Tuesday, April 10, 2012

Sheffield Nelson, unlikely severance tax champion

Posted By on Tue, Apr 10, 2012 at 8:51 AM

UNLIKELY GAS TAXER: Sheffield Nelson, leading severance tax campaign, is a former gas company executive.
  • UNLIKELY GAS TAXER: Sheffield Nelson, leading severance tax campaign, is a former gas company executive.

Times columnist Ernest Dumas, who draws on nearly a half-century of coverage of Arkansas politics, including the essential role gas exploration and taxation have played in politics, examines today former gas executive Sheffield Nelson's somewhat surprising role as a severance tax champion and his past leadership of the very business organizations fighting him today.

Conclusion:

1) Nelson is right. A higher tax won't discourage production.

[Gov. Mike] Beebe avoided the chamber’s argument that the tax would chase producers out of Arkansas because he knows better. History just doesn’t support the theory. Back when Arkansas, alone among the major producing states, left gas virtually untaxed, exploration companies were drilling like mad in states that levied severance taxes hundreds of times greater than Arkansas’s. States like Texas, Oklahoma, Kansas, Louisiana, Alaska, Wyoming and West Virginia get so much revenue from severance taxes that they have low or nonexistent income taxes. Thanks partly to Sarah Palin, Alaska taxes gas production at 22.5 percent of the market value, three times Nelson’s plan. Where’s the tea party?

...But Beebe said he is inclined now to vote against Nelson’s tax because it might discourage companies that are exploring for oil in the Haynesville formation along the Arkansas, Louisiana and Texas borders from drilling in Arkansas because any gas that might be produced from the wells would be taxed more in Arkansas. Weak argument. Louisiana is taxing gas production now slightly more than Arkansas would be collecting if it had Nelson’s 7 percent rate. Louisiana exempts shale gas from taxes until the producer recovers its exploration costs, but shale wells produce so much gas in the early months that it doesn’t take long.

2) In a fair fight — though it likely won't be, given the money to be spent against Nelson — he should win.

But if the campaigns for and against the tax are waged at rational level, which is not likely, it ought to favor Nelson. He is the one person with nothing to gain, as far as anyone can tell. He is spending from his modest fortune to produce some gain for the public from the exploitation of a vanishing mineral.

You might expect that the corporations that mine the gas for profit and the surface landowners who reap a small part of it would be happy to tithe a small part of their gain from a resource that was bequeathed to them from prehistoric life across hundreds of millions of years and that will not be there for the next few thousand generations. But that takes no account of greed.


The full column follows. (You can go here to find out about circulating petitions for the tax increase to pay for roads trashed by gas drillers.)

Sheffield Nelson is an odd person to be waging a one-man crusade against the business and political establishment to raise taxes on the Texas and Oklahoma gas producers who have been drilling in the Arkansas shale.

First, Nelson is a Republican—a Republican who was twice the GOP candidate for governor and not so long ago the party’s state chairman and its national committeeman. His races for governor, in 1990 against Bill Clinton and in 1994 against Jim Guy Tucker, seized on the two governors’ record of raising taxes. Nelson ran those famous commercials that panicked Clinton in the latter days of the 1990 campaign. They took a phrase once muttered by Clinton, “tax and spend,” slightly out of context and made it sound like Clinton was bragging about taxing away and spending the people’s money. Nelson is not your tax-loving liberal.

Second, in a former life Nelson was president and CEO of the state’s largest natural-gas utility, the old Arkansas Louisiana Gas Co. Every other gas company executive in the history of the country, as far as I know, has opposed any form of taxes on the production or distribution of his product. Nelson has promoted the severance tax on gas for 28 years.

And in the 1980s, Nelson was chairman of the Arkansas Industrial Development Commission, which was charged with bringing industries to the state and protecting their interests at all costs, usually in alliance with the commission’s alter egos, the Arkansas State Chamber of Commerce and Associated Industries of Arkansas. Oh, and he was once president of the Little Rock Chamber of Commerce. You could call him Mr. Economic Development.
Now Nelson is in a nasty war with the Chamber of Commerce and a surrogate group that the chamber and the gas industry set up to stop his 7 percent tax on gas production. If Nelson gets some 65,000 good signatures on petitions by July the tax will go on the November ballot. The chamber wants to discourage people from signing the petitions but if it needs to it will spend a fortune to defeat the tax at the polls.

Randy Zook, the spokesman for the chamber and the gas industry’s political committee, “Arkansans for Jobs and Affordable Energy,” called Nelson’s proposal “dumb.” He said it would chase the gas drillers out of Arkansas, and he uttered the magic words: It will cost the state thousands of jobs.

Last week, Governor Beebe seemed to enter the lists against Nelson, too. Beebe had favored a good severance tax when he was a state senator in the 1980s, pushed a loophole-filled law through the legislature in 2008, and was mildly encouraging last year about Nelson’s idea of a real severance tax that really would build highways, roads and streets.

Beebe avoided the chamber’s argument that the tax would chase producers out of Arkansas because he knows better. History just doesn’t support the theory. Back when Arkansas, alone among the major producing states, left gas virtually untaxed, exploration companies were drilling like mad in states that levied severance taxes hundreds of times greater than Arkansas’s. States like Texas, Oklahoma, Kansas, Louisiana, Alaska, Wyoming and West Virginia get so much revenue from severance taxes that they have low or nonexistent income taxes. Thanks partly to Sarah Palin, Alaska taxes gas production at 22.5 percent of the market value, three times Nelson’s plan. Where’s the tea party?

But Beebe said he is inclined now to vote against Nelson’s tax because it might discourage companies that are exploring for oil in the Haynesville formation along the Arkansas, Louisiana and Texas borders from drilling in Arkansas because any gas that might be produced from the wells would be taxed more in Arkansas. Weak argument. Louisiana is taxing gas production now slightly more than Arkansas would be collecting if it had Nelson’s 7 percent rate. Louisiana exempts shale gas from taxes until the producer recovers its exploration costs, but shale wells produce so much gas in the early months that it doesn’t take long.

Remember what happened to Beebe’s tax plan? When Nelson started petitions to put the 7 percent tax on the ballot in 2008, the rattled industry asked for the governor’s help. To head off Nelson’s plan, the producers agreed to write a bill to tax gas at 5 percent, and Beebe called the legislature into session and they passed it almost the day the gas industry’s lawyers sent it to the Capitol. It turned out that the fine details in the bill left most gas taxed at 1.5 percent or less rather than 5 percent. Beebe’s prediction that the state would get $100 million or more for road building at the outset and burgeoning amounts afterward looked silly.

No tax rate is going to produce a lot of money for the state in the current climate. Horizontal drilling has become so economical and reliable that exploration has boomed in shale from coast to coast. That and the warmest winter on record have sent prices plummeting to about $2.15 per mcf and gas in storage to a record peak.

But if the campaigns for and against the tax are waged at rational level, which is not likely, it ought to favor Nelson. He is the one person with nothing to gain, as far as anyone can tell. He is spending from his modest fortune to produce some gain for the public from the exploitation of a vanishing mineral.

You might expect that the corporations that mine the gas for profit and the surface landowners who reap a small part of it would be happy to tithe a small part of their gain from a resource that was bequeathed to them from prehistoric life across hundreds of millions of years and that will not be there for the next few thousand generations. But that takes no account of greed.

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