Arkansas Blog: Nelson's gas severance tax: details

Here's a summary of the ballot initiative Sheffield Nelson filed with the attorney general's office this morning. Assuming Nelson is able to accrue enough signatures, the initiative will go on the ballot in November.

And here's the text.

-It would raise the tax to 7 percent of the market value of natural gas at the time of the extraction -- on par with what Oklahoma and Texas charge. The current rate is 3/10 of a cent per 1,000 cubic feet. The new rate would be based on the market value of the gas rather than the quantity of production. Money raised would be placed under a special fund held by the state treasurer.

-The first 3/10 of a cent would be used for a general fund as it's currently used under state law. The remainder of the 7 percent tax would be split between education and highway spending, but mostly for highways and roads. The breakdown would be 56 percent to the State Highway and Transportation Department, 12 percent to the county aid fund for roads, 12 percent to the municipal aid fund for roads and 20 percent to the state's public colleges and universities.

-If passed, it will go into effect January 1, 2009.

Gov. Mike Beebe has favored waiting until the 2009 legislature and has said he favored spending the money on roads. Thursday, his spokesman Matt DeCample said, "Sheffield's heart is in the right place, but we would want to see a severance tax increase fully dedicated to highways." DeCample said the governor's general philosophy remains inclined toward legislative, rather than initiative, solutions.

More details after the jump.

Nelson cited the state legislature's reluctance to raise the severance tax in discussing the need for the initiative. He said it would be impossible for a tax hike to make it through the legislature. Raising the tax requires a 75 percent super-majority. Thus, only nine senators can defeat the measure. . If the ballot initiative does pass, the legislature could then make any tweaks to the tax rate it feels necessary.

(In a follow up interview, Nelson added that he thought Governor Beebe would take the lead in any changes that might have to be made and discounted the possibility that the tax could be nullified by a hostile legislature. He said he felt the measure had the strong support of Beebe, who he believes would veto any major change to the 7 percent rate.)

Nelson said he and his committee, the Committee for a Fair Severence Tax, plan to start collecting signatures during the May 20 primary elections. The committee will have over seventy-five members -- at least one from each county. It will be going for 70,000 signatures in order to meet the threshold of 62,000 needed to put the initiative on the ballot. Nelson said he expected the campaign for the initiative to cost about $1 million, which he will obtain through personal fund-raising efforts.

Nelson expressed confidence that Arkansans would vote in favor of the measure. He also downplayed fears that a tax increase would cause gas companies to take their business out of state. "When you've invested $1 billion in an industry, you don't turn and run because of a severance tax," Nelson said.

According to numbers Nelson provided based on current drilling, a 7 percent severance tax could be expected to bring the state between $60 million and $100 million annually, depending on the market value of natural gas. If the annual rate were calculated based on the current market price -- an $8.03 per Mcf open on the NYMEX today -- then the state would reap $82 million dollars a year.

Comments

Almost a perfect move. However dedicating the Severance Tax collections in such a way is a mistake. There needs to be a set-aside like a Superfund to clean up and repair environmental disasters which are likely to occur. Previously AT mentioned trashing of roads and water pollution. Some of those damages require immediate action and repair. There should be some type of dedicated emergency fund set up from the Severance Tax receipts that a governor could use in such cases. When the exploration companies exit an area there will likely be the need to replant much of the destroyed flora to prevent future runoff and stream pollution. Neighboring properties could also suffer from exploration/drilling on adjacent lands. I can also envision destruction of certain livestock herds. The Act needs a special clean up or restoration fund set up.

I'm sure neighbors and/or farmers who suffer loses will be told that they can sue the offenders which is true. However the reality is that it could require years to get results. Let the state pay damages with Severance Tax proceeds then pursue the offenders for collections.
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Posted by: eLwood | January 17, 2008 11:58 AM

"If the ballot initiative does pass, the legislature could then make any tweaks to the tax rate it feels necessary."

... that don't sound good.

Posted by: muleboy303 | January 17, 2008 11:59 AM

Though this proposal looks better than I anticipated, I agree with eLwood and muleboy303. In addition I would like to ask if dedicating funds to colleges and universities exclusively is a good idea? What about regular public schools or at least the option? If so, what about insuring no monies be alloted to charter schools. Also I think there should be an additional rate for gas transported out of state or more than 250 miles. We need to encourage "green" (as possible) usage of a carbon emitter..and not transport this stuff all over the place, by encouraging use close to the source. Speaking of green.. We should also add a huge tax to any new coal powered energy in AR.

Posted by: Eureka Springs, AR | January 17, 2008 12:38 PM

Re: "If the ballot initiative does pass, the legislature could then make any tweaks to the tax rate it feels necessary."

But that's how it has to work. Any proposed initiated act, referendum or constitutional amendment would be as long as our current constitution (1874) if it contained every conceivable element of the proposal. The legislature has always had the power to pass enabling legislation, and also have the appropriate agencies (DF&A, for instance) develop rules and regulations, for nearly every proposal approved by voters. They did it most recently with the bingo amendment, the tobacco fund, and the highway bonds.

A body of citizen-legislators probably would be loathe to make wholesale changes to any proposal already voted on and accepted by the people (see, term limits).

Posted by: Quapaw | January 17, 2008 12:48 PM

As a transplanted Arkansan living in Austin, Texas, I know a little about legislatures not wanting to raise taxes, even when they're fair and desparately needed. Good for Sheff for the guts to go forward with this initiative. I share the other writers' concerns about allocation and tweaking, but know less about those issues. If the initiative gets on the ballot, what next? Does it take a supermajority to pass, or just 50% + 1?

Posted by: ttlms | January 17, 2008 01:01 PM

ttlms,

A ballot initiative requires 50% +1 vote to pass.

Amending a voter-approved initiated act requires a 2/3 supermajority of both houses of the Legislature (67 votes in the House, 24 votes in the Senate).

Passing a severance tax increase legislatively would require a 3/4 supermajority (75 votes in the House, 27 votes in the Senate).

This means just nine senators could block it from passing. In other words, incoming Senate President Pro Tem Bob "I-Dig-Criminally-Low-Severance-Taxes" Johnson needs to round up just eight similarly inclined senators and any severance tax increase would be toast.

Posted by: muckraker | January 17, 2008 05:02 PM

Arkansas Blog

Nelson's gas severance tax: details

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