Columns » Max Brantley

The tax man

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When he's right he's right, he being Sheffield Nelson. The former gas company executive and gubernatorial candidate has jumpstarted the debate over raising Arkansas's essentially non-existent natural gas severance tax.

Nelson is no newcomer. He favored a tax increase when he was chief executive of Arkla Gas. Indeed, any rational person would see that it makes no sense for Arkansas to ship its gas to Texas, Louisiana and Oklahoma with virtually no tax, while we pay higher taxes on gas extracted in neighboring states. But such has been the political stranglehold of gas producers, particularly the powerful Stephens family, on the Arkansas legislature.

Nelson is leading formation of a committee to gather 62,000 signatures to put a tax — a proposed 7 percent of market value — on the November ballot. He's already formed a “truth squad” of lawyers and PR experts to begin battling the gas companies.

One thrust this week was a letter to the state Ethics Commission asking for a clarification of state law. There is some question, Nelson says, whether a gas corporation can spend an unlimited amount from its treasury to oppose a severance tax without disclosing the amount or types of expenditures. It seems crazy that individual contributions must be reported while corporate outlays are exempt. The Ethics Commission has promised a speedy ruling. We hope it's on the side of accountability.

Nelson said he hopes his campaign can raise about $1 million. He'll contribute heavily and so will friends from other past initiative campaigns he's headed — against casinos, for an increase in public official pay and others. He expects to be outspent, but he expects benefits from free media. Most media commentators have long been convinced that only a special-interest-controlled legislature has stood in the way of simple common sense.

Nelson's history in the gas industry is an enormous benefit. He knows, quickly, for example, that the Fayetteville shale producers figured exploration was profitable long before gas hit $6 per thousand cubic feet and are making windfall profits with a price around $8. He knows, too, that arguments about the need for special allowances for exploration in the shale are bogus. The reserves have been identified. Drilling is not more expensive because the shale wells tend to be shallower. And, contrary to what the gas companies are putting out, special tax dispensation for shale drillers in other states is very limited.

The gas companies will have a one-note campaign — the tax could increase gas bills. There's little evidence of such Arkansas impact, but even if there's some fallout, it will be in the name of pumping tens of millions into state, city and county roads, some of them being destroyed by drilling rigs. Nelson, by the way, while still talking of spending some money on higher education, clearly seems amenable to an all-highway spending plan if Gov. Mike Beebe can bring legislators and gas companies to a legislative compromise.

The spending to beat this tax will be enormous if it goes to the ballot. One gas company, Chesapeake, says it is already taking 100 million cubic feet a day from the shale, a tax burden of $109,500 a year at today's rates, but $15 million under Nelson's proposal on $215 million in sales, even if gas dropped down to $6 per mcf.

With such stakes, all should hope the state's ethics regulators will at least allow us to follow the money.

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