is purchase money – 75 percent of it is refinancing. That should be reversed. Thibeault: The statistics that I look at suggest that we haven’t had a turn yet in the housing market, but I think that during this year it’s going to get better. Prices are down, but I don’t think people are comfortable to sell right now. We’ve had this experience before, in the early ‘90s, and real estate prices come back until 1998 to where they were in 1989. Boulanger: Do you think a lot of people are waiting on the sidelines, waiting for more foreclosures or do you think we’ve seen the end of the peak in foreclosures as well? Laverack: We’ve had two residential foreclosures this year. It’s difficult to even get anyone to show up… Garfield: You look at the listings in The Union Leader on Thursday and you don’t see a lot of Belknap County or Lakes Region foreclosures. And you don’t see a lot by New Hampshire banks. A lot are crazy loans by national mortgage companies and are lot are either due to medical reasons or divorce. Q. Jennifer, one of your jobs at the council is to try and get business to come here. What is that like right now? Boulanger: What we have been working really hard on in the past couple of years is more of a retention strategy. We have a fair amount of space that still needs to be developed, whether it be buildings or land for sale. But we want to be very careful about who we attract and not just attract so we can get a business in. We’re looking to do cluster-type developments and focus on that. Given the natural beauty that we do have here, tourism is and always will be a primary focus for the area. And that goes hand in hand with hospitality and retail. We still do have a fair amount of manufacturing, and energy technology is an avenue we’ll look into. We have a subcommittee called The New Economy, and we want to make sure we have the appropriate infrastructure and broadband capabilities to attract new businesses. Energy is another focus, and there’s a lot of money available in those types of projects.Q. Who are the people who come to visit the Lakes Region? McLear: Last year, we had every state in the union represented and we had 46 countries. But second-home owners, even the ones with 10 bedrooms and 12,000 square feet, don’t want to fill up those bedrooms, and there are a lot of CEOs and executive vice presidents with second homes, and they’re bringing a lot of their staff and having their meetings while they’re up here for a month. We have a lot of summer and fall and a lot of winter weekend meetings. The lake is what generates almost of all of our business, one way or the other. Thibeault: One of the broad measures of the industry is the rooms and meals tax, and it’s actually running a little bit below last year’s level on a 12-month comparison basis, but in the last downturn in the early ‘90s, it continued to grow at about 4.5 percent a year. So it’s unusual that it’s off, but it’s only a little bit. Eighty percent of it comes from the meals portion, and I think people are eating out a little less often, and when they eat out, they’re probably not having an appetizer, having fewer cocktails or no cocktails or maybe eating out at a lower-priced restaurant. Clairmont: For the last three years, we’ve seen summer patterns change. Where we used to get a certain bolus of overnight activity in the summer, you’d have a year that would run through May, and the summer would pick you right up. I think last year we had one month that looked like the old summer, and the year before that I don’t think we had any months that looked like the old summer. We’ve been kind of sensing this and changed our whole strategy from being able to predict a year. We stopped doing that a few years ago because you have to really go month by month. Laverack: I think this area is extraordinarily fortunate to be where we are because we have a lot of drawers. We have the mountains, the lakes, the ski areas, access to Route 93 and Boston. And with all that stuff together, in the worst of times, it’s a good place to live. That kind of thing is going to push us through. I’m very bullish on this area. It’s going to continue to get better. When I think of what all this area was 30 years ago when I came into town and where it is today – yeah, we may have slipped back a little bit in the last year, leveling off a little bit, but we’re light years ahead of 30 years ago. And it will continue.