Best Value Cities 2011:6. Lexington, Ky.

Steeped in history, tinged with bourbon and surrounded by the horse farms that define its identity, this northern-Kentucky city could have ridden into the 21st century on the strength of its past, or sold off its heritage, lot by lot and farm by farm, for the sake of development. Instead, Lexington has worked hard, and sometimes contentiously, to protect its green pastures, brick-and-limestone buildings and small-town feel while cultivating a burgeoning downtown and an economy that includes health care, high-tech, higher education and, yes, horses.

VIDEO: Take a virtual walking tour of Lexington.

The diversified job market has allowed Lexington to survive bad times and move forward in good. The University of Kentucky, the city’s largest employer, recently opened a major new wing to its hospital, fueling the already-thriving health sector; other big employers include Lexmark and Toyota. Thanks to a commercial development department at the University of Kentucky and a network of investors, Lexington also provides fertile ground for start-ups. “Our brand is in preserving our roots and confirming our potential,” says Mayor Jim Gray. “There’s a lot of room for expression and growth here.”

Intellectual growth, that is. Lexington manages physical growth by limiting development to its urban district and requiring that rural lots be no fewer than 40 acres each. A separate regional program purchases pastureland to protect it. The result: “You can leave from the middle of town and within 20 minutes, you’re in some of the most beautiful countryside in America,” says Bill Lear, a Lexington real estate attorney and developer.

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Downtown Lexington lacks the critical mass of more bustling cities: Its retail shops -- one-of-a-kind stores such as Third Street Stuff & Coffee, which sells gifts and coffee, and Miss Priss, purveyor of prom and pageant dresses -- are surprisingly scattered. Still, these mom-and-pop shops give Lexington its unique flavor, and new businesses, including upscale restaurants, a jazz club, a warehouse-turned-catering company and two small groceries, are beginning to fill the gaps. Cheapside Park, across from the old courthouse, draws throngs of Lexingtonians for its Thursday Night Live jamfests and attracts a similar horde on Saturdays for the farmers’ market.

With ten colleges in the city and its surroundings, Lexington boasts one of the nation’s most highly educated populations. It attracts visitors from all over the world for its racing events -- including the 2010 World Equestrian Games -- and the Bourbon Trail, a collection of Kentucky distilleries. Once a bit uptight and conservative, Lexington “wears itself like a loose jacket,” says Gray, but “it’s not so sophisticated that it’s predictable. We’re not pretending to be something we’re not.”

Why It's Affordable

About $165,000, on average, will get you a three-bedroom house in Bluegrass Country. Stately brick homes in the historic districts run as high as $1 million, but old-home aficionados can sometimes pick up a renovated Victorian or a Craftsman bungalow for as little as $225,000. Don’t like old? Sleek lofts start at about $160,000. Electricity costs run well below the national average, and a tank of gas lasts for days in this compact city.

Why It's Fun

Hoops and horse races, for starters. All of Lexington turns out for the biannual horse races at the Keeneland race track and to watch the University of Kentucky men’s basketball team play at Rupp Arena. When they aren’t screaming for the Wildcats or cheering on the thoroughbreds, locals bike the Legacy Trail, tailgate outside the school's football games, listen to the bands at Buster’s Billiards & Backroom, tour the art studios at Victorian Square, hit the new restaurants on Jefferson Street or settle down to the fried chicken at the Merrick Inn, a Lexington institution.

SLIDE SHOW: See the Top 10 Best Value Cities