Try, try again 

The politics aren't favorable, but the facts say a 2008 compromise didn't put a big enough severance tax on natural gas production.

Remember when the legislature and Governor Beebe, in the spring of 2008, solved a big part of Arkansas's highway funding problems by enacting the first serious tax on natural gas production in 60 years?

How did that turn out?

Not so well, obviously. The state Highway Commission and its good-roads constituents are back lobbying for a big road-building program when the legislature convenes in January — either new motor fuel taxes, the reassignment of some existing sales taxes to the highways or a new sales tax, any of them pledged to back highway bonds.

Receipts from the gas severance tax, 95 percent of which go to highways, roads and streets, are running barely more than half the amounts that were forecast in 2008, and there is a fresh recognition that while natural gas production has exceeded the forecast, the tax receipts will probably never come close to matching the forecast. Wellhead prices for gas have slumped the past 18 months because the recession has reduced demand and because drilling in other shale plays besides the Fayetteville shale from the Adirondacks to the Rockies have filled pipelines and storage with an overabundance of gas.

But the depressed market and prices are not the only reasons that tax revenues for the highways have fallen so far short of the predictions of that fall, when Governor Beebe told highway advocates that the severance tax would produce far more than the $100 million-plus a year that had been predicted.

The tax law, which was written by gas industry lawyers and rushed through the legislature in three days, is full of holes. Not much gas is actually taxed at the law's stated rate of 5 percent of the wellhead price but at 1.5 percent or even less. The tax bill was drafted to exempt most gas from the 5 percent tax and also to bluff the legislature from ever trying to amend the provisions to make the tax more productive. The act says three-fourths of the both houses of the legislature will have to vote to increase the tax on any gas, although that plainly violates the state Constitution. The tax can be raised to 2.6 percent of the market price by a simple majority vote. That was the tax rate when the Constitution was amended to require a three-fourths vote to raise any tax rate above its 1934 level.

So the Highway Commission is back seeking another big source of money for road building and maintenance. Revenues from motor-fuel taxes, the main highway-funding source, have been flat or declining for six years.

The Blue Ribbon Committee on Highway Finance, which has recommended a big highway program to the governor and legislature, has floundered in its search for some plan that Governor Beebe would embrace or that might eke through the more conservatively entrenched legislature. Its members have talked about raiding general revenues, levying a new sales tax or increasing the gallonage tax on motor fuels in some way that would not trigger the Constitution's three-fourths vote requirement to pass most tax increases.

The reactionary political climate, put in stark relief in the general election this month, makes all of those options remote. With a legislature dominated by freshmen, most of them pledged to vote against all taxes, the prospect of passing a tax program of any size, much less one of the magnitude the Highway Department says it needs, seems preposterous.

Could the natural gas severance tax still be the solution?

Sheffield Nelson thinks so. Nelson, the former president of the state's largest gas distribution company, engineered the severance tax law in 2008 by starting a petition drive to put an initiated act on the ballot that would tax natural gas production at the rate of 7 percent of the wellhead price, the same rate as Texas, the nation's No. 1 producer of gas. When Beebe, at the urging of the gas industry and business interests, called a special session to levy a smaller tax, Nelson dropped his initiative effort and supported the Beebe and industry bill.


Comments (6)

Showing 1-6 of 6

Add a comment

Subscribe to this thread:
Showing 1-6 of 6

Add a comment

More by Ernest Dumas

  • White House sex

    Illicit sex has invaded the White House since Tom Jefferson's days and sometimes also the public aspects of presidential elections, but Donald Trump threatens to make sex the central issue of a presidential election
    • Oct 6, 2016
  • EpiPen lesson

    Congressional Republicans and Democrats staged a rousing display of rage against the CEO whose company gouged a fortune from families whose kids and sometimes grownups need the lifesaving properties of the drug EpiPen.
    • Sep 29, 2016
  • New normal

    No two presidential candidates since polling began have run up negatives as massive as those of Donald Trump and Hillary Clinton, who yet won their parties' nominations easily. "What gives?" may be the biggest political mystery in history.
    • Sep 22, 2016
  • More »

Readers also liked…

  • Casting out demons: why Justin Harris got rid of kids he applied pressure to adopt

    Rep. Justin Harris blames DHS for the fallout related to his adoption of three young girls, but sources familiar with the situation contradict his story and paint a troubling picture of the adoption process and the girls' time in the Harris household.
    • Mar 12, 2015
  • A child left unprotected

    State Rep. Justin Harris and his wife adopted a young girl through the state Department of Human Services. How did she, six months later, end up in the care of a man who sexually abused her?
    • Mar 5, 2015

Most Shared

Latest in Cover Stories

Visit Arkansas

Logoly State Park dedicates new visitors center

Logoly State Park dedicates new visitors center

Arkansas’s first environmental education state park interprets the importance of the natural world and our place within it.

Event Calendar

« »


2 3 4 5 6 7 8
9 10 11 12 13 14 15
16 17 18 19 20 21 22
23 24 25 26 27 28 29
30 31  

Most Viewed

Most Recent Comments


© 2016 Arkansas Times | 201 East Markham, Suite 200, Little Rock, AR 72201
Powered by Foundation