With every utterance Gov. Beebe becomes a stronger champion of a tax on the natural gas that is piped to the big markets north and east of Arkansas. Now it is something that desperately needs to be done, and he promises that he will get it done, although maybe not until 2011.
We are rather proud of him, but the governor has progress yet to make. If it will be in the public interest in 2011, it is worth doing much sooner — 2008 would be a good year.
Beebe said last week that he did not propose a gas severance tax this year because there was too much else to do in his first legislative session and there was little support for it. Now, with the vast exploration of the Fayetteville shale-gas play, a consensus is building for it, he said, and he has invited the big out-of-state drilling companies to help him develop a tax bill for the 2009 regular legislative session. If they fail to agree on an adequate tax or if the legislature defeats it, he will lead a petition drive to put the issue before the voters in the 2010 general election. The tax then would take effect in 2011.
Stung by the suggestion that he was asking the industries to come up with a little tax that would suit them, Beebe said it would be his bill, not the companies’, and that he would ask them to join him. Well, we hope so. He would use the taxes to revive the moribund highway program.
Mike Beebe’s powers of persuasion are epic, compared at least with his predecessor’s, but getting a good gas severance tax through the Arkansas General Assembly is a dubious proposition. Sen. Mary Anne Salmon of North Little Rock asked the Legislative Council to study the issue and she has promised to sponsor a good bill. But Sen. Bob Johnson of Bigelow, the new pro tempore of the Senate, is the boss there and he has vowed to kill any tax on the gas companies. Johnson does the bidding of big industry, including the Stephens interests, who built one of the South’s great fortunes on tax-free gas production. Johnson follows the Leona Helmsley theory of taxes: Only little people should pay them.
Even if he did not control the votes of half or more of the Senate, Johnson would have no trouble keeping his promise. The common wisdom is that it takes a three-fourths vote in each house to raise the severance tax, which means that a mere nine senators of the 35 could block the tax. Gov. Bill Clinton tried and failed in 1983.
Our research suggests that a modest tax can be passed with a simple majority. The state now levies a tax of three-tenths of a penny on each thousand cubic feet of gas, a virtually invisible tax that has been on the books for 50 years. For 10 years before that, it was an infinitesimal three-twentieths of a penny. It raises only about $650,000 a year. Other gas-rich states tax gas at hundreds of times that rate. Only Arkansas has adopted the position that commercial interests owe nothing to the public for taking and making a giant profit on an irreplaceable natural resource.
Here is our reasoning for the majority vote: The state Constitution says that it takes a three-fourths vote of each house to raise the rate of a tax that existed in 1934. At that time, the tax rate on gas was 2.6 percent of its wellhead value, not three-tenths of a penny. So a simple majority of the legislature ought to be able to raise it to 2.6 percent again although it would take a three-fourths vote to raise it higher.
While a tax of 2.6 percent would not be chump change, it would be only half to a third of what other states collect on their dwindling natural resources. Neighboring Texas collects 7.5 percent. (Oh, the energy companies cry, Texas does not make them pay a state income tax like Arkansas does. True, but Texas assesses a big corporate franchise tax and other special taxes that Arkansas does not levy.)
Sen. Johnson said he did not buy the argument that the gas companies ought to pay higher taxes to rebuild and repair the roads damaged by the exploration rigs. Roads are built for businesses to destroy in the name of economic growth, Johnson said. You get to pay for their road damage with higher gasoline taxes and vehicle licenses.
There will be an unavoidable demand for a special legislative session sometime in the next year, and the governor should prepare a severance tax for the occasion. Whether he uses it to eliminate the sales tax on groceries or to build roads, the needs do not wait for 2011. He should prepare the act for the petition campaign — in November 2008, not 2010 — that will follow its inevitable legislative defeat.
