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Both encouraged and discouraged by Arkansas' economy Sunday, Apr 20, 2008 By David Sanders This week Aubrey McClendon came to town and reminded Arkansans how much his company has done to aid in the state's economic expansion, and judging from last year's employment data, his industry is one of economy's few bright spots. McClendon, the chief executive for Oklahoma City-based Chesapeake Energy, spoke Tuesday to a packed convention hall full of business leaders, government types and the media. He indicated that he believed the natural gas companies operating in the Fayetteville Shale would spend between $75 billion and $100 billion in the next decade, but in the same breath he cautioned state policymakers. After the speech he clarified that Chesapeake's future investment was predicated on the stability of the regulatory environment in Arkansas and its severance tax rate prior to the increase approved by Gov. Mike Beebe and the Legislature. He pointed out that since Arkansas raised its tax, other states with which Arkansas competes for investment are talking about lowering their rates. In recent weeks, Arkansas state lawmakers and I have heard from people in Mississippi and Louisiana who have indicated that their states will be doing more in terms of tax policy to create incentives for natural gas companies like Chesapeake to drive their drilling rigs from Arkansas and Texas to their states. McClendon pointed out that Chesapeake's stake in Louisiana's Haynesville Shale play and others like it could impact how much his company does or does not invest in Arkansas. "It certainly can draw away," he said, referring to the newly discovered Haynesville Shale. "That's why Arkansas has to be careful with the regulatory environment and tax environment. There are other competing plays in nearby states that are every bit as good as the Fayetteville, if not better, so you have to stay competitive." The price of natural gas clearly will affect future investment. The University of Arkansas' study on economic activity on the Fayetteville Shale suggested that for companies to remain profitable and to justify future investment the price of natural gas would need to be around $6.21 per million British Thermal Units. Asked what the natural gas price would need to be for his company to justify future investment and remain profitable, McClendon said it was in the high $6 to $7 range. While the futures market looks promising today, price fluctuations are cyclical. The bottom line for McClendon: "We're going to continue to put capital where we think it can have the best impact, and right now Arkansas is a good place to be spending money." This all matters because Arkansas' economic expansion in the natural gas industry is one of the major factors aiding in job creation. According to a new policy memo from the Arkansas Policy Foundation analyzing federal employment data, among private industry sectors, Arkansas' natural resources and mining sector grew by 23 percent in 2007. Beebe has said his goal is to create more "better paying jobs" for Arkansans, but the results from his first year in office are not encouraging as Arkansas employment growth trailed the U.S. average by almost half. According to the Federal Bureau of Labor Statistics, nonfarm payroll employment in Arkansas increased by just 0.42 percent in 2007, compared to the national average increase of 0.80 percent. Arkansas' nonfarm payroll jobs grew from 1,201,400 in December 2006 to 1,206,400 a year later, while national employment expanded from 136,982,000 to 138,078,000 during in the same period. The memo also points out that Arkansas' government employment grew at a rate more than five times greater than the state's private sector employment growth rate. Arkansas private employment increased only by .23 percent (992,400 in December 2006 to 994,700 in December 2007) last year. The BLS reported that Arkansas government employment grew by 1.29 percent (from 209,000 to 211,700) during the same period. While our private sector job growth trails the national average by 0.51 percent, growth in Arkansas' government payrolls outpaced by 0.15 percent the national average for government job growth, which only grew by 1.1 percent (22,083,000 to 22,333,000). Beebe has his work cut out for him. The Arkansas economy is sending troubling signals under his leadership: Private sector job growth is lagging; government job growth outpaces the private sector growth by a factor of five, and of the industries that are showing promise, i.e. the natural gas industry, well, the state is taxing them at a higher rate. ------- David Sanders writes twice weekly for the Arkansas News Bureau in Little Rock and is a host of the Arkansas Education Television Network's "Unconventional Wisdom." His e-mail address is DavidJSanders@aol.com. |
