Arkansas Lieut. Gov. Mark Darr said last week he opposes a proposal to raise the severance tax on natural gas production to help repair roads damaged by gas drilling activity.
Former utility executive Sheffield Nelson, who twice ran unsuccessfully for governor, is spearheading a move to raise the tax to 7% of market value from the current effective rate of 1.25% to 3%.
The General Assembly raised the tax rate to 5% in 2008, but exemptions and exclusions for some production costs have reduced the expected collections.
Nelson hopes to obtain signatures of 62,507 registered voters by July 2012 to put the increase on the November 2012 ballot.
Darr told a gathering of the Political Animals Club at the governor’s mansion in Little Rock that the tax increase would take jobs out of the state.
“We need to keep it the way it is right now because we need to protect the jobs that we have and encourage that industry to do even more work in Arkansas,” Darr said.
“If we keep taxing them and encouraging them to move to other states to do business, then that’s what they’ll do,” he said.
Nelson’s plan calls for giving cities $20 million a year from the additional revenue, with 5% of collections flowing directly into the general fund. The remaining revenue would be split, with 70% going to the state, 15% to cities, and 15% to counties.
Proponents of the higher tax said it would generate $250 million a year.
The current tax on natural gas production generated $54.6 million in 2010 from production valued at $3.1 billion, and $39.1 million in the first eight months of 2011, Darr said.
Nelson said heavy trucks associated with shale gas drilling damage state, city, and county roads to the tune of $450 million a year.
The effort to raise the natural gas tax is supported by the Arkansas Municipal League.