MonticelloLive

In a three-day special session, the legislature enacted the governor’s plan to raise severance taxes on natural gas production and dedicate the revenue to highway programs.

The severance tax on natural gas had been based on volume and was extremely low. Last year it generated about $619,000 in state revenue, even though the production of natural gas is a multi-billion industry.

The new tax will be 5 percent of the value of the natural gas. There are exemptions, however, for natural gas that is more costly to extract because it is found in especially deep wells or because producers have to drill through difficult rock formations.

Also, there are exemptions for natural gas from new wells. Natural gas from high cost wells and new wells will be taxed at 1.5 percent for the first two years of production. Production companies can pay the lower rate for even longer periods under certain conditions.

There are exemptions for natural gas from marginal wells that are not as productive. The severance tax rate on natural gas from marginal wells will be 1.25 percent.

Neighboring states levy natural gas severance taxes of 7 percent and more.

Production companies have said publicly that they will not pass the costs of the severance tax on to consumers, because natural gas from Arkansas is combined with natural gas extracted from many other states. It is bought and sold in large quantities through national markets, and prices are set by supply and demand.

Estimates are that the severance tax will generate $57 million next year. The amount will steadily increase until it reaches $100 million in 2013.

The bulk of that revenue, 95 percent, will be dedicated to state and local highways.

The governor negotiated the severance tax with natural gas producers, who agreed not to oppose it during the special session. Coincidentally, even as the prospect of a higher tax dominated the public debate, a major production company announced it would double the number of drilling rigs it operates in Arkansas from 12 to 25.

Another development coincided with the severance tax debate. The U.S. Bureau of Economic Analysis reported that per capita income in Arkansas has grown by 5.6 percent since 2006, which is a little better than the 5.2 percent growth nationwide.

Economic experts attributed part of the gains in Arkansas to the growth of jobs in the production of natural gas, particularly in a band across the central part of the state known as the Fayetteville Shale.

The per capita income in Arkansas was $30,060 last year, which was almost the lowest in the country. Incomes in West Virginia were $29,537 per capita and Mississippi they were $28,845 per capita last year.

The Senate approved the severance tax by a vote of 32-to-3. The House of Representatives approved it by a vote of 82-to-17, with one member not voting.

Highway builders and local government officials supported the severance tax increase, because it adds money to road programs that will benefit local economies.

Also during the special session, the legislature enacted a clarification of the marriage laws. If they have their parents’ consent, girls can marry at 16 and boys at 17. A typographical error in the previous law was creating confusion among county clerks.