The spin franchise
Neel does the data-spin flim flam again
The latest revenue figures from the state show growth in revenue from 19 of the state's 23 different taxes, including the supposedly "obsolete" sales tax that provides over half of state revenue. State Finance Commissioner Warren Neel's announcement of that latest revenue numbers highlighted how most of our taxes are showing year-over-year growth.

Well, okay, I just made up that second part - the truth is that instead of talking about all the taxes that generated growing revenues, Neel highlighted one that didn't. He focused his gloomy report on the franchise and excise tax, of which collections actually dropped in February compared to February a year ago.

What Neel doesn't tell you is that F&E taxes are paid quarterly and must be paid by the 15th day of the fourth month after the end of a company's fiscal year. And according to the Tennessee Department of State, most Tennessee businesses use the calendar year as their fiscal year. That means very few businesses actually owe the tax to the state until April 15. At the tail end of a recession, it's not surprising that business owners aren't rushing to send checks to the state two months before they are due.

Incidentally, this isn't the first time Gov. Don Sundquist's finance commissioner and duly appointed income tax cheerleader has mis-construed F&E data to support the administration's claim of a revenue crisis.

A year ago this April, Neel announced the monthly revenue totals by highlighting a $98 million decline in franchise tax revenues. April reports detail revenue collected in March. But Neel failed to include the important caveat that recent changes in the tax law mean most Tennessee companies don't have to pay the tax until mid-April.

What happened a month later in mid-May 2001 when Neel reported April collections, was entirely predictable. In fact, while other media unquestioningly swallowed Neel's spin, I did predict it. In an April 13 press release re-published at Chattanoogan.com, I said that "franchise tax revenues likely will rebound strongly in April as Tennessee businesses meet the April 15 deadline - but that revenue won’t be tallied and reported to the General Assembly and the general public until mid-May."

And indeed franchise and excise tax collections soared to $293.8 million in April, $93 million more than the budgeted estimate for that tax for that month, erasing the previous month's F&E 'deficit' and boosting overall revenues to a $69.5 million surplus over the "budgeted estimate" for revenues that month.

Neel's response to that soaring revenue a year ago reminds me of how in the last few months he has either highlighted or excluded sales tax revenue from vehicle sales depending on how it supported or undercut the administration's income tax agenda.

In April 2001, Neel stressed declining F&E revenue as a reason the state needed to pass an income tax. A month later, F&E revenue soared, so Neel tailored the data in his May 16 press release to claim a rather large deficit "excluding franchise and excise tax collections."

I uncovered and wrote about that particular flim-flam data spin while working as a policy analyst for the Tennessee Institute for Public Policy, and issued a press release that was republished as a commentary by Chattanoogan.com.

Here's a couple of quotes from that press release: "Today's revenue numbers were entirely predictable. Just as sure as, well, death and taxes, collections of franchise and excise tax soared in April. Last month Finance and Administration knew changes in the tax law would mean lower collections in March and higher collections in April, yet in chose to portray the revenue decline as a serious problem that was adding to the deficit."

"Excluding the franchise and excise tax is nonsensical - F&E taxes are the second-largest source of Tennessee's tax revenue after sales taxes. It's like saying if you exclude Mondays the work week is only four days long. It's got little to do with reality."

A year later, things haven't changed. And so, I'll repeat what I said almost a year ago.

"It's time for the Department of Finance and Administration to stop playing games. Good public policy can not be build on a foundation of bad information."

In fact, it is way past time.