Tiny Arkansas school district financially strapped as $2.7 billion natural gas company disputes local tax bills

A tiny school district in Pangburn, Arkanas, is feeling the strain as a $2.7 billion utility company disputes its local tax bills.

Southwestern Energy Co. of Houston has reportedly filed lawsuits in six Arkansas counties to dispute how it's taxes are calculated. And the company has decided to stop paying some of its taxes until the cases are decided, according to Bloomberg News.

What is happening?

That's a problem for the 730-student Pangburn School District because Southwester is its largest taxpayer. Without the money, the district cannot afford new teachers, library books and computer lab upgrades.

So is it a sign of the times or a sign of what can go wrong when a single company or industry is relied upon for support?

As Bloomberg pointed out, the lack of diversification led to Detroit's demise when the auto-making industry disappeared. New Jersey had problems when it was forced to bail out "junk-rated Atlantic City" after casinos closed. And now in Arkansas, declining natural gas production and prices are chopping away at a key revenue source for some municipalities.

"It's just filtered through our whole system," Stacy Hopkins, business manager for the school district, told the news outlet. "At the end of the day, our main objective is to educate these kids. We're doing our best to cut in other areas that don't affect our students."

Pangburn is about 65 miles north of Little Rock, Arkansas.

In 2004, Southwestern became the first company to pull natural gas from the Fayetteville Shale, according to the report. It went on to become a top producer in the state. From there, production in Arkansas rapidly grew between 2007 and 2010. Now, it is plummeting.

Earlier this year, Southwestern announced plans to sell its Fayetteville exploration and production business to focus on more profitable areas in the nation, the report stated.

The company is arguing in court that Arkansas counties calculate taxes "using an industry metric of natural gas prices that is averaged over three years, which has resulted in the company paying levies based on higher prices than what it earns in the market."

Southwestern has also said the amount it can deduct for lease operating expenses is too low. In turn, that drives up its tax bill.

What has the company said?

Company spokeswoman Christina Fowler told Bloomberg that in Cleburne County, Southwestern is being overcharged by about $2 million a year.

"Southwestern Energy recognizes the uncertainty that this tax issue is creating for local school districts and county governments," Fowler said in a written statement. "That is why we have been working with the state regulatory authority and county governments to find an equitable resolution."

The state, which guarantees debt issued by school districts, may have to step in as districts struggle to collect operating revenue.

"It's like a perfect storm," said Mark Whitmore, a lawyer representing Conway County, one of the counties that Southwestern has sued. "The fact that they're not paying has left these schools in duress."