Leader Blues

Wednesday, October 17, 2007

EDITORIALS>>Giving away natural gas

Editorial writer Ernie Dumas.

Sand and gravel miners pay three times the taxes that producers are charged.

Here is a stunning measure of the power of the gas industry in Arkansas over much of the last century: The men who mine sand and gravel pay three times the taxes to the state that the energy exploration and production companies pay for the gas they sever from the earth. And Arkansas is one of the leading gas states.

The state collected $1.8 million in severance taxes last year from sand and gravel haulers but a paltry $619,000 from the gas companies. The sand and gravel people never carried much clout but the gas industry did, primarily in the personage of Witt and Jack Stephens, the late financiers. “Mr. Witt,” as he was affectionately known, made it a point of personal privilege that the state would not levy a real tax on one of his activities.

He agreed in 1957 to let Gov. Orval E. Faubus and the legislature raise the tax from two-tenths of a penny per thousand cubic feet of gas to three-tenths of a penny. Faubus was raising the sales tax, which is levied on the little people, and he wanted to say that he was also raising a tax on the privileged. The little tax did not produce enough revenue to make as difference, but it was the principle of the thing.

Gov. Bill Clinton proposed to do the same thing in 1983 when he was raising the sales tax for education, but Mr. Witt drew the line. Three-tenths of a penny was all he was willing to pay for the gas that Stephens Production Co. and the other family gas interests were exporting from the Arkoma Basin. The severance tax bill died in the Senate.

Now Gov. Beebe, who voted for the bill back then as a state senator, wants to try again — sometime, maybe in 2009 or 2010. He would use the taxes for highways and bridges since motor-fuel taxes are approaching diminishing returns. Sen. Mary Anne Salmon, D-North Little Rock, is trying to develop a consensus bill for the governor, but there will not be one. Sen. Bob Johnson of Bigelow, the servant of every monied interest in the state, says there will be no severance tax increase — he runs the controlling bloc in the Senate — because it would discourage the big energy companies from exploring for gas in the Fayetteville shale.

It is a laughable argument. The exploration companies will drill where the gas is, and it is in Arkansas. Any tax that the legislature might levy would not affect the market enough to deter one company a single day.

The Department of Finance and Administration supplied legislators the figures on what Arkansas might reap from a severance tax equal to that of any of the gas-producing states of the region, all of which levy a tax that is based on the wellhead value of the gas.

If Arkansas levied a tax like Texas’, it would collect $99.3 million a year instead of $619,000. At Oklahoma’s rate it would be $92 million, at Mississippi’s $79 million, at Tennessee’s $39 million, at Louisiana’s $11.3 million. A revenue official emphasized that the figures were very conservative.

Those sums would climb rapidly with the development of the Fayetteville formation. Most of the gas is exported to other states, so to the extent the exploration companies pass the tax on to consumers it would be paid by industries in other states to help build our roads. We in Arkansas are paying heavily now to support schools and other services in Wyoming, Texas, Oklahoma and Louisiana through their severance taxes on the gas and coal that fuel our electricity generators.

But the comparison is not fair, a few northwest Arkansas lawmakers complained, because Texas does not levy income taxes on the gas companies there. Oh, but it does. It’s called a corporate franchise tax and it is based on a company’s federally reported net income and capital.

It produces $2 billion a year in state revenues (nine out of 10 Texas companies have developed loopholes to escape filing) and it will produce far more than that in the future because the legislature and the state’s conservative governor overhauled the tax effective next year to produce several times the revenue to support school reform and offset a reduction in property taxes. It is being called the biggest tax increase in Texas history.

Texas politicians, as you know, are famous for catering to corporate interests, particularly energy companies. They can’t hold a candle to Arkansas.