Facebook Twitter

Legislature 2006: Laws under construction

Tax reform, huge surplus to shape session

SHARE Legislature 2006: Laws under construction

Taxes, taxes, taxes.

Meet the top three issues facing Utah's 104 part-time legislators, who convene Monday on Capitol Hill for their annual 45-day general session.

By the time lawmakers adjourn at midnight March 1, it's likely they — along with GOP Gov. Jon Huntsman Jr. — will have changed Utah's tax structure in ways not seen since the Utah state income tax was imposed in the early 1900s.

Utahns will also likely see the largest tax cuts in the state's history.

"In terms of tax policy, I think this will be a groundbreaking session," the governor said, because this is the first time in 50 years that Utah's tax structure has been so thoroughly scrutinized, including whether food sales should be taxed.

With a $1 billion surplus on the table for lawmakers to spend on public education, transportation and other state needs as well as tax cuts, Huntsman said he believes the 2006 Legislature "will be an unprecedented session that is made possible by an unprecedented economy."

House Speaker Greg Curtis, R-Sandy, agrees this will be a unique session.

"This could be a groundbreaking year," Curtis said. "I'm an optimist, and I think we'll get it done — a flat income tax, remove the sales tax from food, most of it," said Curtis.

Other legislative leaders sound a little more cautious.

"There will be a tax cut. The size of the tax cut is still to be determined," said Senate President John Valentine, R-Orem. "We're now in the process of doing the budgets, trying to determine what portion of the revenues are sustainable, and what portion we should invest in the future."

What do Utahns want?

Taxes are complicated, and despite media attention over the past year and public hearings held around the state in the fall, it's likely many of the changes will come with little knowledge or approval of the general public.

The changes could well include a flat-rate income tax, removing the sales tax from food, adopting a single-rate sales tax statewide and giving businesses a wide range of tax breaks, a proposal that's being sold as economic development.

A new public opinion poll shows that in general Utahns like the idea of a 5 percent flat-rate personal income tax, pollster Dan Jones & Associates found in a survey conducted for the Deseret Morning News and KSL-TV.

Jones found 69 percent said they liked that idea.

But Utahns were split — 47 percent to 44 percent — over a bill that would give local businesses options in how to file their income taxes, saving the businesses overall $33 million.

And most Utahns are against further exempting business sales taxes on materials they now buy for business-related work. Jones found that 52 percent of Utahns oppose that tax break; only 35 percent like it.

"This will be a fascinating Legislature," said Kirk Jowars, director of the University of Utah's Hinckley Institute of Politics. "We'll see if Gov. Jon Huntsman really asserts himself, pushes forward on his agenda, which includes some tax reform."

Hard-nosed House members got most of what they wanted last year during the Legislature, Jowers notes. And while Huntsman has "great popularity and a big (tax) surplus that's easy to make friends with," House conservatives seem to have their own agenda.

"Will they cooperate with Huntsman. Will he fight back, and if so, how?" Watch for the tax debate "to be a great case study" in how Huntsman handles the challenges, Jowers said.

Money issues paramount

Republicans hold two-thirds majorities in both the 75-member House and 29-member Senate. There's a new conservative caucus in the House, made up of members who want to limit state government growth to at least 8 percent — while Huntsman's budget recommendations carries a 14 percent hike in the two main state funds.

As always, Republicans will set legislative policy and state spending.

The minority Democrats will have a say only if they can put together coalitions on specific proposals with moderate Republicans, or perhaps get Huntsman to weigh in on some compromise positions.

"Potentially, this could be a record-breaking" session, says House Minority Leader Ralph Becker, D-Salt Lake. "But it doesn't at all mean it will be."

Senate Minority Leader Mike Dmitrich, D-Price, said the Democrats should have a role to play. "Even though it's an election year, and leaving the moral stuff aside, it's a session where both parties really need to work together to produce a sound tax package," he said.

Dmitrich said, too, that while taxes are a big issue, figuring out what to do with all the extra money available this session will also pose a challenge. "The big question is going to be how that's spent," he said.

Besides taxes, lawmakers will be dealing with reworking redevelopment agency law, even setting up long-term revenue streams to develop water for thirsty Washington and Iron counties and tapping the Bear River.

But — except for some so-called moral issues like abortion, gay student clubs and teaching evolution — surplus money, budgets and taxes will dominate.

$1 billion extra

Between one-time surpluses found in last year's and this year's budgets and estimated tax growth for fiscal 2006-07, legislators have $1 billion extra to allocate this session — by far a record amount of money.

Huntsman put a $60 million tax cut in his $9.6 billion budget. House Republicans, in part to hold down government growth, want a $230 million tax cut. Senate Republicans and legislative Democrats haven't suggested a figure — but if they end up backing Huntsman's smaller tax cut they risk looking like big-spenders for the 2006 legislative election year.

Valentine said the Senate isn't in any hurry to propose a specific size of tax cut. And while he and other GOP senators want to take the sales tax off food just like their House counterparts, no one has said exactly how that should be accomplished.

"It's on the table," Valentine said of taking the sales tax off food. "We're just trying to decide which way we're going to go. . . . I personally don't like the idea of raising other taxes to pay for it."

While that may have to happen to make sure local governments don't lose their share of the sales taxes paid on food — about $100 million of the $266 million collected annually — lawmakers could end up with even more money to cushion the blow.

Huntsman said he anticipates that state revenues will grow even more than currently forecast. The governor, though, wasn't ready to guess how much more money will be available.

But the House speaker was ready to make a prediction. "I think the late-February revenue estimates (for fiscal 2006-07) could be $40 million or $50 million more," said Curtis.

If so, there's little doubt there will be enough money to give a $230 million tax cut, provide 5.5 percent increases for public education, and more than adequately fund other state programs, the speaker added.

"We've already full-funded growth in public education" in a so-called "base budget" bill that "will pass within the first 10 days" of the session, Curtis said.

Also under consideration . . .

The governor said his goal this session will be similar to what got him elected in 2004 — economic development. "We've got to have the economic engine that allows us then to pay the bills for everything else," Huntsman said.

That means, he said, investing state tax dollars in his ambitious USTAR program to develop business applications for scientific research at the University of Utah and Utah State University while, at the same time, looking for ways to eliminate the sales tax from food.

"We can be a state that is both competitive and compassionate," Huntsman said.

Compared with what legislators could do, Becker believes lawmakers will fall well short of possible accomplishments. "The tax changes — I'm not calling it reform anymore — the (suggested) changes are relatively modest, not reflective of the original objectives" of Huntsman or the Tax Reform Task Force, said Becker, who served on the task force.

"We could well end up with a more regressive tax system. We're not broadening the tax base; we're narrowing it. We're not taking any special interest tax breaks away; we're looking to add some."

Outside of taxes, legislators will continue several fights of the past several years.

At least two abortion bills will be introduced by conservative Republicans.

Rep. Paul Ray, R-Clearfield, is looking to prohibit a fetus from suffering any pain, and Rep. Patrick Painter, R-Nephi, wants to require parental consent before a minor girl could get a legal abortion.

Sen. Chris Buttars, R-West Jordan, will have at least two bills to upset more-liberal-minded Utahns: One would require that when evolution is taught, other origin theories must also be taught, and another bill would ban from public school property student clubs dealing with homosexuality.

Valentine said Buttars bill to require schools to teach evolution as a theory will likely pass. "I don't think that one has as much controversy surrounding it because a lot of us thought that was already the law," the Senate president said.

So far absent from the agenda — with great relief by many legislators — is the ongoing battle between banks and credit unions which, in past sessions, became a political bloodbath. "I haven't heard a word about it, and that's fine," said Curtis.

The speaker said an issue that is now flying below the radar screen — and which Utahns in general aren't worrying about — is how Utah's 40 public school districts will deal with burgeoning health care costs from their retired employees.

Now pending before the Utah Supreme Court is HB213, a bill passed in the 2005 Legislature that changed — and reduced — the health care benefits for retired state employees. If the high court rules against the state, it will cost hundreds of millions of dollars to provide future retirees health care.

The ruling could also mean school districts will have to pay hundreds of millions of dollars to their future retirees.

The $1 billion "surplus" this year and tax revenue growth in future years "could drastically be reduced" if large chunks of cash must go to future retirees, said Curtis.

E-mail: bbjr@desnews.com; lisa@desnews.com