Jan. 9, 2012 at 7:35 AM ET
By Michael Sauter, Charles Stockdale and Ashley Allen, 24/7 Wall St.
Many qualities separate the best-run and worst-run cities. But perhaps the most important is access to jobs. The economies of the best-run cities fall into two categories. They either have a booming industry or are near other major urban areas that create employment opportunities. The worst-run cities simply do not have the same access to jobs. 24/7 Wall St.’s analysis of the best-run and worst-run cities demonstrates that encouraging businesses to prosper and create jobs is the most important function of local government.
24/7 Wall St. has completed its first annual ranking of the best-run and worst-run cities in America. We reviewed the local economies, fiscal discipline and standard of living of the 100 largest cities by population to determine how well each is managed. Based on these data, 24/7 Wall St. ranked the 100 cities from the best- to worst-run. The best-run city is Virginia Beach, Va. The worst-run city is Miami, Fla.
Four of the 10 best-run cities are the economic centers of their regions. Madison, Wis., is one of the best-run cities on our list, and its businesses employ the most people in the area. Six of the best-run cities serve as residential communities for larger metropolitan areas that are the economic centers. Scottsdale, Ariz., is a large city in its own right, but is often referred to as a suburb of Phoenix.
Frequently, these so-called “edge cities” have also developed their own vibrant economies. Plano, Texas, is part of the Dallas-Fort Worth metropolitan area. However, the city has a booming tech community and large offices of major corporations such as HP and Dell.
Nine out of the 10 worst-run cities on this list rely on older industries that are shrinking. Hialeah, Fla., was an important textile hub in the 1960s through the 1980s. Cleveland, Ohio, was one of the nation’s leaders in steel production. Detroit, Mich., of course, manufactured cars. Since their booms, all of these cities have shed tens of thousands of jobs.
Many of the worst-run cities have been in bad shape for years. While residents who were able to moved away, those without resources remained. As a result, the cities’ expenses remained high while their tax bases shrunk. The populations of four of the worst-run cities decreased between 2000 and 2010. Detroit lost just under 240,000 residents. On the other hand, the populations of all the best-run cities increased.
While there is a strong relationship between high median income and high ranking, there is an even stronger relationship to poverty. While a majority of the best-run cities have more households making over $200,000 per year than the national average, none of the top 10 cities have high poverty rates. For example, Lincoln, Neb., has only the 33rd highest median income among the largest cities, but the 11th lowest percentage of households making less than $10,000 per year.
For the most part, the best-run cities manage their debt and resources well. The worst-run cities do not. Moody’s provided credit ratings and analysis for 16 of the 20 cities on our list. The two cities that are the best-run and that do not have credit ratings, Fremont and Irvine, Calif., do not have a need to finance government projects through debt. Their wealthy and large tax base would suggest that is the case. Hialeah, Fla., one of the worst-run cities according to our ranking, told 24/7 Wall St. that it did not issue city debt because it had other debt instruments to raise money for government projects. San Bernadino, Calif., the other worst-run city without a credit rating, did not return 24/7 Wall St.’s calls.
These are the best- and worst-run cities in America.
1. Virginia Beach, Va.
Virginia Beach is, by our measurement, the best-run city in the U.S. Located on the eastern shore of Virginia, the city is one of the most prosperous in the country. Out of the 100 largest cities, it has among the 10 lowest violent crime, unemployment, and poverty rates, as well as among the 10 best for median income, high school graduation and health insurance coverage. Moody’s listed Virginia Beach’s three main strengths as a “large and diverse tax base stabilized by the presence of military bases,” the city’s “strong and carefully managed financial position,” and “comprehensive financial policies and conservative budgeting approach.” The city’s credit rating is a perfect Aaa.
2. Irvine, Calif.
Irvine has a violent crime rate of just 0.55 per 1,000 people, the fifth lowest among the major cities on our list. The city is also among the best 10 for home vacancy, unemployment, median income and high school graduation rates. In 2008, CNN Money rated it the fourth-best place to live in the U.S. According to Craig Reem, director of public affairs and communications, “We are seeing a gradual improvement in our local economy that allows us to move from recession ready, to recovery ready. The City Council plans conservatively: This past fiscal year (2010-2011), we outperformed our budget expectations by nearly $14 million.”
3. Madison, Wis.
Madison, the other capital city on our list, was incorporated in the mid 1800s, and exists today as one of the most well-run cities in the Midwest. Madison is not a particularly wealthy city, with a median household income of just over $50,000. Nevertheless, the capital has a perfect Aaa (stable) credit rating, as well as extremely low unemployment and home vacancy rates. According to Madison city administrative analyst Tim Fruit, “Over the past few years, we have really made a significant effort toward more carefully planning our six-year capital improvement program. In the past, the out years were not well scrutinized. Now, we try to analyze and balance the out years much more carefully.”
3. Newark, N.J.
Newark has a very high rate of poverty, reaching 30.2 percent in 2010. Its median household income is $32,043 — the ninth lowest among the 100 largest cities. Less than 70 percent of the adult population has a high school diploma or more — the sixth lowest rate. Meanwhile, Newark’s violent crime rate has been increasing. In late November 2010, the city laid off nearly 15 percent of its police force. By May 2011, the annual murder rate had increased a stunning 65 percent. Robberies, burglaries and thefts increased as well.
2. Detroit, Mich.
Despite being more notorious for its troubles than any other major U.S. city, Detroit managed to avoid the title of worst-run city in the country. The city has been in a tough spot for decades, but continued problems with corruption and poor management have not helped matters. Detroit already sports the worst credit rating awarded by Moody’s and is the only one of the 100 largest cities in the U.S. to have a rating below investment grade. Worse still, the rating agency is currently reviewing the Ba3 rating — which already had a negative outlook — after the state of Michigan announced it was evaluating whether the city’s troubles constituted an economic crisis. Of the 100 largest cities, Detroit has the highest home vacancy rate, the highest unemployment rate, the highest poverty rate, the worst violent crime rate and the lowest median household income.
1. Miami, Fla.
According to a 2011 UBS study, Miami is the richest city in the country and the fourth richest city in the world by domestic purchasing power. However, a 2011 study by the Census Bureau found the Miami metropolitan area also had the second-highest income inequality rate in the nation — probably due to the incredibly high percentage of households living below the poverty line. Despite the city’s wealth, Miami’s median household income of $27,291 is the third smallest among the 100 biggest cities. Its poverty rate of 32.4 percent is the fifth highest. The city faces a handful of other problems. Only 68.2 percent of adults have a high school diploma or more — the fourth lowest rate. Also, 22.5 percent of housing units are vacant, which is the fifth highest percentage. A 2011 Brookings Institute report put Miami among the 20 weakest-performing metropolitan statistical areas in the country with regards to recovering from the recession, due in large part to the crash of its housing market.