Legislators Express Displeasure Over Municipal League Support of Severance Tax Proposal

A bipartisan group of 19 legislators – 16 Republicans and 3 Democrats – sent a letter this week to the Arkansas Municipal League voicing their displeasure of the group’s support of an increase in the state severance tax from 5 percent to 7 percent.  The proposal is a ballot initiative lead by Republican Sheffield Nelson and is currently gathering signatures to appear on the ballot in November 2012.

“If enacted, this Act will result in a loss of jobs, reduce state and local government general revenues, and will discourage expansion and growth by the independent energy producers doing business in our state,” wrote Sen. Jonathan Dismang (R-Beebe) who penned the letter. “It is important that Arkansas maintain the competitive position we have on natural gas exploration and production so we can protect the jobs that power our local communities.”

The letter explains that the legislature, the governor, and the natural gas industry reached a agreement “in good faith” in 2008 when the rate was raised to 5 percent.  Since that time, the industry has been hit hard by a price decrease from $9 per unit to $3 per unit.  The proposed 7 percent rate would put it as one of the highest in the country and would likely mean the loss of jobs related to the development of the Fayetteville Shale.

Nevertheless, Arkansas Municipal League Executive Director Don Zimmerman does not see the membership revisiting support of the Severance Tax proposal, which they voted to do last June.

“We talked about that (Wednesday) in committee and there was definitely a difference of opinion with some legislators who don’t want to support that severance tax,” said Zimmerman.

“The reasoning (for supporting it) was that you would have a real good highway program basically financed by out-of-state interests that are doing damage to the highway system in Arkansas, so the financing would be primarily based on out-of-state interests. Arkansas people would pay too – royalties and so forth – but the majority of the money would be paid by the big drilling companies that are coming into Arkansas and severing resources in the Fayetteville Shale primarily.”

Nelson presented his case in favor of the proposal to the attendees at the Arkansas Municipal League conference Thursday afternoon.

Zimmerman also said that they will consider whether or not to support the proposed half-cent sales tax increase/highway bond program at their meeting in June 2011.  The proposal was referred by the legislature and will be on the ballot in November 2012.

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