Persistent state budget surpluses put lawmakers and the governor in a quandary during the pandemic.
Were these excess funds real? Were they merely manifestations of pent-up demand from an economy reopening after COVID-19 shutdowns? Were they mainly the result of federal stimulus programs flooding the economy with newly printed money?
Contrast that with today. Gov. Spencer Cox now says he has evidence that this year’s surplus, estimated at about $3 billion, comes to Utah free of such suspicions. It is real, he told us last week.
We agree with that assessment, given the state’s persistently low unemployment rate — measured at 2.2% in October — and its impressive growth rate, driven, as the Kem C. Gardner Policy Institute has reported, primarily by people moving into the state.
Because of this, tax cuts are bound to dominate debates on Utah’s Capitol Hill again in 2023. That, too, can be a good thing, but only if done properly and prudently.
In his annual budget proposal, released late last week, Cox proposed a reduction in the state income tax from the current 4.85% flat rate to 4.75%. That’s more aggressive than draft legislation proposed by lawmakers, which would reduce it to 4.8%.
He also proposed a one-time rebate that would equal either $100 or 6% of a taxpayer’s 2022 state income tax liability, whichever is greater. He would grant a one-time property tax reduction in 2023 to compensate for the increase in valuations this year.
And he would let expectant mothers take an exemption for their unborn babies, a unique proposal that would effectively grant two exemptions in a year — one for the unborn child and one for the child after it is born. This is part of a policy emphasis on families that seeks to counter a recent reduction in the state’s birthrate.
All told, the governor proposed about $1 billion in tax relief, which would result in an impressive influx of money back into an already hot economy.
These are good ideas. We wish, however, that the cuts had been targeted a bit more carefully. For example, now would be a good time to completely eliminate the state’s portion of sales tax from groceries — something that would provide immediate relief to low-income families who don’t qualify for food stamps.
Cox proposed a partial removal of this tax last year, which was rejected by lawmakers. He told us he sees no reason to “tilt at windmills” by proposing it again, although he said the food tax will be part of the legislative debate over the final budget.
We hope lawmakers see the wisdom in finally eliminating this tax. Governments make powerful statements about priorities through budgets. Utah has many struggling families that need relief. While this proposed budget includes more money for foster care and affordable housing, and while tax cuts and rebates would help low-income families, as well, the food tax is low-hanging fruit in a year of such excess revenue.
Advocates for the disabled and for low-income Utahns say the people they speak for suffer from a lack of funding for basic services. Some are missing meals in order to afford rent. Some agencies geared toward helping them have suffered from a shortage of workers.
The governor proposed spending $5.4 million to cover 258 people currently on waiting lists for services. Given the money available in a strong economy, the state should study the needs expressed by these advocates and ensure that the poorest and sickest among us are cared for humanely and given at least the basic services they need.
Cox also prioritized drought mitigation, including help for the Great Salt Lake. While lawmakers continue to study unusual and expensive proposals such as one to pump ocean water into the lake or another to extract water from aquifers deep below the surface, Cox is correct in focusing on easier, more immediate efforts. These include removing invasive species that hog water meant for the lake, and increasing efforts at conservation.
The governor also proposed impressive increases for public education, including $200.7 million that would provide a direct salary hike of $6,000 per teacher. “Elevating the teaching profession will encourage Utah’s best and brightest to become educators,” his budget says. It certainly wouldn’t hurt, although recruitment in a tight labor market faces challenges tougher than compensation alone.
A lot of budget-related debates are likely to take center stage at the 2023 Legislature. Among these are tax reform, including continuing efforts to open the state income tax to all general fund programs and services. Currently, this tax is limited to funding education and a few other programs. Ongoing surpluses are likely to fuel discussions about priorities and the recognition that taxes ultimately belong to the people, not the state.
And the wild card — a possible looming recession that may or may not materialize — cannot be ignored.
Cox told us his budget is “recession resilient.” The state maintains robust rainy day funds, and it tries to budget beneath market-projected revenues. It also may have a jobs cushion — a labor surplus that could help the state withstand a recession better than in the past.
But this is, as the governor said, a strange time, one in which “the Federal Reserve is actively trying to destroy demand” through interest rate hikes. Layoffs are beginning to take hold in the technology sector. No one knows if these will spread to other businesses. The uncertainties that hovered over the pandemic have not completely disappeared.
Cox said his priority is to erase the fear that the next generation will be worse off than the current one. That’s a good goal, and Utah is on the path to make it a reality.
While it’s impossible to guard against all possible contingencies — from world events to natural disasters — smart budgeting can go far toward safeguarding prosperity.