Ark. lawmakers ask leaders to reconsider tax hike

By ANDREW DeMILLO

LITTLE ROCK, Ark.

A group of Arkansas legislators asked city leaders from around the state to reconsider their support for a severance tax hike to pay for road improvements on Thursday, as the chief backer of a separate sales tax proposal for highways urged the city officials to not view the measures as competitors.

Fifteen Republicans and three Democrats signed the letter urging the Arkansas Municipal League to oppose the proposed severance tax hike that former natural gas executive Sheffield Nelson is trying to place on the ballot in November. The league, which is holding its winter conference in Little Rock this week, has endorsed Nelson's proposal to raise the tax.

Nelson is gathering signatures to place on the November ballot his measure to raise the severance tax on natural gas to 7 percent of the market value of the gas on next year's ballot. Wells are now taxed at between 1.25 percent and 5 percent of the value of the gas being severed from the land.

The lawmakers in the letter said they believed the hike would hurt job creation in the state and scare away businesses that have been exploring the state's Fayetteville Shale for natural gas.

"A 7 percent severance tax, with no short-term incentives, makes investing production dollars in other states much more attractive and threatens Arkansas' ability to compete for natural gas drilling capital investments and the resulting jobs and economic impact," wrote Sen. Jonathan Dismang, R-Searcy, who sent the letter.

Nelson, a former Republican gubernatorial candidate, dismissed the lawmakers' complaints and said the measure ensures that natural gas firms will pay for damage that Arkansas and its local governments are seeing to roads and highways around the state connected to gas drilling.

"I'm not saying do away with drilling," Nelson said. "I'm saying do what's fair for Arkansas and make the companies that are destroying this state a little bit at a time pay a fair amount."

Earlier Thursday, House Speaker Robert Moore urged Municipal League members to support a temporary half-cent sales tax on the ballot in November that's expected to raise $230 million annually for the state's four-lane highways. The Legislature referred the tax increase to voters as part of a highway package championed by Moore that included a $575 million highway bond program approved last year.

The league is expected to vote this spring on whether to endorse the half-cent sales tax proposal.

"These are not competing. They are compatible," Moore said.

While Nelson didn't paint the measures as competitors, he questioned whether the sales tax proposal would find much favor in an anti-tax climate.

"I'm not finding a lot of support for a half-cent sales tax because people are anti-tax," Nelson said.

Moore said he didn't Nelson's comments as trying to cast the two proposals as competitors, and said both face challenges with voters. He said he could see a scenario where voters back both tax increases.

"If it should be the wisdom of the people of Arkansas in November to pass both of these, it would dynamically change the future of the state of Arkansas if we actually had the money to implement the four lane grid system, expand our roads into rural areas and have the additional revenue that we're short of to maintain what we have," Moore said.

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Andrew DeMillo can be reached at www.twitter.com/ademillo