82

71

59

30 245

MISSISSIPPI

M

[14]

Population As of 2000

Arkansas ................................26,448Texas........................................34,782

Labor Force December 2001

Arkansas ................................17,400Texas........................................38,313

Unemployment Rate December 2001

Arkansas....................................4.1%Texas .........................................4.3%

Per Capita Personal Income 1999

Arkansas ..............................$19,305Texas......................................$22,992

Top Five EmployersRed River Army Depot....................2,500Cooper Tire and

Rubber Co. ................................2,000Christus St. Michael

Health System ..........................1,600Georgia Pacific Inc. (maker of fine finished papers) ....1,400Wadley Regional

Medical Center ........................1,200

T e x a r k a n aBoth sides by the numbers

Notes: Figures for labor force, unemploy-ment rate and per capita personal incomeinclude all of Miller County, Ark., andBowie County, Texas.

law will eventually enable it to claima larger piece of the retail pie.

No Use for Usury

Forty years ago, most of the cardealerships in Texarkana were inArkansas. Today, every one of themoperates on the Texas side. Twenty-five years ago, Central Mall was slat-ed to be built on the Arkansas side.But the anchor tenants were reluc-tant to locate in Arkansas; so, shop-pers and mall rats can now be foundin Texas. What caused these eventsto happen?

“It had to do with state laws thatmade it more attractive to do busi-ness in Texas than in Arkansas,” saidRobert E. “Swede” Lee, presidentand CEO of the Texarkana Chamberof Commerce, which serves bothcities. “Those differences forced amigration to Texas.”

The primary law Lee is referring tois Arkansas’ long-standing usury law.Part of the Arkansas Constitution,this law was billed as protection forconsumers. It put a cap on the inter-est rate that Arkansas-charteredbanks and all finance companies inthe state can charge. The cap is fivepercentage points above the FederalReserve discount rate (the rateReserve banks charge banks forshort-term loans). Because of thecap, it is more difficult for these busi-nesses to offer credit to people with

f Minneapolis and St. Paul arethe Twin Cities, then Texarkana,Ark., and Texarkana,Texas, can be dubbed the Siamese twin

cities. Conjoined by a road runningsquarely through the heart of town,the cities are fused in a way thatmakes crossing between them nearlyimperceptible to their combined60,000 residents.

“In other twin-city situations,you see something like a river thatprovides separation, or maybe thecities are at least in the same state,”says Robert Wright, city manager forTexarkana, Ark. “Here, it’s different.As far as our residents are concerned,it is one place. At the same time, weoperate under two sets of state laws,which sometimes makes things complicated.”

Complicated, to say the least. Inthis community of two mayors, twocity governments, two police depart-ments and two fire departments,consider just some of the differencesyou face depending on which side of State Line Avenue you live on:

• If you want to pick up a case ofbeer, you can do so only inArkansas. The Texas side is dry.

• Your personal property and realestate taxes are typically about 50 percent lower in Arkansas than in Texas.

• Looking for a job in manufactur-ing? You’ll have better luck on theArkansas side, which has a greaterindustrial presence. But foremployment in a retail or serviceestablishment, the opportunities inTexas dwarf those in Arkansas.

In general, the majority ofTexarkana’s economic developmentin recent years has occurred on theTexas side. But Texarkana, Ark., ishoping that a recent federally man-dated change in the state’s usury

CommunityProfile

I

Texa

s

By Stephen Greene

The Federal Building in downtown Texarkana

straddles State Line Avenue. Half of the

building is in Texas, the other half in Arkansas.

www.stls.frb.orgThe Regional Economist ■ April 2002

[15]

blips in their credit history becausethe businesses can’t afford the risk ofdefault. To be able to offer higher-interest financing to a wider range ofpeople, some Arkansas banks movedtheir home office to Texas, where nosuch usury restrictions exist. All ofthe car dealerships also packed upand moved across the border.

Recently, banks have been givenrelief from the usury law, thanks tothe Gramm-Leach-Bliley FinancialModernization Act of 1999, whichincludes a provision permitting in-state banks to charge the same rateof interest as the home state of anyout-of-state bank that has a branchin that state. For Arkansas banks,the change enables them to offer a greater number of customers access to credit.

“It allows for extension of creditfor people with marginal credit histo-ries who probably would have beendeclined a loan in the past,” saysDennis Huffman, president of Com-mercial National Bank of Texarkana.

It is important to note that financecompanies that maintain any kind ofphysical presence within Arkansas—whether headquartered or even withjust a branch office—are still subjectto the state’s usury law. With the discount rate currently at its lowestlevel in more than 50 years, thesecompanies are, in Lee’s words,“dead in the water.”

“Even if they eliminated the usurylaw completely in Arkansas, it wouldstill be more beneficial to be in Texasversus Arkansas,” says Todd Shores,

president of McLarty Auto Mall.“Texas is just more of a progressivestate. There are a lot of benefits tobeing here.” For example,Texas hasno corporate state income tax;Arkansas does.

Even though Lee estimates thatretail sales in Texas triple the amountson the Arkansas side, Arkansas is notcompletely bereft of major retail ten-ants or prospects. Wal-Mart consid-ered closing its Texarkana, Ark., storeafter opening a supercenter in Texas.Instead, the company recently put thefinishing touches on an expansion ofits Arkansas store, turning it into asupercenter as well.

“I think that speaks pretty highlyto the fact that there is some retailtrade that’s being captured inArkansas,” Huffman says. “Whetherother significant retail develops there, who knows?”

If it does develop, landowners atthe intersection of Interstate 30 andJefferson Avenue hope it happensthere. They have formed a partner-ship and are actively working to lureretailers to this last Arkansas exitbefore the state line.

Beyond Retail

An advantage Texarkana, Ark.,holds over its like-named neighbor tothe west is its enterprise-zone desig-nation and the tax breaks associatedwith it. This is one reason why thearea’s three largest manufacturers are located on the Arkansas side, ledby Cooper Tire and Rubber, whichemploys 2,000 people in Arkansasnear the Maxwell Industrial Park.The company rolls out an average of 44,000 tires each day and hasexpanded the plant six times sinceopening in 1964.

Recently, it has been a challenge to lure new industries to town. LindaCrawford, vice president of economicdevelopment at the chamber, there-fore concentrates on keeping closeties with employers, like Cooper,that already are here.

“Like most people, we’ve experi-enced a slowdown of projects andleads, and I don’t know how long the recovery will take,” she says.“So what we want to do is continueto work with our existing industriesto make sure that if they plan toexpand, they will do so in this area.”

In the housing sector, things havebeen looking up in Texarkana, Ark.,where large homes have sprung upthroughout wooded acres on the

northern edge of town. To be sure,there are advantages to living on theArkansas side. Besides enjoyinglower property taxes, residents of thisarea do not pay state income taxes.

This controversial exemption waspassed in 1979 in order to level theplaying field with the other side.As with corporations,Texas residentspay no state income taxes. Periodicattempts in the Arkansas Legislatureto repeal the exemption have failedover the past two decades.

“I think that major residentialgrowth is happening in Arkansasbecause people are finally gettingcomfortable that the income taxexemption is here to stay,” Lee says.

Lee is one of several officialsworking to achieve another criticalcomponent to Texarkana’s continuedeconomic growth: the completion of Interstate 49 between Texarkana,Ark., and Fort Smith, Ark., 150 milesto the north. When completed, theinterstate will run from Shreveport,La., to Kansas City, Mo., and connectwith other interstates at each end toform a north-south route from theCanadian to Mexican borders. TheTexarkana-to-Fort Smith stretch isthe only piece that is not yet approved.Lee wants that part of the highway to be built as a toll road to help payfor costs, but the Arkansas HighwayCommission opposes such a moveand talks are, he says, at an impasse.

“The impact this highway wouldhave on Texarkana will be dynamic,”Lee says. “But to have a 150-mile gapin the middle of a highway meansthat you don’t have a highway.”

The Texarkanas’quirky geographicalrelationship has caused periods ofcooperation and competition over the years. But sibling rivalry aside,these twin towns know the impor-tance of supporting each other’sinterests in order to create economicopportunities.

“If you look at it on a balancesheet as a banker would, we have theassets of two communities,” Huffmansays. “But we also have the liabilitiesof two communities. There are timeswhen it’s a favorable atmosphere, andtimes when it is not. These days, Ithink everyone has the attitude ofworking together to move the com-munity forward.”

Stephen Greene is a senior editor at theFederal Reserve Bank of St. Louis.

Arkansas