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Tax increases looming for Utahns

They could be asked to ante up another $100M

Utah has been named the best-managed state in America. And to keep the state running well, Utah taxpayers may see a $100 million tax hike early next year.

No budget decisions for the next fiscal year, which starts July 1, have been made, political leaders emphasize.

But a tobacco tax increase is a "done deal" in the Senate, says Senate President Michael Waddoups, R-Taylorsville, as a way to lessen another round of deep budget cuts to vital state programs.

House Speaker David Clark, R-Santa Clara, says all kinds of "options" are on the table to close an anticipated $700 million budget shortfall. Those options were discussed "in broad terms" in a meeting last week with Gov. Gary Herbert and GOP legislative leaders.

This is the first time a tax hike number — $100 million — has been put forward as a partial solution to financial problems in fiscal 2010-11.

"From my personal point of view, absolutely there is every intent to close the gap" in next year's budget by looking at targeted tax increases, like the tobacco and alcohol taxes, Clark said Monday.

Waddoups said, "In (the Senate) I see no resistance" to a tobacco tax hike.

Some senators are also talking about an increase in the gasoline tax and/or re-imposing some of the state sales tax on unprepared food, Waddoups said, although he personally can't support a fuel tax hike.

"I think the tobacco tax must be done," Waddoups said. "Surrounding states are raising their tobacco tax, also" — blunting the possibility of bootlegging cigarettes into Utah.

"And this is a health issue. Each time you raise that tax, tobacco use goes down. So it plays a lot easier" politically with Utahns to increase the tobacco tax, he added.

Rep. Paul Ray, R-Clearfield, says he wants Utah's tobacco tax pegged at 1 cent per pack above the national state average. The current Utah rate is 69.5 cents per pack. Ray's bill would increase that to $1.31 per pack, bringing in an extra $30 million a year. Other state lawmakers have talked about a $3 per pack Utah tax.

Clark said one way to make up the much-discussed $700 million budget gap between this year's spending and next year's balanced budget comes like this:

Take $200 million from the current $419 million Rainy Day fund.

Take $100 million in one-time surplus left in the public education fund.

Increase several "targeted" taxes by $100 million.

Make another round of program/budget cuts totaling at least $300 million.

Meanwhile, the state's Tax Review Commission is on the verge of recommending that personal services, like tax preparation and lawn care, which are now exempt from sales tax, be taxed like retail sales. Lawmakers have considered that before, but always rejected it.

Herbert, who was recently sworn into office, must, by law, recommend a balanced budget in early December to the Legislature for the next fiscal year. That budget will be his largest public policy test in his early administration.

Herbert isn't ready to go as far as Waddoups and Clark on taxes.

"Currently, the governor has no plans to raise taxes. While he certainly understands the rough economic times the state is in and the need to prepare for what is undoubtedly going to be a difficult budget cycle, it is too early at this point to make any further comment on the matter," Herbert's spokeswoman, Angie Welling, said Monday.

"What is important is that we (the Legislature and Herbert) are engaged," Clark said. "We must be responsible not only next year, but beyond."

Clark said he's asked state Treasurer Richard Ellis to check with the main New York-based financial rating agencies to see what kind of budget-cutting, tax-hiking, bonding mix would keep Utah not only with an AAA bond rating, but also look good to the financial markets.

Utah is starting a multibillion-dollar highway construction program, rebuilding I-15 in Utah County, building a new beltway near St. George and starting the first phases of the Mountain West Corridor in western Salt Lake County.

"I'm saying we'd better be prepared" to make some tough budget decisions, said Clark, a southern Utah banker.

"We put $400 million in federal stimulus" in the current budget, one-time money that won't be there next year.

Clark said Utah shouldn't be counting on any more federal money. "It is up to us" to manage Utah wisely.