A tale of two cities: Sioux Falls and Sioux City.

"It was the best of times, it was the worst of times." Charles Dickens

I. INTRODUCTION

Sioux Falls and Sioux City are sister cities located on the Great Plains approximately 80 miles apart on Interstate Highway 29. These two cities have many similarities; however, beginning about 30 years ago the two economies began to diverge and today the structure and level of economic development in these two cities is quite different.

Some of the similarities are obvious, such as both cities have Sioux in their names and are located on rivers, the Big Sioux River for Sioux Falls and the Missouri and Big Sioux rivers for Sioux City. For many years, meatpacking was the major industry and both are the site of John Morrell and Company meat packing plants. Both cities had a major stockyard (1) which helped to make these cities a major shopping center in their respective trade areas. In more recent times, both metropolitan areas were the location of major Gateway computer company facilities.

In terms of economic development and size they were also very similar. Until the early 1970s, the median family and per capita incomes of both cities were almost identical. The median family income (2) for Sioux Falls was $22,375 in 1959 and $21,735 for Sioux City. In 1969, median family income was $29,332 in Sioux Falls and $28,259 in Sioux City.

In 1980, the population of the two cities (MSA) was about 120,000 people each. However, in the 1970s and 1980s, the relative economic and demographic performance of these two cities began to diverge. From 1969 to 2002, population grew 58 percent in Sioux Falls and by only 7 percent in Sioux City. Total employment grew 148 percent in Sioux Falls and 46 percent in Sioux City. Real income per person grew almost 50 percent faster in Sioux Falls than Sioux City. By 1999, median family income was $51,516 in Sioux Falls and $45,751 in Sioux City, a difference of about 13 percent. In 2002, per capita income was about 18 percent higher in Sioux Falls than Sioux City. In Sioux Falls, approximately seven percent of the population lives in poverty while more that 10 percent do in Sioux City. The divergence that began in the mid-1970s leaves two very different cities today.

The purpose of this study is to describe and examine the source of divergence in these two communities. Why did the growth rates of population, employment, and income in Sioux Falls outpace that of Sioux City over the last 30 years? Are they fundamentally different economies today than they were 30 years ago? Which industries formed the basis for growth in these two cities? These are some of the questions to which we hope to provide answers. We emphasize primarily what happened rather than why it happened. The intent is to be as factual as possible relying on publicly available data wherever possible. We are not here to congratulate or to castigate but merely to understand what has happened and what have been the consequences. If the two cities followed fundamentally different growth paths or strategies our investigation may provide some insights as to which worked and which did not.

This paper is organized as follows: Part II discusses the statistical definitions of the Sioux Falls and Sioux City Metropolitan Statistical Areas used in this paper; Part III examines data sources; and Part IV examines growth patterns in population, employment and income. Part V examines the mystery of per capita income differences; Part VI provides commentary on the two cities; and Part VII provides conclusions.

III. STATISTICAL DEFINITIONS

A statistical description of the Sioux Falls and Sioux City economies is complicated by the geographic definition one uses. Since each city has a population in excess of 50,000 persons, each is officially defined as a Metropolitan Statistical Area (MSA) by the U.S. Census Bureau. Due to changes in definition and demographics, the counties that constitute the Sioux Falls and Sioux City MSAs have changed over time. In 1950, the Sioux Falls MSA included only Minnehaha County while the Sioux City MSA included only Woodbury County. In 1963, the Sioux City MSA was expanded to include Dakota County (Nebraska). In 1993, the Sioux Falls MSA was expanded to include both Minnehaha and Lincoln counties. In 2003, the Sioux Falls MSA was further expanded to include Minnehaha, Lincoln, McCook, and Turner counties. The Sioux City MSA was also expanded to include Woodbury, Dakota (Nebraska), Dixon (Nebraska), and Union (South Dakota) counties.

The standard definition of metropolitan areas was first issued by the Bureau of Budget (predecessor of the Office of Management and Budget) in 1949. (3) As previously stated, in both cities, the number of counties that are included in the MSA has changed. The current (2003) definition of a MSA is:

 
   "A Core Based Statistical Area 
   associated with at least one 
   urbanized area that has a 
   population of at least 50,000. The 
   Metropolitan Statistical Area 
   comprises the central county or 
   counties containing the core, plus 
   adjacent outlying counties having a 
   high degree of social and economic 
   integration with the central county 
   as measured through commuting." (4) 

The outlying counties of the MSA require at least 25 percent of the outlying county to work in the central county, or at least 25 percent of the employees in the outlying county reside in the central county. In the case of the Sioux Falls MSA, Lincoln, McCook, and Turner counties, all meet the requirement of 25 percent of employees in the outlying county working in the central county (Minnehaha). In the Sioux City MSA, Dixon County (Nebraska), has at least 25 percent of its employees working in Woodbury County and in Union County (South Dakota) 25 percent of the employees reside in Woodbury County.

These changing definitions of the Sioux Falls and Sioux City MSAs can be a source of confusion as to which definition we are using. In this paper, two definitions of the MSAs of each city will be used and at times other definitions will be used based on data availability. For Sioux Falls, the definition that includes only Minnehaha and Lincoln counties will be identified as Sioux Falls (ML). When McCook and Turner counties are added it will be identified as Sioux Falls (MLMT). For Sioux City, the definition that includes only Woodbury and Dakota counties will be identified as Sioux City (WD). When Dixon and Union counties are added it will be identified as Sioux City (WDDU).

It could be argued that Union County (South Dakota), particularly North Sioux City, South Dakota, actually became a functional part of the Sioux City MSA in 1990s. The dramatic increase in manufacturing activity, particularly in the Gateway Business Park in North Sioux City, can be seen by examining manufacturing employment in the county. In 1980, manufacturing employment accounted for 850 workers. By 1990, the year that Gateway moved to North Sioux City, manufacturing employment increased to 1,438 workers and by 2000, 6,517 workers. (5) During this same time period, the population of Union County did not change dramatically. For instance, in 1980 Union County population was 10,952, by 1990 it was 10,188, and by 2000 it was 12,819. It is obvious that most of the increase in manufacturing workers was made up of workers who did not reside in Union County. Many of these workers came from Sioux City and Clay County South Dakota. Since 2000, the fortunes of Gateway Corporation have changed considerably with large decreases in employment in both North Sioux City and Sioux Falls. Currently, about 1,200 Gateway workers remain in North Sioux City compared with over 6,000 at its peak. In Sioux Falls, the Gateway facility has closed with a loss of approximately 1,800 jobs. The impact of Gateway's expansion and then decline was much more significant to Sioux City than Sioux Falls. Sioux City lost both the corporate headquarters and the company's largest manufacturing facility. In 1998, Gateway moved its corporate headquarters to San Diego, California. This led to the loss of a significant number of corporate executive and related jobs in North Sioux City. Furthermore, the vendor linkages were much greater in Sioux City than in Sioux Falls. (6) Combined with a declining national economy and the contraction of the Gateway Company, the employment situation in Sioux City deteriorated significantly with a drop in total nonagricultural wage and salary employment of 8 percent from 1999 to 2004. During that same period, manufacturing employment decreased 18 percent. Sioux Falls' non-agricultural employment increased 5 percent over the same time period while manufacturing employment fell 13 percent. This story is still being written, but it seems reasonable to assume that the influence of Gateway on both Sioux Falls and Sioux City has peaked.

III. DATA SOURCES

Most of the data presented in this paper is based on two basic sources. The first data source utilized was the decennial census data compiled by the U.S. Census Bureau for every year ending in 0 (zero) back to 1790. This is a rich source of data on population, housing, employment, and education by state, county, and city. In this paper, we used data for the Sioux Falls and Sioux City MSAs dating back to the 1960 census.

The second data source utilized was the local area estimates provided by the Regional Economic Accounts, Bureau of Economic Analysis, U.S. Department of Commerce. This source provides detailed personal income, population, and employment data by state, county, and MSA annually back to 1969. The most recent year for which data is available is 2002. Since this data is available on an annual basis it is particularly helpful in more precisely tracking short-run movements in the economy.

A preview of the population and per capita income for the counties of the core cities, Minnehaha for Sioux Falls and Woodbury for Sioux City, the narrow and broad definitions of the MSAs for 1969, 1980, 1990, 2000, and 2002 are presented in Table 1. As shown in Table 1, Sioux Falls experienced considerable population growth from 1969 to 2002. For Minnehaha County, population grew from approximately 95 thousand to 153 thousand, an increase of 58 thousand people. Using the broadest MSA definition, population grew from 123 thousand to 195 thousand persons or by 72 thousand, over the same period. For Woodbury County, population grew by only 400 people over the 1969 to 2002 time period. Using the broadest MSA definition, population grew by about 10 thousand persons over this time period. Sioux Falls and Sioux City had almost the same population in 1969, but now Sioux Falls is about 50 to 70 thousand persons greater, depending on the MSA definition.

Review of the inflation-adjusted (7) per capita personal income data by place of residence also presents some interesting contrasts. As shown in Table 1, real per capita personal income was almost identical in Sioux Falls and Sioux City in 1969. By 1980, real per capita personal income was about one thousand dollars higher in Sioux Falls. By 1990, Sioux Falls real per capita income was almost three thousand dollars higher and by 2002 it was more than four thousand dollars higher. It is interesting to note that when the broad MSA definition for Sioux City is used, 2002 real per capita personal income is approximately two thousand dollars higher than the narrow definition. This narrower income differential for the broader MSA definition is due to Union County (South Dakota) where real per capita personal income is more than $37 thousand. This is the highest per capita income in the three-state area and 20 percent above the US average. This, in large part, reflects the growth of the Dakota Dunes where many high-income persons relocated from Woodbury and Dakota counties. One reason for this movement, but certainly not the only reason, was to establish South Dakota residency and place of work to avoid paying Iowa or Nebraska income taxes. Over the 1969-2002 period, real per capita income increased at a rate of 2.5 percent per year in Sioux Falls and 1.9 percent in Sioux City. This is compared to a 2.1 percent growth rate for the US.

IV. GROWTH PATTERNS OF SIOUX FALLS AND SIOUX CITY: 1969 TO 2002

A.1 Population: Bureau of Economic Analysis Data

Using Bureau of Economic Analysis data, we are able to track the path of population, employment, and income on a yearly basis over the 1969-2002 period. This is particularly useful when we are trying to pinpoint the timing of the divergence of income and employment growth. As shown in Figure 1, the population of both Sioux Falls and Sioux City increased since 1969. The data presented here uses the broad MSA definition. The data is also presented in ratio or semi-logarithmic scale which means that we can determine change in the growth rate by examining the slope of the line.

[FIGURE 1 OMITTED]

Sioux City's population was about 10 thousand greater in 1969; however, by 2002 Sioux Falls' population outpaced Sioux City's population by about 52 thousand. Over this time period, Sioux Falls' population grew 58 percent compared to 7 percent for Sioux City. From 1978 to 1987, Sioux City's population decreased by 8 thousand. After 1987, Sioux City's population grew but slowed again in 1996. …