Report: Severance tax rise will not stop drilling

by The City Wire staff ( 8 views 

Former gas company executive Sheffield Nelson said his plan to raise Arkansas’ severance tax to 7% will make the ballot and won’t scare off natural gas drillers.

To back up his claim, Nelson rolled out economist Dr. Charles Venus who said the added cost to natural gas companies from a higher severance tax would amount to “less than one day’s profit per year.”

Venus said Arkansas’ current rate of 5% with exceptions is not working as planned. He added that other natural gas producing states, such as Alaska and Montana, have significantly higher rates and gas drilling has not been curtailed.

In prepared remarks based on his assumptions and calculations, Venus also said that Arkansas’ production is a pittance of the major players’ portfolios.

“The Arkansas natural gas market is insignificant to any and all of these players, although they will surely make substantial efforts to protect their interests,” he said. “The jobs produced by the gas drilling, which have been concentrated in Faulkner and White counties, will not go away until the drilling goes away.”

Venus provided the following points as a summary to his narrative report.
• The jobs produced by the gas drilling, which have been concentrated in Faulkner and White counties, will not go away until the drilling goes away.

• The 15,000 jobs created by the proposed severance tax will last as long as the severance tax is collected.

• Arkansas gas consumers will not pay the tax because they don’t use the gas.

• Opponents of raising the severance tax contend that a higher tax will restrict investments and jobs in Arkansas.

• What the proposed severance tax does is require that the large gas producing companies pay about one day’s profits, each year, to repair the Arkansas roads that they helped damage.

Randy Zook, CEO of the Arkansas State Chamber of Commerce and a leader of the group, Arkansans for Jobs and Affordable Energy, said previously an increase from the current rates would “cost Arkansas jobs” and “drive natural gas production out-of-state.”

Nelson said that his goal of getting 62,507 signatures to qualify for the November ballot is on track.

Nelson’s proposal, the Natural Gas Severance Tax Act of 2012, would raise Arkansas’ severance tax on natural gas to a flat 7% rate and could bring in an estimated $250 million annually. Also, $20 million of the tax would be steered to municipalities for road repairs and construction. After that, the remaining balance would be divided 70% to the state, 15% to counties and 15% to cities.

“We are confident that we’ll make the ballot. We’re closing in on the 62,500, but that’s not where we’re going. In my opinion, we’ve got to have at least 80,000 in order to really qualify for our cause. That’s what we’re driving for and that’s what we hope to file on July 6,” Nelson said.

While he contends that collections are on pace, an email circulated Monday (June 11) from Don Zimmerman, executive director of the Arkansas Municipal League, which supports the tax hike, said the signature drive is currently short.

“To date we have not produced the number of necessary signatures to get this measure to a vote of the people,” Zimmerman wrote to supporters on Monday.