MonticelloLive

The peculiarities of the Arkansas Constitution are in the spotlight, once again, because of the debate over raising the severance tax on natural gas.

The governor is seeking support in the legislature for his plan to raise the severance tax on natural gas to five percent. His proposal would allow lower rates for new wells, high cost wells and marginally productive wells.

The major natural gas producing companies have agreed to the governor’s tax increase, and their spokesmen have said they would not oppose it if the governor calls a special session.

Even with the agreement in hand, the governor has an uphill task to win legislative approval. It’s uphill, rocky and steep because of Amendment 19 to the state Constitution.

Amendment 19 was approved by voters in a statewide election in 1934. It requires that any increase in existing taxes be approved by a super-majority of three-fourths of each chamber in the General Assembly.

The severance tax was on the books in 1934, and therefore it requires a super-majority vote of 27 senators to raise it. The Senate has 35 members. Viewed from the opposite direction - as few as nine senators can block a tax increase.

A big reason the gas companies agreed to the governor’s proposal is that they faced the possibility of an even greater tax increase in the form of an initiated act.   That was a very real possibility because a prominent businessman had been leading an effort to place a seven percent severance tax on the November ballot.

He suspended his effort while the governor tries to line up support for a special session to consider the five percent severance tax.

The likeliest dates for a special session appear to be in late March or early April.

The severance tax on gas is now 0.3 cents per thousand cubic feet. Last year it generated $619,000. The governor’s proposal would generate $57 million next year and the amount would steadily increase to $100 million within five years.

Of the new revenue, 95 percent would go for highways and bridges. It would be distributed according to the traditional division of road money, by which the state Highway and Transportation Department gets 70 percent, cities get 15 percent and counties get 15 percent.
Many local officials and road builders support the governor’s plan. Opposition is coming from businesses and economic development promoters who believe higher taxes will stifle a growing industry that is creating new jobs.

There are other political obstacles. Legislators who represent urban areas and fast-growing areas believe that highway money should “follow the cars.” In other words, they want highway improvements where traffic is heaviest.

On the other hand, lawmakers from rural areas are equally forceful in arguing for highway programs in undeveloped areas. Highways are necessary for economic growth, and without good roads a poor community cannot expect to prosper.

Some lawmakers have said they would support the severance tax increase, but not if the revenue goes for highways. They prefer to reduce other taxes and then make up for lost revenue with the increase in the severance tax ,so services would not have to be cut.