photos by L.G. Patterson
With the new year coming fast, area business and government leaders sat down to lunch in early November at The Roof at an economic roundtable to discuss where we have been, where we are and what might be ahead. Hosted by Fred Parry, publisher of Inside Columbia and Southern Boone County Commissioner-Elect, the discussion centered on Columbia’s strengths and opportunities.
Named Restauranteur of the Year by the Missouri Restaurant Association, Broadway Hotel’s Food and Beverage Director and Executive Chef Jeff Guinn prepared a savory blend of traditional fall flavors for the meal.
Those around the table blended a range of experience from within the Columbia economy. City and county officials, accountants, bankers and economic development officers brought together some 240 years of combined insight into Columbia’s economic outlook.
JUMPING RIGHT IN
Parry wasted no time kicking off the conversation on where the economy has been for the last 12 months and calling on Jeff Echelmeier, accountant and CEO at Williams-Keepers, LLC.
“It’s been pretty consistent,” Echelmeier says. “Our community held in there stronger in 2007, ’08, ’09 in a rougher time nationally because of the university, healthcare and other components to our economy.”
Gary Meyerpeter, president of the Boone County Market for The Callaway Bank, agrees. “I’ve been here since 1984. I think we are fairly well insulated as an economy because of the drivers that [Echelmeier] referenced: the insurance companies, the medical community, the University of Missouri, which have proven to be quite resilient. We have things that affect us but not too immensely other than the Great Recession of 2007—09, which affected everyone. But, most of us fared that pretty well.
“In 2014, we felt as if there might be some pent up demand where people might be a little more aggressive in borrowing habits,” he adds. “For 2015 we projected additional growth compared to the prior year. Fortunately I think a lot of us succeeded. In preparing for 2016, not ’17, we felt as if the growth from the borrowing base would not be as immense and that was because people who had taken on additional leverage, or debt, in 2015 wanted to see what the return on their investment might be before they leveraged themselves further.”
Revenue projections at the county level were reduced in November, according to Presiding Boone County Commissioner Dan Atwill, who indicated that County Auditor June Pitchford had revised those numbers downward from 3 percent growth in revenue to 1 percent.
“A lot of that is due to internet sales,” Atwill says. “We all, probably all — I’d like to see, is there somebody here who hasn’t ordered something off the internet? It’s attractive, and at the same time, it is depriving our local vendors and business people of a lot of revenue. In order for there to be sales tax on ordinary consumer items sold on the internet, it’s going to take federal action (legislation) to start with and then local action.”
The county’s general fund is funded at approximately 72 percent from sales tax revenue, Atwill states. Columbia City Manager Mike Matthes shares the city’s general fund is similar, right at 70 percent funded by sales tax revenues.
“So any movement in that number at all is felt significantly,” Parry says.
“As a point, we’ve calculated per person how much less is coming in,” Matthes says, “and it’s more than 15 percent less than it was 10 years ago, per person.”
Matthes isn’t surprised to hear the county has adjusted its projection.
“It’s exactly the same spot we’re in,” he says. “We’ve done the same, and because we look at a lot of financial indicators frequently, including the sales tax revenue, we’re a little behind, of course. We’re about three months behind reality in that regard. But we saw it coming, and we changed our habits early. So we’ll survive the year, but it’ll be painful.”
Matthes contends it’s not a loss, but a slow down in growth. “We ended up cutting the budget because we had anticipated 3 percent growth. In our case, this is historic. The city government and the county as well — we’re pretty much attached at the hip, same customer base. We’ve never in our history, except for the great recession two years, had less than 3 percent growth. So this is historic for us, the first year it’s dipped below that.”
Looking forward to 2017, Atwill indicates the new budget is being developed but expects it to be flat. “Everything has to be calculated on the basis of no significant increase in revenue.” The county will monitor construction permits not inclusive of the city’s construction permits, due to the tandem nature of home improvements and construction, and the sales tax revenue those endeavors bring in. He notes, however, that some Columbia housing projects do not pay sales tax because they bring in construction materials from outside of Missouri.
“That’s hurting. It’s one of the things that is a side effect of growth and development that is overlooked,” he says, “with no solutions but looking for an answer for this loss of revenue.”
Denise Nelson, accountant and owner of Accounting Plus, inquires if incentives to builders in the permitting process could encourage them to purchase materials locally.
Atwill says that should be a part of any incentive that’s granted. “We’re seeing it in a downturn in tax revenue, and I’m afraid that’s going to continue.”
2016 SECTOR STAND-OUTS
“Commercial real estate activity in our community is high and it’s been high,” says Steve Erdel, chairman and CEO of Central Bank of Boone County. “It stood out because I thought it would be slowing by now. At least in our organization, it has not.”
However, Central Bank of Boone County’s recent examination with the Federal Reserve System revealed a concern on the Reserve’s part with local commercial real estate exposure, via spec homes, he says. “A lot of the banks in our area, by virtue of the fact that Columbia is a green town — we don’t have a lot of smoke stacks, so we do a lot of real estate loans — they would pressure us to better monitor how many percent of our deposits are loans against commercial real estate. In other words, they’re going to have a chilling effect, and that concerns me a little bit because Columbia continues to grow in population.”
“We will monitor,” he adds. “We’ve had some nice growth in commercial real estate type credits over the past five or 10 years. That will slow either by demand or will slow by regulation. A lot of concern on the part of our friends in Washington is that there is a bubble in real estate, in commercial real estate, and so they’re following the dictate from the Federal Reserve Board of Directors in Washington to start asking. So, they’re not saying ‘don’t.’ They’re saying, ‘We’re watching.’ ”
Parry brings up commercial Class A office space and the lack thereof in Columbia and how the scrutiny of the federal regulators might coincide with that.
Regulators are concerned about the national level, Erdel points out. “Columbia is growing, and it grows, the county grows 1 — 1.5 percent a year, year in year out. Our community is growing in that same fashion, and we have a need for the space.”
Regulator scrutiny is really not uncommon, according to Matt McCormick, Columbia Chamber of Commerce president.
“That’s part of the tug of war we have with the regulators we have all of the time. They see things on a global perspective, and there’s nothing more local than real estate.” While Columbia’s vacancy rates are low in this area, the city still needs to be able to fulfill demand and support its customers.
Parry notes that Veterans United is a company that has filled a significant amount of available, move-in-ready office space around the city and turns to Matt Williams, regional president for Landmark Bank, to inquire about potential new businesses to Columbia and their attitudes toward the perceived shortfall of space.
“Veterans United has taken up so much of it throughout the community, which is a blessing,” Williams says. “They’ve made such an investment into the community. But yeah, that’s what we hear the most. It’s finding that move-in ready Class A office space that doesn’t take a great deal of time to get into. Seems to be one of the struggles.”
MOVING FORWARD TO 2017
“In a lot of ways, I think it starts with the university,” Echelmeier says. “Having the university get that momentum back is a big part of how well we’re going to do.” While it seems to have stabilized, the momentum takes time — more than a year to achieve. The ripple effect of the drop in enrollment is still being felt, from housing to restaurants to haircuts, all of the services students use.
“It’s also a labor issue that we’re seeing,” McCormick says. “You don’t have as many students that are going into the workforce or during seasonal labor times for our business in town that hire those kids while they’re in school.”
Nelson shifts the focus to the strength of the small businesses she worked with in 2016, her surprise in that outcome and what she sees coming. “I see construction slowing down. Some of that’s always seasonal, but labor is an issue, particularly blue collar as always. Even some of our employers that just need office help, they have trouble with that so I think the university slow down does have an effect.”
A year ago, the unrest on the MU campus started this trickle-down effect that has impacted a spectrum of Columbia businesses, Parry says, as Williams begins to describe further dynamics at play.
“Student housing is an area that we’re watching closely,” Williams says. “We’ve built so much of it, and we have increasing supply and decreasing enrollment. That’s not a good dynamic.” He sees the downtown market continuing to do well due to campus proximity, but expects weak points might start showing up.
Even so, Williams cites the number of strong years Columbia has experienced in residential housing growth and that a current balancing effect between labor challenges and demand tempers the housing market.
WHAT THE BUDGETS ARE SAYING
With much of the county budget dedicated to specific projects, concerns with keeping the general fund flush are at the forefront of Atwill’s mind.
With a reduction in sales tax revenue and an expected increase in services demanded, Atwill is concerned. “The general revenue fund is relied upon for a lot of the day-to-day things that are needed in the operation of the county’s offices and the costs keep going up,” he says. “Inflationary costs are troubling. If we have a fixed amount similar to this year for next year, things are going to get tighter.”
“We have exactly the same concern,” Matthes says of the city. “Even though we see 1 percent growth, we’re losing ground on things like salt, asphalt, pensions. That’s a huge thing for us because we won’t be able to keep up with salaries.” At the end of the day, he adds, the city doesn’t choose its customers, doesn’t market and doesn’t have much control over the revenue it receives. All it can do is control how much it spends, and it’s going to have a personnel impact.
Stacey Button, president of Regional Economic Development; Inc. (REDI), offers her viewpoint on the local economy. “Looking at the type of projects we had in the pipeline for 2016 and those that we’re anticipating going into 2017, it’s been very consistent year-over-year.” The increase in number of projects and their potential impact are significant, and Button is pleased with the results so far. Potential 2017 projects give her a fair amount of optimism from a workforce perspective and a capital investment perspective; however, the labor pool is cause for concern.
“It’s very, very tight,” Button says. “It’s a good thing we have a low unemployment rate, and when we look at significant projects like we are right now, we have to look to other communities, other regions, other counties for a workforce that can help assist with that.”
ASSETS AND LIABILITIES
Speaking on Columbia’s assets and liabilities for new businesses looking to relocate to the area was a challenging topic.
“On recruitment and businesses moving here, it’s been kind of an interesting conversation because I think some of what has been our strength is also some of our problematic part, which is some of the issues with the university right now,” McCormick says. “University brings a ton of strength with it and is something we are able to tout very much, and people look upon that extremely favorably. Not just the university, but the higher education that we do have here is phenomenal.” However, because of what happened last year, he says, recruiters at the university and businesses trying to hire people from outside Missouri to work here are still concerned that those event’s effects are still lingering. On the flip side, there is strength in the skilled labor force coming out of the university and the quality of our community also has a reputation for retaining that talent.
Parry asks if it’s a stability issue or a perceived level of racism in the community.
McCormick sits on a couple of national associations in the chamber industry and shares that it’s almost a perception issue. Many do not have firsthand connections and wonder how the community is faring.
“There’s a perception challenge that we definitely have,” McCormick says, “and I don’t want to call it media bias, hurt us during everything — it was what it was … As the university and the system moves forward with starting to get positions that don’t have the ‘interim’ name in front of it, will go a long ways to start solving that conversation.”
“One of the biggest assets that we have is the creative class,” Button says. “That is the students and faculty coming out of not only the university but multiple educational institutions that we have here, and that has done a lot to foster business startups. It has also done a lot to assist our workforce. As long as we can retain that creative class and the graduates, the level of interest and the type of projects that we’re seeing at REDI reflect that labor pool. So definitely an asset that we can tout when we’re talking to companies.”
Button also mentions two recent success stories, Kraft Heinz and Dana Light Axle, in retaining not only the companies but expansion of both and adding to the work force and job opportunities using local incentives like Chapter 100 bonds.
“So when you asked about challenges,” Button says, “perhaps, the number one question that we’re asked right out of the gate is: What types of incentives are available on a state, regional, local level? So in order for us to compete, that’s something that we always have to keep top of mind and make sure that we’re able to utilize that in the most valuable way for a return on investment.”
While Atwill agrees that Chapter 100 bonds can be an asset in attracting businesses, he suggests caution in their use.
“This is a very complex area, and you get into the TIF business and all of that, you’ve got to be very careful that you don’t find yourself in a situation where you’ve gone so far to attract business that you have impacted your own community in a negative way,” Atwill says. “It takes study and public transparency.”
AREAS OF PROMISE OR PURGATORY
Parry pitches the conversation to other promising areas, and McCormick quickly notes the growth in entrepreneurism, which is becoming a large part of what Columbia does well.
Parry wonders if we can keep those start-ups here. McCormick thinks so, especially as we start addressing the office space issues and places to locate the businesses as they grow.
Purgatory enters the discussion as it shifts to new Department of Labor (DOL) regulations coming down on December 1. According to the DOL, the Overtime Final Rule “updates the regulations for determining whether white collar salaried employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime pay protections.”
“Wrapping up 2017, we’ve started talking about are what are some of the specific issues we’re going to see businesses dealing with, good or bad,” McCormick says, specifically the DOL rule and insurance. “For the DOL rule, pluses include the work week being limited to 40 hours. Minuses include challenges in the nonprofit industry and how the rule will affect company volunteerism. On the insurance side, with the recent election results nationally, we’re all wondering what 2017 will look like and how we’ll be affected.”
The entire group was in consensus on that last item.
Button sees a bright spot, though. “What I see for 2017, and it certainly has been very welcoming this year, is collaboration. I see incredible strength not only with the folks that are here at this table but across the community between public and private sectors as well as nonprofits. There’s a lot of community conversation, and it’s very intentional to collaborate to ensure that the dialogue is happening.”
With that, Parry asks if there are any other signs of hope the group sees.
Jodi Bales, partner at Miller, Bales and Cunningham accounting firm, feels that with the election decided, companies will be investing money in their businesses that they have been sitting on while waiting for the outcome of the election. She projects consumer spending will rise as well.
Revisiting the DOL rule, Parry asks about the advice the accountants in the room are giving their clients.
“We’ve had a lot of conversations with small business owners that were applying the rule incorrectly in the first place,” Nelson says. “They didn’t have exempt salaried employees. There’s a huge misconception that if your employee is paid on a salary they’re automatically exempt from overtime, which is just wrong. So beyond educating, we’re doing a lot to try to educate our customers and to give them sound advice. So there’s a lot of raises happening, and there’s going to be a lot of unhappy employers. If this hurts, this hurts small employers in Boone County — $47,000 is a lot of money. Not every industry can support that.”
“You know, in New York City that works,” Nelson adds. “In Columbia, Mo., it’s pretty strong.”
It’s a factor at the county and the city, too, Atwill says. They are reevaluating all positions.
Echelmeier doesn’t have any answers. “We’re seeing the results and trying to help them work through the rules, but it could have an impact on those unemployment numbers that we talked about earlier.” Businesses will be less inclined to hire, he adds. Average salaries will increase, but it will probably mean fewer people are employed.
The rule will have effects beyond salaries for area businesses involved in volunteer activities such as the Chamber of Commerce, United Way, Boys and Girls Club and Big Brothers Big Sisters, among others, or other business events and situations beyond that 40-hour work week.
For example, the city has 43 boards or commissions right now, Matthes says. “Every staff member that makes all that work possible fits in this category. All of them are going to be hit by this rule but we can’t stop doing the boards and commissions, right? Now, I have to basically give them a day off a week so they can go do that. So there’s going to be a significant drop in our productivity.”
McCormick says many companies are locking employees in at 40 hours, even if it means you’ve got to get more done within that 40 hours. When it becomes mandatory to subsidize volunteer or extra event hours from regular work hours, he agrees, productivity and stress levels will suffer.
Confusion on the employees’ part might also be a factor, Bales says. When they’ve been treated as a salaried employee in the past, making the conscious shift to hourly may leave them feeling like they’ve been demoted, even though they’re likely getting a raise. It could have an impact on employee morale.
McCormick adds that even though they might fit the criteria to be salaried and get the raise, they might also have anxiety about new job expectations and getting abused for their time.
Meyerpeter says the change might also have a retro-type effect. When they went to increase certain employees’ salaries, some were somewhat dumbfounded. Why this significant increase for the same job they had been doing for the last several years? Why now?
As to whether there was any chance the rule might not go into effect on December 1, the group felt it was unlikely given the nearness of the effective date. (Update: On November 22 in Texas, U.S. District Judge Amos Mazzant granted a nationwide injunction on behalf of 21 states and business groups citing that the Obama administration rule was unlawful.)
In looking at the workforce and the availability of skilled labor, Button says there are some gaps in skill sets. IT is one, but “it’s varied quite honestly,” she adds, “depending upon the company and what their needs are. But I do think that there’s gaps. That said, I think we have all the resources in place locally to address the gaps and to be able to close them and provide the skill sets that are needed through certification programs and workforce training workshops.”
“What’s the downside of having an over-educated workforce?” Parry asks.
Several around the table offer that fewer seem to want to do the lower level jobs, the service jobs.
“We need to have a balance,” Button says. “Any good economy has a balance of all levels.”
Parry asks for feedback on labor supply.
While skilled labor is preferred, McCormick says, he is aware of a number of companies that are hiring unskilled employees and adjusting their training to fit the needs of their company. While not ideal, there is an opportunity to make a difference in someone’s life, help them get the skill set they need and better themselves.
“About 50 percent of our students complete college, about 47 percent of adults 18-plus in Boone County have a college degree,” Parry says. “So is there a need for more vocational training in this community, like a Linn Tech?”
“Stacey mentioned community collaboration and I think that’s one thing,” Echelmeier says. “We’ve seen Columbia College get creative with identifying needs and specifically training people. So some of the smaller schools and the public schools seem to be buying into that and listening to the community and trying to develop those types of services.”
Nelson mentions the strength of the Columbia Area Career Center as a possible expansion idea, and McCormick mentions MACC is expanding into Columbia now.
“That seems to be the key,” Button says. “If high school graduates are not choosing the pathway to go on to secondary education as long as they’re career ready, and MACC and CACC provides vocational ed, they have the skills they need to immediately go into a well-paying job after high school graduation.”
“I think there’s a sense of shame,” Parry says. “In a college town like we are, there is almost some pressure associated with kids not getting a college degree, which is crazy especially when you see how well some tradesmen are doing.”
Most have received notifications for 2017. On average there’s a 34 percent insurance premium increase in costs for medical benefits plans, but some as low as 15 percent. It’s all over the board, Parry says.
Nelson says her clients are getting renewals through Marketplace or individual health plans that even though they’re going to hit the peak on the penalty, they’re throwing their plans out the window and they’re going to go without insurance because the rates are ridiculous. So she encourages clients to explore a group plan, but if they’re a small employer, an ACA client plan these days is not affordable.
THE IMPACT OF INTERNET SALES
While the county and city weighed in earlier, Williams and McCormick speak in terms of the impact of internet sales on mom-and-pop retailers.
“The mom-and-pop retailers have to be very creative to compete,” Williams says. “It really forces them to find niches that people will not shop on the internet to buy product and have to be so service-oriented with that to make themselves viable because it doesn’t look like it’s changing anytime soon.”
McCormick agrees. “Your small mom-and-pop stores are really having to take a look at ‘How do I diversify myself? What is my niche?’ They’re starting to sell on the Internet. They’re diversifying where they’re selling at because that’s were everybody’s shopping at.” These small businesses see the growth potential and feel they need to be in that mix to compete with the larger, Big Box retailers.
“When you come to the realization, finally, that sales tax is not going to be our future answer to meet the public revenue, you’ve got to come up with a new plan,” Atwill says. “I don’t know what that is, but we better start thinking about that because if we don’t have some revenue source that’s reliable, we’re never going to have an improved Highway 70, and a lot of things that we deliver in the way of services are going to have to be limited.”
The system is frustrating to Matthes, as he compares it to the dinosaur. “You set up this whole system based on the way the world was,” he says, “and the world changed and this horse isn’t getting us there anymore.”
“Our builders are concerned,” Erdel says. “We have, as all banks in Columbia, we have a certain concentration of our loans in the downtown vicinity. People have bought buildings to rent them and then hopefully later on they may build a new building to change the use. All of that’s up in the air right now. Loan values that we can use, collateral values of those properties, are in question right now … if all goes through as it’s currently set. We will not be able to lend the money to make these improvements. Loans that we’ve got now will be what we call underwater, which means the collateral value has dropped below the value, the dollar amount, of the loan, and so it’s going to put a lot of pressure on what’s going on downtown.”
MOVEMENT IN HEALTHCARE, MANUFACTURING AND INSURANCE
With Obamacare’s future unclear as a result of the November election, questions on how it will affect the economy remain.
There’s a lot of movement in Columbia, nationwide and in the healthcare system because of Obamacare, Bales says.
Button also believes the healthcare industry and options are robust in Boone County. “Looking at the University of Missouri Research Reactor and the opportunities for growth and what’s happening within the medical industry, it bodes really well.
“Manufacturing?” she continues. “We’re holding our own. You look at the intended expansion at Dana Light Axle and the addition of 135 jobs there, that’s a real good thing for our economy as we go into this next year.”
With the footprint of Central Bank across Missouri, Kansas and Oklahoma, Erdel says, “there’s not a one of our bankers that wouldn’t kill to be in Columbia, Mo. Our problems are huge tasks, but they’re nothing comparatively speaking to folks that are worried about whether their town is going to shrink in population, businesses are closing up and moving away. We are very fortunate to be where we are, and we really shouldn’t forget that.”