America's Pockets of Prosperity

The economy is humming in these 12 small cities. Here's what they can teach other towns

As Kendall Turton watches unemployment rates creep up around the country, she can only scratch her head in wonder. The job market she toils in as director of human resources for fast-growing St. Joseph Regional Health Center in Bryan, Tex., is still so tight that in November she's heading for the Philippines to woo nurses to central Texas. "Our needs are growing, and unfortunately, our supply is not meeting the needs," she says. "So you go pick the fruit from another tree."

Turton should be a happy harvester. While the nation's unemployment rate looks poised to keep climbing, and joblessness in such cities as Chicago, Dallas, and New York has hit 7% or more, her town remains one of a dozen islands of prosperity. Not only are unemployment rates low in these lucky areas--the Bryan-College Station metro area boasted a 2.1% average jobless rate in the three months ended in July--they are actually adding jobs, unlike the national economy. For the year ended in August, nonfarm payrolls in these towns taken together rose by 0.8%, to a total of about 1.5 million. For such far-flung areas as Charlottesville, Va.; Sioux Falls, S.D.; and Portland, Me.; growth remains healthy, even if today's slightly cooler competition for talent no longer requires them to cast their nets overseas.

These 12 towns, picked by BusinessWeek because of their low unemployment--averaging less than 3% in the three months ended in July--and their ability to create jobs during the past year, may offer a few pointers for less blessed places. Indeed, delegations from envious communities are visiting some of these spots to see just what makes them so resistant to economic travails. "They think the grass is greener," says Robert W. Brennan, who as president of the Greater Madison (Wis.) Chamber of Commerce has been hosting fact-finders from such places as Rockford, Ill., and Lincoln, Neb.

Problem is, some of the qualities that drive growth in these islands of prosperity are not easily exported. Each of the cities on the list, for instance, boasts big concentrations of employment in one or more especially stable or growing sectors--such as government, higher education, and health care. And big-name universities, top-quality hospitals, and state or federal facilities aren't built overnight. Bismarck, N.D.; Des Moines, and Madison claim the special edge of being state capitals packed with public employees.

Size alone, too, works against replicating the virtues of these 12. With workforces ranging from 50,000 in Bismarck or Rapid City, S.D., to 300,000 in Madison or Des Moines, available workers are few and are snapped up fast. In contrast, Chicago, Los Angeles, and New York have a built-in slack in their roughly 4 million-strong workforces. What's more, big cities tend to draw immigrants and other job-seekers more readily than out-of-the-way towns do, pumping up their workforces.

Still, these cities show some of what it takes to sustain a stable local economy. Government policy, for instance, can make a huge difference. Several of the cities boast low state and local tax rates and other business-friendly policies that can be a magnet for cost-conscious businesses. Rapid City and Sioux Falls have no state corporate or personal income taxes. What's more, South Dakota's politicians lured the back-office operations of bank and retail credit-card companies in the 1980s by easing interest-rate limits, and those outfits have grown with the huge expansion of credit nationally. Citigroup (C ), a longtime Sioux Falls employer, has been joined by a clutch of financial and retail giants. More recently, South Dakota has turned itself into a telemarketer's paradise, with no sales or use taxes on interstate calls or even on the hours marketers can do business.

Once similar businesses get going, they're apt to feed on one another and drive one another's growth. Like jewelers who congregate on a single block to draw more customers, some businesses cluster together in fast-growing areas. In Iowa City, educational-testing and consulting firms that got their start at the University of Iowa make the town their home. NCS Pearson Inc. scores tests developed by neighbor American College Testing Inc., and both are finding plenty of growth as state and local governments nationwide expand their student testing. Such companies and the university have helped make Iowa City "one of the most educated cities in the country," says NCS Pearson's director of human resources, Kathleen A. Minette.

Education is crucial among most of the dazzling dozen. Institutions such as Texas A&M in College Station, the University of Wisconsin at Madison, and the University of Virginia in Charlottesville, along with smaller colleges, bring thousands of students and graduate students to their towns and employ thousands more on faculties and staffs, forming the cores of the local economies. Like governments, such educational operations tend to be "more impervious to the vagaries of the business cycle"--at least in employment--says Mark Zandi, chief economist at

They're also ready sources of spin-offs. More than 60 companies out of some 440 high-tech outfits in Madison trace their roots to the university, according to Madison Gas & Electric Co. (MGEE ), which tracks them. The companies, in fields from biotech to software, account for some 25,000 jobs, and many are still hiring despite the economic slowdown.

But just because they're growing doesn't mean these hot spots are immune to the national economic malaise. Corporate recruiters in these towns are seeking fewer workers than in the past, as turnover has dropped and expansion needs have slowed. And most no longer have to go to extremes to find help--such as teaming up with the American Red Cross to sponsor refugees from Bosnia and Ethiopia, as the managers of a building-products company now called Alenco Windows Inc. in Bryan, Tex., did in the 1990s. Says Alenco CEO Brian Redpath: "I don't see the need for that in the foreseeable future."

Still, the national slowdown is having only muted effects on some of the expansive towns. With their economies often resting on stable, recession-resistant employers, these towns tend to miss both big upswings and sharp downswings. "We never had the boom times that other places did," says W. Godfrey Wood, CEO of the Greater Portland (Me.) Chambers of Commerce. "There was less exuberance to come down from." After adding staff at the rate of some 20% a year for the past three years, the city's 275-employee Forum Financial Group LLC won't be adding many people in the coming year, says business and product development director David I. Goldstein. But, he adds, "we're not anticipating cuts."

Even if this growth turns flat, many of the 12 towns will be ahead of plenty of other places that are losing jobs by the trainload. As they always do, residents of the Fargo area of North Dakota will again have snow to worry about in the next few months. But shoveling constantly to keep a clear path to the unemployment office won't be all that pressing a problem.

By Joseph Weber in Chicago

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