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Senator Suspicious of Tax Computer Glitch

June 27, 2000

Source: (Opinion page)

FRANKFORT - Sen. Tom Buford was a little suspicious.

Revenue Secretary Mike Haydon was explaining how a new computer system supposed to read, collate and interpret tax returns had just not done the job. The problems were especially acute in January and February, Haydon told the members of the General Assembly's Capital Projects and Bond Oversight Committee last week.

Buford, a Republican from Nicholasville, wondered if those revenue problems in the early part of the year were coincidental to Gov. Paul Patton's pressure at the time for the General Assembly to enact a huge tax increase. Patton had argued the state was not taking in enough money to support the programs he wanted.

Buford clearly thought the Revenue Cabinet might have been playing games with some numbers to make legislators more worried about revenue receipts than was warranted. Legislators, especially Senate Republicans, had taken what amounted to a no-tax pledge and especially were wary of anything that smacked of a tax increase.

''I know you wouldn't intentionally deceive us, but we might be bewildered from time to time,'' Buford said.

Haydon said faltering tax receipts earlier in the year were real, and there were no games being played.

The legislature ended up rejecting Gov. Paul Patton's tax ideas, but overcame their no-tax fever and passed a sales tax increase on out-of-state long distance telephone calls and acquiesced in an additional tax on long distance calls. Some cuts in the unemployment taxes paid by employers also were enacted and lawmakers contend the net effect is no tax increase.

The record from earlier this year generally appears to rebut Buford's suspicions.

According to a report Feb. 10, receipts to Kentucky's General Fund for January were 4.1 percent below the same month the previous year. The report blamed the decline on faltering sales tax receipts, ''which unexpectedly slipped for the third time in the past four months,'' the release said.

State Budget Director Jim Ramsey was quoted as being puzzled by the figures.

''The economy is doing well, most retailers are reporting good growth and most of our neighbor states are experiencing good sales tax growth as well,'' Ramsey said at the time.

Part of the decline was attributed to a delay in processing sales tax receipts until February. And indeed, the report for February receipts showed a dramatic increase in sales tax revenues.

Kentucky had entered into a $7.9 million contract with Scan-Optics Inc. of Manchester, Conn., for a computer system that initially was supposed to process sales taxes. That contract since has been canceled because the system didn't work as advertised.

The state already has paid about $2.5 million for the contract, mostly for hardware Haydon said is still useable.

By March, when the depth of the problems with the computer system were more clear, the effect on revenue receipts was admitted by state officials.

Ramsey said the computer system provided the explanation that was not immediately apparent to the people only looking at receipts, not processing.

''We couldn't explain it on an economic basis,'' Ramsey told The State Journal newspaper March 20.

''It can give a misread of what the sales tax was doing,'' Haydon agreed.

Computer problems notwithstanding, Kentucky's tax receipts generally have taken a roller-coaster ride this fiscal year. The official estimate was even lowered by about $73 million because of the uncertainty.

From July through October, receipts showed barely half of the growth needed to meet estimates. The official forecast was cut in October and receipts jumped in November, putting the train roughly back on track. The slippage started again in December and lasted through January. There was another stumble in April and a huge jump in May.

Ramsey now believes receipts could equal the original forecast. 7

-- (, June 27, 2000

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