Beebe signs severance tax hike into law

LITTLE ROCK (AP) Gov. Mike Beebe signed into law Wednesday an increase in Arkansas' severance tax on natural gas, raising a rate that hasn't changed in a half century to pay for millions of dollars in highway improvements.

The tax hike will take effect Jan. 1 and will eventually raise $100 million annually. Beebe said the measure only adds to the list of accomplishments of a Legislature he's already praised for boosting school funding and cutting the state's grocery tax in half.

"They've raised a severance tax on natural gas that some people have been talking about 50-some odd years," said Beebe, who served in the Senate during a failed effort to raise the tax in 1983 under then-Gov. Bill Clinton.

Beebe put his signature on the historic measure only hours after Arkansas legislators gave their final approval in a special session the governor called after reaching an agreement with natural gas companies that are drilling in Arkansas' Fayetteville Shale formation.

The new law calls for the state to levy a 5 percent base rate on the market value of gas extracted, with exemptions built in to lower the tax rate for certain wells. State officials predict it will raise $57 million next year and eventually rise to $100 million a year.

The levy will replace the current tax that generated about $660,000 yearly, and had not been changed since 1957. The state's current severance tax is among the lowest in the country.

Both the House and Senate formally adjourned on the third day of the session Wednesday after giving final approval to the governor's plan, set out in identical bills. Beebe also signed into law measures to repeal a botched 2007 marriage-age law and to give two school districts more time to seek release from federal court supervision of their desegregation efforts.

House Speaker Benny Petrus called passage of the severance tax increase inevitable.

"The governor wasn't going to call it if the votes weren't there ... so the special session would turn into a free-for-all and be here for umpteen days without a consensus," said Petrus, D-Stuttgart. "That was done up front, very wisely so."

The House approved the Senate tax bill by an 82-17 vote and the identical House bill was approved in the Senate by a 32-1 vote. The versions of the bills were approved by their respective chambers by similar margins Tuesday.

The severance-tax bills required three-fourths vote in both chambers and Beebe expressed confidence going into the session Monday that he had enough votes to raise the severance tax.

Throughout the brief session, even the most outspoken opponents to the proposed increase remained silent as the plan moved through the Legislature.

Sen. Bob Johnson, who will serve as Senate president pro-tem in the 2009 session, missed Wednesday's vote but a day earlier voted against the tax hike. Johnson, D-Bigelow, said Wednesday he believes the tax will drive away business and will be revisited by future legislatures.

"Since when is a low tax a bad thing? When did we adopt the philosophy that low taxes were bad things for our state?" Johnson said after the vote. "When you add jobs, you add taxes. When you add taxes, you lose jobs."

Beebe said he's not worried about the possibility of future sessions trying to roll back the tax hike given the number of votes the proposal garnered.

Beebe also acknowledged that the new tax alone won't solve the shortfall that the state's highway system faces. Beebe has said he'll likely ask voters to continue a bond program to pay for millions of dollars in interstate improvements in 2010.

Under the proposal, 95 percent of the tax revenues will go toward road improvements. Of that amount, the Arkansas Highway and Transportation Department will get 70 percent and cities and counties each receive 15 percent.

"This isn't the end-all and the be-all. One hundred million dollars isn't what all our highway department needs are, but $100 million more than what we have," Beebe said.

Rep. Keven Anderson, R-Rogers, said concerns about oil-drilling businesses leaving Arkansas faded away once it became clear that exemptions would protect most companies from immediately paying the full tax rate. That helped peel away some Republican legislators.

"This is awfully tempting, even though very few Republicans would be excited about a tax increase," said Anderson, who voted against the tax hike.

Former Arkla executive Sheffield Nelson said Wednesday he'll withdraw his proposed ballot measure to raise the tax to 7 percent with no exemptions. Beebe said the possibility of Nelson's proposal on the ballot in November accelerated the timetable on the tax hike, rather than waiting until the Legislature meets in regular session next year.

"I'm pleased because it's going to benefit the people of Arkansas," said Nelson, a former chairman of the state Republican Party. "We worked on this issue for amost 14 months to bring it to this stage and it's gratifying to have the work completed successfully."

The botched marriage-age law, which took effect July 31, was intended to establish 18 as the minimum age to marry while also allowing pregnant minors to marry with parental consent. But an extraneous "not" in the bill allows anyone who is not pregnant to marry at any age if the parents consent. The bill given final approval Wednesday repeals the law and returns the minimum age to marry to 17 for boys and 16 for girls.

The other item approved by lawmakers and signed into law Wednesday extends the deadline for the Pulaski County School District and the North Little Rock School District to seek "unitary status" from federal court a designation signifying that the districts are successfully committed to racial integration and can be released from federal supervision.

Legislation last year offered financial incentives to the two districts if they were declared unitary by June 14. Under the proposed bill, that deadline would be extended to Dec. 31. The Little Rock School District emerged from federal monitoring last year when it was declared unitary.