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Former gas executive proposes severance tax increase Friday, Jan 18, 2008 By John Lyon Arkansas News Bureau LITTLE ROCK - Former gas company executive Sheffield Nelson submitted a proposal Thursday for an initiated act to raise Arkansas' severance tax on natural gas to fund highways, higher education and local government. The proposal would raise the tax from the current rate of three-tenths of a cent per 1,000 cubic feet - one of the lowest rates in the nation - to 7 percent of the market value of the gas at the time of extraction, the same rate Oklahoma charges. Industry executives said the proposal could deter companies from continuing to invest in development of the Fayetteville shale play in Arkansas. A University of Arkansas study has projected natural gas exploration in the shale play would contributed $5.5 billion to the state economy through the end of the year. Nelson submitted the proposal to state Attorney General Dustin McDaniel for certification. If McDaniel approves the wording, supporters will have to collect nearly 62,000 signatures by July 7 to place the measure on November general election ballot. "The fact of the matter is, they (gas companies) have gotten a free ride for a long, long time, and through intervention by friends on their behalf have been able to stop any proposed increase," Nelson, the former Arkla Inc. chief and twice failed Republican gubernatorial candidate, told reporters at his downtown Little Rock office. "This means that we've gone from 1957 to 2008 without an increase, and that is just not fair." A study by the state Department of Finance and Administration found that Arkansas would have collected $92.7 million in the 2007 fiscal year if its severance tax rate were equal to Oklahoma's. As is, the tax generated $619,417 during the fiscal year. John Thaeler, senior vice president of SEECO Inc., a subsidiary of Southwestern Energy Corp., said Nelson's proposal would give Arkansas the highest tax burden of any major natural gas-producing state because other states offer tax incentives that are not available here. "This extreme 7-percent tax could negatively impact the business and job opportunities created by the Fayetteville shale project that has helped offset the loss of thousands of manufacturing and construction jobs in our state," he said. Nelson said that if his proposal gets on the ballot and passes, the Legislature could pass off-setting tax relief measures in 2009. Under Nelson's proposal, 56 percent of the revenue from the tax increase would go to state highways, 20 percent to colleges and universities, 12 percent to county aid and 12 percent to municipal aid. Nelson previously said he favored devoting most of the revenue to education, but he said Thursday he altered his plans after a number of discussions with Gov. Mike Beebe. The governor has said he favors increasing the severance tax and spending the revenue on highways. Asked Thursday about Nelson's proposal, Beebe said, "He's getting closer." Beebe said no one is a bigger advocate of education than he is, but he still believes that all of the money should go to highways. "We'll take care of higher education, but the one area that we have not taken care of is highways," the governor said. Beebe has said he favors raising the tax through legislative action, though he would support an initiated act if lawmakers are unable to pass an increase in the 2009 session. He has challenged the natural gas industry to help come up with an increase that is fair. Raising the tax through legislative action would require a three-fourths majority vote in both chambers. Nelson said doing so would be impossible as long as incoming Senate President Pro Tem Bob Johnson, D-Bigelow, opposes increasing the tax. "You've got a state senator with a lot of power who says that he can block it in the Senate, and I think that speaks loads. It doesn't take but one-fourth of the vote, or nine votes, and he can effectively block anything," Nelson said. Johnson did not immediately return a phone call to his office seeking comment Thursday. House Speaker-designate Robbie Wills, D-Conway, said he would rather see the issue taken up by the Legislature than proposed as a ballot initiative. "I certainly hope we would have the opportunity," Wills said. "It's a very complex issue, not just for people who live in the Fayetteville play area, but the entire state." Tom Price, senior vice president for corporate development at Chesapeake Energy Corp., said in a prepared statement, "We respect any citizen's right to take the initiated act approach, but we continue to believe that a negotiated solution between the industry and the state's leadership provides the best opportunity to create a lasting 'win-win' solution for all stakeholders." ------- Reporter Rob Moritz contributed to this report |
