Our comprehensive annual guide to which places are thriving -- even in an economy many consider in recession.
What a difference a year and a deflated housing bubble makes. Inc.com's 2008 list of the Best Cities for Doing Business, created in conjunction with Newgeography.com, uncovered some of the most dramatic changes since we started this ranking back in 2004. Five major trends were immediately revealed; trends that are shaping the business environment right now across the country and will continue to over the next several years.
The list focuses on short- and long-term job growth. It tells us precisely not just where jobs are being created -- a sure sign of economic vitality -- but where the momentum is shifting. For entrepreneurs, this suggests what may be the best places to locate or expand your business.
The Bubble and the Fall of the Sunshine Boys
Since the list's inception, Florida has been the standout state in each of our size-based categories -- small, midsize, and large. But not this year. Now, Florida is the state that fell back to earth. Stung by plummeting construction employment and the mortgage finance crisis, many of our former highfliers across the state are hurting. Ft. Lauderdale, last year's No. 3 among the large metros, dropped 24 places. West Palm Beach, No. 6 last year, dropped to No. 41. And Jacksonville, No. 12 in the large category, fell seven places.
The fall, however, was much more devastating for the smaller communities, such as Ft. Myers-Cape Coral. The area ranked No. 1 last year in the midsize category but plummeted 42 places this year. Lakeland-Winter Haven, down 45 places, Deltona-Daytona Beach, down 49, Palm Bay-Melbourne, down 53, and Bradentown, down 65, fared even worse. In even smaller towns, the scenario was bleaker. Ft. Walton Beach dropped 85 places and Naples-San Marco Island, No. 4 last year, plummeted 105 places, the most of any metro in our survey.
"We're the foreclosure capital of America," admits Bill Valenti, founder and CEO of Florida Gulf Bank, founded in 2001 in Fort Myers on the once booming west coast of the Sunshine State. Many of the people that moved into the area bought relatively expensive homes expecting continued asset appreciation to make up for the fact that many jobs in the area pay modest or low wages. Now the area has seen median house prices drop from $320,000 to $223,000 in two years. "Something had to give and it did."
Although Florida's fall was by far the biggest, the housing collapse has also humbled high fliers in other states as well. Last year's No. 1 among the large metros, Las Vegas, dropped seven places while No. 2, Phoenix, dropped 12; the other big Arizona city, Tucson, No. 12 last year among the midsize category, fell 34 places. Midsize Reno, No. 8 last year and previously No. 1, dropped 21 places.
Outside Florida, the sharpest pain was felt in California. Property-driven economies in Oakland, Santa Ana-Anaheim, Sacramento, and Riverside-San Bernardino all dropped by around 20 places or more. The big enchilada, Los Angeles, fell another eight places from its already mediocre 48th ranking last year. Almost every city below LA on the list is either a Rustbelt disaster or a perennially underperforming Northeastern big city.
If this trend continues to play out, California's problems could be worse than those in Florida. When the bubble corrects, Florida still can boast relatively low costs, no income taxes, and a favorable business climate in addition to warm weather. By contrast, California's land use laws, high taxes, and massive $20 billion state deficit don't bode well for the future of the state, suggests Bill Watkins, executive director of the University of California at Santa Barbara's Economic Forecast Project. "There's a lot of uncertainty," he says. "If you are expanding or starting a business, there's not a lot of reason now to come to California."
The Texas Ascendancy Continues
While California is struggling, says Los Angeles-based architect David Hidalgo, Texas is thriving. Hidalgo just completed a large Latino-themed shopping center in Ft. Worth and sees more of his business coming from the Lone Star State. "That's where the opportunities are," he says. "Its costs, regulation, and infrastructure drive you to Texas."
Our rankings certainly bear out Hidalgo's assertion. In many ways Texas has become the new Florida, dominating the top of the list. Among the largest metro areas, a remarkable five of the top 12 best places to do business are from the Lone Star State, ranging from Austin (No. 2) and Houston (No. 4) to Ft. Worth (No. 9) and Dallas (No. 12). Among the small cities, Midland, now ranks No. 1, up 10 places from last year. Odessa and Longview, both big gainers, round out the Texas stronghold on the top portion of the list.
Texas' boom reflects solid growth in a variety of industries, from energy and agriculture to manufacturing and trade. "The big difference for Texas is we did not rely on the real estate bubble," suggests Bill Gilmer, a Houston-based economist for the Federal Reserve. "Our gains are based on jobs elsewhere and that has insulated us pretty well."
Here Come the Carolinas
The other big winners this year are concentrated in the Carolinas. Like Texas, these two states are being fed by varied economies. Certainly, technology companies have been a factor here, many of them in Raleigh-Cary, N.C., which ranked No. 1, up six places, on our list of largest metro areas. Finance has played a large part, too, with Charlotte (No. 5), up 18 places, emerging as the big but low-cost, family-friendly alternative to the New York financial center.
