GOP on severance tax: Choose good jobs first
Posted on Thursday, March 13, 2008
The state Republican Party entered the severance tax increase debate on Wednesday, registering its opposition.
Gov. Mike Beebe responded by questioning whether one GOP opponent of Beebe’s plan of wanted good roads.
The state Democratic Party then declared its support of the governor’s compromise with the natural gas production companies.
Rep. Keven Anderson, RRogers, said that if the severance tax is increased, which is estimated to raise about $ 100 million a year, he doesn’t want it to go to roads, as Beebe wants. Instead, he wants it to offset cuts to other taxes.
He also complained about Beebe not including lawmakers in the negotiations with the industry.
“I would guess most legislators didn’t know any details until his press release yesterday,” Anderson said. “That’s the strategy he’s chosen to use. It would have been smoother if he’d chosen a different one. That’s his choice.”
Beebe, a Democrat, has said there is no other revenue source available to improve highways.
“Mr. Anderson’s people have told me over and over and over their number one priority is to try to get more money for highways in Northwest Arkansas because of a crying need,” Beebe said. “He obviously doesn’t think they need highways in Northwest Arkansas.”
Beebe said he had a good reason for not opening the negotiations.
“It’s like when you are negotiating for an economic development deal,” he said. “Sometimes people don’t want to have all their business discussed until it’s time for it to be.”
Of the 100 House members, 25 are Republicans. Of the 35 senators, eight are Republicans. To increase the severance tax rate, a three-fourths favorable vote in each legislative chamber is needed. That means 26 House members or nine senators could block the plan.
But the divide on the tax isn’t strictly party-line. Some Democrats are critical of the plan and some Republicans speak positively of it.
Some legislators question how the highway money is going to be divided, wanting to make sure their district, or region, gets a fair share.
And there are many undecideds. Beebe just Tuesday publicly unveiled his plan to raise the tax, and several legislators say they’re still trying to fathom an issue that up until now has received little attention at the Capitol.
But generally legislators say they feel more comfortable about possibly supporting the tax since the people who will pay the tax, the natural gas producers and the royalty owners, have urged them to support it.
Other legislators are testing the wind.
“Nobody wants to vote for a tax increase,” said Sen. Steve Bryles, D-Blytheville, who is undecided. “Why lay yourself out there if it’s not going to happen ?”
Arkansas’ severance tax is three-tenths of 1 cent per 1, 000 cubic feet of gas. That was set in 1957. Based on volume, it doesn’t take into account the price, which has greatly increased since then. It raises only about $ 600, 000 a year.
Former gas utility executive Sheffield Nelson of Little Rock, a former chairman of the state Republican Party, is pushing a rate of 7 percent with no exemptions in a proposed initiated act. He’s put that on hold to see if the compromise passes.
Producers have said they don’t want Nelson’s plan to pass at the ballot Nov. 4 so they’re pushing for the Legislature to adopt the compromise with Beebe.
The compromise plan calls for a 5 percent rate, with a 36-month reduced rate of 1. 50 percent for high-cost new wells and a 24-month reduced rate of 1. 50 percent for all other new wells. Another reduced rate of 1. 25 percent is possible indefinitely for lowproducing wells, new or old.
Beebe wants to dedicate the money to state, county, and city roads.
He’s said his goal is for Arkansas’ severance tax to be comparable to neighbors Oklahoma and Texas.
“The whole story has not been told with regard to the severance tax,” said Rep. Johnny Key, R-Mountain Home. “There is another difference in Oklahoma and Texas. There is no retail sales tax on natural gas in Oklahoma and Texas. It’s not like Arkansas hasn’t been getting anything from natural gas.”
State Revenue Commissioner Tim Leathers said that’s true.
“But what does that have to do with the severance tax ?” Leathers said. “They have higher property taxes in Texas and that doesn’t have anything to do with the severance tax. That money [from the sales tax ] is coming from consumers. This money [from the severance tax ] is paid by royalty owners and producers. It is not passed on to the consumer.”
The state GOP sent out a news release with statements from Key and party Chairman Dennis Milligan of Bryant opposing the tax increase.
“We must choose good jobs over taxing an industry just because they are successful,” Key said in the release.
Key, who is unopposed this year in his bid to be elected to the state Senate, said in an interview that even if the industry has agreed to accept the increase, “the Legislature shouldn’t be passing public policy based on what the industry agrees to when under the threat of an initiated act.”
He estimated that 15 to 20 of the 25 House Republicans oppose it.
Supporters of the plan include Rep. Horace Hardwick, R-Bentonville, who says he’s “definitely in favor.”
He said he trusts that Beebe will help Northwest Arkansas and other growing areas of the state by ensuring that any highway funding from the tax will “follow the cars” instead of being divided evenly among regions of the state.
Rep. Buddy Lovell, D-Marked Tree, said he’s undecided, mostly because he wants to know where the road money will go.
“Maybe the counties where the Fayetteville Shale is happening are going to want more,” Lovell said. “They seem to feel they are due. I think it should be equal.”
Beebe spokesman Matt De-Cample said he’s not sure whether the state Highway Commission, which is mostly made up of appointees of former Gov. Mike Huckabee, would decide where the highway money would be spent.
But DeCample said Beebe has long believed that highway dollars should “follow the cars.”
He said the road money for cities and counties will follow existing formulas used to distribute existing road dollars. He said some extra general revenue dollars created by the tax could go toward helping counties with road problems created by heavy drilling.
Beebe said this week he doesn’t have time to present a map to legislators to show which roads would be fixed.
Rep. Robbie Wills, D-Conway, in line to be speaker in 2009, has said he’s leaning toward supporting Beebe’s plan. He said fewer legislators are saying they are absolutely against it than he thought would have that attitude.
Sen. Jim Argue, D-Little Rock, who sponsored an unsuccessful severance tax increase in the past, said “never underestimate Gov. Beebe, but three-fourths is a tall hurdle.”
He said he current tax has been using state “policy to subsidize the natural gas industry.”
Democratic Party Chairman Bill Gwatney, who served in the Senate with Beebe, said the party stands behind Beebe and called the plan “fair to all parties” and that it would “benefit the citizens of Arkansas.”
Any tax increase would have to get through the Revenue and Taxation Committees in each body.
Five of the eight-member Senate Revenue and Taxation Committee’s members said they are either supporting the proposal or leaning toward supporting it.
They are Sens. Jim Hill, DNashville; Bobby Glover, D-Carlisle; John Paul Capps, D-Searcy; Paul Miller, D-Melbourne, and Steve Faris, D-Central.
Of the other members, Sen. Denny Altes, R-Fort Smith, said he’d probably vote against it; Sen. Sharon Trusty, R-Russellville, said she’s undecided; and Sen. Terry Smith, D-Hot Springs, could not be reached for comment.
Of the 20-member House committee, three members said they would vote for it: Reps. Lindsley Smith, D-Fayetteville, Rep. Nathan George, D-DardenelleDardanelle, and Hardwick.
One, Rep. Bruce Maloch, DMagnolia, said he’d likely vote for it.
“I’m from an area that may have some gas production but more oil production and we’ve been paying 5 percent severance tax on oil for years,” Maloch said.
One member, Rep. Beverly Pyle, R-Cedarville, said she opposed it, with Anderson, the committee chairman, saying he was leaning against it.
Five members said they were undecided: Reps. Allen Maxwell, D-Monticello, Bill Sample, R-Hot Springs, David Dunn, D-Forrest City, Ed Garner, R-Maumelle, and Lovell.
The rest couldn’t be reached for comment.
Beebe has said he would prefer a special session the last week in March.
Faris said he met with Beebe and his chief of staff Morril Harriman after the governor’s news conference on Tuesday to ask him not to schedule a special session March 25-27 when the Senate State Agencies and Governmental Affairs Committee is to hold hearings on former Rep. Arnell Willis’ contest of the 2006 election of Sen. Jack Crumbly, D-Widener.
Beebe said he will try to work with Faris. Information for this article was contributed by Laura Kellams of the Arkansas Democrat-Gazette.
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