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Substance on severance Thursday, Feb 28, 2008 By John Brummett Gov. Mike Beebe remains huddled in the state Capitol, endeavoring to bring the natural gas industry and legislators together on a negotiated increase in our absurdly microscopic severance tax. My column last week calling for more public accountability in the debate brought a few responses, including three of sufficient interest that I relate them here. One comes form the self-professed "severance tax guy" in Conway. That would be Dr. Roger Lewis, retired director of institutional research at the University of Central Arkansas. He's been the author the last 13 years of an annual economic report for Faulkner County. He identified himself so that I might recognize his mailing as coming from the fellow who had spoken with me the last two years, or maybe three, at the Conway Rotary Club. It was to hand me some economic report or other and discuss the severance tax issue in the context of the Fayetteville Shale play in north-central Arkansas, which is a potential boon to Faulkner County. Lewis enclosed his report presuming to do what state fiscal officials say they can't, which is arrive at a credible comparison of the overall tax load on the natural gas industry in Arkansas as compared to Texas and Oklahoma. His report considers property and income taxes to conclude as follows: Sheffield Nelson's proposal to raise our severance tax to 7 percent of market value would make our overall tax load on the industry a tad higher than than in Texas and Oklahoma. He says a tax of 5.5 percent of the wellhead price would get us to par. He also proposes exempting from the tax the first 1.5 million cubic feet of production from high-cost wells. That would be applied retroactively to wells already producing. This is to encourage exploration by forgiving taxes for a time to offset startup capital costs. Lewis also proposes to double a small existing cubic volume tax for the operations of the Oil and Gas Commission, and to share proceeds with the state Economic Development Department. The point is the Fayetteville Shale activity has raised environmental concerns and increased the regulatory burden on those agencies. His report ought to be enough to get him invited to the governor's office, which has a copy, or to a hearing of the Legislature, several members of which have copies. Meantime, Joyce Hale, head of the League of Women Voters in Washington County, got in touch to relate her idea. It's to use new severance tax revenue to purchase land for watershed and general land conservation. It's to use the money from the depletion of one natural resource to protect another and more vital resource. There are several ways to do that, one of which is to use the severance tax proceeds to offset income tax credits for donating land for easements. It's a wonderful concept, adapted from a program she's familiar with from Boulder, Colo. One problem is that Boulder is one of the half-dozen most liberal and progressive communities in the country, and Arkansas isn't. The other is that, as a poor state always challenged in basic needs, Arkansas inevitably seems to need money not for smart and progressive ideas like hers, but for basics. Note that the prevailing political debate is whether to use this new money for highways or higher education. Regrettably, state policy-makers simply cannot be expected to set aside hundreds of millions of dollars in new revenue for something new and innovative. In that regard, this was the third input, delivered by phone by Lu Hardin, the president of the University of Central Arkansas. He says Beebe is on the verge of a great accomplishment. This was Hardin's point: If Beebe can fashion a compromise to raise the severance tax rate in spite of the stacked odds, and if he can then spend most or all of the proceeds on highways, he will have spared education hundreds of millions of dollars into the future. That's because highway needs stand to become so acute that the pressure will become great to tap general revenue, historically off-limits to roads. Beware that whenever someone talks about taking the sales tax from automotive parts for highways, they are actually talking about talking money from schools, colleges, prison and Medicaid. Of course Hardin is a Beebe pal and a tax receiver who is given to mild or Pollyanna-ish exaggeration. But that doesn't mean he's wrong. ------- John Brummett is a columnist for the Arkansas News Bureau in Little Rock. His e-mail address is jbrummett@arkansasnews.com; his telephone number is (501) 374-0699. |
