New capital is an investment in the future

Few indicators say as much about business confidence as corporate willingness to invest in new plants and equipment. By that measure, the Spokane area has much to be optimistic about.

Last week, Kaiser Aluminum Corp. announced it will piggyback a $30 million investment in its Trentwood rolling mill on top of $75 million in improvements already under way. HollisterStier Laboratories, the contract pharmaceutical manufacturer, will undertake $40 million worth of expansion work over the next two years, the bulk of that in a new plant and equipment.

Earlier this year, Huntwood Industries moved into a $70 million state-of-the-art Liberty Lake factory where cabinets will be manufactured for new homes and businesses all over the West.

All three are major employers, and the expansions portend good things for job opportunities at those three plants, and those of their suppliers as well.

“This is darned important,” says Randy Barcus, economist for Avista Corp.

Capital equipment by definition will last three or more years, he says. Businesses like Kaiser do not venture the dollars it takes to buy heat-treat furnaces, for example, if executives do not expect to operate that equipment at a profit for several years.

But no one tracks new capital investment the way they do real estate investment, for which the paper trails are long and specific. Investment in capital equipment is accounted for as personal property, and the information is considered proprietary. The Spokane County Assessor’s Office keeps only an aggregate number for taxable valuation for all business equipment. Because the number is adjusted for depreciation, the total may go down, as it has for at least the last two years, even if new equipment is coming onto the tax rolls. For 2005, the taxable value of personal property in Spokane County was $1,215,918,157, down almost $20 million from 2003.

Just the money poured into Trentwood could reverse that trend.

Barcus says he would like to develop a reliable way to track capital investment, if only to assure Avista can be prepared for economic growth, or contraction, in the Inland Northwest. The meltdown of the Silver Valley mining and refining industries in the late 1980s might have been less disruptive for the company if executives had been more aware of just how little new investment was taking place, he says.

“This is something we’re definitely looking at,” Barcus says. “It’s the missing link.”

Meanwhile, reports from local banks regarding the strength of their commercial loan portfolios could be regarded as surrogates for investment numbers. Officials from Washington Trust, Sterling Savings and Inland Northwest Bank say the quality of their commercial loan portfolios has never been better.

Sterling Chairman Harold Gilkey says delinquencies and charge-offs against its $1.5 billion commercial loan portfolio, excluding real estate, are at record lows; about one-half a percent. Loan originations, including renewals, are at $250 million a month.

Although there have been warnings that over-anxious bankers have been bending rules in order to book new business, Gilkey says most local loan officers remember the last business down cycle, and are acting accordingly.

At Inland Northwest, Chief Financial Officer Chris Jurey says most customers are relying on once-underutilized plant capacity to keep up with new orders, so the increase in commercial loans has remained in the single digits. Like Gilkey, he says the true quality of a bank’s loan portfolio does not show itself until business conditions deteriorate.

According to the Federal Deposit Insurance Corp., Washington state banks had the 10th lowest delinquency rate on all types of loans during first quarter 2006.

One of the clichés of the business world is “you have to spend money to make money.” Anecdotally, anyway, Spokane-area businesses are making that commitment. Wisely, at least so far as we can tell. It would be capital if we had something more to go on.