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Opposition to Arkansas Severance Tax Hike Grows

A ballot initiative to raise the Arkansas severance tax on natural gas production being promoted by former gas industry executive Sheffield Nelson has drawn more foes.

Last week U.S. Reps. Mike Ross, a Democrat; and Tim Griffin, a Republican, voiced their opposition to the tax increase at an energy event in Conway, AR.

"An increase in this tax rate will dramatically slow down drilling and production and jeopardize thousands of Arkansas jobs, something we can't afford to let happen," Ross said at the Conway Area Chamber of Commerce as quoted by the Associated Press.

According to the energy industry-backed anti-tax group Arkansans for Jobs & Affordable Energy (AJAE), the Association of Arkansas Counties (AAC), the Poultry Federation and the Northwest Arkansas Council recently signed on in opposition to the tax hike on producers.

"...[O]ur association believes a natural gas severance tax increase would be harmful for Arkansas counties and for Arkansans," said Chris Villines, executive director of the AAC.

The measure would raise the severance tax on gas production from 5% to 7% and eliminate tax breaks on new wells in order to help fill a shortfall in funding for highway projects over the next 10 years. The existing tax was adopted in 2008 with the intent of generating $100 million annually. Nelson has said his measure would raise $250 million a year.

Nelson, a Republican who was a chairman of Arkla Inc. and a former gubernatorial candidate, is now leader of the Committee for a Fair Severance Tax. He has been pursuing the severance tax increase for a while in the home of the Fayetteville Shale (see NGI, July 25, 2011).

"They're [drillers] tearing the roads to pieces," Nelson told NGI last year. "The state has identified $450 million worth of damage that huge trucks have caused in the gas producing area. This is to try to make them pay for part of what they're doing to our environment and our road system. They're causing some pretty tremendous damage."

Sheffield has until July 6 to gather 62,507 signatures of registered voters to get the measure on the November ballot. Part of his outreach to voters includes a Facebook page for the Committee for a Fair Severance Tax.

A poll of potential voters taken last March found that 55% opposed the measure while 28% were in favor and 17% were undecided. Gov. Mike Beebe has said if the measure makes it to the ballot, he would vote against it. He previously had expressed lukewarm support for the tax increase.

"The Poultry Federation opposes policies that negatively impact our growers and processors," said Poultry Federation President Marvin Childers. The Northwest Arkansas Council recently voted to oppose the measure. "We appreciate the support of these well known, well respected organizations, and we welcome them to our growing coalition of groups, individuals, cities, business leaders and elected officials who recognize that a natural gas tax increase is wrong for Arkansas," said AJAE Chairman Randy Zook.

Recently, justices of the peace in Faulkner County adopted a resolution opposing the tax hike. County Judge Preston Scroggin said the tax increase could mean the end of the gas industry in the state.

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