Free Enterprise Staff  | January 22, 2015

Des Moines Emerges as an Economic Hub

What Is #SiliconCitiesUSA? 

Over the course of this year, we’ll explore how entrepreneurs and businesses are faring in non-major U.S. cities, beginning with Des Moines, Iowa. We’ll be reporting on the ground from each city, talking with elected officials and business leaders about how they’re harnessing their unique resources and local talent to fuel economic growth and better compete against more established urban centers like San Francisco and New York City.

First stop? Des Moines, Iowa.

When most people think finance and insurance, they don’t necessarily think of Des Moines, Iowa.

But they probably should.

Des Moines is, after all, one of the three insurance capitals of the United States. It is also a center of healthcare and the seat of government in Iowa, with the state’s legislature headquartered there. It’s on the strength of these sectors, along with the city’s historically conservative nature, that Des Moines has remained competitive in the wake of the recession, argues Matthew Anderson, who serves as the assistant city manager of Des Moines.

Determining exactly what is responsible for a city’s economic success is, admittedly, a decidedly tricky undertaking. It’s exceptionally difficult to isolate a handful of variables and subsequently identify them as the root causes of a vibrant jobs market or local economy. There are, however, a number of factors that have played a role in supporting Des Moines’ growth, particularly over the past decade.

The city benefits from a favorable tax climate on insurance premium, Anderson says, and it also works directly with both in- and out-of-state businesses interested in expanding to the state capital. A team of project managers, moreover, is tasked with cultivating these kinds of economic initiatives. When taken in the aggregate, these forces have coalesced to drive down unemployment—in November 2014 the city’s unemployment rate was only 3.8%—spur development, and increase the local population.

But at the granular level, what’s truly behind these accomplishments? We sat down with Anderson to get the insider’s perspective on Des Moines and its economic ascent. This is the first of two pieces we will run this month on the city, with a follow-up next week focusing on the city’s dominance in insurance and banking.

Who works alongside you in economic development?

In addition to me, I have four project managers who serve as economic development coordinators. Though each of them has a specialty, they’re all cross-trained, and they overlap. I tend to head up our larger, corporate projects that come through, so I do most of my work on downtown projects—large housing projects, large corporate expansions, or retention projects that are more high-profile.

How do you counsel the companies you meet with? 

We have a good mix of local and out-of-state developers looking to do projects, so I’m constantly meeting with them and looking at what sticks—what has financial and political feasibility. I’m kind of the sounding board as developers are starting to formulate their projects. We brainstorm what we think can work and won’t work.

What’s an area of development you’re particularly passionate about?

We have a focus on design and environmental stewardship in our projects, especially if they’re going to have city assistance. We push our architectural community and developers to create the best projects with the best quality materials that we can get, so that’s been a long-standing goal of ours.

Why has Des Moines had such a strong economy over the past decade?

Des Moines has historically been a very conservative city. We are one of the largest—I think we’re the number three insurance capital in the world behind New York and Hartford, Connecticut. Being a conservative Midwest city, we traditionally have been economically prudent: Our population wasn’t overleveraged in mortgages, our real estate wasn’t overvalued, and we weathered the storm really well. We’re also a big seat of government, and we have a pretty large medical field here, as well. Combining those very stable sectors—insurance, medicine, and government—we have the ability to weather downturns.

Are there any local policies that have helped attract businesses?

The state of Iowa has had—and this is decades old—a favorable taxation policy on insurance premium income. And that attracted—and I’m talking back in the ‘20s and ‘30s—the insurance industry, with Des Moines becoming a hub of it. That success has perpetuated itself: We had a trained workforce that was knowledgeable, so it became the place to go and grow your business, and we also had a lot of local, homegrown insurance companies.

We have a lot of specialized insurance companies, with ones focused primarily on insuring things like chiropractors and churches. Every business out there has this specialty insurance, but since there’s only a handful of companies out there doing it, you can essentially grow a big business out here by specialization.

In addition to very large firms such as Principal Financial Group and Employers Mutual Company, which have been headquartered in Des Moines for over 100 years, ING and Nationwide also have strong presences out here, which has helped a lot in terms of creating a stable jobs market. They initially acquired some Des Moines-based insurance companies, but they quickly realized we have a low cost to doing business, and we have a very educated and productive workforce. As they compared their Des Moines location to their other sites, they realized that we’re the logical place for them to grow their workforce. We have an above average education system, which helps, and we have a lot of great universities here, as well. There’s also a work ethic in Des Moines and in Iowa that I don’t think you get everywhere else.

Do you actively recruit businesses to set up shop in Des Moines?

As a city, we don’t. But the Greater Des Moines Partnership does. They take on the role of recruiting and enticing companies to set up shop and expand in Des Moines, and they represent the Des Moines metropolitan area. 

What do businesses care about when they’re deciding whether to set up shop in Des Moines? 

At the end of the day, what businesses care about are the city’s ancillary services, so that’s how you set your city apart from other cities when you’re competing with them. It’s about your fire and police departments and things like snow removal. It’s about having a low crime rate, having great parks and trails, affordable neighborhoods, and a clean city.

Has your emphasis on architecture and urban planning paid off?

Absolutely. We had a part of town that had kind of fallen on its luck, and we went in and bought about three city blocks. We created an art sculpture garden and a new central library, and we have gorgeous buildings designed by amazing architects. What we’ve seen is a number of new companies are moving in, and they’re being drawn by the space we’ve created there. It’s so important.

We’ve got a lot of pride in our design and architecture here, and we place a great emphasis on creating beautiful, pedestrian-friendly neighborhoods. And it’s gone a long way toward reversing what was happening in the 1990s and early 2000s, when there was a flight to the suburbs.

Have those kinds of initiatives attracted new residents? 

Definitely. We’re building downtown apartments about as fast as our developers can church them out. They’re far exceeding the developers’ leasing expectations, and they’re opening with waiting lists. We kind of kickstarted the market with low-income housing, and we’re now exclusively building market-rate apartments that the market is absorbing easily. Downtown, especially for millennials, is the place they want to be.

What are cities you like to compare yourselves to?

We’re always compared to Omaha, though they’re a little bigger than we are. It’s the same Midwest values there. From a competitive standpoint, Omaha is our primary peer. I think we look to Minneapolis a lot as a city we’d like to learn more from. There are a lot of similarities between Des Moines and Minneapolis, but they’re on a much larger scale. Minneapolis is always ahead of us in terms of timing and in scale, but as we look at the things going on there versus here, you can see a lot of similarities between the two of us. 

Where do you see Des Moines at the end of this decade? 

I think at the end of this decade, and it’s starting now, is that downtown has enough momentum that we won’t have to be pushing as hard internally to get that district going. And, like I said, it’s really on its own now. I also think you’ll see a shift out to other neighborhoods, and it’s already starting to spread to the surrounding neighborhoods.

What makes the current economic boom different from the past?

What’s happening now is that, in the past, we had what seemed to be spurts of development surrounding specific industries like housing. But right now we’re very spread out. We have a nice sustainable blend of development. The hotel market has really picked up downtown; housing and office development is also strong. This has the effect of driving restaurants and retail to pick up. So, I think we’ll be less and less reliant on any one market.

Are you seeing a lot of local businesses opening as a result? 

We’re absolutely seeing local mom and pop shops opening as a result. For example, I work in an area downtown called East Village. We just had a new mixed-use building open a few months ago, so there’s a brand new local bakery and coffee shop and three new locally owned clothing stores that opened in that one building, which opened 100% leased—both its commercial and residential units. Those local shops are increasingly coming in, and they’re creating opportunities for people who are moving here. It’s all related. The local entrepreneurs are starting to find downtown, and they’re just making it better every single day.