Leader Blues

Wednesday, April 02, 2008

EDITORIAL >>No miracle, just good works

Mike Beebe did not spend 20 years in the state Senate for nothing. He learned how to count votes. The governor said he expected to get 81 votes in the House of Representatives and 32 in the Senate for his bill raising the severance tax on natural gas. The votes yesterday were 81-16 and 32-3.

Counting commitments is not so hard, but getting lawmakers to stay hitched is problematic, as any governor will tell you.

Being agreeable on the telephone is one matter, answering the indelible roll call on a tax is another. Every one of Beebe’s commitments answered the call. Under Arkansas’ perverse Constitution it takes 75 votes in the House and 27 in the Senate to pass a tax on businesses and certain other kinds of taxes.

Thus for the first time since World War II will Arkansas collect a significant tax on its most abundant non-renewable resource.

(The tax was 2.5 percent until gas interests got the tax lowered to the invisible rate of three-twentieths of a penny per thousand feet in 1947.)

The tax will be 5 percent of the market price minus the pipeline expense. Actually, that is not quite true. Much of the tax will be taxed at only 1.5 percent — still far above the current rate — under provisions that Beebe worked out with the big gas producers. Producers and mineral-rights owners will pay the tax at the lower rate for three years, an exemption that is supposed to let the producers recoup their investment in a well before paying the full rate. That exemption is far more generous than other states allow. Oklahoma, for example, taxes gas production at 7 percent but rebates most of the tax only until the producer recovers its exploration expense.

Wells in the Fayetteville shale north of here are producing such huge volumes of gas that the companies will recover their full investment in a mere matter of months, not years. Many are producing more than 5 million cubic feet a day and the current market price is nearly $10 a thousand cubic feet. You can do the math. It won’t take long to recover the development cost of $3 million to $3.5 million a well.

Beebe is being excoriated in some quarters for selling out to the big producers by including the long payback period and setting a tax rate below the rates in other big gas-producing states. It would be far better in our mind to approve the initiated proposition of Sheffield Nelson, who would levy a tax of 7 percent with no exemption for new wells. Nelson said he would be agreeable to letting the legislature in 2009 insert some rebate period for new wells, which it could do by a two-thirds vote in each house.

But Nelson will not pursue his proposal, so the Beebe plan is the law. While the Beebe bill leaves tens of millions of dollars a year needlessly on the table, we are inclined to compliment the governor for good works instead of condemning him for failing a miracle. The bill will produce some $57 million next year, according to administration estimates, nearly all of it to repair and build highways. As the wells finish the three-year hiatus and hundreds of new wells come on line, even the compromise tax will produce a hundred million dollars a year, and probably far more. When pipelines are built down Crowley’s Ridge to the Mississippi River, the exploration will follow all the way to Phillips County.

That will produce the biggest highway program in the state’s history. Motorists won’t pay a dime of it and neither will homeowners. No one’s heating bill will be affected.