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Though ‘tough’ budget year ahead, Utah leaders still considering tax cut

Revenue projections show ‘thriving’ economy, but persistent funding imbalance

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Matthew Weinstein, with Voices for Utah Children, is joined by a broad coalition of organization advocates as he speaks during a press conference at the Capitol in Salt Lake City on Thursday, Feb. 20, 2020. The group is calling on the Utah Legislature to avoid cutting taxes until it has developed a comprehensive plan to address the state’s top priorities.

SALT LAKE CITY — With the release of Utah’s revenue estimates Thursday, legislative leaders still did not rule out some type of a tax cut this year, but continued to point to challenges because of the failure of tax reform.

If there is a tax cut this year, House Speaker Brad Wilson, R-Kaysville, said it might be in the form of a one-time rebate from income taxes — but he didn’t make any promises. And while Senate President Stuart Adams, R-Layton, said a tax cut “would be nice,” the state also needs to deal with its structural challenges in the revenues streams.

Meanwhile, a broad coalition of groups gathered on the Capitol steps to urge lawmakers not to cut taxes, but to invest in priorities including education, clean air and affordable housing.

Top GOP lawmakers said revenue projections show Utah continues to enjoy a strong economy but still has a “structural imbalance” between education and general funds after the collapse of tax reform.

That means that while the state has an estimated $921 million in surplus money, lawmakers still say it will likely be a tough year for budget requests out of the general fund that is mostly funded through sales taxes. In contrast, there’s plenty of money — totaling about $841 million — in one-time and ongoing education money.

“We have 10 times more money in the education fund than we have in the general fund,” said Rep. Brad Last, R-Hurricane, the House chairman of the Executive Appropriations Committee, as he announced the revenue numbers on the House floor. He noted lawmakers will be having “a lot of discussions about how we’re going to handle the structural challenges.”

The 2020-21 fiscal year revenue estimates reveal ongoing general fund revenues from sales taxes are up $50 million, for a projected total of about $92 million. The previously estimated deficit for one-time general fund expenditures is down from $51 million to $12 million — a remaining deficit that will need to be resolved in the adopted budget, leaving about $80 million to spend.

That’s compared to a “flourishing” education fund, state leaders said, that primarily comes from income taxes. Revenue projections put ongoing available education funds up to $77 million, for a projected total of $518 million. The new estimates also show another $73 million in one-time education fund revenue, upping the available money for one-time expenditures from $250 million to $323 million.

‘Not in crisis’

Sen. Jerry Stevenson, R-Layton, the Senate chairman of the Executive Appropriations Committee, told reporters Thursday lawmakers will have some “real issues here we are going to have to contend with” without tax reform.

“We are not in a crisis,” he noted. “We will be able to work through this and we will get to a good end with it, but every year this will continue to cause problems until we get to some kind of tax reform.” 

After revenue projects were released, Adams didn’t rule out tax cuts, but also didn’t offer explicit support for them.

“We want to make sure we take care of everything we possibly can, whether we do a tax cut or put some in a rainy day fund, it will be a really long three weeks,” Adams said.  

Adams said there will likely be tough budget decisions to be made in the final weeks of the 45-day session.

“When you look at $100 million, it sounds like a lot of money, and it is, but when you look at the size of our budget, by the time you get employees some increases and do a couple of other things and deal with growth in the state, there’s not a lot of general fund to dispense,” he said. 

Wilson agreed lawmakers will likely struggle to meet budget requests, but perhaps spending less this year “is not necessarily a bad thing.”

“We can take a year and try to regroup and try to be very conservative,” Wilson said. “I think we always try to be that way, but this year will be a tough budget year for people.”

Stevenson quipped the next three weeks “will be longer than three weeks” as lawmakers tackle those discussions.

“It will be very difficult as we go through and start sorting things out,” Stevenson said. “I think there will be a lot of asks that the committees have listened to that will probably go by the wayside.” 

Income tax rebate?

With the collapse of the Legislature’s tax reform package earlier this year amid public backlash, some lawmakers have put forth bills to push for specific tax cuts that were included in the reform plan. However, leaders of the Republican-controlled Legislature have made it clear they want to wait until next year to tackle tax reform again, and have been noncommittal on whether any of those specific tax cuts will happen this year.

Wilson said lawmakers currently have $80 million set aside for a future tax cut, noting lawmakers will begin discussing that next week.

Asked if there will be a tax cut, Adams said, “I think it would be nice, but I also believe we need to manage our affairs.”

Wilson also did not endorse or rule out a tax cut either. But he did say if there is one this year, it would likely be in the form of a one-time rebate from income taxes that fund education.

“If we do any type of tax cut it will probably be with income taxes,” Wilson said. “We clearly would not be super interested right now in a tax cut that would hurt the general fund even more.”

He added there are “a lot of members of both chambers, as well as the public, that would rather us give them some tax relief if we can, and it looks to me like we can, even if it’s just in one-time rebate.”

Wilson said his “preference” would be an ongoing tax cut, “but the question is, ‘Does that jeopardize our ability to address the structural imbalance?’”

Groups urge against tax cut

A coalition of advocates for clean air, affordable housing, education and others issues urged state lawmakers not to give in to the election year temptation of slashing taxes in times of plenty.

”We don’t need to be cutting taxes anymore than we have,” said Matthew Weinstein, with Voices for Utah Children.

Weinstein pointed out that taxes as a percentage of personal income are the lowest they have been in decades in Utah, and the time is now to ramp up funding for critical needs such as education, affordable housing and fixing air quality problems.

Weinstein was among representatives from 15 organizations that held a press conference on the steps of the Capitol, saying lawmakers need to take the opportunity this session to address some of those unmet needs.

Clint Cottam, executive director of the Community Action Partnership of Utah, said a 2018 needs assessment of all nine community action agencies in the state uniformly identified the lack of affordable housing as the primary concern among underserved populations. 

Dr. William Cosgrove, of the Utah chapter of the American Academy of Pediatrics, said children deserve access to clean air, clean water, safe food and safe living arrangements.

While children make up 30% of Utah’s population, they are “100% of our future,” he said.

Groups that included the Utah Education Association, the Catholic Diocese of Salt Lake City and Crossroads Urban Center said they were inspired to act in part because of an op-ed penned by Zions Bank’s CEO Scott Anderson saying he hoped the theme of this Legislature is to invest in Utah’s future.

Weinstein said there is an ongoing internal debate among Utah lawmakers — some leaning toward tax cuts — and others who prefer to remain more conservative with the state’s revenue.

He said for the latter group, “we got your back.”

Wilson responded to reporters there has been an “insatiable appetite for education” in Utah, and lawmakers have “put a lot of money” into education and taken public education funding “very seriously” over the past decade.

“And we will continue to do that,” he said.

Utah’s thriving economy

Despite challenges that have gone unaddressed without tax reform, state leaders took a victory lap Thursday with the revenue projections, pointing to a thriving state economy.

“This year’s revenue estimates are a powerful illustration of Utah’s healthy economy,” Gov. Gary Herbert said in a statement. “They also meaningfully demonstrate the ways in which we will need to plan for the future in order to accommodate continued growth in our state. I’m grateful to the Legislature for their dedication to long-term thinking and planning when deciding how to spend taxpayer dollars.” 

Adams said the revenue numbers show the state’s economy is “strong, vibrant and thriving.”

“We have the lowest unemployment rate in the nation and the best economy in the nation,” Adams said. “If we look at history, it is wise to save when the times are good to prepare for rainy days. Being vigilant to utilize funds we currently have now for tomorrow will enable our economy to stay strong, unemployment to remain low and our state to continue to flourish for generations to come.”

Wilson said the state is “enjoying a remarkable run of economic growth” thanks to “the hard work and innovation of Utah’s people and businesses.”

“Our revenue estimates also highlight the divergence in growth rate of the two funds, which will increasingly strain our ability to meet the needs of our state,” Wilson said. “These estimates underscore the need to take the long view and make decisions now that continue to foster economic strength and that prepare us for the challenges that inevitably come.”