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America's Best Small Cities For Business And Careers

Kurt Badenhausen, 09.13.10, 06:15 PM EDT

At a time of economic hardship, these areas offer the best business climates and strong employment prospects.

In Pictures: The Best Small Cities For Business And Careers

Big companies love big cities. Forty-three members of the S&P 500 claim New York for their corporate headquarters. Houston is the corporate home for 22 companies. Atlanta and Dallas-Forth Worth both have 11 while Chicago maintains nine. These cities provide a surplus of educated labor, easy access to other big companies, transportation hubs and a myriad of cultural opportunities.

Yet many of the biggest U.S. cities also share other, not-so-great characteristics like bloated business costs including pricey office space and high taxes. They have heavy public pension obligations, long commutes and as a result, an outward migration of workers looking for an easier, less expensive place to make a living. Companies have to think twice before opening a new office in a New York or Los Angeles. Throw in the explosion of broadband over the past decade connecting people around the globe and small cities look more attractive than ever.

Slide Show: The Best Small Cities For Business And Careers

Our look at the best small American cities for business and careers is chock full of locales between the two coasts that offer low business costs and strong employment prospects. Leading the way for a seventh straight year is Sioux Falls, S.D. Credit business costs that are 26% below the national average, low crime rates and an economy that is expected to expand 4.1% annually over the next five years. Another enticement: South Dakota does not levy individual or corporate income taxes.

Sioux Falls is the only city that scores in the top 25 in at least eight of the 12 categories that we considered as part of the ranking. The Sioux Falls metro area was the fastest growing metro in the Midwest over the past 10 years with 30% growth and its population now stands at 238,100. In fact it seems the only thing that will knock Sioux Falls off its perch is if it graduates to our list of the Best Places for Business and Careers that looks at the 200 largest metro areas (minimum population of 245,000). The gross metro product for the Sioux Falls metro is $10.9 billion which is the largest of any of the small metros we examined.

Unemployment in Sioux Falls has doubled over the past three years, but at 4.3% it is still one of the lowest in the country. Mike Cooper, Sioux City's Director of Planning and Building Services, says that in recent years when employment was hovering just over 2% some employers had trouble filling jobs because unemployment was so low.

Two companies that have been able to find employees and have taken advantage of Sioux Falls' favorable business climate are Citigroup ( C - news - people ) and Wells Fargo ( WFC - news - people ). They are among the area's largest employers and have helped fuel Sioux Falls' growth over the past decade. The two largest employers in the area are health care providers Sanford Health and Avera. "Once people come here and see what's available, they are usually very impressed with what we have to offer as a community," says Cooper.

It shouldn't be surprising that the vast majority of top small cities are in red states. Real jobs growth isn't obtained by taxing the crap out of everyone and socializing everything.

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We determined the best small cities for business and careers by looking at metropolitan statistical areas with populations under 245,000. There are 184 in total. We considered 12 factors including costs (both living and business), job growth (past and projected), income growth, educational attainment and projected economic growth. Other factors included quality of life issues like crime, cultural and recreational opportunities and migration trends. Finally we considered subprime mortgages and the presence of highly ranked colleges in an area per our annual college rankings.

We leaned heavily on research firm Moody's Economy.com for much of the data. Other info came from the FBI (crime) and Census (educational attainment). Demographer Bert Sperling catalogued the culture and recreational activities in each area for Forbes.

And though Manhattan, Kansas, Bismark, N.D., and Logan, Utah round out the top five cities on our list, Iowa was the clear standout in the ranking with five metros in the top 20 including Iowa City, which ranked No. 2 (Des Moines nabbed the top spot on out the list of bigger metros). Other leading Iowa metros include No. 13 Waterloo, No. 14 Sioux City, No. 15 Dubuque and No. 17 Ames. They share some similar characteristics like business costs at least 16% below the national average and crime rates that fare at least 16% lower. These metros are all home to top-ranked colleges that churn out a steady crop of highly educated labor. Employment in Dubuque is expected to increase 4.2% annually over the next three years, better than any other metro area (big or small) in the country.

Iowa City's strong showing can be traced to its well-educated labor force. It is home to the University of Iowa and 47% of adults have a college degree, which is third-highest among small metros. The area also skirted the housing crash. Only 4.4% of mortgages originated in the Iowa City metro between 2006 and 2008 were considered subprime which was second lowest in the entire country.

Venture capital firms are starting to take note of Iowa as well. VC investment was up 50% in 2009 in Iowa to $84 million while overall venture capital investment was down 35% according to the annual MoneyTree survey from PricewaterhouseCooopers and the National Venture Capital Association.

Slide Show: The Best Small Cities For Business And Careers