Columns » Ernest Dumas

Who is being served?


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Would it not be good if we had one clear barometer of our public servants' dedication to the common interest, one easy way to identify his or her real constituents — the people or private interests?

As it happens, there will be a way if Gov. Beebe assembles the legislature next month to enact a severance tax on natural gas. Assuming that the governor proposes a real tax like the levies in other gas-rich states, those roll calls and the scrambling leading up to them will give you as stark a picture as you are ever apt to get of where your lawmaker stands on the scale between the common welfare and the service of private greed.

Does that overstate the case?

Consider that a couple of corporations headquartered at Oklahoma City and Houston are piping about 425 million cubic feet of natural gas each day from the Fayetteville shale in Arkansas to points north and east to run mills, heat homes and generate power. That figure comes from the presidents of the two leading exploration companies working in the region. At recent wellhead prices — gas was pegged at $8.13 a thousand cubic feet (mcf) last month by the New York Mercantile Exchange — that translates into income for those two companies alone of $1 billion a year from Arkansas gas.

That is from only the first few of an exploding number of wells by only two companies in a vast reservoir from the Oklahoma border to the Mississippi River.

While the law confers mineral rights to individuals, that gas belongs in the broadest sense to everyone, including future generations. Its production represents the bounty that nature has bestowed on the economy rather than a mere reward for the effort and risk undertaken by the companies. That is the premise of natural resource or severance taxes. When commerce harvests a resource that will be lost forever it should bestow on society in return some benefit. If any tax ever had a moral underpinning this would be the one.

But while the two companies harvest a gross income of a billion dollars a year from current production Arkansas will get a mere $465,000 for state services and to reimburse the counties for the degradation of land, water and roads. Arkansas has a severance tax of three-tenths of a penny per thousand cubic feet — far away the most minuscule tax in the United States.

Beebe wants to summon the legislature to raise the tax to a level close to the tax rates of our big gas-producing neighbors, Oklahoma and Texas. Oklahoma collects 7 percent of the production value of the gas, Texas 7.5 percent. Sheffield Nelson, who felt the shame of the state's giveaway of a precious public resource when he was running the state's largest gas company, is putting an initiative on the ballot to tax the production at 7 percent of its wellhead price. That has driven Beebe to try to get the gas producers — the big out-of-state companies drilling in the shale and the old family gas producers in the Arkoma Basin — to agree on tax so that he can bring legislators to town and enact it. He would spend the tax on highways, obviating the need to raise gasoline taxes or vehicle license fees.

The governor thinks he needs the big producers' assent because under a perverse constitutional provision it takes only nine out of the 135 lawmakers to block any tax that he proposes. Beebe presumes that there are nine senators who would stand with private interests in any showdown with the public welfare. Sen. Bob Johnson of Bigelow, the kingpin of the Senate, has identified himself as one. Trying to tax gas producers is clownery, Johnson said.

Other legislators said raising the tax to Oklahoma's level would kill the goose that laid the golden egg and would send a bad message to industries that Arkansas will tax you if you are successful in our state.

The idea that Southwestern Energy and Chesapeake, the largest producers in the shale, would pick up their rigs and leave if Arkansas collected a 7 percent tax is laughable. Shale exploration became profitable when market prices hit $3 an mcf. They have been rising pretty steadily for 10 years and the halt of construction of coal-burning power plants in most states (except Arkansas) and the return to gas for generating fuel will drive prices steadily higher. With a severance tax of 7 percent or even higher, Arkansas's shale gas is a bird's nest on the ground.

The best scenario is for Beebe to fail at getting the producers to agree on a proper social dividend from their profits. Any agreement that he reaches is likely to be not much. Nelson's initiated act is the way to go. We wouldn't be as progressive as Texas or New Mexico but we'd be about as smart as Oklahoma, which last year collected $645 million from its gas tax to build roads and educate young Sooners. Arkansas could be there in a few years.


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