In 1989, the state Legislature authorized a new half-cent sales tax to fund economic growth in small- to medium-size towns. The measure has been lauded as a game-changing force for new jobs and financial prosperity across the state.

“I think overall it was one of the most successful pieces of legislation I carried,” said former Lt. Gov. Bill Ratliff, R-Mount Pleasant.

Ratliff authored the bill as a freshman in the Senate. Since then, towns whose voters decided to levy the tax have constructed business parks, abated taxes and offered direct incentives to lure – or keep – manufacturers and other businesses.

“Some communities have really used it to create an economic engine,” Ratliff said. “With all the modesty I can muster, I truly believe one of the reasons Texas’ economic climate has been as good or better than any place in the United States is that we have hundreds of communities that have the financial wherewithal to actually attract those jobs.”

But while many communities tout a record of development over the past 20 years, growth for others has been much slower. Some towns that have pumped thousands or even millions of dollars into projects are still waiting to see a return on their investment.

Pouring money into a lake

At the time, the power plant seemed like an answer to prayer in Gilmer .

In the 1990s, the Upshur County seat borrowed $4.8 million to build a lake just outside of town, and in return, a Maryland company agreed to build a $200 million, natural-gas fired power plant on the lake ‘s shore.

Gilmer voters OK’d the half-cent tax to cover the debt. The plant would have been well worth the investment, doubling the city’s economy, according to at least one estimate.

But the company, Constellation Energy Group, backed out in 2002. Citing more supply than demand and steep company losses, it cancelled the Gilmer project along with others in four states.

“The power plant didn’t get built, the lake did, the money was borrowed and is owed,” said Gilmer City Manager Jeff Ellington, who was hired three years after the plans fell through.

“I think we all look at (the past) and see things we wish we could have changed or done a little differently, but once it’s done, it’s done,” he said. “I’m not in a position to critique them. Had it gone the other way, I think everybody would have been patting themselves on the back.

“Not everything works out that way.”

The half-cent levy – which is known across the state as the 4A tax – accounts for one-third of Gilmer ‘s total sales tax rate. All of it goes to cover the annual note. The payment is just less than $300,000 a year, and Gilmer taxpayers will be saddled with the debt till 2035.

“If there was a way to get that debt paid off earlier, I would be glad to do it,” Ellington said.

For now, he said, the lake is in economic limbo.

Because the state restricts how 4A money may be spent, more than two-fifths of the lake water must be used for economic development and not for other purposes such as drinking water. And because the city’s economic development tax is tied up in lake debt, incentives that other towns use to promote growth are not available to Gilmer .

In the five years from 2004 through 2008, Gilmer ‘s economy grew at a rate that was around half the statewide pace, while the number of jobs in Upshur County has grown by 3.7 percent since 2004, compared with 11.9 percent statewide.

It’s too soon to say whether the lake was a bust, Ellington added.

“It depends on how you look at it,” he said. “Not too many cities in East Texas have a lake with available water … If we ever find another entity in need of water in the lake , we can use it to create jobs in the area.”

Overton’s cash surplus

Tiny Overton has taken a different approach to its economic development cash.

The city, which sits in Rusk and Smith counties, has hoarded it. Overton spent just 1.8 percent, or less than $8,000, of the nearly $440,000 it collected for development purposes from fiscal years 2004 through 2008.

“I’m not sure inactive is the right word, but being able to devote a lot of time for that has been a key issue as well,” said B.J. Potts, the city manager.

“The desire has been there, and I don’t think we don’t want to see growth,” he said. “We’re not going to sit on this money. That’s not how it operates. It’s taxpayer money, and it’s very beneficial for this to go back to the taxpayers.”

The Overton Economic Development Corp. elected a new president in 1999 and is investing money in its community, Potts said.

Though financial reports from 2009 are not available, President Terry Waggoner said the corporation has loaned $100,000 to a business that is expanding in the town of around 2,400.

“We’ve got a few things we’re looking at, and we’ve got a few people we’ve helped,” Waggoner said. “We’re in a small area, so it’s hard to draw business when you’re in a rural community like we are. But we’re always looking.”

A large cash reserve isn’t such a bad thing, Potts said.

“In essence, the more (funds) that you get in there, the more attractive that you can be,” he said. “If we were a small town sitting here with $40,000 in a 4A tax, that doesn’t go a long ways to help somebody. It’s very important to have that funding there if you want to generate an interest and be able to help some of these businesses.”

The stakes are high, Potts said. He said Overton’s future might hinge on the success of its efforts at economic development.

“Everybody’s got their dreams of their hometowns in these little communities being what they once were and being a thriving little town in itself,” he said. “As times change and people move to larger cities, we would like to see this play a part in keeping the city alive. That’s a very big part of the EDC.”

Gladewater’s rosier road

Taxpayers in Gladewater have paid nearly $2.8 million in economic development taxes since 1997, the earliest year that information is available from the Texas Comptroller’s Office.

With an oil patch that is drying up and downtown sales that depend on the whims of antique shoppers, the town of around 6,275 residents has seen little economic growth in recent years.

“We’re never happy. We’d like to have everything in the world, but we’re also realistic,” said Lon Welton, the Gladewater Economic Development Corp. executive director.

“With things going as they’re going, we’ve hit a turnaround. And (the taxpayer investment) will definitely have an impact on the city of Gladewater. With sales dropping like they have, it won’t happen tomorrow; we won’t see an impact tomorrow. But I can definitely see a rosier road.”

In the six years that Welton has been GEDCO director, a plastics manufacturer with ties to Gladewater has returned to within the city limits, and a trucking company, two construction companies, a couple of recycling businesses and an oil field manufacturer have moved in. GEDCO also is promoting industrial development at the city airport.

“I feel there’s a definite impact,” he said. “We’re not Longview, we’re not Kilgore, and we won’t have the impact they will have in their communities, but with what we do have, we’ve weathered the storm to a degree.

“It has hit a couple of our industries, but they are reloading, and we do have three that are seriously looking at expanding.”

No land in Carthage

Oil, abundant natural gas and not a lot else fuel the Carthage economy, according to Charles Thomas, the Carthage

“We don’t have a lot of land that can be developed here because of the pipelines, and there’s basically no one who has been selling,” Thomas said. “A lot of people like to hang onto their land to get agricultural exemptions. What’s under is worth more than the surface.”

Thomas was Carthage ‘s city manager for three decades. His new job, he said, is kind of like semi-retirement.

“I only work half time because there’s just not that much that can be done here inside the city,” he said.

Still, Carthage taxpayers have spent $3.6 million on 4A economic development since 1997. More than half of the annual budget is categorized as personnel, though Thomas is the only employee. He said personnel includes things such as fees for engineers and consultants, and his annual salary is about $73,000. He does not receive sick leave, paid vacation or other benefits.

A couple of years ago, the economic development corporation put up $400,000, and the Texas Department of Transportation funded more than $1 million, to build turn lanes at a section of the Charles Thomas Parkway, where Walmart was planning to build a Supercenter.

The roadwork was completed 18 months ago.

“We’re waiting on them. We’ve done everything they told us they needed. We understood they were going to build here then, but it’s been put off several times,” he said. “They have purchased the land, and we think they’ll eventually build.”

The main purpose of Carthage ‘s 4A tax is to maintain jobs, Thomas said.

The 4A tax is different than the two-years-younger 4B tax, which cities can use for projects such as parks and infrastructure. East Texas cities that collect 4B taxes include White Oak, Pittsburg, Avinger, Hughes Springs, Jefferson and Tyler. Linden collects both taxes. Carthage also levies the 4A and 4B, but at a quarter cent each.

“It’s restricted money,” Thomas said of 4A funds. “It cannot be used for certain things, but I think we use ours wisely. We don’t give just everybody who comes here asking for money money. If we give a tax abatement, they have to stay here. If we give land, we don’t just deed the land to them … If they leave, they’ve got to pay up.”

Swinging for the fences

The Waco-based economist Ray Perryman calls Texas’ 4A sales tax a “game changer” for smaller communities, who must carefully evaluate how they invest their money.

“It’s a very competitive environment,” he said.

“The best thing is to be intelligent about it. Use the money in a way that what you give up is not as big as what you get. Put safeguards so that if people don’t live up to your expectations, there are opportunities to recoup some of that.”

Some communities have seen more success than others, Perryman added.

“Obviously not everybody has hit a home run. Some have hit two or three home runs. The major thing is to try to learn from the best practices, and just keep swinging.

“The difficulty with economic development is that second place gets you a fruit basket,” he said. “There’s no second, third or fourth-place prize. You either get it or you don’t. Consequently, some areas haven’t hit the big one yet, but they have the resources to do it.”