The Arkansas Governor and natural gas producers proposed a compromise last week on the severance tax issue. The compromise plan calls for a 5% tax rate, with a 36 month reduced rate of 1.5% for high cost new wells and a 24 month reduced rate for all other new wells.

A 1.25% rate is possible indefinitely for low producing wells new or old. At the present time the tax is bringing in only about $600,000 a year and it would go to about $57 million in 09 and $101 million by 2014. . The tax money would be dispersed at, 95% would go to roads of which 70% of that to state highways, 15% of that to Counties, which could be about $108,300 to each county in 09, and 15% to cities. The other 5% of the total would go to general revenue. This would be an increase in general revenues of about $2 million over what we have now. The state's current tax rate is 3/10th of 1 cent per 1,000 cubic feet of gas extracted and has not changed since 1957. It is said that it is unlikely that any increase would be passed on to heating bills because the market price that gas utilities pay production companies is largely set by the national market. One of the arguments the Governor has said that much of the gas we purchase is from out of state and it has the severance tax on it from that state, Arkansans are paying theirs. We send much of ours out of state, why shouldn't they be paying for a severance tax from Arkansas. It would take 3/4th vote in the legislature if a special session is called to pass the severance tax. If it does not pass, there is a proposal to go on the ballot in November to increase the severance tax to 7% and it does not have the exemptions or delays, as Beebe's proposals and other states like Texas and Oklahoma has. Gov. Beebe wants to pass this one to head off the proposal on the November ballot. Many people believe that if the tax is not passed at 5% and it does pass at 7% in November, that it could hurt the production of natural gas in the state. People need to remember that at least half the state would not be involved in the tax and probably would vote in favor of it on the ballot. Some opposed say that this 5% would hurt companies coming to the state to explore and produce. This 5% is backed by the natural gas companies. Some opposed, say they feel like the Governor is pushing this on the people and that they do not want to be taxing just because there is an industry we can go after. Some are opposed because they are against any tax for any reason. some say the state has a surplus, but as you know the economy is taking a bite out of there continuing to be any surplus. If you receive a royalty from a well, yes, part of it will probably be passed on to you. The vote will be close in the legislature, if a special session is called.