Nelson's gas severance tax: details | 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.

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