By Joel Fox.

The Milken Institute issued its annual best performing cities rankings and a number of California cities got high marks. But not all concerns often raised about the state of California cities were weighed in the report. Number one among those is pension liabilities.

The Milken calculator measures a “metro areas economic performance using outcomes-based metrics such as job creation, wage gains, and technological developments to evaluate relative growth.” With technology leading the economy, the state’s Silicon Valley area naturally scores well with this metric.The San Jose–Sunnyvale-Santa Clara area took the second position in the report behind Provo, Utah. San Francisco also landed in the top ten at number four.

The San Jose area jumped from the 11th spot in last year’s ranking to number two this year. Merced also gained jumping from 56 to 38. Two-hundred large metro areas and 201 small cities were ranked.

California cities in the top 25 included Oakland-Berkeley at 14, Riverside-San Bernardino-Ontario at 15 and Santa Rosa at 18.

California’s diversity seems to help cities rise according to Kevin Klowden, executive director of the Milken Institute Center for Regional Economics and California Center. “Being in a more multicultural urban environment is a huge draw- whether in California or elsewhere.”

However, California’s costs such as housing and taxes can hinder a cities growth. Klowden states, “Employers have to pay more to recruit and retain talent, which then puts more pressure on housing demand and costs.   It’s not a deterrent for many of the top people.  Instead the combined cost of living and doing business creates a larger split between the haves and have-nots.”

One major issues that California cities are finding more difficult to deal with in their budgets is pension costs. Pensions were not considered directly in the study’s metrics. Klowden explained: “Pension liabilities are only factored in very indirectly.   In other words, they affect the fiscal health of the city, which can then lead to reduced services and appeal for workers and employers.   We only focus on jobs, wages, and high technology.   When pension issues actually come to the fore-such as in Stockton, they show up in the overall economic health of the city clearly.”

In the Golden State the pension issue could confound the positives found in the cities’ abilities to function effectively.

Some of the key findings according to the Milken best performing cities study:

  • High-tech industries continue to fuel growth in many of the best-performing cities, creating opportunities for highly-skilled workers.
  • Low unemployment rates and a shortage of skilled labor are spurring more competition for knowledge-workers, putting upward pressure on wages in the tech sector and widening the income gap.
  • Top metro areas are enjoying impressive job and wage growth, but many are also seeing housing prices rise sharply.
  • The national economy provides a strong base for regional growth with soaring stock markets, low inflation, and high employment supporting consumer confidence.

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Originally published at Fox and Hounds.