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State revenues down another $50 million

SALT LAKE CITY — More bad financial news surfaced for Utah legislators Tuesday, with state revenues estimated to be an additional $50 million short in the next fiscal year, which starts July 1.

That means GOP leaders have to find additional money through more budget cuts, tax or fee increases or a combination of both. The budget gap for next year now stands at $700 million, said House Budget Chairman Ron Bigelow, R-West Valley.

The new tax collection numbers for fiscal 2010-11 put greater pressure on finding "some more money," as one GOP House leader put it.

And the new estimate wipes out GOP Gov. Gary Herbert's rosy revenue forecast. When Herbert recommended his 2010-11 budget in early December, he believed state revenue would grow $12 million.

Bigelow announced the new revenue shortfall from the House floor Tuesday morning, saying that while revenue estimates have fallen $50 million, it could have been worse.

Last week, some legislators were worried the added tax shortfall could be $200 million.

Senate Majority Leader Scott Jenkins, R-Plain City, was visibly relieved by the news.

"It's certainly something we can work with," he said, acknowledging the Senate GOP had been pessimistic about state revenues. "This is not bad at all."

There was a bit of good news, however. Economists from the state Tax Commission, Governor's Office of Planning and Budget and the Legislative Fiscal Analyst's Office agree that tax revenues in the current budget year, which ends June 30, won't be any worse.

That means legislators won't have to revisit the 2009-10 budget, which they've already agreed to balance by making more cuts in current spending.

Jenkins said the real news Tuesday was the current budget year revenues were flat, not down further.

"That's the other side of this, that there's no change there," he said. Lawmakers were looking at putting public education on the chopping block, if the current year revenues had dropped again. For the rest of this fiscal year, public education must cut just over $1 million, less than 1 percent of its large spending plan. Other state agencies took upward of 5 percent cuts.

Senate President Michael Waddoups, R-Taylorsville, called it "our good news, bad news report." Later, he told reporters tax increases were still possible this session, even with the better-than-expected revenue projections. "There are a lot of needs out there," Waddoups said. "I wouldn't take them off the table yet."

Lawmakers have been talking about increasing the tobacco tax or alcohol tax, or even raising the sales tax on unprepared food. And they will certainly use at least part of the state's Rainy Day Fund, now at about $400 million, plus another $100 million set aside for schools.

Other ways to increase revenues include making unsalaried workers who don't have state income tax withholding remit taxes quarterly (raises $110 million one time) or making retailers give back to the state their 1.35 percent of sales tax collected benefit, money retailers keep as an offset to collecting the tax for the state (that would bring in $20 million every year). Both of those are revenue enhancements suggested by Herbert.

Bigelow told his House GOP caucus additional budget cuts are coming, too.

"We're running out of rabbits we can pull out of the hat" to balance next year's budget, said House Majority Leader Kevin Garn, R-Layton.

Concerning the new $50 million tax collection shortfall, House Minority Leader David Litvack, D-Salt Lake, said legislative bosses withheld $100 million from the fiscal 2011 budget at the first of this session, money that Herbert believed would be coming in extra capital-gain tax collection.

However, the reason GOP leaders didn't include that in Herbert's recommended budget is they question whether it will materialize. They may count it, but that would make next year's budget more suspect."We still have that $100 million, should we want to take it," Litvack said.

The new revenue estimates for next fiscal year show an extra $5 million in the general fund, which comes mostly from sales taxes, while the education fund, which relies on state income taxes, is down another $55 million. That washes out to a $50 million dip from projected tax revenues used in Herbert's December budget recommendation.

And it shows that Utah's economy is going to see a slow recovery through the rest of this year and first part of 2011.

The $570 million "shortfall" in the fiscal 2012 budget means another financially trying time in the next Legislature. Come the 2011 Legislature, the money will have to be made up either through more budget cuts, tax hikes, or naturally increasing tax growth.

But "we're not going to see $200 million or $300 million in revenue growth next year" to bail out the 2011 Legislature, Bigelow said. Legislators will build about a $570 million "structural deficit" into next year's budget. That means they will put more than half a billion dollars in one-time surplus money into their spending plan.

The new revenue updates also show that Utah finances, while much better than those of most other states, still have challenges, especially down the road. Herbert spokeswoman Angie Welling said the numbers support what the governor has been saying about the state turning the corner toward economic recovery. The governor, she said, "will work closely with the Legislature to enact a responsible budget moving forward."

Budget shortfall

2009-10

No change in tax collection estimates

2010-11

General fund — up $5 million

Education fund — down $55 million

Overall budget — down $50 million

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