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No tax cut for Utahns

Surplus tucked away; we need all of it, officials say

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Although the state has more than $370 million in tax revenue growth and hundreds of millions more in one-time cash surpluses, don't expect any general state tax cuts this year, Gov. Jon Huntsman Jr. and legislative leaders said Thursday.

House Speaker Greg Curtis and Senate President John Valentine say Utah's healthy economic rebound from several years of poor tax revenue should be spent on making up for no state employee pay raises in recent years, in addition more cash should be pushed into deteriorating roads and badly needed buildings. Education funding must also be a priority, they said.

Huntsman agrees, said legislative liaison Mike Mower.

In the mid-1990s, when the Legislature had a half billion new dollars to spend, lawmakers and then-Gov. Mike Leavitt gave a $90 million property tax cut. Several years later, they cut state income taxes by tens of millions as well.

But now, "We have pressing problems," Curtis said.

Lawmakers convene Jan. 17 and will adopt an $8-billion-plus budget for fiscal 2005-2006 before adjourning in early March.

Mower said Huntsman, who took office Monday, will make his budget recommendations next week. "We want some tax reform, but no general tax cuts. We have needs in roads, education and other areas."

Sen. Howard Stephenson, R-Draper, who is president of the Utah Taxpayers Association, said he's not disappointed that leaders aren't supporting a general tax cut, "as long as they are not prohibiting (consideration) of giving some targeted tax cuts as part of overall tax reform. We need to stimulate this economy."

Said Mower: "Tax reform is key to economic growth." And Huntsman will expect some such "reform" from the 2005 Legislature.

Will that mean some "targeted" tax cuts, like the association-supported sales tax exemptions on some materials and service purchases by businesses or elimination of the corporate income tax? "We'll have more to say on that later," Mower said.

The House GOP leadership has formally taken a position of no general tax cuts, Curtis said. Leadership would like some $40 million of ongoing tax money to go to general state programs that this year were being funded by one-time surpluses; another $125 million going into roads and buildings.

The remaining $200 million in tax growth for fiscal 2005-06 (FY 2006) is a healthy amount, said Curtis, "but not overwhelming" when looked at historically.

But figures obtained from the Legislative Fiscal Analyst Office shows that revenue estimates for the coming year are up 10.1 percent, the largest growth since 1997.

When one adds the $370 million in tax growth to the estimated $224 million in cash surplus — that's likely coming in the current budget year — Utah's 104 part-time lawmakers and Huntsman will have around $595 million to parcel out when legislators convene Jan. 17. (Legislators adopt a 12-month budget six months before the budget year starts each July 1. So the 2005 Legislature will adopt the fiscal 2005-2006 (FY 2006) budget before it adjourns in March.)

Having nearly $600 million to spend this session is a big change from the early 2000s, when legislators and then-Gov. Mike Leavitt had to figure out how to deal with cumulative revenue shortfalls of more than $700 million.

Leavitt and lawmakers, in part, made up the shortfalls by pulling ongoing cash out of the Centennial Highway Fund and by bonding for state buildings instead of paying cash for them. They also drained the state's Rainy Day Fund.

Noting that the majority Republicans in the Senate haven't taken a caucus position on tax cuts, Valentine said he personally "likes the idea of paying cash" for roads and buildings as opposed to bonding for them.

Putting tens of millions of ongoing tax cash into roads "provides a revenue stream that will allow us to finish the road projects scheduled in the Centennial Highway Fund and maybe pay off some (road) bonds, too," said Valentine, R-Orem.

"It would be nice if they didn't cut taxes and (instead) met needs," said Pat Rusk, president of the Utah Education Association, the largest public education teacher union. "I certainly hope we start looking at long-term needs and not a year-by-year reaction to what happened the previous year."

The State Office of Education wants more than $110 million just to cover growing enrollment and boost by 5 percent the per-student funding formula, which could help teacher pay. It wants another $26 million to help kids struggling with the high school graduation exam and in math in the critical fourth through sixth grades, among other requests.

"We have for several years been very tight and making cuts to education," said Kim Burningham, chairman of the State Board of Education. "Increases have been minimal or non-existent."

Curtis said state workers got no or only small raises for much of the 2000s.

"But we don't want to just grow state programs" with the new cash, Curtis said. By putting much of it into roads and buildings, if the state saw another economic downturn over the next few years, lawmakers could — like they did just a few years ago — pull the cash back out of capital improvements "without having to lay off workers or make drastic program cuts."

Politics could also be at play in giving a general tax cut this year. Historically, lawmakers cut taxes in election years. And 2005 sees no elections for incumbent House and Senate members. A tax cut in 2006, however, would come when all 75 House members and half of the Senate go before voters.

"That never crossed our minds," Curtis said with a smile. But seriously, he said, tax cuts given by lawmakers in March are probably not remembered by voters in November. "And if you cut income taxes, (citizens) don't see that until the next year" when taxes are paid, "after the election."

Contributing: Jennifer Toomer-Cook

E-mail: bbjr@desnews.com