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Report: Arkansas could gain up to $7.5 billion from natural gas taxes

LITTLE ROCK – Bringing its system for taxing natural gas production into line with the times could put $4.5 billion to $7.5 billion into Arkansas coffers over the next 30 years, according to a report released Thursday by a nonprofit group.

Arkansas Advocates for Children and Families and the Southern Good Faith Fund released two reports focusing on potential revenues from the Fayetteville Shale, a natural gas formation.

Arkansas Advocates Executive Director Rich Huddleston said the group is not pushing for an increase in the tax during the legislative session that begins Monday. But Huddleston said the state’s current method of taxing natural gas production, by volume instead of by value, is out of date.

“It clearly shows that the Arkansas severance tax is antiquated and out of step with other states,” Huddleston said.

The group’s report said that Arkansas’ tax is one of the lowest in the country.

The current severance tax would generate about $120 million in revenue over 30 years from the Fayetteville Shale production, the report said.

Changing to a market-based rate of 3 percent would generate $4.5 billion, while a 4 percent rate would generate $6 billion and a 5 percent rate would generate $7.5 billion, the report said.

“The rate is woefully inadequate and hasn’t been changed since 1957,” said James Metzger, the author of the report.

In a separate report, the Southern Good Faith Fund proposed using increased revenue from natural gas severance taxes for several higher-education projects.

The group recommended using revenues from an increase in the tax to create an Arkansas Higher Education Trust Fund, which the report estimated could generate between $200 million and $400 million in annual revenues.

“The Fayetteville Shale presents a unique opportunity to increase the number of college graduates in Arkansas,” said Mike Leach, director of the fund’s public policy program.

The group proposed using the interest revenues from the trust fund to create a matching grant for the state’s college savings plan, establish a need-based program targeting young adults who have been out of high school for more than a year and tuition assistance for students concurrently enrolled in high school and college courses. The report also said the money could go toward increased funding for the Workforce Improvement Grant program and other higher education needs.

While his group will not push for increasing the tax this session, Huddleston acknowledged gaining support for an increase would be difficult as the state faces a projected $843 million surplus by the end of this fiscal year.

Legislative leaders on Thursday said they were excited about the prospects of the Fayetteville Shale but were concerned about proposing an increase in the severance tax.

“If you look at the total taxes on natural gas, then the states that surround us, we’re probably much higher,” said incoming Senate President Jack Critcher, D-Batesville. “You could raise the severance tax substantially on natural gas, but at the same time eliminate the sales tax on natural gas and probably generate the same revenues.”

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