Columns » Max Brantley

Sheffield Nelson: cooking with gas

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Sheffield Nelson, the former gas company executive and Republican gubernatorial candidate, dropped by the Times Monday so I could sign one of his petitions to put a natural gas severance tax increase on the 2012 election ballot.

He's confident of making the ballot, maybe without aid from paid signature gatherers. He has the considerable grassroots strength of the Arkansas Municipal League on board.

The Municipal League has good reason to help.

The proposal would tax natural gas at 7 percent of market value. If passed, the tax would provide cities a one-time payment of $20 million off the top of collections every year. Then, after a 5 percent takeout for general state revenues, the rest would be split 70-15-15 among the state, counties and cities. At current production and prices, it would raise $250 million a year.

The money is one good reason for city support. Another is that passage of the severance tax will be built on the proposition that it is a better alternative than a proposed half-cent sales tax increase for roads and highways, which also will be on the ballot.

Cities are already pressed on the sales tax, the major source of city funding. Every additional sales tax makes it harder for cities to go back to their voters for help.

Nelson smiles at the recognition of the obvious campaign theme: Would voters rather build highways and pay for damage caused by shale drilling rigs with a sales tax assessed on necessities of life for everyone in Arkansas or with a tax paid mostly by consumers of natural gas in other states.

It's an easy call, I think.

Nelson made his case in an Arkansas Democrat-Gazette op-ed last week. Randy Zook of the Arkansas State Chamber of Commerce made the pitch against it for his big members in the gas industry. It will mean a quadrupling of the state's severance tax, Zook wrote. Indeed it will. In saying this, Zook essentially confirms the fraud currently being visited on the state. When the legislature — in response to an earlier Nelson petition effort — approved a 5 percent severance tax, it included all sorts of escape hatches, notably a cost recovery provision for new wells. The effect is well illustrated by the bottom line — gas producers paid $54.6 million in severance taxes on $3.6 billion in sales, or an effective rate of 1.5 percent.

Rates in Oklahoma, Louisiana and Texas are much higher. They've been around 7 or 7.5 percent in Texas and Oklahoma since Nelson first tried to increase the severance tax as head of Arkansas Louisiana Gas Company in the early 1980s. While the current Arkansas tax is producing only $54 million a year, shale rigs are doing $450 million in damage to state highways and uncounted millions more in damage to county roads and city streets. The economic benefit has flowed to a handful of counties in the shale zone.

So back to that core proposition: Should somebody in Desha County favor a half-cent sales tax on their Walmart receipt or a severance tax paid in another state?

Nelson predicts, Legislative Shale Caucus or no, that the tax will enjoy significant, if not majority, support in the shale zone. Only a small minority reap royalties. There are economic benefits, but there are also broken roads, noisy drilling rigs, a steady stream of heavy truck traffic and environmental problems.

"Let's do what's fair," Nelson says. "Let's let Arkansas charge what others charge." Sign me up. The multinational energy companies, including an Australian giant, will spend tremendous sums to convince voters otherwise. They think we should tax ourselves to pay for their damage. G'day mate.

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