As Utah legislators campaign for re-election this summer and as they debate what kind of an income tax cut to give state residents, hanging over those discussions is the largest tax surplus in the state's history.
The Utah Tax Commission says the state ended its fiscal year June 30 with a $351 million tax surplus in the state's two main revenue funds. That is twice the size of the last largest surplus, a $172 million whopper seen in July 2005.
The large surplus now in state bank accounts "highlights Utah's strong economy," says Mike Mower, spokesman for Gov. Jon Huntsman Jr.
It's too early to decide how to spend all that extra money, Mower said. But Huntsman will have specific suggestions when his 2006-07 budget is released in early December.
However, Huntsman told the Deseret Morning News last week the large surplus makes him more comfortable with increasing the already-promised state income tax cut from $70 million to around $115 million. And he's willing to have a special session this fall to give an income tax cut in the 2006 year.
Senate President John Valentine, R-Orem, likewise likes the surplus numbers he's seeing.
"It shows we in Utah have very good employment — most of the surplus comes in personal and corporate income taxes," Valentine said.
Like Huntsman, Valentine is willing to give a larger income tax cut than originally planned. But Valentine is unsure if an agreed-upon income tax reform/cut package can be adopted before it becomes too late in the calendar year to have the cuts come in 2006 payments.
Meanwhile, Rep. Greg Hughes, R-Draper, who chairs the new "conservative caucus" in the Utah House, says a state spending limitation law will allow legislators in the coming 2007 general session to "only spend around $12 million more" in non-education, non-transportation areas.
"We need to give this money back" to taxpayers in some form, Hughes believes.
The extra cash, the state spending limitation law, and a desire to cut and reform state income taxes can lead to a perfect political storm — and show the true nature of Republicans and Democrats on fiscal responsibility, Hughes believes.
Utahns' money
The newspaper reviewed the past 13 fiscal years of state government tax collection, which shows that through conservative revenue estimates, combined with at least some attempt at holding state government growth, most years the state has ended its budget years with surpluses — although considerably smaller piles of money than in the past two years.
Even after Huntsman and Republican legislative leaders decided to give taxpayers at least a $160 million tax cut this coming year, state leaders approved a 2006-07 General Fund and Uniform School Fund budget that grew by more than 17 percent.
That's a large increase in spending that legislative conservatives say can't be maintained as Utah's hot economy cools over the next several years.
"I don't think we should even call what we're seeing now as tax surpluses. The real name should be that taxpayers overpaid," Hughes said.
In other words, the surplus is not the state's money but Utahns' money.
Hughes said House conservatives realize there are real needs coming in public education and transportation. That's why when he rewrote the state's spending limitation law in the early 2000s, he exempted those areas from spending caps.
"We have around 20 percent more students coming into public education over the next 10 years. But even so, we must be able to sustain increases (year in and year out) to public education.
"Otherwise, we just get into the cycle of spending much more in good years — like we're seeing now — and cutting programs or raising taxes in bad economic years," Hughes said.
That is very poor planning, and Utahns deserve better from their elected state officials, he said.
"We need to get real reform in our state income taxes. And these surpluses will allow us to do that. I'm not looking at a specific number" in income tax cuts. "We need to pick the best reform, and go with that number" in tax cuts, he said.
"But, as you know, I prefer a higher (tax cut) than a lower one," said Hughes, one of the main advocates over the past two years of a true flat-rate income tax for the state.
Surpluses aplenty
Utah is not alone in seeing healthy tax collections. The National Conference of State Legislatures reports 44 states had budget surpluses last year. Six of those states had tax collections 10 percent above budgets.
Utah's $351 million surplus last year is more than 8 percent above last year's general government and school budgets. State economists guessed fiscal 2006 taxes would grow by 9.4 percent from the year before — and legislators appropriated most of that. But revenues actually grew by nearly 18 percent, producing the large tax surpluses.
In truth, Utah's state government took even more of residents' taxes than that.
During each January/February general session, legislators open the current year's budget and spend some surplus cash — if they have any.
Since that cash then becomes part of the budget six months later when the fiscal year ends, that midyear spending is not counted as surplus. But if it had not been spent by lawmakers, it would have been part of the surplus.
In the 2006 Legislature, lawmakers re-opened the budget and spent $47 million extra out of the two main funds. If they hadn't done that, the fiscal 2006 surplus would have been nearly $400 million instead of $351 million.
E-mail: bbjr@desnews.com