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A $400 million Utah surplus?

Lawmakers to discuss possible 2008 tax cuts

Utah state government could have an extra $400 million next year, again fueling a tax-cut debate when lawmakers convene in mid-January.

"Tax cuts will absolutely be part of the debate" during budget-setting in the 2008 Legislature, which starts in three months, said House Majority Whip Gordon Snow, R-Roosevelt, following a meeting Tuesday afternoon of the Legislature's Executive Appropriations Committee. The 2007 Legislature gave a $220 million tax cut.

According to the Legislature's Fiscal Analyst Office, which projects state revenues in consultation with other state agencies, the state's two main tax funds are running surpluses that could result in extra revenues of between $246 million and $406 million by the end of the current fiscal year — June 30, 2008.

The legislative budget office only deals in low-end and high-end tax revenue estimates for its July and October analyses. An exact budget surplus number will be given by Gov. Jon Huntsman Jr. in December, when he announces his recommended 2008-09 budget. Lawmakers will budget to an exact number next February, when they set next year's budget.

While state government's tax surpluses are still strong, they may be leveling off a bit. The fiscal 2006 surpluses were $241 million. For fiscal year 2007 that ended last June, surpluses were $308 million in the two main tax funds, the General Fund and the Education Fund.

Andrea Wilko, chief economist for the legislative budget office, said Utah's economy is still strong, with good job and wage growth and healthy consumer spending — all of which result in yet another year of state tax surpluses. While Utah's residential housing market is softening, as is housing across the nation, Utah's strong commercial real-estate development is keeping the construction sector steady.

Next year is an election year for Huntsman, all of the 75 House members and half of the 29-member Senate. Lawmakers and Huntsman have given hundreds of millions of dollars in tax cuts the past three years — including cutting the much-hated sales tax on unprepared food in half.

The state's personal income tax has been reformed, lowering the new single tax rate to 5 percent from slightly less than 7 percent.

However, many Utahns are now complaining about their property taxes, which are going up across the state by an average 11.6 percent, the first double-digit increase since 1999.

The state does not levy a property tax. But through the Uniform School Fund, lawmakers require local school districts to levy a basic property tax to support public schools.

And a cut in their property taxes would certainly be welcomed among some taxpayers.

Senate President John Valentine, R-Orem, said talk about state tax cuts may be premature. The new tax-surplus numbers are based on the current tax rates — which will be lower in fiscal 2008-09 because of tax cuts already given by past legislative sessions.

"I want to see how those lower rates affect tax collections before I want to look at tax cuts," said Valentine, who is up for re-election next year.

Still, something must be done to Utah's fast-rising tax collections. "We can't do nothing," said Valentine, "because these new (tax-surplus estimates) would mean we would exceed our (government) growth cap," which is set in state law.

While the extra $250 million to $400 million couldn't all be spent on government growth, as one-time surplus money it could be spent on roads, buildings or public education.

Utah has a "very fast" tax growth, said Valentine, who is a tax attorney. "But could we sustain this tax growth over time, considering the new lower tax rates that are coming" in 2008?

"Taxes are always a good discussion," said Snow. They will begin again in the 2008 Legislature.