On Location.

The Growing Valley
In the Gallatin Valley, economic growth was once again the story of the year; construction boom in 2007 makes area one of the state's hottest spots

By Gail Schontzler

Chronicle Staff Writer
Growth was again Gallatin County's biggest economic story of the year, making this area one of the brightest spots in a year of general prosperity for Montana.
Construction – the engine that put the local economy into overdrive for the past few years – had definitely downshifted in 2006 from the record-setting years of 2004 and 2005. In Bozeman, construction revved up again in 2007, making it the third-busiest year in history for builders. But construction could be slowing as we head into 2008.

"All in all it was a good year," said Shawn Cote, government affairs director for the Southwest Montana Building Industry Association.
"If you look at the building permit numbers by themselves, you'd say 2007 was a fantastic year," Cote said. But for some builders the market started to soften in the fall, he aid.

"The amount of inventory is indicative there could be a correction in 2008," Cote said. "We've never had an inventory glut like we have now."
Superheated housing prices also cooled some in 2007. Instead of houses jumping in value by 10 or 15 percent annually as they had the past few years, the median price for a single-family home sold in Bozeman actually slipped 3 percent in 2007. The median price went up 1 percent in Belgrade and dropped 13 percent in Big Sky.

Some saw 2007 as the first time in 20 years that it's been more of a buyer's market than a seller's market.

"We've seen a real steady, stable market in Bozeman," said Tricia Bailey, 2007 president of the Gallatin Association of Realtors and broker-owner of 45th Parallel Realty. "We have seen the real crazy appreciation (of the past) stabilize, because the amount of inventory has slightly increased over demand. But you're really seeing a balance. You're not seeing prices tumble... . There's still steady demand and amble supple."

Bozeman's status as a regional retail center grew in 2007 with the opening of several multi-million-dollar stores.

"I bet we're going to do 600,000 square feet in new commercial" space in 2007, said Andy Epple, Bozeman city planning director. Epple said that's equivalent to adding two new Gallatin Valley Malls in one year.

Growth brought with it a string of related problems – a high cost of living, a labor shortage, a shortage of affordable housing, closure of trailer parks and workers complaining that their wages aren't keeping up with high housing prices.

Still, local voters said yes to several costly projects needed to keep up with growth – approving millions of dollars in bonds for new schools in Bozeman and Big Sky, and higher taxes to pay for police and fire services in Bozeman.

Bozeman was again blessed in 2007 with a well-diversified economy. Montana State University and Bozeman Deaconess Hospital, the area's two biggest employers (with 3,000 and 1,000 employees, respectively), served as steady anchors. Tourism, agriculture and the high-tech industry also contributed to the local economy.

"Our economy remains a real bright spot in Montana," said Bob Hietala, chief executive officer of the nonprofit Prospera Business Network. "We continue to have about the highest growth of any Montana county."

THE TOP ECONOMIC NEWS
STORIES FOR 2007 ARE:

1. Construction remained strong in 2007, according to Bozeman city building permits.
Even though numbers are available only through November, the year 2007 is already the third-biggest in Bozeman history for the construction of new homes (733 permits issued for houses, condos, apartments and townhouse dwellings). It also was the third-biggest year in Bozeman history for the total number of building permits issued, 855 permits for everything from new businesses to home remodels.
And 2007 was the No. 1 year ever for the estimated value of construction — $231 million, though that record partly reflects rapid inflation in construction costs.
Putting 2007 into perspective, Epple said when he first moved to the sleepy university town of Bozeman to be a city planner 20 years ago, the city issued a grand total of 47 permits for new homes. This year the number was 16 times greater. If some people accuse him of having a "no growth" policy, Epple joked, it's been quite a failure.

For Gallatin County in 2007, the number of septic permits issued to homes and businesses continued a steady decline (from 656 in 2004 to 445 this year). Tim Roark, county environmental health director, said part of the decline is due to a steady increase in public sewer systems, like that at Big Sky. Still, Roark said, 10 or 15 years ago, the county was issuing only 200 to 300 permits a year.

Shawn Cote, government affairs director for the Southwest Montana Building Industry Association, said in the fall of 2007, things started to tighten up for builders.

"I've talked to some builders who are as busy as they've ever been, and some are slowing down," Cote said.
"I think there's less work, particularly in Big Sky."

Where in recent years builders would put help-wanted ads in the paper and no one would answer, Cote said, now there are 15 to 20 people who call looking for work.

"The consensus is the first half of 2008 will be pretty soft," Cote said. "I think there's a general nervousness."

2. Retail rocked in 2007, creating hundreds of jobs.
On North 19th Avenue, Bozeman saw the opening of the new $11.8 million Lowe's Home Improvement store, the $3.9 million Sportsman's Warehouse, the $1.3 million World Market and other new stores. The $5 million Rosauer's Supermarket opened on Huffine Lane in the new Bozeman Gateway development.

3. Housing prices – For the first time in several years, home prices in Bozeman actually slipped slightly, instead of making spectacular gains.
Montana appeared to escape the worst of the subprime loan meltdown that has home prices falling in much of the nation. Realtors and builders attributed the softening of prices more to local supply getting a bit ahead of demand.

The changing market has meant good news for homebuyers. Buyers have more places to choose from, and a little better chance to negotiate on price.
"You're no longer competing with five offers on every single home," said Tricia Bailey, 2007 president of the Gallatin Association of Realtors. "You're still seeing Bozeman homes selling for 97 percent of the asking price. In 2005, a really crazy, crazy year, we were seeing 100 to 101 percent of the asking price.

"You can pick and choose the house you're interested in without it disappearing overnight."

While the changing market has been good for buyers, it's been bad for speculators. In 2007, investors couldn't use real estate as short-term way to make big profits, Bailey said.

4. Gallatin County banks posted a record of $1.635 billion in deposits as of June 30, 2007.
It shows just how much the county has changed, as bank deposits have increased by nearly $1 billion in seven years. The 2007 total was also $80 million more than the year before.

Only Yellowstone County, with $2.3 billion in deposits, had more money in the bank than Gallatin County, according to the Federal Deposit Insurance Corp.
Other counties with fast-growing populations, like Flathead and Missoula counties, also have seen large increases in deposits, but none has grown as quickly as Gallatin County.

"The money that comes into our area banks can be turned around and lended out to local businesses and construction projects," First Security Bank President Ron Farmer said in October.

5. Paying for growth was hotly debated in 2007.
After Gallatin County commissioners heard from dozens of unhappy real-estate brokers, builders and business owners, they approved in November an increase in road impact fees for new homes but not businesses.

A Florida consultant recommended that Bozeman triple its impact fees on new developments to pay for streets, but commissioners voted in December to increase the fees on a single-family home by $858 to $3,238.

Monforton School made a pitch to charge impact fees for schools, to ease the tax burden on property owners and pay for school expansion to provide room for children from all the new subdivisions coming to its area.

Bozeman voters passed special mill levies to pay for expanding police and fire services, and a $17 million bond issue to build a seventh elementary school.

6. Big Sky flexed its economic (and political) muscles in 2007.
In January, the state Department of Commerce reported that the booming resort had a huge economic impact on the state – producing 7,600 jobs and $478 million in spending – bigger than Montana State University's $385 million annual spending. Local residents sought the report to demonstrate the area's economic clout and to help persuade the 2007 Legislature to let Big Sky have its own high school.

Big Sky may have only 2,000 year-round residents, but they're intent on making it a real community. The Big Sky Chamber of Commerce formed a Community and Infrastructure Solution group, which recommended that Big Sky consider incorporating as a town.

7. Downsides of growth made news in 2007.
The cost of living in Bozeman rose again, to 7 percent above the national average, the Prospera Business Network reported. Housing costs were the main reason, running 22 percent above the national average.

The high cost of living made it harder to recruit employees, and harder for employers to fill vacancies. Montana State University had to raise wages for custodians, and fast-food places in Bozeman advertised they were paying up to $13 an hour.

Gallatin County's unemployment rate was 2.7 percent in November, lower than state's 3.3 percent

8. Downtown Bozeman's down time seemed never ending.
Main Street was closed for six months while crews resurfaced the street, replaced water pipes, improved crosswalks with bricklike surfaces and installed new traffic lights with better pedestrian crossing signals.

Businesses were hurt, but in November downtown celebrated with a grand "reopening." Downtown's future should get a boost from the long-planned, $9.2 million parking garage, which finally began construction.

9. High tech remained strong.
Montana State University reported $102 million in research spending for the year ended in June, the first time the total had slipped from the year-before total of $103 million, but still a significant contributor to the local economy.

The state awarded a $200,000 job training grant to CDI-Aerospace to start up its Bozeman engineering design center for Sikorsky Aircraft, expected to hire and train more than 40 employees.

DEIRDRE EITEL/CHRONICLE
Gallatin Valley growth in 2007 remained strong in both residential and commercial construction. New retail space near
North 19th Avenue and Oak Street is being added adjacent to recently completed stores.