Give and take: Frackers, taxes and politicians | Arkansas Blog

Thursday, March 20, 2014

Give and take: Frackers, taxes and politicians

Posted By on Thu, Mar 20, 2014 at 11:22 AM

click to enlarge frackerchart.png

It's too late now for the debate over yet another tax break (unconstitutionally adopted) for the oil and gas industry in Arkansas. But the chart developed above by state officials is the best summary I've seen of how little the state gets from energy companies' rich haul from a non-renewable resource, gas below the ground in Arkansas.

As I've mentioned before, other states — Texas is a leader — extracts a high tax from energy producers. In severance tax, property tax and sales tax on virtually every expenditure in the production process. Arkansas has a low severance tax, low property tax and exempts most of the costs of drilling from the sales tax. The latest addition was the legislature's unconstitutional adoption of an exemption for sand injected into fracking wells.

During the course of the debate, several made reference to a 5 percent severance tax on gas adopted as a result of 2009 legislation meant to stave off a ballot initiative for a significant severance tax increase. It's no secret that the law had all kinds of exceptions — deductions for production costs and special rates for high-cost wells and other categories. The results can be seen above.

Bottom line: In 2013, Arkansas got $64 million in severance taxes on gross gas sales of $3.6 billion, or about 1.7 percent of gross. After deductions for production cost, the tax is 2.8 percent on net. Only about 20 percent of the production is taxed at 5 percent.

Now the cost on frackers will be $5 million a year less, thanks to the new exemption for fracking sand. Maybe legislators can make up that loss by taking back the pay raise for state employees.

Speaking of politicians and money: The Koch lobby spent about $1 million in 2012 to buy a majority in the Arkansas Senate. The Kochs are energy producers. They aren't the direct beneficiary of the sand exemption, but its passage gives you an idea how a relatively small amount can be paid back quickly. A $5 million tax exemption in one year more than covers $1 million in campaign spending. And the same senators who pushed that through will be back to do more good work for three more years at least.

Yes, some jobs come to Arkansas from fracking. Also environmental and road damage. And the drilling crews aren't permanent. When gas prices drop, drilling activity drops. Some Arkansas legislators believe if we just cut taxes enough, the drilling will never stop. They need a visit to the commodity exchanges that monitor world energy prices, which drive production. A $1.4 million exemption for a single Swiss company — the break preserved by the legislature this week — isn't even a drop in a $3.6 billion bucket.


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