As part of a study of natural-gas drilling in north central Arkansas, researchers from the University of Arkansas will ask the drilling companies whether they would reduce their investment if the state raised its severance tax on natural gas to the national average. It's expected (by laymen, without much study) that the companies will say “yes.” The UA Center for Business and Economic Research then will issue a report under the university's name reiterating the companies' position. An article in the Arkansas Democrat-Gazette Jan. 17 said the report “should help state officials as they consider whether to raise the severance tax on the industry.” The companies obviously hope the report will influence state officials. They're paying for it.
Kathy Deck, director of the Center for Business and Economic Research, said that five companies now drilling in what's called the Fayetteville Shale would pay for the study, the total cost of which is $28,000. “They're funding it because they're the ones who care about this issue,” Deck said. “At the university, we don't really have a dog in the fight.
“We do sponsored projects all the time,” Deck said. “There's nothing unusual about it.” The Center is part of the Sam M. Walton College of Business at the University.
Deck said the researchers would ask the companies other questions too, such as how a change in the price of natural gas would affect their investment. “Our job is not to propose a solution,” Deck said. “We won't make a recommendation.” Asked why the Center didn't pay for such a study itself, she said “We don't do that sort of thing.”
The Center released a study in May 2006 on the projected economic impact of Fayetteville Shale drilling. That study was financed by SEECO, Inc., one of the drilling companies. SEECO is a subsidiary of Southwestern Energy Company of Houston. The 2006 study did not deal with the severance tax.
The possibility of raising Arkansas's extremely low severance tax is the subject of intense discussion. Legislation to raise the tax was introduced in the 2007 legislative session, but failed to pass. State Rep. Janet Johnson of Bryant sponsored a severance tax bill, but she said she gave up after it became apparent the bill wouldn't clear the House Revenue and Taxation Committee. Because of term limits, Johnson won't be back for the 2009 legislative session. But Sen. Mary Anne Salmon of North Little Rock, who worked with Johnson on the bill, will be back, and she says she'll pursue an increase in the severance tax. She's drafted a bill now being studied by the interim Revenue and Taxation Committee. “I didn't put it in there to die,” she said. The committee will conduct hearings on the bill, she said.
In regard to the U of A's contributions, Salmon said, “Every study I've seen from the U of A was funded by the companies. I'm inviting everybody, all sides, to the table to talk about the severance tax.”
Gov. Mike Beebe has said he wants to raise the severance tax to help highways, and might even call a special legislative session to do so this year. Sheffield Nelson of Little Rock, a former gas company executive and gubernatorial candidate, has proposed an initiated act to raise the tax.