Economic Roundtable – Jan. 2012

Overzealous regulators, deficit spending, overly cautious bankers, the European debt crisis.

These items and more were all on the minds of the business leaders we assembled for our Economic Roundtable in late December to talk about what might be in store for Northern Colorado in the year ahead.

Gathered in the community boardroom of First Western Trust Bank in Fort Collins were Mark Bower, COO and CFO of Home State Bank; Patty Spencer, a commercial real estate broker and partner at Realtec; Dave Pettigrew, a residential real estate broker with Prudential Rocky Mountain Realtors; Bob Winter, district director, Weld County Farm Bureau; Ryan Spear, interim director of the Rocky Mountain Innosphere; and Richard Budensiek, president of the Weld County Medical Society. They were joined by Northern Colorado Business Report Editor Allen Greenberg and reporters Steve Porter and Molly Armbrister.
Click here for the electronic version of NCBR’s Economic Roundtable.

ALLEN GREENBERG: Mark, I’d like us to start with you. What was 2011 like for the banking industry and what do you see going forward?

SPONSORED CONTENT

The many benefits of simple, coordinated healthcare

Kaiser Permanente combines health care and coverage in one connected system to maximize employee health and minimize employer costs.

MARK BOWER: From a national perspective, you’ll read that the profits are up in the banking industry, but the total return on equity is still subpar as an industry. And the reason profits are up is that the provision for loan-losses has been decreasing. So the amount of bad debts that banks have nationwide has been on a downward trend from an all-time high due to the recession that we went through.”

GREENBERG: So it sounds like you’re saying that you saw some improvement in 2011.

BOWER: Improvement from all-time lows. When you see somewhere around 150 banks that have gone out of business, it’s clear the recession was very tough on the banking industry. Where we stand now is still, I think, a little bit to be determined.

GREENBERG: Tell us about your thoughts for 2012.

BOWER: You know, I think we’ve seen very slow improvement on some things. Certainly the real estate area has seen some of that with a few houses being built, whereas two years ago there were none. We’re certainly not the pre-2009 levels, but we’re coming back at a nice speed there and we’re hopeful that that slow growth trend can continue.

GREENBERG: What’s the biggest obstacle standing in the way to getting everybody feeling a bit more confident about this coming year?

BOWER: Well, I think the fact that our economy’s only growing at a 2 percent growth rate – and that is still very vulnerable – the fact that we have some overhanging debt issues, and the uncertainty and instability when a government is borrowing 50 cents on every dollar it’s spending is not sustainable. That has to be fixed and businesses know that. We need long-term fixes, not ones that address the next 30 days or 90 days or six months. So I think until all of those things are addressed, we cannot see an economy that grows.”

GREENBERG: Well, a plan that might be developed in Congress is still just a plan. It takes years and years of work to actually bring these deficits down. So are you saying we’re going to be looking at years and years of super-tight lending environments?

BOWER: I would disagree with that. I think the lending environment is based upon risk/reward and whether banks have money to lend. I just wouldn’t underestimate the fact that businesses are not going to take out loans until they see that there is a good expectation for a future that is certain, not uncertain. You say it takes years and years to cut spending. But you know, if we would just go back to 2007 levels of spending instantly, they could almost balance the budget.

GREENBERG: Bob, I’d like to hear your opinion on some of these comments from Mark.

BOB WINTER: I think he’s right on. I didn’t have a loan with New Frontier Bank, but I watched some of my friends who were with New Frontier. And had they allowed a small independent bank to get TARP money they’d be alive and well today. In the 1980s, we in ag went through a horrendous economic disaster. And they told us, ‘You’ll never work your way out of that.’ And they closed people out that shouldn’t have been. But the rest of us that stayed in the business, in two years we paid back every dollar that was advanced to the farm credit system. So, I mean, if they just let the system work, it will take care of itself. And I think part of what Mark is saying is we have government intervention that’s just changed the rules on the banks.

DAVE PETTIGREW: But, Bob, you just said you wanted a bailout. Isn’t that what you (oppose)?

WINTER: No, no, no, I – we don’t want a bailout.

PETTIGREW: But you’re talking about the banks.

WINTER: Well, they had TARP money. Who got the TARP money?

PETTIGREW: The big banks. And isn’t that government intervention?

WINTER: It should have never happened. Too big to fail. Nobody’s too big to fail.

BOWER: Well, unfortunately, today that’s not the case. We do have banks that are too big to fail. And as it stands today, if you add in the amount of money that the big banks are speculating in credit default swaps, the two biggest banks have somewhere around $40 trillion each in credit default swaps. And the only reason a person accepts the credit default swaps from one of those big banks is because they believe our government won’t let them fail, because they don’t have capital to support it. It’s no more than gambling and our government is supporting that gambling. As Warren Buffet said, ‘It’s weapons of mass destruction,’ and it’s overhanging everything and was the bigger overhanging reason that they didn’t let the system fail two years ago. And they’re dealing with it in Europe today, and it’s a worldwide issue that has to be worked through somehow, someway.

GREENBERG: Patty, one of the sectors hardest hit in this downturn, obviously, was commercial real estate. Residential, of course, got hit very hard, too. Can you tell us a little bit about what the environment looks like for you right now and what you expect to see in 2012?

PATTY SPENCER: No. 1, I think that Fort Collins commercially probably hit bottom in November of 2009 and we’ve been kind of slowly creeping out of that low point since then. There are still some properties out there that are distressed and that are going through the foreclosure cycle, but I think that that has moved through, at least for the time being, and we’re standing a little bit more on solid ground as far as commercial real estate goes. What I would say, though, is that, you know, tenants are still reading the national papers and they’re still thinking that there’s these great, great, great, great deals going on. And, locally, I think the landlords, on a tenant/landlord basis, are kind of saying, I’ll give you a little, but I’m not going to give you the whole store. So we’re seeing a little bit of a leveling out of incentives.

GREENBERG: Dave, let’s switch to you for the perspective on residential real estate.

PETTIGREW: Obviously, we’ve gone through a very difficult cycle in residential real estate. I mean, nationally, we had a peak in 2005, and we’re off about a third since then in terms of volume. And in terms of prices, we had a peak in 2007 and we’re off 25 percent since then. So, nationally, there’s been a real correction or crash or whatever you want to call it. It looks like we might have bottomed out nationally in 2011 so we’re actually expecting a very, very, very small increase in this year in sales, a larger increase in resale, though still a decrease in new-home construction, which is still way down in the doldrums. There were 1.3 million new homes sold in 2005, and this year we’re expecting about 308,000. So we’re off almost a million homes. You know, when you think about the effect on the economy, what the jobs that construction creates and the purchases and the taxes – and, you know, they say that there’s three jobs for every home that’s built – well, you know, there’s 3 million jobs right there and that’s just one year. So it’s been very difficult and mainly because of trying to finance things. You know, we think there’s a demand there, but you almost have to do some speculative build ing as opposed to presales or that kind of stuff. And it’s been very, very difficult to get financing to build speculative residential homes. But, of course, with 4 percent interest rates, homes are very affordable. I think if we had 6 or 8 percent interest rates we’d be in a lot of trouble.

GREENBERG: And this year?

PETTIGREW: Oh, I think the prospects are pretty good. It seems like there’s a little more consumer confidence around, and it seems like the economy’s improving a little bit. You know, one thing that I think is going to help residential home sales is just the fact the rental climate is pretty tough out there. There’s nothing to rent and the rental rates are going up, and it makes home buying more attractive.

WINTER: One of the things I see helping fuel (the economy) is our energy activities. … You look around at night you can see the lights from the well drilling, and when they’re drilling, that’s money for the economy. That’s money for the counties. It’s huge what oil men spend.

PETTIGREW: It’s going to have some spillover effect into Larimer County, too.

WINTER: Oh, yeah, definitely.

PETTIGREW: It has been the salvation in Weld County in terms of pricing and foreclosures. But real estate prices in Weld County are off almost 15 percent from their peak, whereas in Larimer we’re off 1 or 2 percent from the peak. That’s a substantial difference.

SPENCER: Certainly, the oil and gas business has had a huge effect on the commercial real estate in Weld County. I mean, people are just scrambling for places to set up their business.

WINTER: Right. And anytime we have activity like that it helps the other areas. I don’t know whether you call it a shirttail effect, but when things are doing better, it helps everybody. And those are the things we need to look for.

GREENBERG: So, Ryan, the unemployment rate is improving. It’s not anywhere near where we want it to be, clearly, but jobs are being created. You’re in the business of job creation and wealth formation. What do you see on that front?

RYAN SPEAR: Interesting times, no question about that. I think this environment has actually helped our organization. The primary focus of our organization is to create an entrepreneurial ecosystem because there’s so many things that a small business needs to happen (to succeed), and the synchronicity of those things all happening for a high-impact business, which is who we are focused on this year, is a big, significant challenge.
So it’s been favorable times for us as far as that. I think an indicator of that is we opened up a new building, more than doubled our square footage; five months after we have our open house we’re full. So I think there was a lot of pent-up demand from the entrepreneurial creation side. So I think that’s a very good thing. Where we’re focused on is things that play to our regional strength. So this discussion is right down the path of where our focus lines are. Banking, access to capital here is just a big challenge. We see the money … out on the coast. It’s not in here. However, when you look across this landscape, the technical talent that we have here is just remarkable and phenomenal. With the research that is being done at places like CSU, CU or UNC, and other projects that are starting to happen here, I think are indicators that people are starting to recognize that. But the capital seems to be slow to follow. That’s one of the biggest challenges that we face right now: getting that to happen. (Still,) it’s an exciting time to be right where we’re at right now, but there’s a sense of urgency to get these companies bolstered up and ready for the marketplace. And it is a global marketplace, so let’s not confuse ourselves about that. These companies are going toe-to-toe with companies from other countries, not just from the state. So, you know, creating that ecosystem and providing the advisers with that type of subject matter expertise so they can help these companies incubate into sustainable entities is just invaluable at this time.”

GREENBERG: Can you tell us about how you try to draw in VC dollars and other types of private equity when you’ve got an opportunity and you can’t find a traditional lender ready to step up? How difficult is it, and what do you try to do to overcome the challenge?”

SPEAR: There are certain things we try. We have clusters of industry that are basically different entities all working in a collaborative manner, so they’re trying to achieve greater things than they could do individually. So it’s about being very collaborative and resourceful. I mean, I tell my kids, you know, if you want to be resourceful, either you have the intelligence or you have terrific communication skills. And, actually, if you have terrific communication skills, you can phone a friend and get the intelligence, essentially. So we need to be great communicators with what we’ve got here as far as regional talents; regional technical talents, regional managerial talents. We have some fantastic resources there. They may not necessarily be in the workforce at the moment, so the question is how do we get them integrated back into the workforce. It’s typically through advisory roles in some of these companies. So when it comes to capital, we’re looking at different mechanisms.

You know, pieces that are absolutely of prime importance to us now when we talk about research and funding are programs like SBIR and STTR, things that are coming to the universities on the research side that helps these companies actually go through that process of initial funding, and maybe they get to the point of initial funding and we can help them.

When it gets into pre-incubation, we really focus on trying to educate these companies, to allow an entrepreneur to carry on a conversation so that they can go to a bank and have an intelligent financial conversation. That might not be their expertise, but we need to get them educated so that they can carry that conversation until they get to the point where maybe they can afford to bring more financial professionals on. I mean, these companies can’t afford to have CFOs, but do they need some of that CFO expertise to get to that point? Yeah. And that’s where creating this ecosystem actually gives them that assistance. The VCs we have – honestly, it’s been a big challenge here in Northern Colorado; essentially we have one active VC. But the other mechanisms, like these Small Business Innovation Research and Small Business Technology Transfer grants, things from big federal organizations – from the National Institute of Health, the National Science Foundation, the Department of Defense, the Department of Energy, in particular, with some of the strengths that we have here – are just absolutely integral and of chief importance to keep this thing going through this economic climate.”

GREENBERG: OK, let’s switch gears a bit. Richard, it’s been a tough time, it seems to me, to be a doctor in America.

RICHARD BUDENSIEK: You know, right now we’re caught in a cost conundrum. Society needs a healthy workforce, okay? And in zeroing in on that, we need a healthy workforce, but the costs of providing that are skyrocketing. If we continue in the same glide slope that we’re on, by 2035 13 percent of the GDP will be spent on just Medicare and Medicaid alone. We collect about 19 percent of the GDP with taxes and other incomes, at least 6 percent for education and all of our infrastructures. Clearly, we can’t afford as a society to go on this glide slope. So how does that all work? Well, it is tough right now to be a doctor because you have to be a businessmen as well as a physician, and stay up to date on both ends.

We’re seeing that locally in the hospital purchases of medical practices. Both the large hospital systems, Banner Health and Poudre Valley, have acquired a number of practices within this community and largely because it is so tough to be both a businessperson and a clinician. So these acquisitions allow us to do things – like establishing electronic medical records or investing in our practices – that we found really difficult to do before.

You know, it’s been said that medicine is a zero-sum game, meaning we have no more money to put into taking care of people. Well, and so, up to this date, the system has reimbursed those who do things; you know, you see more patients, you do more procedures, you get paid better, whether you do improve health or not. And we think that there’s a better way – that actually improving quality will cut costs. There are ways of saving money to the system if we can align different kinds of health concerns. And so there are some changes that are occurring. The ‘medical neighborhood’ I think is a good concept in which instead of having silos and small practices and businesses that don’t communicate with each other, you bring doctors together to solve problems of increased costs of hospital readmissions and transitions of care that resulted in such high costs to the medical system. The government’s also kind of throwing out seeds – to use the farming vernacular, seeds of ideas they hope will help, like accountable-care organizations where physicians come together and figure out how to save costs to the system, and other various kinds of innovations. You know, these are, as the Chinese proverb goes, interesting times we live in, and hopefully those interesting times will drive innovation within the medical field, because we, as a nation, have some of the highest costs and yet some of the lowest quality of care in the industrial world.

GREENBERG: There’s a perception that a lot of the costs can be laid at the feet of the National Health Care Reforms that were passed under the Obama administration. How accurate is that?

BUDENSIEK: Yeah, you know, there’s no doubt that the costs of the Pete Pace program, patient safety and affordability, if you will, are going to cost. On the other hand, it may be, like in real estate, this is the opportunity to better coordinate medical care to incentivize physicians, health organizations to provide better quality with decreased costs. So that chapter is still waiting to be written. We’re also waiting to see what happens in the Supreme Court in regards to the constitutionality of the whole program. So, you know, it will be interesting to see that.

GREENBERG: Bob, can you tell us a little bit about what’s happening in your part of the world? One of the big questions, I think, is about workforce availability and immigration and who’s in the fields.

WINTER: Well, of course, immigration is a problem for the vegetable growers, though it’s not much of a problem for the other crops because we’ve become more reliant on technology. We have chemicals that take care of our weed problems that we didn’t have before. There is a small group of – boy, I’ve got to find a good word for that –

GREENBERG: Activists?

WINTER: Activists, that’s good. These folks have the idea that we can go back to the way we used to farm in the 1950s. Well, banking can’t go back to the 1950s. The medical profession can’t go back to the 1950s. None of us can go back there. That’s part of a bygone era. We don’t have horses anymore; we have tractors. We have chemicals. We have to use those technologies. And, believe me, the food system in the United States is safer than anywhere in the rest of the world. And we’re very fortunate to spend less than 10 cents of a dollar on our food costs in the United States. And that’s because we have good ag production. We’re ahead of many, many countries in the world as far as technology.

GREENBERG: OK, so what’s the big threat ahead? There’s been some conversation about scaling back farming subsidies. Is that a big issue for you?

WINTER: Well, sometimes the subsidies are paid when they’re not necessary. Subsidies should be used as a safety net. And at the Colorado Farm Bureau, we just said, you know, we don’t need a subsidy. What we really want is to have the government continue to subsidize crop insurance so that when somebody has a risk factor he buys crop insurance, and that should be the only outlay the government has to pay. And so direct payments are one of those that could be on the chopping block.

GREENBERG: Patty, I know your focus is in downtown Fort Collins. But we are seeing lots of wealth changing hands in Weld County because of the activity related to the oil industry. Can you tell us a little bit about that and what you see in the future there.

SPENCER: We were actually just talking about this the other day. You know, there’s a limited amount of product in Weld County right now that the oil and gas companies are searching for. They’ve absorbed a lot of what we would call obsolete industrial that was over there for a long time and that seems to be going. The interesting thing is that they’re leasing. They’re not buying. And they’re signing two-year leases. So I think that we can maybe look at that and, at least for right now, I think it would be smart to look at them as short-term since we are not seeing that longer-term investment in that community. But they’re there now and I think it’s really helping the Weld County commercial real estate values, in general, rise significantly.

GREENBERG: Dave, do you feel is it tougher to try to sell a house in Weld County because of that activity, the oil and gas industry activity?

PETTIGREW: No, I think it’s made it easier to sell a house because there’s a demand that’s being created over the last year or two that wasn’t there three or four or five years ago. And like I said earlier, Weld County was in trouble. They had a relatively high foreclosure rate because of a lot of mortgage financing that maybe shouldn’t have happened. And they had pretty depressed prices and no construction, and, you know, they were – I mean, there was almost a dividing line between the two counties. And I think it’s improved dramatically in Weld County over the last year or two, and I think that they will probably grow faster in the next year or two than we will in Larimer County.

SPENCER: I agree.

STEVE PORTER: Let’s talk about the importance of water availability in 2012. It’s huge for agriculture, obviously, to have that availability. And the worry is that it’s going away and we may see farming and agricultural operations start to diminish in our area because of it. And then there’s also the tremendous demand that fracking is putting on water supplies, too. So can you talk about the concern that our community has?

WINTER: Well, we’ve got 2,400 wells that are completely shut off. We have another 3,600 of the 8,000 wells in the state that are on restrained usage. That puts a greater demand on the ditch systems. There are 10 and a half feet of acre-feet in the aquifer from Denver to Julesburg. There’s a group that thinks we need to manage that aquifer and utilize that resource. I think that it behooves us to work together with the municipalities to try and solve some of those problems, because without water, this is a desert. And we need to have the water. And if it’s a desert, then we place limitations on our ability to just grow and grow and grow. It all underscores the importance of groundwater being available to agriculture and municipalities and industry.

SPEAR: You know, I think one interesting fact in this question about water is we’ve got 50 states in the United States and there’s only two that have no tributaries. So the importance of water is paramount to those two states. One is obviously Hawaii, and the other is the state of Colorado. All the water goes out of here; it doesn’t come in here. So the importance of water can’t be overstated here. And that might speak to the astonishment of people, you know, coming from the outside, looking at the system that we’ve put in place. Of course, we had to put things like that in place, because without water, you know, life can’t exist. So one of the things that we’re looking at right now through cluster formation at the Innosphere is called the Colorado Water Innovation Cluster, which is solely focused on some of the water challenges and issues that we face today and how we can make this a better environment.

One of the projects that I get excited about – I consider it kind of a game-changing piece – is where CSU is actually coming in and saying, ‘OK, we see a benefit out of this private industry and whether they’re sensor makers … or whether it’s the corporate/business side in the agricultural piece, you know, it’s very important. So we can look across that whole spectrum and everybody sees a win out of that.

… I’m also excited about some of the other things that are happening with water filtration, technologies that are coming to the market to deal with some of those things when it comes in to fracking. You know, a tremendous amount of water gets used in fracking. Well, what do you do once you have produced water? How do you go through a treatment process for that? Well, we’ve got technologies and filtration pieces that can actually get that water back to, as close as possible, to its natural state. So it’s, again, exciting times and a great place to be.

GREENBERG: As the economy recovers, population growth here will become the story again. We saw huge growth in our numbers in the last decade, and at some point that will resume at the same sort of, I think, levels or close to those levels. How well prepared are we to accommodate that kind of growth again?

PETTIGREW: Well, we don’t have any homes. You know, in the first six years of the last decade, we built almost 20,000 new homes. The last six years we built 7,000. And that’s way below any kind of sustainable level to accommodate new family formation and new people moving into the area. And, you know, at some point in time we’re going to run out of product.

BOWER: What’s your projection of when that would be? When do you think we’ll run out of inventory?

PETTIGREW: We’re basically out of inventory now. We don’t have a lot of surplus residential homes. You know, our building permit level right now is almost nonexistent. And at some point, you know, both for demand and for jobs and everything else, we got to figure out a way to start building. And, you know, a lot of it is at the feet of local banks.

BOWER: So you think the banks’ lack of financing is why they’re not building new homes today?

PETTIGREW: I think there’s lots of a pent-up demand. I think there is lots of builders who are ready, willing and able. But, you know, a builder going into a bank right now to build a speculative home, it’s a real challenge. And I just think that we need a little bit more support from banks to step up. You know, we don’t have to go let one builder build a hundred homes or something, but I think we got to get started.”

BOWER: I know that we currently are financing builders that are doing spec homes. And so from my perspective, since I know we’re doing it, I know money’s available. I know of some other banks that are doing it as well. It’s, I think, the uncertainty is the jobs; without jobs, people can’t have homes. And who can afford the new homes that are being built? And how many people are in fact going to be migrating in? And it’s definitely slowed down. So from a bank’s perspective, it’s worried about, is there demand for those new homes? Because, certainly, a lot of banks learned some very tough lessons a couple years ago about having too many of them. So it’s kind of a wait and see of, ‘Is the demand really there?’

PETTIGREW: Well, that becomes a chicken-and-egg almost.

WINTER: I don’t know that the problem’s with the banks as much as it is with the regulators allowing you to loan that money. Maybe I’m misinterpreting what I’m reading. But what I see is the regulators say you have to have so much equity, and most builders don’t have that kind of money.

BOWER: The regulators are extremely stringent and tough and particularly when it comes to speculation and commercial real estate, whether it be land acquisition and development type lots, dirt, or whether it’s the one- to four-family spec homes or whether it be a large commercial property. The regulators have forced banks to dramatically increase capital if they have that type of a lending base. And, of course, that does have an effect of drying up the amount of money to be lent and available. So there’s no question that the government was too easy in the good times and most likely too stringent and difficult in the bad times.

PETTIGREW: It’s not just the regulators that affect the bank’s ability, perhaps, to lend money. The other part of that story is that it’s very, very difficult for a buyer to get financing. I mean, the underwriting standards have just gone from one extreme to the other, and the kind of hoops that a buyer has to go through now to qualify for a mortgage loan is much more onerous than it used to be.

WINTER: Is that based on regulation?

PETTIGREW: It’s based on bank underwriting standards and all of the detail that they want, and the Is dotted and Ts crossed.

BOWER: I can speak to a little bit of that, and it’s the amount of regulation and that regulation is – has been shoved down a bank’s throat, with 3,000 new laws. So can you imagine just having to read all that and understand all the new laws? And in the area of residential lending, the new laws that it takes to do a house loan today are mind-boggling. And it’s all to, quote, protect the consumer. A lot of it has really good intentions. But the unintended consequences are never always known or thought through when the government does these types of things. So I know that our bank is working very hard to be able to give you family residential type loans, but the regulatory burden on that is – I can’t describe how large it is. It is onerous. And it’s something that really needs to be addressed, but I don’t see it being addressed in the future because nobody in Congress has the ability or the courage to really step up to the plate to reduce regulation. It just rarely happens.
SPEAR: I’m kind of curious. Are you seeing existing homeowners looking to carry paper now on making their own sale?

PETTIGREW: Certainly, sub-financing is an option, but, you know, there has been no price appreciation in the market for 10 years. So, you know, there’s not a lot of equity in a home. Somebody wants to sell, they basically need to get the cash, pay off the mortgage. There’s a lot more cash buyers out there than there used to be, investors who are taking advantage of homes that are very reasonably priced that can be rented for a positive cash flow. There’s a big rental demand. So there’s a lot of that happening, more than there used to be. But these are not owner-occupant end-users; this is just investment market.

BOWER: I would just say, that perhaps we need to go back to the old standards. Traditionally, you had a 20 percent down payment when you bought a house and 30 percent debt-to-income ratio. That was very traditional. And as we all know, the government got involved and the standards went to where you had zero down on your houses and you could lie about anything on your application and get a house. Well, I think all of us in the room would agree that those are probably not good underwriting standards and it wasn’t good for anybody to get a loan that really couldn’t afford it. But HUD is doing, I think, loans with just 4 percent down.

PETTIGREW: Three and a half.

BOWER: Three and a half? That’s not a lot down. And so we still have those standards out there. But most people have gone back and said, ‘Hey, what worked for many, many years – even 10 percent down is – is a difference than the old standard of 20.’ So when we go from zero to 10, to me, that’s not being extreme; that’s just being back to something that worked for many, many years.

PETTIGREW: Well, we’re still better off to have people owning homes than renting them.

BOWER: If they can afford to pay for it, if they can really do that. And the traditional model in capitalism is you need to have some of your own skin in the game. You need to have something of value there so that you care about it.

PETTIGREW: Well, for a lot of new families, you know, $20,000 and $30,000 is a lot of skin.

BOWER: Certainly is. Certainly is.

PORTER: OK, let’s leave real estate and talk a bit more about health care. My question relates to population trends. Dr. Budensiek, are you concerned that the local medical community is going to be able to keep up with the demand for medical services given the aging Baby Boomers and the ongoing rollout of the health care act, which is ensuring more health care accessibility to more people?

BUDENSIEK: To have cost-effective care, it’s very important – and research has shown this out across populations and across communities within the United States – you have to have a strong primary care base. Primary care increases quality, and a good primary care base also saves costs. One of the encouraging things is that recently the primary care residencies, which for years, for the last eight to 10 years, have really been suffering as far as trying to get residents and recent graduates of medical schools to join that fold, has seen a sudden increase in demand. I just got news yesterday that the family medicine residency in Greeley has seen tremendous increase in applicants for their program, and that appears to be the case across Colorado, certainly, and possibly across the nation. So I think there does appear to be a movement towards increasing access through increased primary care. We know that if you have a primary care physician, you’re much less likely to be chronically ill or develop chronic illnesses, much less likely to utilize the high-cost services of hospitalization and surgeries. So that’s a little bright note in the population-increase picture.

There’s also a concept out there called Patient-Centered Medical Home. The idea is that everybody ought to have someplace to call their ‘medical home,’ a place that accumulates the data from all of their health care, that uses it, and then coordinates that care. And the concept of patients having a medical home is one that’s been developing the last eight to nine years and I think holds great promise for increasing accessibility and quality of health care.

BOWER: Are you concerned at all about the privacy issues of a database that has all my medical records?

BUDENSIEK: Yes, that certainly is a concern. It’s a two-edged sword. On the other hand, if there isn’t a central place for your medical records, if your medical records are not compiled, then the chance of duplication of services, of missing something increases. So, you know, there are protections in place to help – to help secure – your medical records. But there sure are concerns about, you know, how private your medical records are. I think one of the misconceptions about privacy is that the government somehow is going to, like, collect all this information on you and ration your care if you’re not exercising regularly and eating properly and all that. I don’t think that’s as much of a concern. I think a lot of the data that’s being driven is population-based data, looking at properly taking care of diabetes in the most efficient way, what are the best practices for control of hypertension, and how do we compare in Northern Colorado to the West Coast, what are some things that we can learn to improve our care. So I think that, although the privacy issue is one of concern, I think by maybe giving up a little bit there we get something back in terms of savings, increased quality, and better patient experience.

SPEAR: How you go about it is, I think, the big issue on the table. I would say it’s almost, you know, analogous to some of the challenges that Facebook is going through with essentially collecting a big database and losing charge of that and how you deal with information and reap the benefits that you can and mitigate the issues that might be involved with that. Those are huge, huge issues, I think, that face the medical community.

GREENBERG: One of the greatest strengths of our country, I think we all agree, is our optimism. Looking ahead into this year, I know I’m feeling more optimistic. What I would like to do is go around the table and hear a little bit about how optimistic you might be feeling and also ask you to imagine you hold that proverbial magic wand and tell us what wish for in 2012. Mark, can we start with you?

BOWER: If you want to be optimistic, you don’t want to start with me.

GREENBERG: OK, let’s start with the real estate folks. But, Mark, be ready. We’ll come back to you.

PETTIGREW: Well, I’m relatively optimistic. I have been fairly pessimistic over the last two or three years, so this is an improvement. I really do think that we’ve bottomed out in terms of lack of economic growth and the low level of consumer confidence and unemployment and all this kind of thing. But I think that prospects are pretty good for the next year or two.

I think in terms of residential real estate in this local area that those same principles apply. And I think that we got a lot of things going for us, including low interest rates and job prospects. And it is still one of the best places to live in the country, and there’s a lot of people that would like to live here. So, I’m pretty confident that we are going to start to see an improvement. You know, it’s tough to put a number on things, but we’ve been in the range of 1 or 2 or 3 percent, plus or minus, mainly minus, for the last few years. And I think, you know, we have a chance to make a big jump this year, perhaps even 5 percent including sales, which will get us back to a level we haven’t seen since 2007, 2008; it really doesn’t take much to get it started. And like I said, I’m pretty comfortable about that possibility.

And I think that the other thing that we got going for us is the affordability of housing. You know, rentals just take a big chunk out of everybody’s paycheck, and it actually costs less to own a home than it does to rent one. But, you know, you go back 10 years and the average selling price around here was about $200,000. Today it’s $250,000. So it costs more, but on the other hand, income has gone up. The median income in Larimer County has gone from $55,000 to $75,000, and interests rates have gone from 8 percent to 4 percent. So when you put it all together, housing is a much lower percentage of income today than it ever has been. And I think more people should try and take advantage of that.

GREENBERG: And your magic wand?

PETTIGREW: I’m still frustrated with the banking regulations and sending qualified – what I think are qualified – clients to go and get a mortgage and all the hoops they got to go through. And, you know, I could be talking about a guy that’s got the $200,000 job. It’s very, very frustrating and a lot of people are avoiding the process.

GREENBERG: All right, how about you, Patty?

SPENCER: A couple of things. We are seeing some movement in the commercial real estate market in Northern Colorado. I think it’s a great time for sophisticated buyers who are really kind of coming in and looking at some opportunities that they might have sat on the sidelines a couple years ago. So I think that in itself will stimulate the market. As far as the different segments go, land has been dismal for the past couple years, and there is some selling going on, although not at the prices that some of the landowners would want to see. But it is at least some activity. We’re seeing great interest in multi-family housing. I think that’s one of the segments that’s probably the strongest right now. You know, even in office and retail we’re seeing some activity, at least in leasing. The one thing I would say for real estate in general is there is the thing called the real estate cycle, and there’s a reason why they’ve taught it in schools for years and years, because it does hold true. And in commercial real estate the last year we have seen a lot of absorption in the office market and the retail market from leasing, though not a lot of building going on. Last year I think there were two office buildings that were built in Fort Collins, both of which were for users, not for, you know, leasing in general. Eventually, we’re going to have to build something. And I think once we get to that point, then it’s going to be a lot easier for someone like Home State Bank to look at those kinds of deals as something that they might want to be involved in. And I think we’re almost there as far as some of the sectors. The other point I would make is that there is some investment – a little bit of glimmer of investment activity going on – and I think as that picks up we’ll see a lot more activity. “So I’m an optimistic person in general and I think that 2012 will see good things, though I don’t think we’re going to be back to 2005 levels.

GREENBERG: Great, thank you, Patty. Ryan?

SPEAR: Overall, I guess I’d say cautiously optimistic. You know, we’re coming right on the back of some things that I guess I should be more optimistic about because we’ve got record Black Friday. We’ve got Small Business Saturday. Maybe we need more of these tools. Maybe we need Transaction Tuesday and Windfall Wednesday. I don’t know.

Anyway, those things seem to be working. They’re good indicators. I’m cautiously optimistic. I think the biggest challenge that I see us facing as an organization and, in effect, the region is getting that access to capital. So we need to be much better about how we go about our communications. … I’m excited to be a part of an organization that’s working on some of those pieces, and in creating an innovation-based economy. … I’m very encouraged about our region, about this as a place to live, about the collaboration that’s going on. One of the things that I love the most about Northern Colorado is it’s a ‘can do’ spirit. You know, people look at this and they’re all about getting things done, not just talking, and it’s about doing. So, I’m very optimistic on the regional side. I’m concerned on a macroeconomic level. Magic wand: it’s capital. It’s the big ol’ dollar sign.

GREENBERG: OK, Bob, it’s your turn, please.

WINTER: Well, I think you guys have just hit it right on the head of what’s going to make ag profitable. We have a global economy, and there’s a huge shortage that ag can help fill. We’re finding out the world’s relied on us as a breadbasket. And we’re willing to do that. We have to have a profit. And we’re seeing that. We also realize that taxpayers cannot continue to fund subsidies. You know, we need to have a safety net, not a subsidy. And I think most of ag is willing to do that. The bottom line: I think if we can keep our water and work with municipalities and other organizations to maximize the use of water in the state of Colorado, I think we have a bright future along the Front Range.

GREENBERG: Very good. Doctor?

BUDENSIEK: I think, looking ahead, access to medical care is a huge challenge. I think that the Patient-Centered Medical Home offers a key to access. I think Gov. Hickenlooper’s support of maintaining Medicaid reimbursement rates where they are really helps the bottom end of the safety net. Also, I think that, continued increases in the way we pay for health care, funding quality over quantity, aligning those payment systems with savings in the health care budget, I think that really offers some hope for our cost of medical care. As far as a magic wand, I think that if we can get business and medicine together, talking about how do we save the system money, how do we reimburse in a different way, we’re better off. We can talk about all the theories we want, but if the insurance companies don’t fund the Patient-Centered Medical Home and these kinds of new innovative ideas and we go back to the business as usual, paying for quantity and not quality, we’ll get quantity and quality will continue to decrease. So, I’m hopeful that business will align with medicine and say, ‘this is the way we’ve got to do it. We can’t keep doing the same thing, the same way and expect things to change.’

GREENBERG: Great. Thank you. OK, Mark, would you be so kind as to close it out for us?

WINTER: Bring it home, Mark. (Laughter.)

PETTIGREW: The guy with purse strings.

BOWER: OK, locally, regionally, I’m very optimistic. As we’re heard, Northern Colorado’s truly fortunate, has some great assets and some great things going for it. So I’m very optimistic that free enterprise and freedom can produce things it has in the past. It’s produced the greatest standard of living in the world and we can in the future. Macro, our government cannot continue to spend more than it brings in. You cannot borrow your way to prosperity. The European issue’s a real significant problem, and they’re doing the same things on a faster track and it’s not solved yet. And what was happening today with the Federal Reserve, basically lending Europe money, I’m not sure, long-term, is a good solution for us. So I’m very, very concerned about the macro situation that we’re facing, that we have to come to some kind of resolution on, or the crash, when it does happen, is going to be much greater. I’m very disturbed that our government’s debt super-committee couldn’t come to any results, and they’ve put off any of the cuts until, now 2013, after the election, which is more politics as usual. We’re at a time where we need to set that aside, and everybody says that. But nobody seems able to do it. So, I’m very optimistic about our freedom and what we can do. But I’m very concerned about the government regulations and its lack of discipline and what it’s going to do to all of us.