Realtors and severance taxes

If proponents of a higher severance tax gather enough signatures, that measure may be presented to Arkansas voters on the November background.

The severance tax proposal, if approved, will raise the existing rate on natural gas 5% to 7%. Sheffield Nelson — oddly enough — is pushing for the proposal. Nelson, after all is a former Republican gubernatorial candidate and was the CEO of Arkansas Louisiana Gas Co. Yes, he’s pushing for a measure that is opposed by people in the industry of which he was once a prominent member.

At any rate, one of the main arguments against the tax is that it will cost jobs. Some counties in the Fayetteville Shale Play — a natural gas-rich area in the northern part of the state — have been home to a growing natural gas industry since companies developed ways to efficiently mine the resource in the 2000s.

Larry DeGroat, a Realtor with Realty Professionals in Searcy, says the natural gas industry has been critical to White County. The area lost jobs when Whirlpool Corp. shut down its manufacturing facilities. More jobs were lost when Yarnell Ice Cream Co. shut down last year after providing jobs in White County for almost 80 years.

Yarnell resumed production in April after its new owner, Chicago-based Schulze & Burch Biscuit Co., purchased the company and assets for $1.3 million. Still, DeGroat said Yarnell is not hiring nearly as many employees as it did when the company was at its peak.

Gas companies, which are now pulling resources out of the Fayetteville Shale Play in White County, initially replaced a number of those lost jobs, thus keeping the area economy and housing market afloat, DeGroat said. He is concerned that taxing gas companies will cause them to simply pull up stakes and head to other areas where taxes are lower.

Nelson says the new rate of 7% will put Arkansas on par with bordering states. Evidently, law establishing the severance tax at 5% has enough loopholes to set the tax for most production at 1.5%.

Wendy Russ, a Clinton Realtor with United Country Spot Real Estate in Clinton, said the natural gas industry has undoubtedly benefitted Van Buren County.

“I’m glad they’re here,” she said, pointing out that gas companies have provided jobs to workers during a down economy and have been quick to donate to senior centers and other community organizations.

However, she said gas companies have also caused a lot of road damage because of the large trucks used in their operations and have dumped chemicals in area water resources and above ground.

“Someone has to pay for that, but who?” Russ asked, adding that it’s reasonable to tax gas companies to take care of some of the damage that naturally comes with their operations. “I wouldn't say stick it to them. Let's not be the highest in the nation, but let's not be the lowest in the nation, either. Let's hit it somewhere in the middle.”

Russ said a reasonable tax makes sense, but she’s not in favor of the Nelson proposal as it is written. Why? Russ said any revenue derived from a severance tax should benefit the areas where drilling is taking place rather than going to counties where there is no shale and, thus, no natural gas industry.

Russ said her perspective on the issue is a bit different because she is on the Clinton City Council. She, then, has seen the damage done in the area, but is quick to acknowledge that natural gas companies have taken a large amount of responsibility for repairing roads and taking other steps to minimize damages.

From a real estate perspective, Russ said it is hard to tell how much activity can be attributed to natural gas companies. Home sales have fluctuated in the area due to the recession that’s plagued the economy over the past few years, but it’s not unreasonable to assume that some natural gas workers have purchased property.

Those workers have largely impacted the area rental market. Van Buren County has never been home to an abundance of rental property, but people working with natural gas companies have absorbed much of what was available. That has, effectively, driven up rental prices and made it difficult for people to find places to rent.

Strangely, Russ said the opportunity exists for someone to come in and build more rental units but that building activity has largely not taken place.

Russ counts the natural gas companies as a largely positive presence in the community, but said it is beneficial to everyone to apply a reasonable severance tax. She said those companies fall on the “positive side of the scale” and a reasonable tax will go a long way toward keeping them there.