LITTLE ROCK — Economist Charles Venus said Wednesday that increasing the state’s severance tax on natural gas will not drive the industry from the state.
“The fact of the matter is that we already have noncompetitive rates. We have giveaway rates,” he said at a news conference.
Venus is a former economics professor at the University of Arkansas at Fayetteville and has served on the Governor’s Council of Economic Advisors. He has advised Govs. Winthrop Rockefeller and Dale Bumpers on tax matters.
He was asked by Sheffield Nelson to examine the impact of raising the severance tax. Nelson, a former gas company executive and Republican gubernatorial candidate, is behind a proposed initiated act to increase the tax to pay for road repairs.
The rate currently varies from 1.25 percent to 5 percent, depending on the type of well the gas comes from and how long the well has been in production.
But Nelson has said the rate is not enough, especially since marketing, transportation and treatment costs are deducted from the sales amount that is subject to the tax. His proposal, if it gets on the ballot and is approved by voters in November, would raise the rate to 7 percent across the board.
The Arkansas State Chamber of Commerce is spearheading an effort, largely funded by natural-gas companies, to keep the proposal off the ballot. The companies have argued that the higher rate will slow drilling activity and cost the state jobs.
Venus said the companies can afford to pay the higher tax.
“It’s a pittance to these companies,” he said.
The extra $155 million that the higher tax is expected to generate for the state each year is a lot of money for Arkansas, he said, “But ExxonMobil makes that in profit in less than one-and-one-half days.”
And the jobs the industry has brought to the state won’t last forever, he said.
“Keep in mind that this is a very capital-intensive industry, and the jobs are largely temporary. Once the drilling is complete, most of the jobs will go away anyway,” he said, adding that the increased severance tax will pay for road repairs and generate jobs in that way.
Randy Zook, president of the State Chamber of Commerce, said he does not expect a higher severance tax to drive the gas industry out of the state, but it will make Arkansas less competitive with surrounding states that might have higher tax rates than Arkansas does but often exempt more gas sales from taxation.
“There’s no question they’re going to continue to develop the resource,” he said. “The question is at what rate?
In a recent study paid for by the State Chamber of Commerce, economists at the University of Arkansas’ Center for Business and Economic Research found that the naturalgas industry has invested $12.8 billion in the state, though the number of jobs associated with the industry has fallen because of declining natural-gas prices that have led to slower-thanexpected drilling.
Another study, paid for by the Conway Chamber of Commerce and prepared by the Perryman Group in Texas, stated that raising the tax could cost the state 8,300 jobs and billions of dollars and investment.
Nelson was critical of those studies because they were underwritten by groups with a stake in the outcome. Venus was paid $3,000 for his work — the cost of his expenses, Nelson said.
Kathy Deck, director of the university center, said it is not unusual for industry to pay for academic studies and that the arrangement does not change the results.
“Basically, research costs money to accomplish. When we do our research, no one tells us what to do or how to do it,” she said. The chamber paid $47,950 for the university study.
To be implemented, the proposed initiated act first needs 62,000 valid signatures of registered voters.
Nelson said he is well on his way toward collecting those signatures and that the measure will “definitely” appear on the ballot.
Earlier this week, Municipal League President Don Zimmerman sent an e-mail to mayors and other city officials urging them to help with the signature-gathering efforts.
“I suggested if they wanted to have a vote on this, they might want to gather a few more signatures,” Zimmerman said.
Zimmerman said he was not sure how many signatures have been collected so far, but there are “a lot.”
Arkansas, Pages 9 on 06/14/2012