Revenue is Revenue
The administration of Gov. Don Sundquist is up to its tired old tricks again, deliberately using misleading analysis of revenue data in order to make the state's fiscal problems appear worse and enhance the chances of passing an income tax

Consider the most recent revenue announcement by Sundquist's finance commissioner, C. Warren Neel, who reported that revenue collected in January was up 2.26 percent over the same month a year ago. In that press release, Commissioner Neel put a heavily negative spin on the sales tax revenue data in order to make rising revenue appear to be falling.

Here are the facts:
In his February 12 press release, Neel said overall revenue collected in January rose 2.26 compared to a year ago; and overall sales tax revenue rose 0.92 percent. But, he said, if you exclude sales taxes collected on vehicle purchases, revenue from the sales tax declined 0.39 percent compared to January 2001.

Neel contends that is significant because January collections represent retail sales in December, "which means holiday sales were well under the national increase of 2.7%."

It is unclear where Neel got his figure of 2.7 percent growth for national December retail sales growth. The U.S. Commerce Department reports total retail sales nationally grew 4.1 percent in December compared to December 2001. The TeleCheck Retail Index issued by Houston-based check acceptance company TeleCheck Services says December sales rose 2.1 percent. The Goldman Sachs Retail Index tallied 2.3 percent growth in same-store retail sales.

Neel may be conflating two different bits of data: Telecheck indeed reports that sales for the "holiday" shopping period, the 32 days between Thanksgiving and Christmas, rose 2.7 percent in Tennessee, but only 2.2 percent nationally.

Since Neel doesn't identify the source of his 2.7 percent figure, it is impossible to know if it includes – or doesn't include – auto sales, nor what period of time it covers, making accurate analysis difficult.

The Commerce Department's figures do include auto sales, but TeleCheck's data doesn't. Until we know the source, composition and accuracy of his 2.7 percent figure, we should not accept at face value his comparing it to a hypothetical revenue figure for Tennessee that excludes auto sales.

Even worse, Neel's latest press release uses insincere and shifting analysis designed to sustain the administration's quest for an income tax.

Neel has managed to flip-flop completely on the importance of auto sales to the state's revenue, once again demonstrating this administration's willingness to distort facts and shift the truth in order to portray good news as bad news and keep the income tax drive alive.

As reported by The Tennessean in a paraphased quote, Neel said collections were lower than in December 2000 "if you don't take into account robust vehicle sales."

His contention is that the sales tax data, excluding rising vehicle sales, proves the need for an income tax. But that's not what he was saying last summer when Neel was using falling auto sales to justify an income tax.

Back then, Neel told the State Funding Board at a hearing attended by dozens of legislators and reporters that vehicle sales were a major part of the state's sales tax revenue and falling auto sales were causing revenue to grow more slowly than anticipated.

So which is it? Back then, we were asked to focus on sales tax revenue from vehicle sales because it was declining. Today, we are asked to ignore the same revenue source because it is rising. This is not accidental. Neel's press releases didn't start including a calculation for sales tax revenue that excludes vehicle sales until sales tax revenues stabilized in October and started trending upward again in part due to rising vehicle sales.

That month, the sales tax generated basically stable revenue compared to the same month of 2000, but Neel suddenly started excluding revenue from auto purchases, in order to report sales tax revenue was down 3.2 percent. In earlier months, when declining vehicle sales were dragging down sales tax revenue, Neel didn't offer separate data on non-auto retail sales tax revenue that, presumably, would have appeared more positive.

The truth is, Neel and his boss, Gov. Sundquist, want you to ignore good news and focus only on the data they selectively choose and deceptively spin in order to make it appear the sales tax is why we have a deficit. Rising revenue is ignored, falling revenue is spotlighted.

It doesn't pass the smell test. The fact is, revenue is revenue. And sales are sales, whether you buy a car or a candy bar, and both sales and sales tax revenue is rising again in Tennessee after a brief recessionary dip. That's good news, despite the administration's insistence on seeing clouds in a steadily brightening sky.

By the way, according to TeleCheck, retail sales in Tennessee grew an average of 2.6 percent per month from October through December. Including auto sales, Neel's numbers also show average growth of 1.7 percent per month in sales tax collections. But by arbitrarily excluding auto sales for those three months, Neel claims sales tax revenue has declined an average of 0.46 percent per month.

It's nonsensical, deceptive political spin, brought to you by the same people who promise that there's nothing left to cut and if you'll just give them an income tax, it won't go up.

True Lies
Van Hilleary finally nails the real budget crisis
In announcing his candidacy for governor, Van Hilleary said there has been a lot of "intellectual dishonesty" in the debate over state tax revenue.

Left unsaid: who Hilleary believes has been intellectually dishonest.

For the record, I don't think he meant Phil Bredesen, the likely Democrat nominee, since both man are saying they can manage the state just fine without a tax increase. No, Hilleary was very likely referring to the current governor and administration.

If he needs an example to prove that allegation, here's a good one:

In his latest press release announcing monthly revenue data, Finance Commissioner Warren Neel said the data showed "practically no growth in holiday sales tax collections" in Tennessee, but he arrived at that conclusion by carefully doctoring the data. Neel says the data shows a 0.39 percent decline in sales tax revenue - but he excluded revenue from sales of vehicles, one of the single largest sources of sales tax revenue.

Neel did so because of "robust" sales of vehicles, which caused a surge in revenue. That's intellectually dishonest.

Last summer Neel was using falling auto sales to justify an income tax. He told the State Funding Board at a hearing attended by dozens of legislators and reporters that vehicle sales were a major part of the state's sales tax revenue and falling auto sales were causing revenue to grow more slowly than anticipated.

Back then, Neel found it useful to highlight revenue from vehicle sales because it was declining and that helped the income tax argument. But today, Neel wants you to ignore the same revenue source. Why? Because it is rising, and undercuts the income tax argument.

This coldly calculated and intellectually dishonest misrepresentation of facts is designed to boost the governor's proposed income tax.

Want more evidence? Okay: Neel's press releases didn't start excluding revenue from vehicle sales until overall sales tax revenues stabilized in October and started trending upward again in part due to rising vehicle sales. That month, revenue was flat. But Neel portrayed it as falliyng 3.2 percent, simply by excluding revenue from vehicle sales.

The specific example above is just one of many examples of how in the past four years, Tennessee's sitting governor has become increasingly unfamiliar with honesty. Now that Van Hilleary has pointed out the administration's systematic use of deception, let's hope he continues to hammer away. Tennessee deserves the truth.

Unconstitutional and Indefensible
The governor's proposed budget is $20.5 billion, a billion dollars more than last year. Since he took office, Gov. Sundquist has presided over average annual spending increases of almost $1 billion a year - the budget was $13 billion when he took office in Jan. 1994.

This year, the state is spending $19.48 billion, making the proposed budget 5.4 percent larger. Inflation over the past year has been under 3 percent.

Sundquist claims to have "cut" $400 million from the state budget since he took office, but the real truth is the budget has grown almost 58 percent since then - 7.25 percent per year or around $930 million per year - and the governor is asking for the largest tax increase in state history and an unconstitutional 3.25 percent flat-rate income tax to fund new programs and new spending.

A Prescient Forecast
The governor's proposed budget, due for release Friday, will indeed be well beyond $20 billion including federal dollars and revenue sources - and its 'deficit' is inflated by a large dose of new spending - just as I forecast seven months ago in a column published in the Nashville City Paper.

I wrote:
"My prediction is Sundquist will propose a budget of around $20.6 billion next year that will include all sorts of new programs he’ll call 'improvements,' and then he’ll use that expensive wish list to issue an inflated deficit projection. But next year’s real deficit can be forecast rather easily right now. It is $345 million.

We’ll be $220 million in the hole next fiscal year because of use of one-time money this year. Revenue growth next year is forecast to be $300 million, which would give us an $80 million surplus before we factor in the $425 million extra needed to fund the current level of government services given inflation, population growth and rising medical costs. That adds up to a $345 million shortfall, barring substantial changes in revenue growth. Any higher deficit forecast will reflect merely the governor’s wish list of larger government."

So how close was I? Administration officials say the state will need $1.167 billion in new revenue to balance the budget. But subtract the $437 million in new spending and the real deficit, based on the administration's calculatons would be $730 million. If we also subtract the $103 million the state plans to put into the state's rainy day fund next year and the deficit drops to $627 million.

That's still $282 more than I projected. The difference? Two things: the first is that, seven months ago, state officials were forecasting fiscal 2002-03 revenues would be around $300 million. Today, the forecast is $197 million, a difference of $103 million.

Also, the administration's deficit includes this year's revenue shortfall projected at $312 million. My projection for the fiscal 2002-03 deficit didn't include any revenue shortfalls this year. Accounting for those two factors, the state's projected deficit for fiscal 2002-03 is a mere $63 million more than I forecast. That number represents the difference between what state officials thought seven months would be the inflation and population growth-induced increases in the cost of current government services and their best calculations (or budget padding) today.

So, my deficit projection proved was fairly prescient, and my projection of a total budget of $21.6 billion is likely to be on target when the administration releases its budget today.

The solution to the budget mess? It is the same thing I proposed seven months ago in that same column:

"Add no new programs, reform TennCare and reallocate the savings to cover normal growth of the cost to existing programs."

Various reform plans that have been proposed for TennCare but rejected over the years by the administration would save $200 million to $475 million in state funds per year. Instead, the governor is once again proposing an income tax.

Here's the math on the above deficit projection comparisons:
State's projection: $1,167 million.
Subtract new spending of $437 million.
Subtract rainy day fund contribution of $103 million but add back $103 million for the lower revenue forecast.
Subtract $312 million from deficit that is for the current year's budget hole.
Total: $428 million.
Subtract my forecast deficit of $345 million.
Difference in projections: $63 million.

"Since I've been in office, we've cut over $400 million from the budget." - Tennessee Gov. Don Sundquist, who took office under a $13 billion state budget (including federal dollars) and is starting his final years as governor by proposing a $20 billion-plus budget.

Devil's in the Details:
Key numbers from Gov. Sundquist's State of the State speech
As the legislature debates the details of Gov. Sundquist's proposed budget for the upcoming fiscal year, it's important we take a look at the numbers in his State of the State speech, which you can find online at Tax Free Tennessee. I don't mean the budget numbers. I mean numbers like these:

Sundquist mentioned "child" or "children" 37 times, and "baby" or "babies" 5 times, almost always as justification for more spending.

He used the word "spending" only 2 times – and only once was it used as a reference to government spending.

He mentioned taxpayers only once – and that was as part of the name of his budget, the "State Taxpayers' Budget, which is of course completely misnamed. The taxpayers' budget is what taxpayers have left to live on after the government takes its slice.

He used the word "tax" or "taxes" only twice. "Revenue" is also mentioned twice – always in the context of him not having enough of it to spend. He only acknowledged one time that each tax dollar the state gets is from a hardworking Tennessean who "earned" it.

He used the words "invest," "investing" or "investment" twelve times, 10 of them as a euphemism for government spending.

He used the word "cut" only six times, and at least one of them was in the following complete lie: "Since I've been in office, we've cut over $400 million from the budget." When Gov. Sundquist took office 8 years ago, the total state budget including federal dollars was $13 billion. The proposed budget will top $20 billion.

He used the word "reform" twice, but never the phrase "tax reform," a now-discredited smoke screen for the income tax. He did not use the word "income" or "income tax" at all.

The income tax's constitutionality was never discussed. In fact, except for welcoming the state's Constitutional Officers in his opening remarks, the governor's speech did not acknowledge, mention or refer to the state Constitution in any way.