Today’s THV

5/11/12

New Study Examines Economic Impact of Increased Severance Tax Rate

Increasing the severance tax on natural gas production in Arkansas would lead to significant economic losses including 8,322 permanent jobs, $2.7 billion in total spending, and $960 million in gross product, according to a study released today by the Conway Chamber of Commerce. The study indicates the proposed increase to a flat rate of 7 percent – with no incentives for new wells or high-cost drilling – is likely to reduce well completion and production by 8.5 percent, and will compel companies to shift production to areas with lower tax rates.

“Raising the severance tax rate in Arkansas would reduce the level of economically-feasible production, diminish the state’s position relative to other producing regions and bring job losses to the state,” Dr. Ray Perryman, founder and president of The Perryman Group and author of the study said.  “Exploration and production are significant economic engines for Arkansas, and a decrease in energy sector activity would harm the state’s economy.”

Tax rates in Arkansas today are competitive with those in Texas—the largest gas-producing state in the country—and other areas with substantial drilling and exploration activity. A significant tax rate change would raise the relative cost of investing in Arkansas’ resources, which is a critical parameter in producers’ decision-making processes.

According to the study, higher taxes will also lead to decreased personal income and expenditures across several sectors.

Sector

Losses in Total Expenditure

Jobs Lost

Mining

$1,305,728,080

672

Finance, Insurance & Real Estate

$295,513,997

317

Retail Trade

$211,888,348

2,906

Nondurable Manufacturing

$194,605,307

452

Construction

$155,873,675

1,103

“The livelihoods of thousands of Arkansans depend on natural gas exploration and production—incomes that would be jeopardized by an increase in the severance tax rate,” said Brad Lacy, President and CEO of the Conway Area Chamber of Commerce.  “Exploration and production provide millions of dollars in spending, gross product, and personal income, as well as thousands of good jobs to our economy. These contributions directly benefit businesses, state and local governments, and schools. Our state’s focus should be squarely on growing jobs not putting them at risk.”

The Conway Area Chamber of Commerce facilitates the development of Conway into a nationally-competitive, economically-diverse city.  The Chamber seeks to lead its community toward sustainable economic growth, advocate a pro-business climate for its members, build upon Conway’s educational foundations, and establish and execute the community’s vision.

The Perryman Group is an economic research and analysis firm based in Waco, Texas. The firm has more than 30 years of experience in assessing the economic impact of corporate expansions, regulatory changes, real estate development, public policy initiatives, and myriad other factors affecting business activity.  More information can be found at www.perrymangroup.com.

Natural gas a boon for Arkansas

By Guest Writer Kelly Robbins Special to the Democrat Gazette

5/12/12

LITTLE ROCK — As executive vice president of the Arkansas Independent Producers and Royalty Owners Association (AIPRO), natural gas production is something I work with every day. I see the jobs and revenue that natural gas is bringing to communities that would otherwise face tougher budget choices and more challenging economic times.

Everywhere I travel, I see the positive impact that natural gas is making in Arkansas. People in towns all around our state ask me if natural gas is clean and safe to develop. The industry works hard during production to ensure the safety of all Arkansans and to protect our state’s treasured natural resources.

A recent review by the nonprofit State Review of Oil and Natural Gas Environmental Regulations Inc. (STRONGER) found that Arkansas’ natural gas industry is well-managed and meets the group’s guidelines. I would like to commend STRONGER for recognizing the strenuous efforts Arkansas’ natural gas industry has taken to protect the people and pristine landscape of our state.

The organization’s praise of Arkansas’ hydraulic-fracturing rules and its well-water complaint protocol is further recognition and proof the industry is taking the necessary steps to ensure that natural gas is being produced safely. In short, existing regulations are working.

Arkansas is a leader in regulatory standards, with several regulations dictating how natural gas production is performed. The review finding reinforces the importance the industry places on the safe and responsible development of natural gas.

Oversight is a necessary function that the industry supports. In fact, Arkansas was one of the first states in the country to require public disclosure of chemicals used in hydraulic fracturing, known as rule B-19. As the state’s landmark disclosure rule, this regulation requires disclosure of additives used in hydraulic fracturing on a well-by-well basis. The Arkansas Oil and Gas Commission also recently adopted rule D-20, which regulates compressor noise levels.

All of these regulations point to a state that takes oversight very seriously, and to an industry committed to the same goal.

Arkansans do not have to choose between economic growth and environmental protection, nor should they. States with increased natural gas production have seen positive economic growth and enviable job creation statistics, a sign of a bright economic future for our state as we continue to develop this abundant resource.

Natural gas production in Arkansas is responsible for thousands of well-paying jobs and provides much needed income to state and local governments. During a time when many states face financial hardship, job growth fueled by natural gas acts as an engine for economic prosperity. In fact, the natural gas community has contributed nearly $154 million in severance-tax receipts under the current severance-tax structure since 2009, up from $1.3 million in 2008.

The abundance of natural gas in our state makes this possible, and if we support this viable domestic energy resource, we can look forward to continued economic growth. Natural gas also benefits dozens of ancillary industries, generating over $1.14 billion in labor income outside the natural gas community in 2010.

Those of us who work in the natural gas industry are also residents of this great state. Industry personnel work where they live because we all believe in the benefits that natural gas production brings, and will continue to bring, to Arkansas.

We, your friends and neighbors who work in the industry, want to ensure that natural gas production is performed in a safe and responsible way; one that does not interfere or harm Arkansans’ quality of life, but rather enhances it and makes Arkansas a better place to live for generations to come.

By DEMOCRAT-GAZETTE STAFF FROM WIRE REPORTS

5/11/12

WASHINGTON — The U.S. government posted a budget surplus in April, the first in more than three years, as tax revenue climbed and spending dropped.

However, the federal government remains on track to exceed a $1 trillion deficit for the fourth-straight year.

Receipts topped outlays by $59.1 billion compared with a deficit of $40.4 billion in April 2011, the Treasury Department said Thursday. Economists projected a $35 billion surplus, according to the median estimate in a Bloomberg News survey. It was the first surplus since September 2008 and the biggest since April 2008.

“The total federal budget deficit is slowly shrinking,” said Steven Wood, president of Insight Economics LLC in Danville, Calif. “However, this improvement has been halting, due largely to erratic economic and employment growth.”

President Barack Obama, in his campaign to win a second term, is trying to make the case that while the recovery has been uneven, the U.S. is making progress. The administration has said it won’t accept any of the dozen spending bills House Republicans are working on unless they agree to abide by a budget deal reached last year.

The dispute risks leading to a government shutdown shortly before the November elections unless lawmakers agree on legislation to keep agencies operating in the 2013 fiscal year, which starts Oct. 1.

Republicans rejected Obama’s $3.8 trillion electionyear budget plan, saying it didn’t go far enough to reduce the deficit or boost economic growth.

Estimates of the April budget outcome ranged from roughly in balance to a surplus of $60 billion in a Bloomberg survey of 23 economists. April has been a surplus month in 44 of the past 58 fiscal years, the Treasury Department said.

The nonpartisan Congressional Budget Office estimated this week that the April surplus would reach $58 billion. The budget office said in a report dated Monday that the results were influenced by shifts in the timing of certain payments.

Receipts increased 10 percent from the same month last year to $318.8 billion, Thursday’s Treasury Department report showed. Over the same period, spending dropped 21 percent to $259.7 billion.

Through the first seven months of the budget year that began Oct. 1, the United States has run a $719 billion deficit, the Treasury said Thursday.

Just as in Europe, the surge in deficits has led political leaders in the United States to focus on tightening budgets rather than spending more to strengthen economic growth.

But the United States enjoys key advantages over Europe. Unlike many European nations, it can borrow at super-low rates. That’s largely because investors regard U.S. Treasury bills as ultrasafe compared with other global assets. Money has poured into Treasury notes since the financial crisis, driving down their rates and easing borrowing costs for the U.S. government.

The resilience of the U.S. economy has further attracted investor interest. Though sluggish, the U.S. economy is growing steadily. By contrast, some European countries have fallen into recession. More are expected to follow. Britain slid into recession after the enactment of spending cuts and tax increases.

Sung Won Sohn, an economics professor at California State University’s Martin Smith School of Business, cautioned that investors may not always be so willing to finance U.S. deficits.

“With the European debt crisis, we are looking at a movie that could happen to us,” Sohn said. “We should not be pointing a finger at Europe. We have been doing the same thing — living way beyond our means.”

Obama’s proposed budget would initially boost the U.S. economy though later in this decade it would become a drag on growth, the Congressional Budget Office said April 20.

Between 2018 and 2022, the administration’s plan would cut growth by 0.5 percent to 2.2 percent, according to the analysis.

Obama would let the George W. Bush-era tax cuts expire for couples who earn more than $250,000 and set a 30 percent tax rate on those making more than $1 million.

Mitt Romney, the presumptive Republican nominee, has proposed broad but largely unspecified spending cuts. He opposes Obama’s tax increases. Romney has also said he would like to cut the federal work force by 10 percent.

The last time the government recorded an annual surplus was 2001. Deficits returned after Bush won approval for broad tax cuts, pushed a major drug benefit program for senior citizens and launched wars in Afghanistan and Iraq.

The deficits grew further under Obama as the recession shrank tax revenue as unemployment rose and income fell.

Private economists said they expect little deficit reduction to occur until after the November elections. The Bush tax cuts expire at the end of December. Congress also must make tough decisions about domestic and military programs.

Information for this article was contributed by Meera Louis and Chris Middleton of Bloomberg News and by Martin Crutsinger of The Associated Press.

Arkansas Democrat Gazette

5/11/12

HELENA-WEST HELENA — In wrapping up the federal trial over whether state Senate district boundaries violate the Voting Rights Act, the attorneys for the plaintiffs and the secretary of state argued that giving black voters the chance to elect the candidate of their choice had not been a priority for the mapmakers.

But attorneys for Gov. Mike Beebe and Attorney General Dustin McDaniel disagreed. They also disputed testimony from the plaintiff ’s expert witness, who argued that District 24’s 52.88 percent black majority isn’t large enough to guarantee that black voters can choose the candidate of their choice.

The lawsuit seeks to prohibit Arkansas from using district boundaries approved last summer by the state Board of Apportionment and make the state draw districts that the plaintiffs say would better serve black voters in the eastern Arkansas Delta region, particularly in District 24.

The case is Future Mae Jeffers v. Mike Beebe. Plaintiffs in the case were part of lawsuits in the 1980s and 1990s that created some House and Senate districts where black voters are in the majority. These districts were created to account for lower rates of black voting caused by institutionalized bias and to enhance the influence of black voters.

The panel of three federal judges did not rule Thursday.

The lawsuit states that board members “drew that Senate plan with the intent and effect of diluting the voting strength of African American voters in northeastern Arkansas and denying them an equal opportunity to elect candidates of their choice to the Senate.”

The board is made up of McDaniel and Beebe, both Democrats, and Secretary of State Mark Martin, a Republican. The board is responsible for drawing new House and Senate district boundaries after the U.S. census.

District 24 includes all of Crittenden County and parts of Cross, Lee, Phillips and St. Francis counties. It has a black voting-age population of 52.88 percent.

Martin, who was represented by a separate attorney in the trial and was the only vote against the new Senate boundaries, largely sided with the plaintiffs in the case.

“Secretary of State Mark Martin’s position is that there has been a violation of the Voting Rights Act by the Board of Apportionment and the plan adopted by the Board of Apportionment for Senate District 24 deprives African American voters of the equal opportunity to elect the candidate of their choice,” Martin’s attorney, Asa Hutchinson, said.

Hutchinson, a former congressman, lost to Beebe in the 2006 gubernatorial election.

On Wednesday, the judges dismissed the charge against Martin that states that the secretary of state intentionally discriminated against black voters.

Hutchinson argued that the governor and attorney general’s priority was to put all of Crittenden County into the same district – despite the effect it would have on the district’s racial demographics.

“You cannot do that and meet your obligation under the Voting Rights Act,” he said. “That priority took precedence over the effort to maintain a majority-minority district.”

The lawsuit contends that the Senate district lines violate Section 2 of the Voting Rights Act of 1973 as well as the 14th and 15th amendments to the U.S. Constitution, which were ratified after the Civil War to protect blacks’ civil rights.

McDaniel and Beebe stated when they testified earlier in the week that they were most concerned with meeting other commonly held redistricting “principles.”

Those include that districts need to have less than 10 percent population variance; not be drawn solely based on race; be designed with all parts connected and compact; avoid splitting political entities such as cities; keep similar communities together; maintain the core of existing districts; protect incumbents; and minimize gerrymandering, which is drawing districts to protect a political party.

The plaintiff ’s attorney, James Valley, said the state tried to return the district to what it was before the original Jeffers case.

“There are many similarities between this case and Jeffers,” Valley said, calling the situation “same stuff, different decade.”

He said although the governor and attorney general testified that they hoped to maximize the black voting-age population in the district, they didn’t do so.

“We believe the Board of Apportionment has failed,” Valley said.

He asked the panel to halt voting in District 24 and the surrounding districts until new boundaries can be determined.

At no point in the four-day trial did a witness provide an exact percentage for what the black voting-age population needs to be so that the rate at which blacks vote is comparable to the rate at which whites vote. The black voting rate can be depressed by poverty and low education levels, plaintiff’s witnesses said.

In his testimony of behalf of the state Thursday, Jeffrey Zax, an economics professor at the University of Colorado in Boulder, sought to discredit the data and the analysis done by the plaintiff’s expert witness.

When they made up 60 percent of the voting-age population, blacks were still struggling to consistently elect black candidates to represent them from this section of Arkansas, electoral consultant Lisa Handley testified Tuesday.

Now, with blacks making up less than 53 percent of the voting-age population in newly formed District 24, it’s even less likely that black voters will have the opportunity to elect the candidate of their choice, she said.

Zax argued that Handley used flawed and at times incorrect data and that she should not have based her analysis on election results for legislative races from polling places inside the district.

Instead, he looked at state and national election results in four of the five counties that make up the district now to determine how those counties would vote if presented with the choice between a white and a black candidate. He did not use Cross County, where only a small percent of the district’s population resides. Some of the whole counties he considered include the disputed areas in the case, specifically the western portion of St. Francis County.

Valley argued that a high school student who knew algebra could do those calculations and said Zax didn’t actually analyze any data.

Zax said, based on his analysis, the candidate supported by black voters will always win races within these four counties.

“The black preferred candidate always prevailed, therefore there is no evidence, no credible evidence, of voter dilution,” he said.

Assistant Attorney General David Curran pointed out in his closing argument that the sitting senator, Jack Crumbly, D-Widener, is black.

“The idea that the old District 16 wasn’t working defies common sense,” he said.

Curran said the years the district was held by a white senator shows that the district was fair to both blacks and whites.

“That is what happens from time to time in an equal-opportunity race,” he said.

Zax said the legislative races analyzed by Handley are not good predictors of voter behavior in District 24 because all parts of District 24 did not take part in those elections.

Handley said the best way to predict behavior in a future legislative race is to examine past legislative races, not statewide or national contests.

He boosts general revenue forecast to fully fund budget

Arkansas Democrat Gazette

5/10/12

LITTLE ROCK — Gov. Mike Beebe on Wednesday increased the general revenue forecast for the fiscal year that ends June 30 to allow for the budget enacted by the 2011 Legislature to be fully funded.

The change in the forecast means more state general revenue for the Medicaid program, the state’s higher education institutions, and some other state agencies, the governor said in a news release.

Legislative leaders generally lauded Beebe’s decision to increase the general revenue forecast for fiscal 2012.

Joint Budget Committee co-Chairman Sen. Gilbert Baker, R-Conway, said increasing the forecast is “a wise move” that will, among other things, allow the state’s higher education institutions to have $7 million more in general revenue this fiscal year and for merit raises to be granted to employees in some state agencies.

The increase in the forecast will increase general revenue for the state’s higher education institutions to $733 million, according to the state Department of Finance and Administration.

The increase in the forecast also increases general revenue by $15 million to $1.029 billion for the state Department of Human Services, which manages the Medicaid program.

But state Rep. John Burris, R-Harrison, said, “It proves once again that conservatives were right when we advocated for additional tax cuts in 2011 session. The sky didn’t fall, as some Democrats and bureaucrats predicted.”

Beebe spokesman Matt DeCample said state officials haven’t yet decided whether to allow state agencies to grant one-time merit bonuses to state employees for this fiscal year and the size of the bonuses if they allow the bonuses to be granted.

The maximum bonus allowed under state law is 4.5 percent and that maximum could be reduced, said Tim Leathers, deputy director of the state Department of Finance and Administration.

For fiscal 2012 and 2013, lawmakers have declined to provide funding for costof-living raises for the more than 30,000 state employees who work at agencies beyond the state’s higher-education institutions.

Richard Weiss, director of the state Department of Finance and Administration, said in a memorandum dated Wednesday to state agencies that the governor increased the general revenue forecast for fiscal 2012 in an amount sufficient to fund 100 percent of the A and B allocations under the Revenue Stabilization Act.

The state’s top budgetary priorities are reflected in Category “A” in the budget for fiscal 2012 enacted by the Legislature and the governor.

The first $4.564 billion of net general revenue goes to category “A” funds distributed to state agencies in fiscal 2012.

The B category distributes $31.9 million more to certain state programs, such as the state’s higher-education institutions and the Medicaid program.

Beebe increased the forecast for the net general revenue available for distribution to state agencies for fiscal 2012 by $39.4 million to $4.605 billion and that provides $31.9 million to fully fund the B category of the budget and $7.5 million more for the governor’s rainy-day fund, said Brandon Sharp, the state’s budget director.

The previous forecast projected $2.5 million for the rainy-day fund.

The $10 million in rainyday money will help with unforeseen costs in the coming months, according to the governor. The rainy-day fund totals roughly $18 million, said Sharp.

The governor also increased the forecast for gross general revenue to $5.798 billion for fiscal 2012.

In increasing the forecast for fiscal 2012, Beebe cited state Department of Finance and Administration reports that show a continued positive trend in tax collections, particularly for individual and corporate tax receipts.

Joint Budget Committee co-Chairman Rep. Kathy Webb, D-Little Rock, said increasing the forecast for this fiscal year “was the appropriate thing to do.

“Trends look good across the board and I was glad to see it,” she said. “I hope we save all the money we have for the Medicaid shortfall.”

Last week, state officials said state general revenue in April increased by $33.9 million over the same month last year to $718.2 million — the largest amount that the state has ever collected in one month — and the latest sign of an improving economy.

During the first 10 months of this fiscal year, gross general revenue increased by $201.1 million over the same period last fiscal year to $4.908 billion, according to the finance department.

Tax refunds and several other government expenditures come off the top of “gross” general revenue, leaving “net’ general revenue that agencies are allowed to spend.

During this 10-month period, net general revenue increased by $122 million over the same period last fiscal year to $3.905 billion, according to the finance department.

Nonetheless, Beebe warned last week that tough choices, either Medicaid cuts or new taxes, are coming in fiscal 2014 because of a projected state shortfall that could be as large of $400 million in the Medicaid program.