MonticelloLive

Arkansas’s severance tax is unconscionably low, especially when compared to our bordering states. The truth is that we are out-of-step with our natural-gas producing neighbors, and we have been for a long time. I have been working to build a consensus between the natural-gas industry, legislators, mineral-rights holders, and the Department of Finance and Administration to determine the most equitable solution for Arkansas.

This week, I announced an agreement on a fair and equitable severance tax. This agreement will create an ongoing roads program for Arkansas without increasing natural-gas rates for residential or commercial Arkansas customers. Building a sufficient infrastructure of roads and highways is an economic development tool that will benefit this State for years to come.

In listening to people’s questions about the severance tax, there seems to be several misconceptions, the biggest one I’ve heard is that Arkansas natural gas consumers will see their rates go up if the severance tax goes up.

This is simply untrue. Natural gas produced in Arkansas goes into a national pipeline system and is mixed with gas from many other states. Arkansas utility companies purchase their gas from the pipeline at market prices — prices that are set without regard to where the natural gas was produced or the amount of severance tax paid. Arkansas utility companies set their rates based on the market price. When Arkansas consumers pay these rates, they receive no benefit from our low tax. If our tax is increased, it will not be increased at the market price or through consumer rates.

Producers who take, or sever, gas from the ground in Arkansas and pay our low severance tax then sell the gas through the pipeline-distribution system on the open market. These producers get the same market price for Arkansas gas as they receive for gas severed in high-tax states, even though the Arkansas severance tax is so minimal.

This week’s agreement gives us the unique opportunity to create an ongoing funding source to improve roads in Arkansas without any additional taxes for everyday Arkansans. Currently, our roads are funded by gasoline taxes. Gasoline taxes are a flat tax, meaning they are at a set level and don’t move as gas prices at the pump change. With Arkansans already facing record-high gas prices, it would be unreasonable to raise gasoline taxes at a time like this.

Improving our system of roads will help foster additional economic development and bring more jobs to Arkansas. This is the best chance Arkansas has for a new, ongoing source of revenue for a roads program over the next decade. In a time when there is talk nationally of economic slowdowns and tougher times ahead, we are in the unique position of being able to start a new statewide roads program without any impact to other State services. And we can do it in a way that is good public policy for all of us now and for future generations.