By Robert Gavin 06/06/2001
FORT COLLINS, Colo. -- This former frontier outpost used to stand guard as pioneers streamed through along the Overland Trail. Now, 140 years later, people are streaming back. In March 1999, just two months after it was founded in Davenport, Iowa, Limelight Technologies Inc. packed up and moved to Fort Collins. "We saw it as a place where we could retain software engineers," says Limelight Chief Executive John Brady. "It's sunny almost every day, there's not much traffic, and the mountains are close enough that I go up to Aspen all the time."And when San Diego-based Applied Micro Circuits Corp. acquired Fort Collins telecommunications and data storage start-up Silutia Inc. last fall, Silutia executives made sure any talk of leaving Fort Collins was off the table. That "would have been a deal-breaker," says Randy Zwetzig, Silutia's former chief executive. "We have beautiful summers, fairly mild winters, a strong education system, parks and safe neighborhoods." What's remarkable about Fort Collins is not all it has done to lure companies; it's all it hasn't done. The city has sat out pricey bidding wars for corporate trophies, instead spending its money on schools, parks and other local services. The result: Fort Collins has landed plenty of corporate trophies anyway -- and is in the middle of an uncharacteristic American boom.
During a time of economic slowdown across the country, the Rocky Mountain region is emerging as an island of surprising prosperity and growth. When companies and workers fled California during its deep recession of the early 1990s, Rocky Mountain communities offered low costs, an emerging technology sector and an alluring lifestyle. Since then, highly skilled and educated people have been flocking to emerging tech centers such as Boulder, Boise, and Provo, Utah, making Colorado, Idaho and Utah among the five fastest-growing states in the country. Economy.Com, a West Chester, Pa., forecasting firm, predicts employment in the eight-state region will grow at four times the national average this year, and significantly faster than almost every other part of the country. Only the West South Central region, which is forecast to add jobs at a 2% rate, is expected to approach the Rockies' projected 2.3% growth. Fort Collins, a midsize city of 118,000 tucked into the foothills, is the perfect poster child for why this Rocky Mountain high is expected to continue. While manufacturing layoffs and office vacancies climb elsewhere in the country, unemployment in Fort Collins recently slipped to 2.5%. Home sales are running at a near record pace. Retail sales were up 11.3% in the first quarter, compared with 1.3% nationally. Building permits for single-family homes rose 55%, compared with 3.1% nationally.
The growth is bringing some strain: Residents now complain that housing prices are edging up, chain stores are sprouting along once picturesque roads and commutes are getting longer. But these growing pains have yet to stop the flow of people into Fort Collins. For the past decade, cities across the country pursued an expensive strategy to lure big companies: lavish tax breaks. Now, many of these communities face a double hit: Their corporate trophies, while continuing to pay heavily slashed tax bills, are also laying off workers to cut costs. Fort Collins offers a different story. The city has steered clear of costly financial incentives to lure new companies. Instead, it spent money on the infrastructure that business needs to grow and the amenities that make the city an attractive place to come, stay and invest. "It's the people who want to live here who drive the economy," says Frank Bruno, assistant city manager for economic development. Adds Ann Azari, the city's former mayor: "The whole idea is we want to help companies that have chosen to come to us, instead of going smokestack chasing." In 1995, Hyundai Electronics Industries Co., the South Korean company that recently changed its name to Hynix Semiconductor Inc., sought $30 million in tax breaks in return for building a $1.3 billion semiconductor plant that would employ 1,000. That request represented 10% of the city's annual budget. The City Council rejected the big incentive package on a 4-3 vote during a marathon meeting that lasted until 3 a.m. Had the city acquiesced to Hyundai, Mr. Bruno says in retrospect, it would not have had the money to meet the service demands of a population that grew 35% in the '90s. That, he adds, would have undermined one of Fort Collins' economic pillars: "Keeping everything in balance." "It was tempting, but it would have been wrong as heck," says Ms. Azari, a tax-break supporter who says she later saw the error of her ways. Hyundai built its plant in Eugene, Ore., where it received about $40 million in tax breaks and employs about 850.
In Fort Collins, few people are mourning Hyundai. They don't need to: Hewlett-Packard Co. and Anheuser-Busch Cos. still are moving ahead with planned expansions in Fort Collins. The federal government is building a $65 million campus where it will consolidate eight environmental and agricultural research agencies. Colorado State University, the city's biggest employer, is spinning off start-ups, while a locally based venture-capital firm, Vista Ventures LLP, just put together a $20 million fund to help them. The health-care sector is growing too: Nonprofit Poudre Valley Health System is in the midst of a $35 million renovation of the regional hospital, following last summer's completion of a 250,000-square-foot complex of medical offices and outpatient clinics.
Twenty-five years ago, Fort Collins might have joined many other midsize communities on the path to economic stagnation, with little to distinguish it beyond proximity to Denver. Outsiders saw the city as a remote college town and supply center for an agricultural industry long past its peak. Even its name, adopted from the frontier outpost established in 1862, seemed to underscore its remoteness. Bill Beierwaltes, who came to the area in the 1960s to work for Hewlett-Packard shortly after the company opened a facility in nearby Loveland, recalls that the company's recruiting materials found it necessary to mention that "all the streets are paved."
Then luck struck: California's bad luck, and Fort Collins' own good luck. The Golden State, thanks to defense cuts after the end of the Cold War, went into recession a decade ago. At the same time, Colorado emerged from an earlier downturn, with abundant supplies of labor and property that could be had at a fraction of California's costs. At least a dozen California companies with about 350 jobs relocated to Fort Collins in the early 1990s. It wasn't a hard decision to make: At the time, the median home price in Fort Collins was about $85,000, compared with $140,000 in Seattle, $185,000 in Los Angeles and $280,000 in San Francisco. Alan Manes, who moved his aerospace manufacturing company from outside Los Angeles in 1992, estimates that he spent about a quarter of what he would have in Southern California for the 32,000-square-foot building he bought here. He hired skilled labor at salaries that were as much as 25% lower. Since arriving here, the company, Manes Machine & Engineering Inc., has quadrupled its work force to about 90 and expanded into a new facility that's twice the size. "Everything that was good for business was here," says Mr. Manes. Denver International Airport, while cursed by travelers because of its early baggage-handling snafus, was cheered in Fort Collins when it opened in 1995 because it provided world-wide airline connections an hour's drive south.
The state-funded Colorado State University, founded as an agricultural college, got a makeover to give itself a high-tech twist, luring away from Purdue University three electrical and computer engineers to set up a research lab. The university recently spun off companies such as biotech firm XY Inc., which has found a way for breeders to select the sex of livestock, and Optibrand LLC, which is developing a computerized livestock-identification program. The outbreak of foot-and-mouth disease in Europe has now brought Optibrand to the attention of investors, who see the livestock-tracking system as a way to prevent spread of the disease.
Even the city's water seems blessed. The pure run-off from mountain snows has been a boon to a half-dozen breweries and microbreweries that employ about 1,000. They range from Anheuser-Busch to New Belgium Brewing Co., which makes Belgian-style beer, to Odell Brewing Co., maker of English-style ales.
In 1989, the City Council decided to try to build on the city's natural appeal by adopting an economic-development plan that formally put in place its "balanced growth" policies. Ms. Azari, who was elected to the council that year, was one of the leaders in the effort to formulate and adopt the plan. The policy, in a nutshell: Fort Collins should rely on lifestyle issues to attract companies, not big incentives. "Our first interest is in the people and companies that want to come and stay here," Ms. Azari says. City planners wanted to make sure Fort Collins wouldn't lose its open space, one of the town's big selling points. So in 1996, they adopted a master plan that calls for adding seven acres of parkland for every 1,000 new residents, and the City Council approved new development fees to pay for it. Since 1992, the city has combined with the county to spend $46 million to acquire and preserve open space. It has invested millions more in revitalizing its historic downtown, which served as a model for Disneyland's "Main Street U.S.A."
Today, the Fort Collins version of main street bustles with shops, restaurants and art galleries. Because Fort Collins devotes so few tax dollars to corporate tax breaks, it is easier for city officials to go to voters for money for schools. Voters consistently approve more money for teachers, programs and facilities, including a $175 million bond issue passed last fall. The city's school-tax rate is the ninth highest in Colorado. Fort Collins's schools are among the best in the state, with students consistently scoring above state and national averages on the SATs. In 2000, the city's students averaged 1102 on their SAT scores, while Colorado students averaged 1071 and students nationwide averaged 1019. Managing the growth is getting hard. Gas stations, fast-food restaurants and chain stores sprawl along wide boulevards. Traffic is getting worse. Larry Kendall, who moved here from Kansas in 1973 and is chairman of Group Inc., a local real-estate brokerage, says Fort Collins has quickly changed from a "five- or 10-minute town" -- that is, you could get to almost anywhere in five to 10 minutes -- to a "15-minute town." Housing prices, long a major attraction, have more than doubled in a decade, to a median of more than $180,000. The National Association of Homebuilders recently ranked housing in the Fort Collins area among the nation's least affordable, 149th out of 180 metropolitan areas. A decade ago, the community ranked 40th in affordability.
Overall, the Rocky Mountain region is seeing a slowdown. The region's projected job-growth rate, at 2.3% this year, represents a significant slowing from last year's 3.6% rate. Telecommunications and technology companies have cut thousands of jobs in recent months. In April, Fort Collins-based Advanced Energy Industries Inc., which manufactures components for computer chipmakers, said it would cut about 150 jobs, or 10% of its work force. But people keep coming. Cathy Kawakami is among the latest wave of Californians. Ms. Kawakami, director of investor relations at Advanced Energy Industries, says the traffic and cost of living in the San Francisco Bay area had become too much. She faced 2 1/2-hour commutes. What's more, she says, the 1,000-square-foot home she shared with her husband in Walnut Creek, Calif., sucked up every cent they had. The Kawakamis moved to Fort Collins last July. Ms. Kawakami remembers the glee she felt when a real-estate agent showed her houses. At every stop, she thought, "We can afford it, it's three times bigger than what we have, and there's no traffic."
