BOOMING AMERICAN CITIES From coast to coast and in between, communities are spiffing up their downtowns, creating jobs, and making their own prosperity. Business is leading the charge.
(FORTUNE Magazine) – AS THE SERVICE SECTOR continues to outshine manufacturing, as tomorrow's technology replaces today's, U.S. cities are fast learning to adapt. Some have emerged from the process as veritable boomtowns, while others have declined. What causes one place to boom when another busts? City fathers cannot by fiat transform their tired towns into hot spots. To some extent prosperity is in the genes or in what Steven Waldhorn, director of the Center for Economic Competitiveness at SRI International, a Menlo Park, California, research firm calls ''the large factors that, at the local level, are basically uncontrollable.'' Who could manufacture the sunshine over Florida, the oil under Texas, the massive migration from the South to the North in one era, and from the North to the South in another? But what all successful cities have in common is the ability to exploit those uncontrollable factors and make the most of what they have. Sometimes the key to a city's fortune is a central location, sometimes a beautiful climate, sometimes the stimulation of a university. But one element is always present: strong business leadership determined to spark a boom. Despite an uneven economy, many American cities have measured their strengths and have marketed them enthusiastically to create jobs. Between 1980 and 1985, for example, annual employment growth in such cities as Austin, Anchorage, West Palm Beach, Orlando, and Raleigh-Durham exceeded 5%, vs. 1.5% for the U.S. as a whole. Over the next ten years the growth is expected to be highest in the big cities: New York, Los Angeles, Dallas, San Francisco, and Washington, D.C., among others. The six surging cities featured in this article show the geographical diversity of a spirit that is reviving older Midwestern, Midsouthern, and Eastern cities, as well as energizing younger Western ones. In selecting them, FORTUNE interviewed economists, regional analysts, consultants, and business leaders, blending their facts and figures about population and job growth, construction activity, and new company start-ups with an independent assessment of the people and events behind each city's recent success. They are six different examples that collectively tell the larger tale of how and why communities boom. ALL SIX enjoy diversified economies, so that when one industry hits hard times, another can ease the pain. Some -- notably Phoenix and San Diego -- have been booming for a long while. But what keeps the surge going? Some cities are surprises. In Memphis even the natives marvel at the transformation from gloomtown to boomtown. The six, however, share problems that threaten sustained economic growth. The most worrisome may be growth itself. Too much growth too fast can strain a city's infrastructure and exhaust its amenities, as in Princeton, New Jersey, and divide a city's inhabitants, a fate that threatens Kansas City and Portland, Maine. Again and again the people interviewed for this story echoed one another: ''How do we keep growing without destroying the quality of life that attracted us here in the first place?''
PORTLAND, ME. This small city (population: 65,000) on Casco Bay along the southern coast of Maine has existed since 1632, long enough to sample most economic cycles. It last thrived 30 years ago as a bustling shipbuilding center. Now it is teeming with those human cicadas, the yuppies. Portland's renaissance is due in large part to the same phenomenon stimulating the rest of New England: the rebirth of Boston, just 100 miles away. The Boston ripple -- the economic effect of companies that want to be close enough to the area's technological and financial base but far enough away to benefit from lower land and labor costs -- has helped Portland and the 12 smaller towns that fall within its metropolitan area add some 19,000 jobs between 1980 and 1985, a 3.7% annual rise. This is a faster rate of job creation than in all but two New England metropolitan areas: Manchester, New Hampshire, and Burlington, Vermont. Among Portland's most serious obstacles to further growth: a labor shortage. The unemployment rate is 2.5%, vs. the national average of 6.1%. No overall strategic plan is responsible for Portland's success. ''There has been no grand scheme,'' says Colin Hampton, chairman of the largest employer, Unum Corp., formerly known as Union Mutual Life Insurance Co. Instead, business leaders have laid the foundation for growth less formally, frequently talking with one another -- in boardrooms, on golf courses, and at social gatherings -- about their goals for the city. For instance, Robert Masterton, the chief executive of the city's largest independent bank, Maine Savings, spearheaded a drive to add a major wing to the art museum, which now houses 17 paintings by Winslow Homer. Such ad hoc planning -- and quick action -- has proved surprisingly effective. In 1983, when they heard that Bath Iron Works, the shipbuilder, was looking for space to build a dry dock, business delegates promptly journeyed 28 miles to Bath to sell the company on taking over one of the large idle piers on Portland's waterfront. Bath Iron Works was able to convert the pier into a 900-foot dry dock capable of handling ships of 6,000 tons. ''This was a great opportunity for us to bid on repair work for larger ships that we just could not handle before,'' says Henry Stupinski, general manager of Bath's dry dock division in Portland. Depending on the size of the job, Stupinski may employ as many as 1,500 workers, and he estimates that the dry dock contributes $12 million a year to Portland's economy. THE CITY'S ''pleasing quality of life'' is a phrase that comes up often in a Portlander's conversation. The streets are lined with old brick and clapboard buildings, and ''you can get from one side of town to the other in 30 minutes,'' boasts William Nugent, president of the Chamber of Commerce. Fast- growing companies find they can easily recruit the employees they need. Says Unum's Hampton, who has nearly doubled his Portland work force since 1982: ''When we bring actuaries, lawyers, and investment people up here, we show them our art museum, our symphony, all our outdoor amenities. Whatever they say they are interested in, we can supply.'' Portland has had its fastest job growth in finance, insurance, and real estate. Tourism, a traditionally hardy but unexciting business, has got a recent boost from L.L. Bean, the legendary mail-order retailer of hunting and camping equipment in Freeport, 25 miles away. Inspired by the astounding success of Bean's single retail store, some 100 factory outlets have opened in Freeport since 1982. The locals call them ''Bean sprouts.'' Once a home of high school-educated blue-collar workers, Portland now is filled with young, well-schooled professionals who have fixed up many dilapidated Victorian houses on the main streets and encouraged builders to erect houses and condominiums. Agreeable restaurants and trendy shops have opened within blocks of the Commercial Street wharves, where fishing trawlers unload their catch. The new Portlanders regard the seafaring aroma of the wharves on a warm summer day as part of the ''ambiance'' of the rejuvenated waterfront. BUT RESIDENTS worry that steady gentrification may threaten Portland's character. The price of homes averages about $125,000, irresistibly cheap to the young white-collar newcomers, but beyond the reach of many Portland families, whose average annual incomes are roughly $29,000. Two years ago a batch of 91 condos called Chandler's Wharf, built on the waterfront, sold out in three days -- at prices from $139,000 to $250,000. Michael Liberty, 27, co- developer of the project, says proudly: ''There were derelicts and rats three feet long down there before we came in.'' Earlier this year the people of Portland said, ''Enough.'' After an out-of- state developer proposed a luxury condo project on waterfront that had been zoned for the use of fishermen, residents voted 2 to 1 for a moratorium that bans most waterfront development for five years. ''People here no longer agree on where Portland should be headed,'' says John Daigle, chief executive of Casco Northern Bank, the third largest in town. ''To me that's the surest indication that we need some formal strategic planning.''
PRINCETON In fast-growing New Jersey, few cities have the drawing power of Princeton, home of the famous university. Situated midway between Philadelphia and New York, Princeton and the half dozen or so surrounding townships house about 90,000 people, up 10% since 1980. Over the past decade real estate developers have capitalized on the locale's high name recognition to transform its rural, gently rolling countryside into a formidable stretch of office parks, conference centers, and residential subdivisions. Along Route 1, the four-lane highway that cuts through the center of the area, you'll find Princeton Park, Princeton South, and Princeton Pike -- none affiliated with the school, but all hoping to catch some of its cachet. Says John T. Henderson, president of a local real estate brokerage: ''How often do you hear about Harvard, Massachusetts, or Yale, Connecticut?'' Developers have largely determined the nature of the boom. Because the area's various municipalities have tended to compete with one another rather than work together on economic development and land-use plans, growth has not been well planned. ''One by one, individual developers have gone out and told the Princeton story to their clients -- with very little coordinated support from the townships,'' says Roger Steinhardt, marketing director for Carnegie Center Associates, a big real estate company based in West Windsor, just outside Princeton. | That story -- superior schools, reasonable land costs, plenty of cultural amenities -- is especially compelling to companies in high-priced New York City, just 60 miles away. For example, American Re-Insurance Co., which had rented space in Manhattan for more than half a century, decided to move to Princeton two years ago. For the money the company would have spent to renew its New York lease, says Vice President Donald Cuming, it was able to build its own headquarters, with twice the space, on a lushly landscaped, 1,750-acre campus just outside Princeton. Two years ago Merrill Lynch moved 1,700 employees and its broker training division from Wall Street to the same office park. Smaller, research-oriented companies have followed the big boys, drawn by the area's large, well-educated labor pool. Though Princeton University is a major factor behind the boom, the school has not played a big role in orchestrating the growth. Any aura of genteel, ivory-tower living is quickly forgotten during a rush-hour trip along Route 1. In one 19-mile stretch, from New Brunswick to Trenton, 30 stoplights slow traffic to a crawl during peak periods, giving motorists plenty of time to ask why the adjacent communities failed to coordinate their plans for growth. Last December the New Jersey Department of Transportation predicted that by 2005 that trip could take 5 1/2 hours.
MEMPHIS Throughout the Seventies, Memphis -- the sleepy Mississippi River town where Tennessee, Arkansas, and Mississippi converge -- watched other cities thrive. It sent delegations of business people and bureaucrats to find out how Atlanta, Dallas, and Minneapolis managed to prosper, and then tried to employ those formulas back home. Says Ronald Terry, chief executive of First Tennessee National Corp., the second-largest bank holding company in the state: ''We spent more than a decade trying to be something we were not.'' For instance, envious of Minneapolis's pedestrian mall and how it revitalized that city's downtown, Memphis built its own downtown pedestrian mall: a bland stretch of bricks and asphalt that, as a resident says, ''never even attracted the winos.'' Meanwhile, downtown decayed. The city's grand old hotel, the 62-year-old Peabody, was boarded up. Firestone and several other big employers shut their plants too. Unemployment rose. The large concentration of poor grew poorer, and the city's inferiority complex, which got its start with the Memphis assassination of Dr. Martin Luther King, grew stronger. From such dreary circumstances, the city has undergone a metamorphosis whose beginnings are often traced to the Memphis Jobs Conference initiated in 1979 by then governor Lamar Alexander. Chaired by Ron Terry of First Tennessee, the jobs conference, now called Goals for Memphis, evolved from a single meeting into gatherings that continue to this day, where nearly all the voices in the community are heard: business people, politicians, bureaucrats, minorities, neighborhood representatives. The first question they tried to answer at small committee meetings and at large town hall sessions was: What must we do to become a vital city again? Recalls Michael Rose, chief executive officer of Holiday Corp., the hotel chain: ''We asked ourselves, 'What is our competitive advantage? What do we have that we can leverage against the competition?' '' From an economic standpoint, the answer was glaringly obvious. With the population shift to the Sunbelt, Memphis had become one of the most centrally located cities in the country, within an overnight truck drive of nearly half of all Americans. A well-developed highway system, six national railroad lines, and an excellent airport made it a natural location for companies with goods to distribute. Thus, Memphis decided to sell itself as a distribution center. Four of the city's biggest companies -- Holiday Corp., First Tennessee, Malone & Hyde, the wholesale grocer, and Federal Express -- agreed to put up a total of $1.2 million over a three-year period, with the city and county governments contributing an additional $4.8 million. The money went into a promotional campaign to attract new business by showing how companies could use Memphis -- with its ready access by water, rail, and air -- as a base from which to send their products throughout the country. While the business community was accentuating the positive, Willie Herenton, the city's first black school superintendent, set about eliminating a big negative. Ever since its classrooms were desegregated in the mid-1970s, the Memphis school system had been suffering from white flight. In 1979 Herenton persuaded Federal Express, Holiday Corp., and Schering-Plough to lend senior people to help him analyze the school system's shortcomings and figure out a way to lure the white students back. TODAY 22 Memphis grammar and high schools offer specialized courses for students with above-average grades. For example, the so-called optional - curriculum at Rozelle Elementary School emphasizes creative and performing arts in addition to reading, writing, and arithmetic. East High School offers classes in health sciences and engineering. The schools enroll students on a first-come, first-served basis. Says Willie Herenton: ''I never would have dreamed when I took this job eight years ago that I would find white parents sleeping overnight in the auditorium to make sure their kids got in an optional school.'' The optional programs encouraged International Paper to choose Memphis last year as the new home for most of its New York City-based operating staff. Says David Oskin, an IP executive who helped coordinate the company's move: ''We had many discussions with school officials. We visited the schools; we examined the curricula; we looked at test scores.'' When the company went searching for a location that would be closer to its biggest mills and largest customers, the whole city of Memphis came courting. The mayor and various Chamber of Commerce officers traveled to New York several times with videocassettes to pitch to IP executives. After the company made its decision, other Memphians, as locals call themselves, served as hosts for employees asked to transfer. Exclaims Norman Brewer, whose public relations firm helped market the city: ''Manhattan! International Paper moved to Memphis from Manhattan!'' The self-promotion and hard work is paying off. The 18th-largest distribution center in the U.S. seven years ago, Memphis is now No. 10 and rising. In one 30-day period last year, seven companies, including Litton Industries and Bucyrus-Erie, announced they would locate some of their operations there. The population is up to 959,000 and unemployment has fallen from 11.3% in 1983 to about 5.6%. The momentum has given the city confidence. Says Frederick W. Smith, chief executive of Federal Express: ''For a long time it was hard for us to be optimistic, but Memphis now realizes that it is potentially just as great as Dallas or Atlanta.''
KANSAS CITY That Kansas City is booming, at least compared with its Midwestern relatives, surprises a lot of outsiders. But then, Kansas City is full of surprises. Says Terry Van Der Tuuk, chairman of Graphic Technology, one of the fastest-growing public companies in the U.S.: ''Folks fly into our airport and think, 'Flat. Everything will be flat. There will be wheat as far as the eye can see. A lot of cows. A few people.' '' In fact, the ten-county area sprawled across Missouri and Kansas that makes up metropolitan Kansas City has a population of 1.5 million on 3,367 square miles of green, rolling land where the difference between the highest and lowest points is 383 feet. FOR MOST of the 1970s Kansas City suffered from the doughnut phenomenon: While its suburban counties prospered, the inner city stagnated. Commercial construction just about stopped. First-class office space was so scarce, ''you practically had to wait for someone to die in order to expand in the city,'' recalls Michael Russell, chairman of American City Business Journals, which publishes 35 weekly newspapers nationwide. Meanwhile, Johnson County, an affluent suburban enclave on the Kansas side of the border, siphoned off hundreds of companies and thousands of jobs. The impetus for the turnaround was a long time in coming. Since the completion of Kansas City's convention center in 1976, city leaders talked about building a downtown hotel next to it. In 1977 Irvine O. Hockaday, then head of Kansas City Southern Industries and now the chief executive of Hallmark, and Crosby Kemper, chairman of United Missouri Bank, began rounding up real money to go with the cheap talk. ''We all knew that a hotel could become a symbol, something that would demonstrate our commitment and ability to reestablish downtown Kansas City,'' says Hockaday. He and Kemper were able to persuade Kansas City's conservative business community to help finance the $60-million project. The city agreed to contribute $15 million of that amount to improving the site. When it was obvious that the hotel was going to be built, Cigna, an insurance company, stepped forward to take over the commitments that the private investors had made. In 1985 the Vista opened, the first major new hotel in downtown Kansas City in 25 years. As the Vista was abuilding, an unusual banker who was not part of the established business community was providing another boost. Frank Morgan had made his money during the 1960s and early 1970s in Kansas City real estate and had branched into banking in 1973 with the purchase of the first of what is now a collection of 11 local banks and S&Ls worth $5 billion. Morgan's banks specialized in lending to developers, but the speed and boldness with which he committed funds stunned the city's stodgy bankers. He financed shopping malls and office buildings that they would not. Morgan's success gradually attracted the attention of out-of-state lenders, who added financial fuel to the building boom. Since 1984 there has been a 50% increase in the office space built in metropolitan Kansas City. The city's skyline is now punctured with the tallest building in Missouri, a 42-story tower that Shook Hardy & Bacon, one of the largest law firms in the city, will occupy. Says Linda Thornton, an economist at the Midwest Research Institute: ''In a city that is run by people who all tend to know each other, it is really shocking to the conservative business community that an unknown fellow like Frank Morgan could be such a catalyst.'' The diversity of Kansas City's economy has kept it off the frightening loop- the-loop that other cities sometimes ride. Long a crossroads for trucking and railroads, it is now a key intersection for nationwide fiber-optic cable networks, mainly installed along railroad right of ways. Kansas City is the very up-to-date home of the telecommunications industry, with the headquarters of United Telecommunications (a co-owner of US Sprint), as well as regional offices of AT&T, MCI, and Southwestern Bell. Later this year General Motors, which employs 10,500 metropolitan area residents, will open a $1.1-billion assembly plant in neighboring Wyandotte County, thus preserving Kansas City's position as the second-largest auto producer after Detroit.
PHOENIX Signs of growth are nearly everywhere. Literal ones. Billboards scream on behalf of homebuilders in search of home buyers: Houses ''from the $80s to the $230s,'' ''Beautiful homes for $53,000 and up.'' The sheen of newness lies over the arid valley that also includes Scottsdale, Tempe -- the home of Arizona State University -- and 17 other municipalities. Metropolitan Phoenix had a population of 350,000 in 1950 and 1.5 million in 1980. Today the count is nearly 1.9 million and growing. ''This is a young town,'' says Michael Conway, a former New Yorker who is president and a co-founder of America West Airlines, based in Phoenix. The citizens of Phoenix regularly give thanks to Mother Nature. The city's dry, sunny weather is made to order for casual living and a variety of recreational activities. High-tech companies have gravitated there because they know good employees will follow, drawn as much by the lure of the lifestyle as by a decent job. BUSINESS AND CIVIC leaders foresaw, however, that Phoenix could not keep the good times rolling on climate alone, and so they set about developing other resources. Says Edward Hurd, general manager of Honeywell's Industrial Automation Systems division in Phoenix: ''Arizona recognized that in order to succeed in high technology, it needed to have an engineering school that was world class.'' So about ten years ago Arizona State University formed an advisory council comprising 60 leading business people, including representatives from such local employers as Honeywell, Motorola, and Sperry. With their help, the school drafted a detailed plan for upgrading the college of engineering to be among the top ten in solid-state electronics, telecommunications, and robotics. In the first five-year period, the advisory council helped raise $55 million for the engineering school. Some of the money was spent on improving the faculty. ''We have recruited professors like another part of ASU recruits halfbacks and tight ends for the football team,'' says George Beakley, the associate dean, who adds, in case you forgot, that ASU is the current Rose Bowl champ. Now midway through its second five-year plan, the engineering school expects to raise an additional $100 million by 1990. To get some idea of the magnitude of this achievement: The engineering school's entire budget for its first 25 years, through 1980, was $50 million. Phoenix's other growth-stimulating priorities include bringing its freeway system up to speed. In 1985 residents voted for a half-cent tax on all business transactions, which will raise $6 billion over the next 20 years for the roads. Freeways and interchanges are now under construction everywhere. ''We missed out on the federal highway money, which is now all gone,'' says Howard McCrady, chief executive of Valley National Bank. ''So we're doing it ourselves.''
SAN DIEGO ''Twenty-five years ago people who knew San Diego knew of it for two reasons -- the Navy and Tijuana,'' says Ernest Hahn, chairman of Hahn Co., a national commercial real estate concern located in San Diego. Long one of the Navy's most important ports, the city is also a border crossing for California tourists eager to do a little shopping in Mexico. From January 1986 to December, San Diego's population increased by 75,000, or 3.4%, to 2.2 million, but its economy is so brawny that the unemployment rate fell to 4.2%, the lowest in the city's history. In the mid-1970s, San Diego's mayor, Pete Wilson (now a U.S. Senator), forged a coalition of business and civic interests to create a thriving downtown that has become the nucleus for all San Diego County, a heavily suburban area that had never had a focal point. Wilson presided over a controversial effort to persuade the city council to redefine its policy of eminent domain so that the X-rated porno houses and kitty-kat lounges that stood in the way of substantial downtown development could be condemned. The process took years, but today Hahn Co.'s Horton Plaza is a colorful, eclectic, multilevel shopping center anchored by four major department stores and loaded with boutiques and restaurants. Since opening in 1985 it has sparked the development of other downtown projects. Now under way: several first-class hotels, six office towers, and a major convention center on the embarcadero beside North San Diego Bay. ''Pete Wilson had a lot of vision,'' says Malin Burnham, who heads John Burnham & Co., a major real estate and mortgage loan firm in San Diego. ''He realized that downtown San Diego was really the hub of the wheel, and that you had to have a strong hub to have a strong wheel.'' HAVING STRENGTHENED its core, San Diego's biggest task is to sustain its splendid economic success. Says Burnham: ''Over the next couple of decades, the real energy will come from our emerging companies. We have a company birthrate that is awesome. Almost every day someone leaves the University of California-San Diego or TRW or General Dynamics to do his own start-up.'' Thus, the plan is to improve the business climate for emerging local companies rather than try to attract outsiders. That means paying attention to taxes, unions, zoning, and especially the quality of the educational system.
The University of California-San Diego, or UCSD, is a vital part of the city's plan for the future. Only 26 years old, the school, which is actually located in La Jolla, several miles to the north, is among the top ten in the U.S in receiving federal research grants. Its faculty includes some of the leading researchers in biomedicine and superconductivity. Most of the school's 17,000 students study computer science, engineering, or mathematics, and many of them remain in San Diego after completing their studies, furnishing the companies there with a dependable stream of skilled employees. San Diego's boom is solidly anchored by the Navy, which accounts for about 138,000 jobs. Throw in the rest of the money the government spends on such items as missiles and ships, which are made in the city's factories, and the Defense Department is responsible for about a fifth of the value of the goods and services produced in San Diego. But at the Tijuana border, a scant 16 miles from downtown San Diego, big problems are brewing. Mexico's fourth-largest city, with an estimated population of 1.25 million, Tijuana is growing at a rate three times that of San Diego. The Mexican city's economy, however, cannot accommodate its bulging population. Tijuana's unemployment rate is at least 40%, and its basic infrastructure is way behind the city's needs. Despite changes in the immigration laws, illegal aliens still cross the border into San Diego, and on the days when inadequately treated sewage from Tijuana washes onto San Diego's southernmost beaches, the city's leaders are pungently reminded that their problems south of the border will not go away. Says Chamber of Commerce President Lee Grissom: ''San Diego and Tijuana are Siamese twins. Our futures are tied together.'' Given the remarkable energy and industry of San Diego, that is probably the best news Tijuana has ever had.