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The Milken Institute is out with its annual report ranking the economic performance of more than 400 metropolitan areas. Here’s what it takes to be a booming city.
A new report ranking the economic performance of hundreds of cities found that booming high-tech sectors are driving gross domestic product growth in large and small cities alike, but that growth comes at the cost of affordable housing.
On Wednesday, the Milken Institute, an economic think tank, released its 2023 Best Performing Cities Index. Published annually since 1999, the report aims to measure cities’ economic performance based on metrics such as labor market conditions, tech industry growth, and access to housing and broadband. This year’s index primarily uses data from 2021, representing the first full year of recovery after the onset of the pandemic.
In an effort to prevent population sizes from skewing results, researchers divided cities into small and large before ranking them. Then, based on performance, small and large cities are further divided across five tiers, with tier one cities being the highest ranking.
Among the 403 metropolitan areas evaluated for the report, many of the top-performing cities in tier one were there thanks to expanding tech sectors, which often lead to job and wage growth.
That was certainly true for Provo, Utah, which ranked first among large cities for the third year in a row. Provo has experienced long-term job and wage growth as a result of technology companies flocking to the area, earning the city the nickname “Silicon Slopes.”
Austin, Texas, claimed second place and has consistently ranked in the top tier over the last few years. The city “continues to be a national leader in attracting high-tech investment,” the report notes, and has some of the best short- and long-term tech GDP growth rates among large cities.
Raleigh, North Carolina, jumped 13 places since last year’s report to land at No. 3. The report doesn’t go into what drove that growth, but with three universities based in the city, it has long attracted tech companies in search of new recruits.
While the majority of the country’s economic output from tech industries is still coming from large cities, small cities are seeing significant growth in the sector, representing a shift likely caused by the pandemic, according to Maggie Switek, director of regional economics for the Milken Institute’s research department.
“The domestic migration and some of the other patterns that we observed emerging during and right after the onset of Covid-19 did indeed affect U.S. cities,” said Switek, who is also one of the report’s authors.
In 2021, for instance, high-tech GDP grew faster in Wenatchee, Washington—a city of roughly 35,000 people—than in Seattle, which is considered a tech hub, Switek said. And Missoula, Montana, had the fastest-growing high-tech GDP of all cities, increasing by about 96% over the last five years.
The development comes as President Joe Biden has made expanding tech hubs beyond the usual suspects a priority. A little noticed provision in the bipartisan CHIPS semiconductor bill that the president signed into law last year is aimed at transforming where innovation happens in the U.S. Rather than sending money to traditional technology centers like Silicon Valley in Northern California, Seattle or Boston, the law looks to create technology hubs in many places, including small and rural communities.
While the tech industry was pivotal in most cities’ post-pandemic recovery, the health care and transportation sectors remained strong contributors to wage and job growth. As businesses opened up after Covid lockdowns, tourism proved to be an important factor in local economic rebounds as well.
The report also highlights the important role that broadband access plays in overall economic performance, Switek said. Cities, where at least 90% of households had access to broadband, saw the fastest employment and wage growth.
There is, however, a common Achilles heel among top-ranking cities: affordable housing.
Austin, Texas, was the most unaffordable city among top-ranking large cities, and the cost of living in Raleigh is rapidly increasing, the report notes. And it’s not just large cities that are feeling the pressure of the housing crisis.
“While small cities still tend to be more affordable in terms of housing than large cities, a lot of our top performing tier-one small cities faced the same problems as large cities… [with] housing affordability trending downwards,” she said, adding that it’s likely a side-effect of rapidly growing tech industries.
Ten of the top 14 small cities landed in the bottom half of affordable housing rankings. Logan, Utah, for example, ranked second overall among small cities. But when just looking at affordable housing, both in the long- and short-term, Logan ranked 119th.
The study also highlighted the importance of well-rounded economies, and Switek noted it’s important for cities to not focus too much on expanding high-tech industries.
Take Idaho Falls, Idaho, which ranked No. 1 among small cities. Idaho Falls’s economy benefits from a strong tourism sector, as it’s the largest city near Yellowstone National Park. The city also has a strong STEM presence, with a nuclear lab and the U.S. Department of Energy’s Idaho National Laboratory providing thousands of jobs. But in contrast to many other high-ranking cities, Idaho Falls was the lowest-ranking tier-one small city when it came to one-year tech GDP growth.
The cities that made the largest gains since last year’s report were those where hospitality and leisure industries began to rebound in the first full year after the start of the pandemic. Since last year’s report, Asheville, North Carolina, and Atlantic City, New Jersey, climbed the most spots in the overall ranking. Atlantic City represents the largest gains made by a small city, jumping from its ranking of 184 in last year’s report to 53 in this year’s.
Las Vegas, Nevada, Myrtle Beach, South Carolina, and Kahului, Hawaii, also made major gains in rankings thanks to the return of tourists and revived hospitality sectors.
“It's important for cities to maintain the various set of factors contributing to the economy in order to make sure that they're not susceptible to short-term trends,” Switek said, adding that it’s especially critical now as tech growth appears to be slowing.
Explore the full ranking of cities and an interactive map here.
Molly Bolan is the assistant editor for Route Fifty.