Sheffield Nelson: Raise Severance Tax to 7 Percent

Sheffield Nelson, a former natural gas utility executive, said Monday that he has filed a ballot initiative to raise the state's severance tax to 7 percent, with 100 percent of the proceeds going toward state roads. 

If the proposal makes the ballot, Arkansans would vote on the title in November 2012.

The move comes two years after the state Legislature voted to increase the rate from three-tenths of a cent per thousand cubic feet of gas to 5 percent of market value. At the time, Nelson called the agreement "acceptable."

Since then, the Fayetteville Shale has fallen short of expectations, with the price of natural gas plummeting, eating away at royalties and at the severance tax revenue desgined to offset damage to roadways. 

On Monday, Nelson told reporters that the current severance tax doesn't raise enough money and has numerous loopholes that his plan would eliminate.

Nelson said that from November 2009 to October 2010, severance tax revenue in Arkansas was $54.6 million. He said that under his plan, that total would have been $250 million.

Nelson's act proposes other changes to the tax. Ninety-five percent of proceeds from the current severance tax goes to a state road fund, and 5 percent goes to the state's general fund. Under Nelson's plan, 100 percent of the proceeds would go to roads, with 70 percent going to the state highway and transportation fund, 15 percent to the county aid fund and 15 percent to the municipal aid fund.

"If we don't do a severance tax increase there will not be a roads program," Nelson told reporters.

Nelson said his proposal would be in line with neighboring states and would provide money for to repair roads that he says are being damaged by natural gas drilling equipment.

Nelson, a past Republican candidate for Arkansas governor, characterized his efforts to get the initiative on the ballot as "a marathon, not a sprint."

"We want this to be a grassroots organization," he said. "I am committed from a personal standpoint; time, effort and money."


Click here to see a list of the state's largest gas production companies ranked by production in 2009. A spreadsheet version is also available.

Chesapeake Energy sells all its Fayetteville Shale Play assets to pay down debt.