BLUFFDALE — A hall filled with Utah lawmakers gathered Tuesday for a daylong policy summit stayed silent when asked if they wanted schools to get less money during a briefing by leaders of the Legislature’s tax reform tax force that is considering calling for lifting the constitutional earmark on income tax collections for education.
“I didn’t see anybody. No one raised their hands to cut education spending,” said House Majority Leader Francis Gibson, R-Mapleton, co-chairman of the Tax Restructuring and Equalization Task Force tasked with recommending a fix to Utah’s lagging sales tax revenues. “But it’s important, that flexibility.”
Neither Gibson nor his task force co-chairman, Sen. Lyle Hillyard, R-Logan, backed amending the Utah Constitution to remove the provision requiring income taxes to go to public and higher education, but both said they would like to see an unspecified cut in the state’s 4.95% rate.
“We do not have a money problem. We have a distribution problem,” Gibson said. Last session, $75 million was set aside for a tax cut as part of a tax reform package after lawmakers scrapped an unpopular bill that would have added new sales taxes on services while also cutting rates.
Hillyard warned the lawmakers gathered at Camp Williams that within a few years the state might be in a position of having plenty of income tax dollars for schools while having to slash the rest of the state budget that’s funded largely by sales taxes.
And Gibson said he asked legislative staff what would happen if the state could “please just dedicate every dollar to public ed? I don’t want to fund National Guard. I don’t want to fund roads, state parks, water construction, Highway Patrol. We’re not going to do anything.”
Using all of the state’s revenues on public schools would raise Utah’s rock-bottom ranking on education spending, but only to around 22nd-highest, the majority leader said. “Impressive, right? To say that you’re 22nd in the country?”
Transportation funding was also a key topic at the summit that ended with Blackhawk helicopter rides at the Utah National Guard training site. The summits are held every other year to help lawmakers focus on the future needs of the state.
During one of the morning breakout sessions, all of the lawmakers in the room raised their hands in agreement that the way Utah pays for roads and mass transit is not sustainable. Alternatives tossed out ranged from toll roads to charges for vehicle miles traveled to futuristic passenger drones.
“That sounds crazy radical, but I’d be curious to see what’s on the horizon,” Rep. Mike McKell, R-Spanish Fork, said after bringing up passenger drones as a possible option one day as part of what he termed “disruptive technologies,” such as Uber and other existing ride-hailing services that are impacting transportation.
The Utah Department of Transportation is already looking at the effect of autonomous air taxis and other vehicle traffic in urban skies, Linda Hull, the agency’s legislative services director, said, and expects to make a presentation soon to lawmakers.
The more mundane issue discussed was collecting enough revenue to continue to expand roadways and transit systems to accommodate the state’s growth while maintaining existing infrastructure. Currently, about one-third of the $1.7 billion the state spends on transportation comes from sales taxes, through an earmark.
But sales tax revenues aren’t increasing at the same pace as income tax collections that must be used to pay for education and fuel taxes have long failed to keep up with state transportation needs, which now include future Utah Transit Authority projects.
Lawmakers have already taken steps to allow for charging tolls to drive on canyon and other roads and trying out vehicle miles traveled charges for electric vehicle owners who can avoid new state fees by participating in a pilot program.
Utah was praised at the summit by Jared Walczak, director of state tax policy for the Tax Foundation, based in Washington, D.C.
“You’re doing a lot of things very well,” Walczak said, including tackling tax reform during good economic times.
He said that the constitutional earmark on all income taxes does make Utah unique. Alabama comes close, setting aside 98% of individual income tax collections. Massachusetts has the third-highest earmark, 40% of both individual and corporate income taxes paid.
Walczak stopped short of saying Utah’s earmark should be repealed, although he suggested it may be making the effect of the decline in sales tax revenue growth more pronounced.
“The earmark is not necessarily a bad thing, but when the earmark share is growing rapidly and the un-earmarked share is flatlining or, as it’s been doing since 1995, falling precipitously ... I think revenue adjustments eventually would have to be made,” he said.
Many states are in a similar position when it comes to sales taxes because of a shift in consumer spending from goods to services, Walczak said, but most have avoided taxing services, a topic the task force intends to discuss at its October meeting.
He cited some states that have instituted taxes on some services, including Kentucky, where sales taxes are imposed on so-called luxury services like limousine rides and pet care, while Iowa’s sales taxes on services are focused on the “new economy,” including ride-sharing.
In a report on tax modernization in Utah, Walczak recommended broadening the state’s sales tax base by taxing services. Tuesday, he said that even though Utah is “doing better than most of its peers, this is the one piece that’s missing.”