HobbsOnline

Steaming hot commentary on journalism, Tennessee, politics, economics, the war and more...

Name:
Location: Nashville, Tennessee, United States

7/19/2002

Bias Watch: AP Misrepresents S&P
For three years now, the pro-income tax press has pushed the false notion that the cause for Tennessee's falling bond rating is its lack of an income tax, and the only cure is creation of an income tax. This Associated Press story continues that misrepresentation.

The AP writer, Karin Miller, asserts that Standard & Poor's "long-term outlook on the state is negative because lawmakers did not change the structure of the state's revenue system."

Not true. In fact, Tennessee achieved S&P's highest possible bond rating before Gov. Sundquist took office even though the state had no income tax for the simple reason that spending was in line with revenue. Period. That's all the rating agencies care about long term.

Read the AP story carefully and you'll see that it's pro-income tax spin comes from the reporter accepting at face value the comments of a single pro-income tax state official who puts his own pro-income tax spin on S&P's rating.

Here s what S&P said, according to the AP story:

The negative outlook was based on the "reserves and financial cushion that have been weakened and uncertainty surrounding the ability of the 1 percent sales tax increase to provide sufficient resources to balance budgets in fiscal 2004 and beyond."

And S&P said this: "Also of concern is the ongoing political inertia that has impaired the state's ability to address its financial challenges in a timely manner."

Nothing in that indicates S&P cares whether or not Tennessee adopts a state income tax. In fact, it is understandable that S&P would have concerns about the sales tax increase providing "sufficient resources to balance budgets in fiscal 2004 and beyond," considering that the sales tax increase is temporary and scheduled to expire July 1, 2003.

The legislature balanced this year's budget with the temporary tax increase, but a long-term plan to bring spending in line with revenues has not yet been approved. The political inertia S&P cites is the fact that a minority of legislators desire a new and unconstitutional income tax to fund the endless expansion of government, while some others want to spend-spend-spend but don't want an income tax, and still others want the legislature to consider reducing spending to live within the state's abundant existing revenue.

So where does the AP writer get the notion to put a pro-income tax spin on S&P's comments? From state Comptroller John Morgan, who has been an unwavering ally in the Sundquist/Naifeh/Rochelle income tax push.

Morgan characterized the S&P's report as "bad news" that "unless we address the structural deficit that our system generates over time, another downgrade is likely down the road."

Just remember - those are Morgan's words, not Standard & Poor's - words that tricked a gullible AP reporter into spinning the S&P report into saying something it doesn't really say.

Below are some excerpts of a column I wrote a year ago for the Nashville City Paper while working as a policy analyst for the Tennessee Institute for Public Policy, refuting the Sundquist administration's claim that only an income tax would restore Tennessee's credit ratings.

There is no causal connection between the existence of a state income tax and a high bond rating. Let me repeat that: having or not having a state income tax has nothing to do with our state’s bond rating.

Tennessee achieved a very high AAA bond rating during the administration of Lamar Alexander - and we had no income tax. We maintained it through the Ned Ray McWherter years and the first five years of the Sundquist administration - without an income tax.

Oregon has an income tax but no sales tax, and its AA bond rating is the same as Tennessee, which has a sales tax but no income tax.

Louisiana, which has both income and sales taxes plus a lottery and revenue from casino gaming, has an A bond rating, the lowest rating of any state (and only recently upgraded from A-).

New Hampshire - which has no state income tax (and no state sales tax either) - has a AA+ bond rating, which is higher than Tennessee.

The state of Washington’s bond rating held steady at AA+ last year, despite predictions that a citizen tax revolt would hurt the state's bond rating, reported The Seattle Times. S&P reviewed the state’s rating and left it unchanged after a voter referendum passed and eliminated $750 million a year from state coffers.

Clearly, a state’s tax structure has no causal relationship to its bond rating.

Tennessee’s bond rating only began to drop after the Sundquist Administration started using non-recurring funds - such as raiding 'rainy day' reserve funds - to pay for recurring programs. In public finance, that’s a no-no that will hurt the bond rating every time.

Standard & Poor’s raised (Louisiana's) bond rating to A - still the lowest in the nation - after the state focused on cutting spending to match revenues.

S&P said the rating upgrade reflects Louisiana’s "commitment, over the past five years, to improve its underlying financial structure. The capacity for the state to react and contain fiscal deficits is much improved by efforts to match expenditures to revenues, build a rainy day fund, and greatly reduce its debt burden. While economic weakness is expected to periodically draw Louisiana into financial crunches, including current and future-year forecasts of revenue shortfalls, it is expected that newly institutionalized budget discipline will prevail to identify appropriate levels of budgetary cuts to maintain structural budget integrity."

The bottom line: You should ignore John Morgan's deceptive spin and the words of the AP's gullible, sloppy reporter Karin Miller. Tennessee can restore its high bond rating by reducing the rate of spending growth to match recurring revenue without resorting to an income tax.

For the full City Paper column, Click Here.

For the full text of the Standard & Poor's report, read the item below.