Best Performing Cities - Milken Institute...1 Executive Summary The Milken Institute Best Performing Cities index ranks U.S. metropolitan areas based upon their economic performance

Best Performing Cities:

Where America’s Jobs are Created and Sustained

by Ross DeVol and Lorna Wallace with Armen Bedroussian and Junghoon Ki

November 2004

The Milken Institute is an independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations in the U.S. and around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. We put research to work with the goal of revitalizing regions and finding new ways to generate capital for people with original ideas.

We do this by focusing on human capital – the talent, knowledge and experience of people, and their value to organizations, economies and society; financial capital – innovations that allocate financial resources efficiently, especially to those who ordinarily would not have access to it, but who can best use it to build companies, create jobs and solve long-standing social and economic problems; and social capital – the bonds of society, including schools, health care, cultural institutions and government services, that underlie economic advancement.

By creating ways to spread the benefits of human, financial and social capital to as many people as possible – the democratization of capital – we hope to contribute to prosperity and freedom in all corners of the globe.

We are nonprofit, nonpartisan and publicly supported.

© 2004 Milken Institute

I. Executive Summary .......................................................................................... 1

II. Introduction ...................................................................................................... 5

III. Keys to Becoming a Best Performing City ....................................................... 7

IV. Best Performing Cities: Largest 200 Cities List ............................................ 13

V. Best Performing Cities: Small Cities List ....................................................... 33

About the Authors .................................................................................................. 40

Table of Contents

1

Executive Summary

The Milken Institute Best Performing Cities index ranks U.S. metropolitan areas based upon their economic performance and their ability to create, as well as keep, the greatest number of jobs in the nation. Metros with low business costs and a knowledge-based economy demonstrate that new jobs can be created in America and need not move offshore. This index enables businesses, industry associations, economic development agencies, investors, academics, governments and public policy groups, to assess and monitor recent metro performance.

The Best Performing Cities index is outcomes-based. Its components measure job, wage and salary, and technology growth. It includes both five-year and one-year performance. The five-year growth (1998-2003) averages, smooth out the business cycle impacts, and therefore do not penalize a metro too heavily for weak performance in the latest year. The latest year’s performance (2003) provides a sense of the relative momentum among metropolitan economies around the country. The index also includes measures of the concentration and diversity of technology industries within the metros to quantify their participation in today’s knowledge-based economy.

Each business cycle has its unique characteristics that impact metropolitan areas differently because of their diverse economic structures. The current economic cycle evidenced:

• A subdued jobs recovery;• Severe information and communications technology equipment and services

retrenchment;• Rising health care and pension costs; • An elevated level of political and economic uncertainty due to wars in Iraq and

Afghanistan, post-Sept. 11th terrorism concerns and corporate governance scandals; • Increased fiscal deficits;1

• Decreased value of U.S. currency;2 • Increased exports; and• Low interest rates that provided a boost to the housing and construction industries and

mitigated concerns regarding reductions in consumer spending.

Executive Summary Best Performing Cities

2

Top 20 Best Performing CitiesThe top 20 Best Performing Cities among the largest 200 metropolitan areas in the United States reflect an assorted group of communities. A common key attribute among this year’s listing is strength in services. A robust recovery in tourism is driving metro job growth in leisure and hospitality services. Growing populations and low U.S. interest rates support employment gains in home construction and related consumer industries; the growing populations of retirees are a catalyst for health care services.

Fort Myers-Cape Coral, Florida was the top-performing metropolitan area in 2004, up from third position last year. Descriptions of each of the remaining top 20 metros are detailed later in this report. A striking feature of this year’s top 20 metros is that seven of the 20 metros (35 percent) are located in the state of Florida. The state’s leadership should rightly feel a sense of pride amid the recent natural disasters. The state of California placed a total of seven metros on last year’s Milken Institute Top 20 Best Performing Cities, but managed only two in 2004.

Ten Largest CitiesIt is more difficult for mature or older metro areas with typically high-density populations and little land available for expansion to achieve rapid job growth than for early- and mid-stage growth cycle metros to do so. Therefore, America’s largest metropolitan areas were analyzed as a

Best Performing Cities

2004Rank

Rank, YearAgo Metro Index

1 3 Fort Myers-Cape Coral FL 100.002 2 Las Vegas NV-AZ 152.123 43 Phoenix-Mesa AZ 152.464 4 West Palm Beach-Boca Raton FL 154.335 116 Daytona Beach FL 157.096 41 Sarasota-Bradenton FL 157.447 1 Fayetteville-Springdale-Rogers AR 161.078 20 Riverside-San Bernardino CA 167.559 29 Fort Lauderdale FL 176.3410 10 Monmouth-Ocean NJ 178.2611 19 Washington DC-MD-VA-WV 182.6512 27 Tampa-St. Petersburg-Clearwater FL 193.9913 72 Boise City ID 195.9514 N/A Portland ME 205.7515 23 Naples FL 208.3616 5 San Diego CA 209.6217 40 Tucson AZ 211.0018 9 McAllen-Edinburg-Mission TX 216.7719 110 Trenton NJ 218.2220 39 Albuquerque NM 219.02

Source: Milken Institute

Top 20 Best Performing Cities Composite Index, 2004

Executive Summary

3


distinct class. Among America’s 10 largest cities, the Washington DC-MD-VA-WV metro ranked first, maintaining its 2003 position among the 10 largest metros. Its overall ranking rose from 19th on last year’s index to 11th in 2004. Atlanta ranked second among this year’s top 10 largest metros (72nd place overall). As job losses subside in telecommunication services, its economic fortunes should improve. The greater Philadelphia metro ranked third and is the most improved of the 10 largest metros, increasing its overall ranking from 107th place last year up to 84th on the Milken Institute 2004 listing of Best Performing Cities.

Of the 10 largest cities, Houston ranked fourth experiencing the greatest decline in overall ranking, falling from 25th place last year to 104th in 2004. This drop was largely attributable to weaknesses in manufacturing, construction and business services. Recent gains in Houston’s mining industry may improve the metro’s ranking on next year’s index. Dallas ranked fifth among the 10 largest metros, though it slipped from 78th overall in 2003 to 114th this year. Extensive losses in Dallas’ telecom industry over the past three years have put negative pressure on both employment and wages. The Los Angeles-Long Beach, California metro ranked sixth, dropping to 140th overall, down from 135th on last year’s best performing metro listing. Increased foreign trade and defense spending have aided its prospects.

Boston is just behind at seventh place among the 10 largest metros and 144th overall. However, a 2004 Milken Institute study showed the Boston metropolitan area to be the leading life-sciences hub in the U.S.3 Its large IT hardware and software sector was hammered during the downturn, but appears to be stabilizing. Chicago is eighth among the largest metros in the United States (166th overall). The lower U.S. dollar should aid its sizable electronic components and communications equipment sectors as exports recover.

Coming in ninth among the 10 largest metros, New York City, notwithstanding the devastation of 9/11 showed progress overall. It rose from 175th place on last year’s index to 169th in 2004. Despite renewed employment gains, the metro area’s employment is 4 percent below its peak, reached at the end of 2000. Financial services firms are adding cautiously to their payrolls again after substantial cuts. Detroit, Michigan closes out in 10th place position among the 10 largest metros. Automobile consumer purchase incentives may have peaked, limiting advances in sales. Detroit must diversify its economy.

Top Five Best Performing Small Cities Missoula, Montana is the best performing small city on our current ranking. Business cost advantages and a skilled labor force attract businesses to the Missoula metro. Las Cruces, New Mexico ranked second among smaller metropolitan areas in the U.S. largely due to government-sponsored economic development. Recent troubles at Santa Fe, New Mexico’s Los Alamos National Laboratory threaten this metro’s third-place ranking. Dover, Delaware and Casper, Wyoming are the fourth and fifth best performing small cities. The Dover metro is benefiting from the recent opening of a Wal-Mart distribution center in Smyrna. Casper’s metro is largely driven by employment in the retail, leisure, and business and professional services industries.

Executive Summary

4

5

Introduction

The 2004 Milken Institute Best Performing Cities: Where America’s Jobs are Created and Sustained index measures where:

• jobs are being created; • jobs are being maintained;• wages and salaries are increasing;• economies are growing; and • businesses are thriving in the U.S.

The index is constructed to provide businesses, industry associations, economic development agencies, investors, academics, and government and public policy groups with objective, research-based information to assess and monitor recent metro performance. It’s benchmarking also provides an opportunity to gain insight into the means of achieving improved economic performance and develop metro-specific strategies. The 2004 Milken Institute Best Performing Cities index applies the same methodology used previously and that published by Forbes in its annual Best Places for Business edition, thereby permitting a consistent performance evaluation with prior years.

This 2004 index edition Best Performing Cities: Where America’s Jobs are Created and Sustained reflects those metropolitan areas that recorded the best economic performance, and maintained as well as created, the most jobs over the recent past. We structured the index to allow individual metropolitan areas to shift position from year-to-year, but avoid mass migration within the rankings. Metros with low business costs and a knowledge-based economy demonstrate that new jobs can be created and sustained in America.

Milken Index is Outcomes-based, not Cost-basedThe 2004 Milken Institute index overall metro rankings are calculated using the components shown in the table below. The index includes measures of job, wage and salary, and technology output growth (Gross Metro Product or GMP) over the most recent five years (1998-2003) and the latest year’s performance (2003). We also incorporated the latest 12-month job growth performance.4 Employment growth receives the greatest weight because it is a critical factor in determining the vibrancy of America’s communities. Wage and salary growth measure the quality of the jobs being created. Technology output growth is included because of its critical role in determining the economic vibrancy of cities.

Introduction Best Performing Cities

6

The five-year growth averages smooth out the business cycle impacts and ensure that no city is penalized too heavily for weak performance in the latest year. The latest year’s performance provides a sense of the relative momentum among metropolitan economies in the United States.

Additional technology measures were included to reflect the concentration and diversity of technology industries in metropolitan areas. High-tech location quotients that measure the concentration of a technology industry in a particular metro relative to the nation as a whole were included as an indicator of a metro’s participation in the knowledge-based economy.5 Those metropolitan areas with a higher concentration of technology industries (out of a potential of 25) than the nation as a whole were also included.

The Milken Institute index is an outcomes-based measure as opposed to one that incorporates explicit input measures of business costs, cost-of-living components such as housing, and other quality-of-life measures such as crime rates. Such static input measures, although important, are subject to large variations (both inter-industry and intra-industry) and can be highly subjective, making them less meaningful than outcome measures. The motivations, reasons and rationales for business location decisions are many and varied. Examples abound of individual businesses that have chosen to remain in high-cost cities, even when lower-cost locations are available. The output measures used for this index include the benefit of situating in expensive locations.

In theory, a prospering region will raise wages as well as rents, as both human capital and land inputs are more fully utilized. Nevertheless, holding all other factors (such as the productivity associated with being in one location versus another) constant, a company will choose to locate where business costs are lower and their employees’ standard of living is higher.

Component WeightJob Growth (I=1998) 0.143Job Growth (I=2002) 0.143Wage & Salary Growth (I=1997) 0.143Wage & Salary Growth (I=2001) 0.143Short Term Job Growth (Apr '03 - Apr '04) 0.143Relative HT GDP Growth (I=1998) 0.071Relative HT GDP Growth (I=2002) 0.071High Tech GDP Location Quotient 0.071Number of High Tech GDP LQ>1 0.071Source: Milken Institute

2004 Milken Institute Best Performing CitiesComponents

Introduction Best Performing Cities

7

Keys to Becoming a Best Performing City

Cities must appreciate the criteria that will propel them forward and triangulate a course. Only then, can an effective, tailored strategy be formed and gains be achieved at minimum real cost. What is required to be a Best Performing City?

Economic Dynamism

SeattleRank = 8th

PortlandRank = 25th

SacramentoRank = 21st

San JoseRank = 23rd

Orange Co.Rank = 15th

San DiegoRank = 17th

RiversideRank = 12th

Las VagasRank = 1st

PhoenixRank = 5th

Salt Lake CityRank = 21st

DenverRank = 9th

Fort WorthRank = 14th

DallasRank = 11th

Austin Rank = 4th

San AntonioRank = 13th

HoustonRank = 16th

AtlantaRank = 2nd

CharlotteRank = 24th

RaleighRank = 17th

JacksonvilleRank = 9th

OrlandoRank = 3rd

TampaRank = 19thMiamiRank = 20th

West Palm BeachRank = 6th

Fort LauderdaleRank = 6th

Entrepreneurial ActivityTop 25 Metros, 2003

States.shp

RankingTop Five6th - 10th11th - 15th16th - 20th21st - 25th

Firms enter and exit geographic areas all the time. To borrow from Lewis Carroll’s Through the Looking Glass, it takes all the running you can do just to stay in the same place.6 Over the long haul, the key to regional sustainability is the diversity of its ecosystem. A metro must be able to innovate, start, grow and attract new firms continually to augment the diversity of its economic ecosystem and replace larger, older firms that may stagnate, exit or even disappear. Entrepreneurial capacity and behavior are prime drivers of economic growth and job creation. Entrepreneurs are necessary visionaries of the economic potential of new technologies and how to apply them to business concept innovations.

Regional economic dynamism is epitomized by fast-growing, entrepreneurial companies. For a metro area to be successful over the long haul, it has to have capable entrepreneurs. The very foundation of the theory of clustered economies rests upon the dynamic rejuvenation capability of the cluster. Over the long-term, cities with strength in entrepreneurship will be among our Best Performing Cities — large and small.

Best Performing CitiesKeys to Becoming a Best Performing City

8

Capital Access7

In the past, riskier, more innovative entrepreneurs faced great difficulty in obtaining early-stage funding. Currently, there is a high degree of access to credit. Low interest rates have made it easier to obtain capital to finance business ventures. The explosion in the availability of capital to entrepreneurs has supported new economic growth.8 However, this ease of access to capital has come with a price as default rates have increased. The ability of entrepreneurs to gain access to financial capital without discrimination and manage it well, are key components of sustainable regional economic development and prosperity.

Start-up businesses tend to require large amounts of external financing for an extended period of time before they can tap traditional debt or equity markets. Private equity from pools of individual investors (angels) or highly specialized venture capital (VC) firms attempt to fill this void. Venture capital funding represents a small share of the overall capital markets, but its true value cannot be measured in dollars. Venture capitalists assist in business plan development, become board members, lend management skills, suggest strategic partnerships and alliances, assist in expansion plans, and bring in key talent where needed. VC activity is an excellent way to assess whether financiers have confidence in the new ideas and entrepreneurial infrastructure of a region. Despite the current difficult environment for private equity, albeit somewhat improved over last year’s assessment, metros that develop deep private capital markets are poised for expansion.


9

Human/Creative Capital

The availability of skilled workers is a crucial determinant in company location strategies, especially during periods of structural change. Structural change signals permanent contraction in certain industries. Economic theory suggests that job losses in declining industries are replaced with jobs in growing industries. However, it takes time for new jobs to be created and for workers to relocate and retrain. A population with higher skill levels is able to adapt more quickly. Metros with human capital capable of speedy adjustment have a competitive advantage over lower-skilled cities and will therefore suffer losses less severely and achieve gains more swiftly.

A region’s most important source of competitive advantage is the knowledge embedded in its people. The knowledge, skills, experience and innovative potential of talented individuals have greater value than capital equipment. A successful enterprise accesses, creates and utilizes knowledge to sustain competitive advantage. A successful metro will develop, nurture and support a growing knowledge-based economy.9

San FranciscoRank = 2nd

YoloRank = 19thOaklandRank = 15th

San JoseRank = 5th

Santa CruzRank = 17th

SeattleRank = 14th

Fort CollinsRank = 6th

BoulderRank = 1st

DenverRank = 17th

LincolnRank = 24th

MinneapolisRank = 23rd

AustinRank = 12th

MadisonRank = 4th

Ann ArborRank = 11th

TallahasseeRank = 12th

GainesvilleRank = 8th

RaleighRank = 7th

Washington D.C.Rank = 3rd

PortlandRank = 22nd

BurlingtonRank = 10th

BostonRank = 16th

New HavenRank = 21st

BergenRank = 25th

MiddlesexRank = 9th

TrentonRank = 20th

States.shp


Percent Adults with Bachelors DegreeTop 25 Metros, 2000


10

Innovation Capacity

Strong clusters of innovative activity are key to competitiveness in today’s global economy. Because knowledge is generated and shared more efficiently in close proximity, economic activity based on new knowledge has a high propensity to cluster geographically. In leading clusters, fewer innovations escape to other regions or do so at a slower rate. The innovation capacity of a metropolitan area is an important component of its long term, sustainable economic development potential.

Research laboratories — private, government and university-based — are important drivers of economic development. Investment in R&D strengthens local research competency and attracts further investments by the private and public sectors in a process of dynamic feedback loops. Access to the latest innovations is attractive to companies because it provides them with an important source from which to create a competitive advantage over businesses without such proximity. Research capacity is a necessary, though insufficient factor in determining regional success. It’s not just about the research, but what is done with it that counts.

Globalization/International Integration AttributesGlobal economic integration is creating profound changes in the economic structure of businesses, industries, countries, regions and metropolitan areas. Technological advances have lowered transportation, telecommunications and computational costs, increasing the ease of global information flows. In our globalized economy, opportunities for success are strengthened by

San JoseRank = 1st

OaklandRank = 15th

San FranciscoRank = 14th

San DiegoRank = 19th

Boise CityRank = 2nd

Fort CollinsRank = 7th

GreeleyRank = 18th

BoulderRank = 5th

AustinRank = 6th

MinneapolisRank = 23rd

HamiltonRank = 20th

SaginawRank = 22nd

Ann ArborRank = 12th

RaleighRank = 17th

RochesterRank = 4th

BurlingtonRank = 9th

BostonRank = 25th

Santa CruzRank = 8th

WilmingtonRank = 21st

BinghamtonRank = 13rd

Dutchess Co.Rank = 3rd

New HavenRank = 24thMonmouthRank = 16thTrentonRank = 11th

MiddlesexRank = 10th

States.shp


Patents per 100,000 JobsTop 25 Metros, 1999


11

a company’s ability to meet international quality standards, tap into multinational distribution networks, access cutting edge innovations and locate in those cities that provide the best environment to exploit international opportunities.

Regions must link to the global economy. Clusters linked to the outside world offer access to an industry’s best practices and latest developments. A metro area’s global orientation ensures expanding markets for its firms. Each city’s network of public and private institutions plays a key role in determining the locale’s competitiveness —maximizing the rate of return on assets. A “best performing city” values and nurtures all of these ingredients.

National Economic ConditionsThe U.S. is experiencing a relatively subdued jobs recovery, despite other economic measures that show underlying strength. Industrial production has risen by 5.2 percent over the past 12 months, investment in capital goods is up 13.9 percent, and exports and imports have increased by 11 percent. As of September 2004, the Establishment Survey shows that employment is nearly 600,000 below its cyclical peak reached in late 2000.

Possible explanations for weak job growth include:

• over-hiring during the boom of the 1990s;• Severe information and communications technology equipment and services

retrenchment;• increases in the costs of pension and health care benefits;• elevated levels of political and economic uncertainty due to wars in Iraq and Afghanistan,

Sept. 11th terrorism concerns, and accounting and corporate governance scandals;• productivity gains demanded by global competition;

20042003200220012000

103

102

101

100

99

Index Jan. 2000=100

Sources: BLS, Milken Institute

Establishment Survey vs. Household SurveyEmployment

Establishment SurveyHousehold Survey


12

• international trade regimes (i.e., NAFTA, EU, WTO);10 • structural changes in the U.S. economy leading to more self-employment;• uncertainty from the tight 2004 U.S. federal election race; and • lingering concerns about the duration of the economic recovery.

America’s metropolitan areas, owing to their diverse economic structures and employment bases, respond very differently to changes in monetary and fiscal policies. For example, the last U.S. economic slowdown that occurred when the Internet bubble burst, impacted cities in strikingly different ways. Some cities, such as Silicon Valley and cities dependent upon interaction with it, continue to struggle to recoup losses. Yet fortunately for many of America’s communities, there have been some fortuitous dimensions to the current business cycle. One of those is the remarkably strong housing sector that is driving increases in consumer spending. The global economy, with the U.S. as its leading participant, presents opportunities to those geographic areas most able to respond quickly to both shocks and opportunities.


13


Best Performing Cities: Largest 200 Cities List

The top 20 best performing cities among the largest 200 metropolitan areas reflect an assorted group of communities. A common key attribute among this year’s list is strength in services, a sector in which the U.S. demonstrates high productivity. A robust recovery in tourism is driving metro job growth in leisure and hospitality services. Growing populations among metros support employment gains in home construction and related consumer industries. America’s aging population, especially the growing population of retirees, is a catalyst for health care services growth.

A somewhat unusual finding was that none of the top 20 American research universities are located in any of the 2004 top 20 best performing cities.11 A number of studies exist, including those of the Milken Institute,12 that stress both the desirability and necessity of a knowledge-based economy for geographic areas to grow and maintain long-term competitiveness. Because the Best Performing Cities index uses outcome components measured over time, there is a tendency for the data to emphasize job, wage and salary, and gross metro product (GMP) growth. Hence, previously high-flying tech centers such as Denver and Seattle, do not appear among the top 20 due to the late-2000 burst of the dot-com, technology and telecom bubbles. However, six metros on the top 20 Best Performing Cities index are located in the top 20 states for biopharmaceutical employment.13 The implication for the current best performing cities is that without a firm university R&D base and strong commercialization linkages with the private sector, their top standing may not be maintainable over time.

A striking feature of this year’s top 20 metros is that seven of the 20 metros (35 percent) are located in the state of Florida. Florida’s state leaders should rightly feel a sense of pride amid the recent natural disasters. Severe hurricane destruction in 2004 will constrain growth in some sectors of the economy as it propels growth in others. Reconstruction efforts and rising fuel prices will hinder tourism activities in the state. The net effect may be declines in next year’s ranking of Florida metros.

The state of California placed a total of seven metros on last year’s Milken Institute Top 20 Best Performing Cities index: San Diego (ranked 5th), San Luis Obispo-Atascadero (6th), Chico-Paradise (13th), Ventura (14th), Sacramento (15th), Vallejo-Fairfield-Napa (17th) and Riverside-San Bernardino (20th). Only two metros from the state made this year’s listing: Riverside-San Bernardino (8th) and San Diego (16th). California’s losses mean gains for lower-cost states/metros such as Las Vegas, Phoenix and Tucson. A rebound in high-tech exports and renewed domestic investment in IT and communications hardware and software should improve the position of several California metros in 2005.

Largest 200 Cities List

14

Fort Myers-Cape Coral, Florida was the best performing city this year, improving from third in 2003. The region’s economy has witnessed solid growth throughout the recent economic downturn, and accelerated during the recovery. The lowest annual employment growth was 3.2 percent in 2002, just a slight falloff from the cyclical peak of 4.5 percent in 2000. Most impressively, perhaps, it recorded job growth of 20.2 percent over the most recent 5-year period. According to recent data by the U.S. Census Bureau, Cape Coral’s city population grew by more than 16 percent from 2000 to 2003 placing it among the top 10 fastest-growing cities in the U.S. with populations greater than 100,000. Despite some recent indications of slowing, employment growth in 2003 was the third-fastest in the country. The Fort Myers-Cape Coral economy has a low dependence on manufacturing helping to insulate it from the sharp national downturn in that sector. Structural factors are bolstering its long-term growth prospects: it has low business and housing costs relative to the rest of southwest Florida and a diversified industrial mix for a smaller metro area.

2004Rank

Rank, YearAgo Metro Index

1 3 Fort Myers-Cape Coral FL 100.002 2 Las Vegas NV-AZ 152.123 43 Phoenix-Mesa AZ 152.464 4 West Palm Beach-Boca Raton FL 154.335 116 Daytona Beach FL 157.096 41 Sarasota-Bradenton FL 157.447 1 Fayetteville-Springdale-Rogers AR 161.078 20 Riverside-San Bernardino CA 167.559 29 Fort Lauderdale FL 176.3410 10 Monmouth-Ocean NJ 178.2611 19 Washington DC-MD-VA-WV 182.6512 27 Tampa-St. Petersburg-Clearwater FL 193.9913 72 Boise City ID 195.9514 N/A Portland ME 205.7515 23 Naples FL 208.3616 5 San Diego CA 209.6217 40 Tucson AZ 211.0018 9 McAllen-Edinburg-Mission TX 216.7719 110 Trenton NJ 218.2220 39 Albuquerque NM 219.02


Top 20 Best Performing Cities Composite Index, 2004

Best Performing CitiesLargest 200 Cities List

15


Lower housing costs are making Fort Myers-Cape Coral, Florida a more attractive destination for retirees. More than 25 percent of the metro area’s residents are 65 or over. This has helped fuel a surge in housing construction. Single-family permits rose more than 80 percent between 2000 and 2003, while multifamily permits advanced 45 percent over the same period. Construction is underway on five new residential towers along the city’s waterfront. Commercial construction is advancing at a healthy clip as developers expect the area’s rapid growth to continue. As an indication of the importance of construction to the region’s economy, construction employment represents 12 percent of total employment versus 5.2 percent for the nation. Well-off retirees bring pensions and transfer payments that support consumption activity.

Fort Myers-Cape Coral, Florida has become an increasingly popular tourism destination. Sanibel Harbour Resort is a major employer. Leisure and hospitality services have witnessed strong employment growth. As an indication of its dependence on travel and tourism, full-service restaurants are the largest employment category in the metro area. The Southwest Florida International Airport is among the national leaders in passenger growth and is undergoing a $438 million expansion.

With a booming retirement population, health care services are witnessing strong gains. Lee Memorial Health is the area’s top employer. Consolidation in the hospital sector may retard growth for a while, but health care employment should expand over the long term. Professional and business services employment has grown by over 38 percent during the past four years and many young professional families have migrated to the area. The metro’s fifth-place position nationwide in wage and salary growth over the past five years is an indication of the quality of jobs being created there. The Florida Gulf Coast Technology and Research Park will house an incubator for Florida Gulf Coast University. The area is beginning to experience growing pains as its infrastructure investment has not kept pace.

2003200220012000199919981997

5

4

3

2

1

0

-1

-2

Percent Change, Year Ago

Sources: Economy.com, Milken Institute

Annual Job GrowthFort Myers vs. United States

Fort MyersUnited States


16

Las Vegas, Nevada retained its second place this year. Its travel and tourism sector displayed remarkable resiliency after the 9/11-induced downturn. Despite the impacts from 9/11, total job growth, over the latest five years as well as in 2003, placed it second in the nation. Recent figures provide additional encouragement as current year-over-year job growth is the fastest in the country. A very favorable business climate in Las Vegas is drawing companies from higher-priced areas, especially California, fueling growth and keeping the metro’s unemployment rate well below the national average.

Leisure and hospitality services account for 30 percent of total employment in Las Vegas, more than three times the national average. In recent months, gaming revenues witnessed gains of 14-16 percent from a year ago, and revenues on “the Strip” seem poised to break the record set in 2000. With higher tourist visitations, hotel occupancy is increasing and supporting additional room construction. Convention attendance hit a record in 2003 and booking trends appear very favorable this year. International visitation is recovering. Strong in-migration is fueling a building boom with single-family permits rising 22 percent in 2003, the highest growth rate in a decade. If current trends continue, Las Vegas may climb to first-place on next year’s Best Performing Cities index.

Phoenix, Arizona leapt to third position on the Best Performing Cities index, up from 43rd in 2003. Similar to other high-tech manufacturing centers, Phoenix suffered from the severe decline in activity in this sector, but substantially less than most others. Part of the explanation lies in Phoenix’s high dependence on defense- and homeland-security related industries that have received additional funding from the wars in Afghanistan and Iraq, and post 9/11 security measures. General Dynamics, Raytheon and Boeing have large operations in Phoenix. General Dynamic’s Spectrum Astro group recently opened a leading-edge satellite and space systems facility.

The Phoenix metro is demonstrating employment growth in the financial services industry. Phoenix is an important regional financial services center with major operations including Well Fargo, American Express, Bank One and Discover Financial Services. Phoenix witnessed a housing

20042003200220012000

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5


Sources: Global Insight, Milken Institute

Financial Activities EmploymentPhoenix vs. United States

PhoenixUnited States


17

boom with single-family permits up 19.7 percent in 2003 and 39.9 percent since 2000. Commercial markets appear to be stabilizing as business and financial services firms are expanding. The Translational Genome Research Institute is slated for completion later this year.

West Palm Beach-Boca Raton, Florida is fourth on the Best Performing Cities index, maintaining the same position it held on the 2003 index. Although its employment growth moderated in 2003, it ranked 10th among the 200 largest metros over the past five years. One of the area’s key advantages is that it attracts an affluent retirement population that fuels consumer purchases. Per capita income is 43 percent above the national figure.

Professional and business services are a major component of the West Palm Beach metro area economy; it is 50 percent more dependent on this sector than the nation as a whole. Over the past year, professional and business services have accounted for one-half of total job growth. Health care services continue to witness expansion. Columbia Palm Beach Healthcare and Tenet Healthcare Corp. are the region’s two top employers. Using an aggressive incentive package, the region successfully enticed the Scripps Research Institute to build its first biotech research facility outside of San Diego. This is a major bet that Governor Bush and local economic development officials hope will spawn biotech startup companies and pay dividends in high-wage jobs and future tax receipts.

Daytona Beach, Florida jumped to fifth this year, a remarkable improvement from its 116th rank in 2003. Part of this jump is attributable to upward employment revisions. The metro area is witnessing strong population growth and tourism is expanding. It is experiencing broad-based employment gains across sectors, with manufacturing being the only exception.

The area is becoming more attractive as a place to live due to its affordable housing as it draws migrants from more expensive Florida metros. Daytona recorded a 38.5 percent increase in single-family housing permits in 2003, the second fastest in the nation. There is increased resistance to


20032002

20012000

19991998

19971996

19951994

19931992

19911990

200

180

160

140

120

100

80

60

40

US$ Thousands


Existing Median Home PriceDaytona Beach vs. Florida, 1990-2004Q2

Daytona BeachFlorida


18

new housing construction as exemplified by anti-growth activists’ attempts to place an initiative on the November 2 ballot. The region has a highly seasonal tourism market with NASCAR and Spring break activities. Health services are a major employer in the region with general medical and surgical hospitals, and offices of physicians, two of the top five employers in the metro. The metro area witnessed the fourth-fastest growth in employment in 2003.

A booming retirement market and recovering tourism activity propelled Sarasota-Bradenton, Florida to sixth, up from 2003’s 41st place. Well-off retirees find the metro area’s housing prices very attractive relative to Southeast Florida metros and are migrating at a high rate. Per capita income is 22.3 percent above the national average. With travel and tourism recovering, retail sales are growing aided by the brisk expansion in local payrolls, and wage and salary gains. Tourist-bed tax receipts are running at double-digit rates above their year-ago levels in recent months.

Professional and business services recorded large job gains and the relative contribution of this employment segment to the Sarasota-Bradenton, Florida economy is twice that of the U.S. Expansion at Port Manatee is expected to boost trade volume through the port. The metro sustained relatively minor damage during this year’s hurricane season, encouraging its further expansion as a data and IT recovery location. Sarasota-Bradenton is a high quality-of-life, high per-capita income metro.

Fayetteville, Arkansas (Northwest Arkansas) was the top performing metropolitan area in 2003, however, it slipped to seventh this year. Wal-Mart, its retail/distribution anchor firm, was a significant driver of growth, employing more than 10,000 people in the Fayetteville area. Basic infrastructure upgrading will help propel J.B. Hunt Transportation Services, one of the nation’s largest trucking firms located there. Employment growth continues ahead of the national pace, but it has dipped, partly attributable to declines in poultry and food processing. The University of Arkansas supports biotechnology development in the state directly with its research, and indirectly by strategically nurturing those education programs that feed targeted industrial development in the state such as Tyson Foods.14 Scientific Research and Development Services is the fourth largest employment sector in Northwest Arkansas, employing more than 4,000 people.

Riverside-San Bernardino, California ranked eighth on this year’s Best Performing Cities index, up from 20th place in the 2003 index. It is the fastest-growing metropolitan area in California. It has become one the West Coast’s largest transportation and logistics hubs as inbound cargo from Asia and outbound goods destined for Asian markets flow through its warehouses and distribution facilities. Stater Bros., a supermarket chain, believes that its new 2.1 million square foot distribution center will be the largest single facility in all of Southern California. The metro is capturing manufacturing operations that are migrating from other areas in the state. The strong housing market in Riverside-San Bernardino is showing no sign of faltering under increasing U.S. interest rates. Single-family housing permits rose 20.4 percent in 2003. Federal government spending increasingly drives its economy in both the defense industry and the metro’s expanding prison system.


19

The fifth Florida metro among the 2004 top 20 best performing cities is ninth-place Fort Lauderdale. Increasing trade between the U.S. and Latin America is generating job and wage growth in the area. Recent gains in employment are evidenced by banks and brokerage companies. The metro added jobs throughout 2001-2002 as most metros were shedding positions. Tourism is expanding and the metro set a new record for visitations for the second year in a row in 2003. Computer Systems Design & Related Services is the metro area’s leading high-tech industry.

200420032002200120001999

15

10

5

0

-5

-10

-15



Warehousing & Distribution EmploymentRiverside-San Bernardino vs. United States

Riverside-San BernardinoUnited States


200420032002

4

3

2

1

0

-1

-2

-3



Leisure & Hospitality Services EmploymentFort Lauderdale vs. United States

Fort LauderdaleUnited States

20

Monmouth-Ocean, New Jersey ranked 10th among the top 20 best performing cities, matching its ranking on the 2003 index. Tourism and tourism-related industries employed over 50,000 people in the metro contributing an estimated $3 billion each year to the area’s economy. Monmouth-Ocean’s increasingly diversified industrial base creates opportunities for strong long-term growth. The metro area is an attractive residential location for nearby workers in Middlesex and many New York commuters. Downsizing in the telecom sector negatively impacted employment in the metro given the presence of Lucent Technologies, AT&T and Verizon, but employment appears to have stabilized. Competitive commercial real estate prices have allowed the area to attract small research facilities such that its concentration of high-tech industries is 15 percent greater than the nation overall.

A highly educated workforce, aided by expanding federal government homeland security spending in Washington DC-MD-VA-WV has kept this metro among the top 20 cities, ranking 11th in 2004 up from its 19th place on last year’s index. The District of Columbia added more than 1,400 biopharmaceutical-related jobs between 1983 and 2003, representing an increase of more than 110 percent. The metro is home to Prestwick Pharmaceuticals, a product-based specialty pharmaceutical company, and Bayer Diagnostics. The National Institutes of Health and other government labs support the area’s biopharmaceutical cluster.15 Washington, D.C. is the fastest-growing major metro in the country. Population gains have been the strongest in its outer suburban areas. Loundoun County has witnessed the strongest population gains in the country since the 2000 Census. While the federal government is the region’s largest employer, Computer Systems Design & Related Services is the second-largest employer segment with nearly 100,000 knowledge workers. The Washington DC-MD-VA-WV’s economy is twice as dependent on high-tech activity as the nation and is 10th among all metropolitan areas.

200320022001200019991998

20

15

10

5

0

-5



Computer Systems Design Svcs. Real OutputWashington D.C. vs. United States

Washington D.C.United States


21

Tampa-St. Petersburg-Clearwater, Florida ranked 12th on the 2004 Best Performing Cities index, up from last year’s 27th position. Financial services giants, Citigroup, JP Morgan and Raymond James are fueling payroll advances in the metro. American Collegiate Financial Services is relocating its corporate headquarters to Tampa. Job growth is accelerating as broad-based expansion appears to be underway. Increasing international trade is expanding its port operations, leading to greater transportation and warehousing operations. Global competition and foreign outsourcing to lower-cost regions challenge the Tampa metro’s relatively low cost advantages threatening future economic growth in the area.16

Boise City, Idaho’s economy is expanding at an impressive rate after a collapse in semiconductor, computer and peripheral sales harmed its growth rate over the past three years. It ranked 13th

on our Best Performing Cities index in 2004, up from 72nd last year. Boise lost more than 7,000 manufacturing jobs since reaching a peak in 2000. With recovering U.S. and global sales of chips and computers, Boise-based Micron Technology and HP’s printer division are expanding payrolls again. Boise’s costs of doing business are very low relative to other major western tech centers. Micron and HP are the largest employers in the metro area and are largely responsible for Boise having the fourth-highest dependence upon high-tech industries in the country. Boise holds the distinction of recording the highest growth in high-tech output over the last five years among the 200 largest metropolitan areas. Professional and business services grew throughout the economic downturn helping stabilize the metro’s economy.


20032002200120001999

30

20

10

0

-10

-20



High Tech Output GrowthBoise City vs. United States

Boise CityUnited States

22

Portland, Maine is the first metro from the state to rank among the top 20 best performing cities on the index (14th place). Its coastal location and retail outlet stores fuel economic development in this popular tourist destination. Health care is a major economic engine for the metro, accounting for 15 percent of total employment. Health care payrolls are expanding at a 4 percent rate, boosting overall job growth. Activity at the Portsmouth Naval Shipyard in New Hampshire and the Naval Air Station Brunswick, two important national defense facilities located nearby, provide significant spillover gains to this metro. Although rising costs of doing business (taxes and energy costs) in the Portland metropolitan area threaten job growth, its highly skilled labor force will continue to attract companies demanding knowledge-intensive workers.

Yet another Florida-based metro, Naples, ranked among the top 20 best performing cities (15th) in 2004. The growing population of wealthy retirees drives demand for health care employment supporting the services industry and fueling payroll expansion in the retail, and leisure and hospitality sectors. Naples holds the distinction of recording the strongest growth among all metros in wages and salaries over the past five years. Tourism is recovering due to declines in the U.S. dollar against the Canadian dollar and the Euro, in addition to less apprehension over terrorism fears. Retirement income is poised to increase along with rising U.S. interest rates. Land scarcity, as a result of environmental restrictions to protect the Florida Everglades, is driving land and housing values upwards.

20042003200220012000

10

8

6

4

2

0


Sources: BLS, Global Insight, Milken Institute

Health Care EmploymentPortland vs. United States

PortlandUnited States


23

The San Diego metro topped the 2002 Best Performing Cities index, but slipped to fifth place in 2003, with its position eroding further to 16th on this year’s listing. San Diego holds the distinction of ranking first on the national 2004 Milken Institute biotech composite index, second on the 2004 Milken Institute overall life science composite index and it is in a virtual tie with Boston as the top biotechnology cluster in the country.17 The diversity of its technology sectors and a large military presence generate consistent strong economic performance. In addition to biotech, medical equipment, wireless telecom services, semiconductors and aerospace are important components of its technology base. Its leisure and hospitality sector are seeing renewed activity. The high quality of the jobs created in recent years is reflected in San Diego’s eighth–place position in wage and salary growth over the last five years.

The Tucson, Arizona metro ranked 17th on the 2004 Best Performing Cities index. Businesses that relocated from higher-cost southern California contributed to Tucson’s improved performance over last year’s 40th–place ranking. The metro’s heavy exposure to cycles in defense spending places it in a somewhat vulnerable position relative to other areas with a broader economic development base. Tucson’s largest employer is the Raytheon Aircraft Company (10,171 employees). The University of Arizona, which employs 10,078 workers, is a stabilizing presence in the area. Financial and business services are growing in the area with Citibank scheduled to open a large new call center.


AustinOrange

OaklandSan Fran.

L.A.San Jose

D.C.Philadelphia

RaleighSeattle

BostonSan Diego

90

80

70

60

50

40

30

Level


Biotech Research & Development AssetsTwelve Selected Metropolitan Areas, 2004

24

McAllen-Edinburg-Mission, Texas, is 18th slipping from ninth-place on last year’s index. McAllen-Edinburg-Mission has been able to capitalize on its low business costs by attracting a significant number of back-office operations. It experienced strong growth even as Texas border towns experienced a slowdown. Financial services and business services are recording vigorous gains in employment. Manufacturing activity is beginning to recover and maquiladora plants on the Mexican side of the border are increasing production as well. Improving the quality of jobs created in the metro will help reduce its dependence on federal government transfer payments.

The Trenton, New Jersey metro jumped up from 110th place on last year’s Best Performing Cities index to 19th. Government and state agency payrolls contribute to economic growth in the state’s capital city. A good transportation infrastructure contributes to Trenton’s ability to gain positive economic spillovers from the greater New York/Philadelphia areas. Excellence in education is furthered by the presence of Princeton, Rutgers and Rider Universities along with the increasingly competitive College of New Jersey in the metro. Trenton is also developing a reputation as a second-tier financial services center. Merrill Lynch employs 6,000 workers there and is Trenton’s largest private sector employer.


20042003200220012000

40

30

20

10

0

-10



Professional & Business Services EmploymentMcAllen-Edinburg-Mission vs. United States

McAllen-Edinburg-MissionUnited States

25

Albuquerque, New Mexico ranked 20th overall in this year’s best performing metro index, up from its 39th position on last year’s listing. The presence of research institutions such as the University of New Mexico (which employs 19,377 workers) and The Sandia National Laboratories (with over 6,830 employees) attract highly skilled employees and fuel economic gains in the area. Albuquerque has the third highest concentration of high-tech output in the country and ranks 14th in growth in that category in the nation over the past five years. The Microsystems and Engineering Sciences Applications (MESA) facility, currently under construction, promises to propel its high-tech activity forward in the future. Sandia National Laboratories has been at the forefront in the design and manufacture of microelectronic devices.18 The metro struggles to rebound from declines in the telecom industry. Below average home prices and living costs, combined with rising per capita incomes are leading to increases in disposable income. However, limited water resource supplies contain Albuquerque’s capacity for expansion.

America’s Ten Largest Cities: PerformanceMetro areas in their mature stage with little land available for expansion and high density, face difficulty recording job growth as rapidly as metros in their early- and mid-stage growth cycles. Congestion-related problems add to costs forcing out lower value-added activities. For these reasons and others, we compare and analyze America’s largest metropolitan areas as a distinct class. For example, it is an unreasonable expectation for New York City, with the densest center in the U.S., to experience job growth at the same pace as Fayetteville, AR.

Among America’s 10 largest cities, Washington DC-MD-VA-WV is the top performing economy. Economic activities in the Washington, D.C. metro are discussed previously in this report because it also ranked 11th on the top 20 Best Performing Cities index. After data revisions, the regional economy is the only metro among the 10 largest in the country that did not experience an employment decline in any single year over the last five years. It is beginning to experience some of the symptoms of its success in its rapid home price appreciation. Nevertheless, strong growth continues in 2004.

NYCOWANCCAPANJCTMDMA

90

85

80

75

70

65

60

Level


State Biopharmaceutical Innovation IndexTop Ten States, 2004


26

Atlanta is the second ranking city among this year’s 10 largest metros (72nd place overall). Airline employment and travel through its Hartsfield airport, which declined due to fallout from 9/11, showed strong gains, especially in late 2003. However Delta Air Lines, which employs over 10,000 people in the area, is in a bleak financial situation. The increasingly high price of oil and jet fuel is taking its toll on the economy generally. The combination of weak employment gains and rising U.S. interest rates is hindering residential-construction growth in Atlanta, despite strong population increases in the city. Congestion-related infrastructure problems pose a challenge to the city’s economic vibrancy going forward. Although growth was subdued relative to the second half of the 1990s, it remains a regional hub for the Southeast. As job losses subside in telecommunication services, its economic fortunes should improve.

Philadelphia ranked third among this year’s 10 largest metros (84th overall). The city’s economy improved over last year (107th overall) largely due to strength in the leisure and hospitality industry, the fastest-growing segment of Philadelphia’s vibrant economy this past year. One of the largest segments of the greater Philadelphia economy is higher education which includes R&D activities in biopharmaceuticals and electronics. Continuing financial difficulties at US Airways, one of Philadelphia’s largest employers (5,500 workers), will curtail economic growth in the area. Housing prices, which have appreciated at a rapid pace, remain relatively affordable relative to other large eastern metro areas. The insurance industry aides service sector growth in the city. Philadelphia’s defense contractors (Boeing and Lockheed Martin) have benefited from increased procurement activities. Philadelphia’s health care cluster provides stability for its economy and should aid future growth.

20042003200220012000

15

10

5

0

-5

-10

-15



Air Transportation EmploymentAtlanta vs. United States

AtlantaUnited States


27

Houston ranked fourth among the 2004 10 largest metros. Its position as 104th on the Best Performing Cities index is down considerably from the city’s 25th place in 2003. Downward revisions to job figures in 2002 and a decline in payrolls harmed its placement. Houston’s economy is benefiting from rising crude oil prices even though energy exploration within Texas appears to be shifting to areas north of the city. Shell Oil Company and ExxonMobil Corporation combined employ over 35,000 people in the metro. Renewed confidence in corporate governance and energy industries is supporting growth gains in the area. Increasing international trade is leading to economic gains through the Port of Houston. The housing market is strong, illustrated by the 27.1 percent increase in housing permits in 2003.

Dallas is fifth among the 10 largest metros on our 2004 index. The Dallas metro slipped considerably in economic performance from 78th in 2003 to 114th on this year’s best performing index. Extensive losses in Dallas’ telecom industry over the past three years have put negative pressure on both wages and employment in the area. Weakness in manufacturing and business services is a drag on the city’s economy. Dallas is challenged in its struggle to gain competitive advantage over its Houston and Austin neighbors. The defense industry is a potential source of economic gain for Dallas. Potentially positive news can be found in Texas Instrument’s statement that it may accelerate scheduled construction of its new $3 billion chip plant, possibly breaking ground before the end of 2004.

20042003200220012000

5

4

3

2

1

0

-1



Leisure & Hospitality Services EmploymentPhiladelphia vs. United States

PhiladelphiaUnited States


28

Los Angeles ranked sixth among the 10 largest metros on the 2004 Best Performing Cities index. The Los Angeles economy, which experienced a severe contraction during the defense downsizing in 1990-1991, is now reaping gains from rising defense spending. The weaker U.S. dollar is fueling gains in the global entertainment industry and propelling economic growth at the world’s third-largest port center (Port of Los Angeles combined with the Port of Long Beach). Small businesses generate tremendous growth in the city and help diversify its economic base. Health care services and many high-tier universities are important anchors for the regional economy. California’s state budget woes may hamper growth in the metro. Leisure and hospitality is seeing renewed vigor. Arrivals at Los Angeles International Airport are at a record high, driving leisure and hospitality employment above year-ago levels by more than 4 percent.

2003200220012000199919981997199619951994

180

160

140

120

100

80

60

40

US$ Billions

Source: California Department of Finance

Trade Through Los Angeles-Long Beach PortsExports and Imports, 1994 - 2003

ExportsImports


2003200220012000199919981997

20

10

0

-10

-20

-30

-40



Telecomm - Services & Equip. Mfg. EmploymentDallas, 1997-2003

Communications Equipment ManufacturingTelecomm Services

29

Boston remains ranked seventh among the 10 largest metro economies in 2004, although the city’s ranking on the overall index slipped from 136 in 2003 to 144 in 2004. The life sciences cluster, which contributes more to the metro area’s economy than any other metro in the nation, provides a tremendous boost to Boston’s overall economy.19 The city is home to world-leading advanced educational institutions. Boston’s success at raising venture capital also supports economic development, especially in entrepreneurial knowledge-based sectors. Consolidation in the financial services sector, especially Fleet’s absorption into Bank of America, is causing job losses. Its large IT hardware and software sector was hammered during the downturn, but appears to be stabilizing.

Chicago is the eighth-ranking city among the 10 largest metros, although its position on the overall index fell from 148 in 2003 to 166 this year. Growth in the city is hampered by congestion at Chicago’s O’Hare Airport, a problem that policy makers avoided addressing and as a consequence has been building for years. Airport infrastructure directly impacts metro companies such as United Parcel Service (19,063 workers), United Airlines (15,325 workers) and American Airlines (10,919 workers). The gaming industry is expanding in the city. Chicago has a well-educated labor force contributing to its high per-capita income. The lower U.S. dollar should aid its sizable electronic components and communications equipment sectors as exports recover.

New York remained ninth in 2004 among the 10 largest metros and improved its ranking on the index slightly from last year. The metro’s economy continues to demonstrate strength post 9/11 with gains in tourism-related enterprises, professional services and the information industry. The three largest employers in the city are New York Presbyterian Healthcare Network (29,721 workers), Citigroup (24,800 workers) and J.P. Morgan Chase & Company (23,400 workers). Despite renewed employment gains, the metro area’s employment is 4 percent below its peak, reached at the end of 2000. Financial services firms are adding cautiously to their payrolls again after substantial cuts. Budget deficits pose a threat to long-term economic expansion.

2003200220012000199919981997

5

0

-5

-10

-15



Electronics Comp. & Comm. Equip. Mfg EmploymentChicago, 1997-2003


30

The Detroit metro area ranked 10th among this year’s 10 largest metros and remained in the same position as in 2003 and overall was 186th. Auto industry firms remain the metro’s top three employers with a combined total of almost 148,000 workers. Gaming is an established part of Detroit’s economy. The state of Michigan ranked 25th on this year’s Milken Institute State Technology and Science Index and scored well on many input measures.20 However, the state’s ability to attract venture capital lags behind comparable states, posing a threat to its longer-term competitive advantage. Construction gains will be realized as the metro prepares for the 2006 Super Bowl. The metro must diversify its economy by growing professional, financial and business services.

Top and Bottom Moving MetrosThe table below lists the 15 metros that demonstrated the largest gains in economic performance since the 2003 Best Performing Cities index. Bloomington, Indiana climbed the most in the nation. It rose 163 places from 292 in 2003 to 129 on this year’s index. Its rise was largely related to increases in government employment, particularly at Indiana University, the top employer in the metro with almost 7,000 workers. Glens Falls, New York was the number three climbing metro on our index, showing gains from a healthy tourism industry. The metro that demonstrated the fourth largest climb in index position (136 spots) was Spokane, Washington with most industries in the metro adding jobs at a slow, but steady pace. Common to all three cities were upward employment revisions, the presence of a college and service-dominated economies.

2003200220012000199919981997

3

2

1

0

-1

-2

-3



Job GrowthDetroit vs. United States

DetroitUnited States


31

The table below shows two Oklahoma state metros in the top five on our Fastest Falling Metros index. Tulsa, Oklahoma had the dubious distinction of recording the largest tumble (down 207 spots) from last year. The state of Oklahoma is also home to Enid, the fifth most declining metro. Brazoria, Texas dropped from 73rd last year down to 260 due to pervasive joblessness and an accompanying rise in bankruptcy filings. A new liquefied natural gas terminal is a sign of hope for the metro. Lafayette, Indiana slipped 167 spots to this year’s 267th place. Purdue University is, by far, the Lafayette metro’s largest employer with 12,250 workers. Lafayette ranked third among the fastest falling metros.

Metro2004Rank

2003Rank

SpotsClimbed

Bloomington IN 129 292 163Honolulu HI 82 234 152Glens Falls NY 120 272 152Spokane WA 73 220 147Daytona Beach FL 6 142 136Trenton NJ 40 152 112Pensacola FL 72 180 108Anniston AL 179 284 105St. Cloud MN 96 196 100Medford-Ashland OR 27 125 98Abilene TX 145 243 98Newark NJ 59 154 95Terre Haute IN 171 265 94South Bend IN 147 240 93Eau Claire WI 85 174 89Source: Milken Institute

2004 Milken Institute Best Performing CitiesFastest Climbing Metros, 318 Total Metros

Metro2004Rank

2003Rank

SpotsDown

Tulsa OK 300 92 208Brazoria TX 277 73 204Lafayette IN 264 100 164Enid OK 297 158 139Houston TX 164 34 130Albany-Schenectady-Troy NY 175 49 126Lexington KY 225 99 126Pueblo CO 308 182 126Monroe LA 218 95 123Lawrence KS 177 56 121Yuba City CA 165 45 120Wilmington NC 181 61 120Canton-Massillon OH 314 198 116Kalamazoo-Battle Creek MI 272 157 115Fort Worth-Arlington TX 153 40 113Source: Milken Institute

2004 Milken Institute Best Performing CitiesFastest Falling Metros, 318 Total Metros


32

33

Best Performing Cities: Small Cities List

Among America’s small cities, the table below shows that Missoula, Montana topped the 2004 Best Performing Small Metros index. Tourism, largely centered around nearby Bitterroot National Forest, is a major contributor to Missoula’s economic growth. Its low business costs (including energy, taxes, labor and especially office rents) combined with a very high-skilled workforce and college-town lifestyle attract businesses to the area. The health services industry is one of the largest employers in the metro.

Two small cities in New Mexico — Las Cruces and Santa Fe — demonstrate the second and third highest performance respectively, on our listing of best performing small cities. Both metros also ranked within the top five on the 2003 listing. The growing retiree population in these metros fueled economic expansion. The Las Cruces economy is susceptible to budget cutbacks as well as lower income growth due to its dependence upon government funding. Security difficulties at the Los Alamos National Laboratory, Santa Fe’s largest employer, threaten continued growth in this area.

Fourth of this year’s top five Best Performing Small Cities is Dover, Delaware, up from 29th in 2003. Economic gains are being realized in Dover’s trade and transportation industries as a result of the opening of a Wal-Mart distribution center in the metro. It is anticipated that the Dover Air Force Base, the metro’s largest employer with almost 4,600 workers, will survive the 2005 round of base closings.

Casper, Wyoming is the final and fifth 2004 best performing small city. Government employment, which is the highest in 20 years, accounts for the largest concentration of high-wage growth in the metro. The Wyoming Medical Center is the area’s largest employer with almost 1,200 workers. Continued economic expansion in the transportation industry, particularly at Casper’s Natrona Airport, is anticipated even with rising fuel costs. The booming energy sector is a key driver of economic growth in the Casper metro.

2004Rank

RankYear Ago Metro Index

1 N/A Missoula, MT 100.002 3 Las Cruces, NM 104.963 5 Santa Fe, NM 173.764 29 Dover, DE 202.845 23 Casper, WY 216.31


Top 5 Best Performing Small CitiesComposite Index, 2004

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Small 118 Cities List Best Performing Cities

39

1 An interesting book on this topic is Running on Empty: How the Democratic and Republican Parties are Bankrupting Our Future and What Americans Can Do About It, Peter G. Peterson, 2004.2 Gray, H. Peter. 2004. The Exhaustion of the Dollar: Its Implications for Global Prosperity. 3 DeVol, et. al., America’s Biotech and Life Science Clusters, Milken Institute, 2004.4 The latest 12-month job performance calculates the percentage change from the same month one year previous, e.g. the percentage change in jobs from April 2003 to April 2004. The 12-month percentage change is a measure of recent momentum and captures which metropolitan areas are improving their performance in recent months. The annual growth rate measures the percentage change from calendar year 2002 to 2003. Whereas the annual growth rate does not indicate whether high growth was achieved or diminished in the first part or latter half of the year, the 12-month growth rate captures that aspect.5 An industry’s location quotient (LQ) measures the level of employment concentration relative to the industry average across the U.S. in a given location, in this case, a city. A city with an employment LQ higher than 1.0 in a high-tech industry has a denser concentration of that industry than the nation, on average. It is an indication of how successful a city is in being home to an above-average mass of high-tech industries. Cities that exceed the national average in high-tech industry LQs, have an edge attracting and retaining high-tech firms due to their dense employment bases and other positive agglomeration factors.6 Gray, H. Peter and Lorna H. Wallace. 1996. New Jersey in a Globalizing Economy, CIBER Working paper Series No.96.003, Newark: Rutgers University. September.7 The Milken Institute produces an annual Milken Institute Capital Access Index (CAI) publication that scores the ability of entrepreneurs to gain access to financial capital in countries around the world. The CAI is an excellent source to ascertain a global perspective on the importance of capital access. See: www.milkeninstitute.org, MI Indexes (http://www.milkeninstitute.org/research/research.taf?cat=indexes).8 The term “entrepreneur” includes innovators, managers and owners in need of capital to start a new enterprise, expand a promising line of business, finance ownership change, or restructure a large multinational enterprise.9 Milken Institute 2004 State Technology and Science Index – Enduring Lessons for the Intangible Economy for a comprehensive ranking of the technology and science assets of the 50 U.S. states that can be leveraged to promote economic development. Additional recent Milken Institute research reports of interest at the state level include Arkansas’s Position in the Knowledge-Based Economy and California’s Position in Technology and Science.10 North American Free Trade Agreement (NAFTA), European Union (EU) and World Trade Organization (WTO).11 The Center. 2003. “The Top American Research Universities,” The Lombardi Program, November. 12 Please visit our web-site at www.milkeninstitute.org13 DeVol, et.al., 2004. Biopharmaceutical Industry Contributions to State and U.S. Economies, Santa Monica: Milken Institute, especially the ‘Innovation Pipeline’ section which discusses the direct positive correlation between the location of leading research universities and biopharmaceutical employment.14 A detailed analysis of Arkansas’ Position in the Knowledge-based Economy is the Milken Institute 2004 report by this name.15 DeVol, et.al., 2004. Biopharmaceutical Industry Contributions to State and U.S. Economies, Santa Monica:Milken Institute. 16 Zachary, G. Pascal. 2004. “Technology is Destiny,” The Milken Institute Review, Third Quarter, pp. 5-11.17 DeVol, et.al. 2004. America’s Biotech and Life Science Clusters, Santa Monica: Milken Institute.18 DeVol, Ross. 2000. Blueprint for a High Tech Cluster: The Case of the Microsystems Industry in the Southwest, Milken Institute Policy Brief.19 DeVol, et.al. 2003. The Economic Contributions of Health Care to New England, Santa Monica: Milken Institute.20 Milken Institute 2004 State Technology and Science Index – Enduring Lessons for the Intangible Economy for a comprehensive ranking of the technology and science assets of the 50 states within the U.S. that can be leveraged to promote economic development.

Best Performing CitiesEndnotes

40

Ross C. DeVol is Director of Regional Economics at the Milken Institute. He oversees the Institute’s

research on the dynamics of comparative regional growth performance, and technology and its impact

on regional and national economies. DeVol is an expert on the intangible economy and how regions

can prepare themselves to compete in it. He authored the ground-breaking study, America’s High-Tech

Economy: Growth, Development, and Risks for Metropolitan Areas, an examination of how clusters of high-

technology industries across the country affect economic growth in those regions. He also created the

Best Performing Cities Index, an annual ranking of U.S. metropolitan areas that shows where jobs are

being created and economies are growing. Prior to joining the Institute, DeVol was senior vice president

of Global Insight, Inc. (formerly Wharton Econometric Forecasting), where he supervised their Regional

Economic Services group. DeVol supervised the respecification of Global Insight’s regional econometric

models and played an instrumental role on similar work on its U.S. Macro Model originally developed by

Nobel Laureate Lawrence Klein. DeVol earned his M.A. in economics at Ohio University.

Lorna Wallace is a Project Consultant in Regional Economics at the Milken Institute, where she co-authored

Arkansas’ Position in the Knowledge-based Economy. Her expertise is in foreign direct investment—location

determinants, impacts, sources, mergers and acquisitions, strategy, public policy, competitive advantage

and FDI stock. Wallace has extensive work experience around the world in both the public and private

sectors; her award-winning research is widely published. Wallace was educated in Canada (B. Admin.)

and obtained her MBA and Ph.D. in International Business at Rutgers University, New Jersey.

with

Armen Bedroussian is a Research Analyst with the Milken Institute. Bedroussian has extensive graduate

training in econometrics, statistical methods and other modeling techniques. Before joining the Institute

he was an economics teaching assistant at U.C. Riverside where he taught intermediate micro and macro

economics to undergraduates. Since coming to the Institute, Bedroussian has contributed in several

projects including Butler County’s Economic Impact Assessment, The Impact of an Entertainment Industry

Strike on the Los Angeles Economy, Los Angeles Mayors Task Force Study on the Assessment of Post Sept.11

Economic Conditions. He also co-authored Manufacturing Matters: California’s Performance and Prospects

and The Economic Contributions of Health Care to New England. Bedroussian earned his bachelor of science

in applied mathematics and a master’s in economics at the University of California, Riverside.

Junghoon Ki is a Research Analyst in Regional Economics at the Milken Institute. His research

interests embrace history of technology, human capital development, location of high-tech business,

entrepreneurship strategy, and other urban planning related issues, especially in the planner’s perspective

and with spatial context. He is responsible for capturing, analyzing, interpreting and visualizing regional

economic data in order to create reasonable policy implications for the public. He wrote “The Role of

Two Agglomeration Economies in the Production of Innovation: A Comparison between Localization

Economies and Urbanization Economies,” Enterprise and Innovation Management Studies, 2001. His

recent publications at the Milken include Nebraska’s Position in Science and Technology, California’s Position

in Science and Technology, State Technology and Science Index and America’s Biotech and Life Science Clusters.

Ki was awarded a doctoral dissertation grant from National Science Foundation and earned his Ph.D. at

the University of Southern California.

About the Authors Best Performing Cities

Documents

Best Performing Cities - Milken Institute...1 Executive Summary The Milken Institute Best Performing Cities index ranks U.S. metropolitan areas based upon their economic performance