SALT LAKE CITY — Transportation and education gained $100 million in additional funding in the 2015 Utah Legislature, thanks to the biggest tax increase in nearly two decades.
“There were a lot of winners this session. The Legislature did a lot of great things,” said Billy Hesterman, vice president of the Utah Taxpayers Association. “But taxpayers were definitely the losers.”
Gov. Gary Herbert on Friday signed HB362, which raises fuel taxes by $24.9 million this summer and $76 million next year for transportation projects, and SB97, which increases the state property tax by $75 million for education.
Utahns will be paying 5 cents more per gallon at the pump starting Jan. 1, 2016, and the average homeowner will see about $50 more on their November property tax bill.
“Gov. Herbert understands the difference between spending money and investing money,” said Marty Carpenter, the governor's spokesman. “And two areas where we need to invest so that we continue to have a strong economy in the years and decades to come are education and transportation.”
The two bills mean historical change to state taxes. The Utah Legislature hasn’t adjusted its motor fuel tax since 1997 and its property tax since 1996, said Natalie Gochnour, Salt Lake Chamber chief economist and associate dean in the David Eccles School of Business at the University of Utah.
But the adjustments were long overdue because taxes have not kept pace with inflation over the past nearly two decades, Gochnour said.
The Utah Transportation Coalition estimates it has lost 40 percent of its buying power since the previous fuel tax hike, and lawmakers have said since the last time the state adjusted its minimum property tax, Utah has lost about $90 million to inflation.
House Speaker Greg Hughes, R-Draper, said the Legislature made “generational” and “courageous” decisions.
“It was truly a great session,” Hughes said in a prepared statement. “Education saw the largest increases in nearly a decade, (and) responsible action was taken to reform our broken formula for funding transportation infrastructure.”
Herbert’s approval of HB362 means Utahns will start paying more at the pump this summer when 12 percent sales tax increases the current 24.5 cents-per-gallon tax by 5 cents.
But that percentage will rise and fall with the price of gas. The tax won’t drop below 29 cents per gallon, and depending on gas prices, drivers will pay up to 40 cents per gallon.
Hesterman said the fuel tax hike is “a big jump,” and taxpayers might not be prepared for it. But taxpayers might appreciate it when the funds are used to improve statewide transportation, he said.
“Certainly we hope anytime there’s a tax increase that the money will be used appropriately, and that it’s going to provide the greatest benefit possible,” Hesterman said.
Rep. Brian King, D-Salt Lake City, said even though HB362 gave him “heartburn” because the fuel tax would place a bigger burden on “working folk” who would not be in as good of a position to absorb the cost as people with higher incomes, he and other lawmakers voted in favor of it because they weighed the state’s dramatic transportation deficits.
“I think it was a necessary evil,” King said.
In the wake of Herbert's approval of SB97, average Utah homeowners with properties valued at $250,000 will see their bills increase roughly $50 in November. Business owners of $1 million properties could see an increase in property tax of about $350 next year, according to the bill.
Herbert signed the bill despite a letter sent to him Tuesday from the Utah Taxpayers Association urging him to veto it. The letter stated the state should keep taxes low to allow families and businesses to continue “investing their money in the economy instead of giving it to the state,” so Utah can continue recovering well from the recent recession.
Hesterman said in a year of a $700 million surplus, the Legislature should not have resorted to the large property tax increase.
“We are disappointed by the governor’s actions," Hesterman said in a statement Friday. "He could have protected Utahns from higher taxes but decided to increase the tax burden on the state's families and businesses. … To think such tax increases right now are necessary begs the question if the governor and the Legislature really were as fiscally responsible in creating the state budget as they claimed to have been.”
But Senate President Wayne Niederhauser, R-Sandy, said it’s “deceptive” to say the state saw a $700 million surplus this year because much was set aside for ongoing program funding, and much of the surplus was set aside for education funding, which was increased drastically this year. As for transportation, he said the state had drastic deficits.
“For the Legislature to increase any tax, it’s a monumental occasion,” Niederhauser said. “And while we did increase those rates so there was an inflationary adjustment, we didn’t go beyond that, and I would say that the fact that we did that is pretty amazing for our Legislature.”
King said Utah has had a “chronically underfunded” education system, and so he approved of the tax increase to help the state “claw out of the basement” in terms of teaching resources.
Local sales tax
Herbert's approval of the bills also means taxpayers face some potential for more increases from their local governments.
HB362 allows local governments to ask voters for a 0.25-cent sales tax for transportation projects. Plus, HB454, signed by Herbert on Wednesday, grants the city or town that is chosen for placement of the new state prison the option to raise local sales tax up to 0.5 percent.
If the city decides to up its local sales tax by the full 0.5 percent, analysis suggests it could cost a family of four at the median annual income of roughly $63,000 about $110 per year, according to the Office of teh Legislative Fiscal Analyst.
So taxpayers face quite a few “ifs” as far as local sales taxes go, depending on what voters choose, whether the prison is in fact moved, and whether the selected city decides to increase its sales tax by 0.5 percent, 0.01 percent or at all.
Hesterman said he hopes the city that ends up with the prison will be cautious when weighing the 0.5 percent sales tax increase, and taxpayers need to pay special attention to each city’s needs in order to make the best decision when they vote on a 0.25-cent sales tax increase.
“The governor believes in local control,” Carpenter said. “(Utahns) need to study the issues, decide if that’s the right investment and the right way to go, and just be informed about the decision they make.”