The Utah Legislature hasn't been out of session a month and already large revenue surpluses they counted on this year could turn into red ink.
The latest Utah Tax Commission monthly analysis of state revenues shows a $47.83 million shortfall in the fiscal 2000-01 budget, which ends June 30.
Legislators and GOP Gov. Mike Leavitt were awash in new revenues just a couple of months ago — a record $685 million for the current fiscal year and for next fiscal year. The number was revised down to $650 million in February, but legislative budgeters estimated that in this current fiscal year the state would still take in $179 million in one-time cash over expenditures.
And legislators spent that $179 million and went forward with a $25 million tax cut for next year over the warnings of Leavitt and legislative Democrats, who favored a smaller $5 million tax reduction.
While the $48 million possible shortfall this year and the $25 million tax cut next year aren't directly connected, the caution that Leavitt and Democrats made over slowing state revenues appears to be panning out.
The record state surpluses this and last year came, in part, because of a booming stock market. Utahns paid record capital gains taxes. Utah also saw a large jump in inheritance tax, along with a steady growth in personal income taxes.
But the stock market continues to drop this year, as it did in 2000.
"We projected that our (state) capital gains tax would be flat," says Doug Macdonald, Tax Commission chief economist. But now several national economists are estimating a 20 percent drop in federal capital gains taxes for 2000. The state's capital gains tax is tied to federal personal taxable income, and so reflects that drop, as well.
In short, the revenue picture in Utah is not looking as good as it did just three months ago, the Tax Commission analysis shows.
Legislative Fiscal Analyst John Massey said his office took into account Macdonald's $48 million shortfall number when it updated the final 2000-2001 budget estimates late in the 2001 general session.
The Tax Commission's monthly revenue forecast "doesn't take into account any final income tax payments," said Massey. Those final payments were huge last spring, leading to a record surplus in fiscal 1999-2000 of nearly $120 million.
"We think those payments could be $37 million" of the $48 million shortfall, said Massey. In any case, that's less than 1 percent of the overall budget. "We feel pretty good we'll be OK" when the year-end tax revenues come in, Massey said Tuesday.
The Tax Commission's report shows a shortfall of $9.75 million in state sales tax over current budget projections; a $43 million drop in personal income tax; and a $2 million drop in the corporate income tax. Other tax revenues are up or down a bit, accounting for the overall shortfall of nearly $48 million in the state's two main funds, the Uniform School Fund and the General Fund.
The state has a rainy-day fund to deal with just these kinds of problems. The fund now sits at around $110 million, and could be tapped if Leavitt can't make midyear budget adjustments to save some of the shortfall.
That's what he and lawmakers did several years ago when the Tax Commission estimated a much smaller shortfall, around $15 million. By the end of the fiscal year the state actually showed a small surplus, around $12 million, because state managers were ordered to tighten their spending belts, maybe put off some hires or not buy some equipment they were budgeted for.
Macdonald says the commission's analysis is just a guess, using economic models that have proved accurate in years past. Exact state income tax revenue won't be known for sure until several months after the April 15 filing deadline.
But it's still unsettling for legislators, who, despite the $25 million tax cut, spent record amounts of money in their current session, including opening the current year's budget to spend more than $190 million in surpluses from this year's and last year's budgets.
Now it looks like they may not have $48 million of what they spent just a month ago.