Severance Tax Hike Study: 8,300 Jobs At Peril

The Perryman Group, a Waco-based research firm, released its economic study of raising Arkansas’ severance tax rates on natural gas — a proposal being pushed by former gas exec Sheffield Nelson and the Arkansas Municipal League.

The report concludes that raising the severance tax to a flat 7% rate could cost Arkansas 8,300 jobs and more than $3 billion in economic activity.

The study, funded by the Conway Chamber of Commerce, looks at the economic impact of changes to the severance tax and how it would affect jobs, investment and state productivity.

Conway business leaders and other chamber interests in the Fayetteville Shale and Arkoma basin gas regions of the state have been supportive of keeping the severance at its current level.

Southwestern Energy has a major regional headquarters presence in Conway and areas in and around the city have experienced a boom in construction, population growth and economic activity during the past several years as gas exploration has increased.  Environmental groups and citizen activists have complained about the land impact of natural gas drilling.

Sheffield Nelson, the former chief executive of Arkla Gas (now Centerpoint Energy), is in the midst of an effort to raise the severance tax to a flat 7% with proceeds from the increase being dedicated to improving roads in Arkansas. Nelson contends that the gas companies are not paying their fair share and that higher taxes will not deter investment and drilling. The measure must still submit more than 62,000 signatures of valid Arkansas voters to qualify for the November ballot.

Opponents of Nelson’s measure say it would cripple economic activity in the shale play at a time when the industry is already under pressure due to low natural gas prices and an overabundance of product in the market.

THE REPORT
Dr. Ray Perryman, an economist and president of The Perryman Group, led the study for this latest report. His Waco, Texas-based firm has produced studies on the Keystone Pipeline project, wind energy and the impact of arts and culture on states’ economies.

Perryman tells Talk Business that the big takeaway from his Arkansas report is that an increase in the severance tax is “people will go elsewhere.”

The 33-page report, titled “The Potential Impact of Increasing Natural Gas Severance Tax Rates on Business Activity in Arkansas,” concludes:

“The economic harms associated with increasing the Arkansas natural gas severance tax rate and, thus, decreasing energy sector activity in the state are substantial and are estimated to be $2.2 to $3.3 billion in total spending and $768 million to $1.2 billion in output each year as well as 6,657 to 9,986 permanent jobs (on a gross basis) and $1.6 to $2.4 billion in total spending and $519 to $779 million in output (gross product) each year as well as 3,743 to 5,614 permanent jobs even when offset for the potential positive effects of spending the incremental tax revenue.”

Perryman said he knows he’ll be criticized by opponents of his findings on the economic and environmental fronts.

He said he walked into the project with “a blank piece of paper” and used his 35 years of research, academic background, and economic modeling to draw conclusions.

“I don’t have a dog in this fight,” he said in answer to a question of his fairness for being paid for his research. “Any way you slice it, it still comes out negative.”

You can access the report at this link.