Ark. Legislators Advance Tax Hike Aimed at Highway Improvement

April 2, 2008

It didn’t take long for legislators to respond to Gov. Mike Beebe’s challenge to buck history and raise Arkansas’ severance tax on natural gas for the first time in a half century. Most of the money will go to maintain state highways.

The House and Senate were set to vote Tuesday on identical versions of Beebe’s proposed tax hike to pay for state highway improvements. The proposal advanced through two legislative committees on Monday, less than an hour after Beebe told lawmakers its passage would only add to their successes.

“You have already made historic strides toward excellence in education for our children and tax relief on the necessities of life for everyday Arkansans,” Beebe said in brief remarks to House and Senate members as they convened the special session Monday. “Now I ask you to make one more step, one that 24 legislatures before you could not take, one that will benefit all Arkansans today and build a strong infrastructure for the Arkansas of tomorrow. Let’s do it.”

The severance tax hike is the top item on the agenda for the session, which Beebe said he hopes will end April 2. The governor has proposed raising the tax for the first time since 1957, which he estimates will eventually raise $100 million annually.

The House and Senate revenue and taxation committees recommended passage of identical versions of the tax proposal. Under the plan, the state would levy a base 5 percent tax on the market value of natural gas extracted, with exemptions built in for certain wells.

Ninety-five percent of the tax revenue would go toward state highways. Beebe has projected the tax, if approved, will bring in $57 million next year.

“This proposal is a rare opportunity to create a new funding source for highway improvement in Arkansas without creating a tax burden on the majority of Arkansans,” Beebe said in his opening statements.

The current tax, three-tenths of 1 cent per 1,000 cubic feet of gas extracted, brings in about $660,000 annually and is among the lowest in the nation.

Beebe, who struck a deal with natural gas firms before announcing the proposal, said the tax hike would strike a balance between the state’s needs and gas firms, which have been feverishly drilling in the Fayetteville Shale natural gas formation.

“This bill is not an either-or proposition. We are encouraging the gas industry to continue to invest in exploration and production and at the same time bringing new economic activity in the construction industry. It is a prudent, targeted approach designed to turn one economic windfall into additional expansion of our state’s economy,” Beebe said. “Opportunities such as this one appear very infrequently.”

Last week, the governor said he has the support of 81 House members and 32 senators. Passing the severance tax requires three-fourths of the 100-member House and 35-member Senate. Only two members of the House Revenue and Taxation Committee and one member of the Senate panel voted against the hike during voice votes Monday.

“I just feel like we could find the revenue somewhere else. … Instead of finding new tax ways, we need to utilize the tax structure we already have,” said Rep. Beverly Pyle, R-Cedarville, who voted against the tax hike.

Rep. Keven Anderson, chairman of the House Revenue and Taxation Committee, said he opposes Beebe’s hike but said he thinks it will easily pass both chambers.

“I’m afraid we’ve set up a scenario where tax increases are the only ways we’re going to address the problem,” said Anderson, R-Rogers.

Both House and Senate versions of the tax hike advanced with little debate or discussion before the committees.

“I think pretty much we’ve talked this bill to death. Everyone knows what it does and everyone knows how they’re going to vote,” said Sen. Mary Anne Salmon, D-North Little Rock, who sponsored the Senate version of the hike.

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