Tuesday, October 25, 2011

EDITORIAL >> Nelson right on gas tax

The election is a year and a week away, but you can already sense the titanic effort that will be made to defeat the natural-gas severance tax that probably will be on the ballot. Last week, a business consortium filed the papers for a campaign organization that will work against the tax.

Naturally enough, it is called Arkansans for Jobs and Affordable Energy. You would not expect it to be called Arkansans for the Protection of Huge Gas Industry Profits, would you? The chairman of the campaign group is the president of the Arkansas State Chamber of Commerce. Its vice chairman is the owner of a Conway equipment company and owner of land in Van Buren County that is leased for gas drilling. If voters were to approve the severance tax, she would share a little of that income with the state to repair the highways. She said Monday she did not want to pay any more taxes, a natural enough sentiment.

But you can be sure that the people filing the papers for Arkansans for Jobs and Affordable Energy will not be bearing much of the cost of the battle to defeat the severance tax. The gas industry—companies like Southwestern Energy and BHP Billiton (you know them as Chesapeake)—will put up the money for the campaign, and it will be plenty.

The tax is not yet assured of being on the ballot. Sheffield Nelson, the former state Republican chairman and twice its nominee for governor, is coordinating a one-man show to get it on the ballot. The attorney general has approved the name and ballot title, but Nelson still has to get the signatures on petitions—about 63,000—to get it on the ballot by next July. Nelson made a little money when he was in the gas business—he ran the state’s largest gas distribution company for a few years—but we doubt he will spend it all to persuade the voters to pass the tax.

On logic alone, it should not prove to be a hard task. Arkansas taxes natural-gas production less than most big gas-producing states, and the drilling and production are destroying highways and roads faster than the state can repair them. The 7-percent tax that Nelson proposes would be used for highway, road and city street work.

The piece de resistance ought to be that the tax would not be felt by Arkansans in any way—most of the gas is marketed outside Arkansas and there is no way for the companies to pass on the taxes to consumers—that is, unless you buy the Chamber of Commerce’s theory that the tax would stop Southwestern and all the other companies from drilling and producing gas in Arkansas and the industry would shut down and lay off all its Arkansas workers.

If the production companies would halt exploration in the Fayetteville shale and in south Arkansas if they had to pay the state 7 percent of value of the Arkansas gas they marketed, then why have not stopped production in Texas, Oklahoma and other states with comparable taxes? Oklahoma collects a tax of about 7.1 percent, Texas 7.5 percent, New Mexico nearly 9 percent when all the various levies are combined, and a number of other states more than the anemic Arkansas tax.

We all thought Arkansas was going to start collecting a healthy tax when the legislature assembled in special session in March 2008 to enact a tax. The goal was to forestall the 7 percent tax that Nelson proposed to put on the ballot that November. Nelson stopped his campaign when the legislature enacted a law that purported to tax gas at 5 percent of its wellhead value. But when the dust had settled it was clear that the law, which was written by lawyers for the gas companies, was not taxing gas at 5 percent but at either 1.25 percent or 1.5 percent. There were a couple of exceptions to the 5 percent rate, and it turned out that nearly all the gas fell under the exceptions.

So a chagrined Nelson decided to try again and not to be outwitted this time. He had some pointed things to say this week about the Chamber of Commerce joining up with the big gas companies against the people of Arkansas. He said the chamber had been “bought and paid for” by the gas industry.

There is a bit of irony in the Chamber of Commerce’s stance. One proposal that definitely will be on the 2012 general election ballot is a constitutional amendment that would levy a half-cent sales tax that everyone in Arkansas would pay. It would support a $1.8 billion bond issue to build a four-lane highway system connecting all regions of the state.

Now, the chamber thinks it is a great idea for the people of Arkansas to pay a hefty tax on everything they buy to build a new highway network that will be good for commerce but a terrible idea for out-of-state gas companies to pay a small tax on their huge profits from Arkansas’ finite natural resources to repair the roads they destroy.

You would think that its position would be hard to sell Arkansas voters. Wait for the coming media campaign and you will see how this works. Tell people the tax would kill jobs, drive up their heating costs and make everyone less well off. It will work every time. Nelson’s logic will just be beside the point.