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Lawmakers tackling tax reform after all this session, considering income tax cut

Voters may be asked to let dedicated education funds be used on services for children and disabled

The Capitol in Salt Lake City is pictured on Friday, Jan. 25, 2019.
The Capitol in Salt Lake City is pictured on Friday, Jan. 25, 2019.
Silas Walker, Deseret News

SALT LAKE CITY — Lawmakers are making a last-minute push for tax reform before the session ends next week, advancing a proposal that would allow money constitutionally dedicated to education to be used on other programs as well as a tax cut.

But not everyone is on board, including the governor who cautioned that no deal can be made unless all sides, including educators, “come together” in a “Kumbaya” moment.

House Republicans are considering an $80 million tax cut in the state’s income tax rate that funds education, from 4.95% to 4.9% or lower. But GOP senators, who also hold a supermajority, are reluctant to look at tax cuts this session because of the uncertain economic effects the new coronavirus may have on the country and the state.

“That right now may not be fiscally responsible,” Senate President Stuart Adams, R-Layton, said. Senate Republicans are scheduled to talk about a tax cut as part of a larger budget discussion during a closed-door caucus on Friday.

House Republican could not reach a decision about cutting taxes despite lengthy discussions during two closed-door caucuses Thursday, House Speaker Brad Wilson, R-Kaysville, told the Deseret News.

“We’re going to start working with the Senate to try to find some common ground,” the speaker said.

He said the income tax reduction mentioned Wednesday by House Majority Leader Francis Gibson, R-Mapleton, is one option, as is just holding on to the money and adding it to the state’s rainy day funds, something Senate leaders have repeatedly said is their preference.

“There is a high degree of interest in keeping some of that money set aside for reserves but we’re going to figure out where the Senate and the governor are at,” Wilson said. What was most talked about in the evening caucus, he said, was reducing income taxes on Social Security benefits.

Deseret News/Hinckley Institute

Legislative leaders had said they’d hold off on tax reform until next year after starting the 45-day session with a repeal of a December tax package — which would have cut income taxes but raised sales taxes on food, gas and some services — because of citizen backlash.

A new plan has suddenly surfaced to ease the budget imbalance between income tax and sales tax collections.

Thursday, a Senate committee endorsed a resolution that would ask voters to amend the Utah Constitution to allow income tax revenues — now earmarked exclusively for education — to be used for services for children and people with disabilities.

Gov. Gary Herbert cautioned that Utahns won’t approve the proposed constitutional change “unless everybody, meaning the Legislature and the stakeholders in education, come together and say, ‘Let’s hold hands and sing ‘Kumbaya’ and say we all agree, this is a better way to go forward.”

Wilson disagreed.

“I think that this money isn’t the education community’s money exclusively. It’s the taxpayers’ money and taxpayers have influence over how to choose to spend that money,” the speaker said. “We’re just saying we want to have the option for voters to choose whether or not to do this.”

The governor said there is “pressure” for lawmakers to act, citing a new poll showing most Utahns want an income tax cut. But such a cut, Herbert said, “is not good for education if that’s all they get.”

The poll on tax cuts was apparently conducted on behalf of House leadership. Adams said the Senate was not involved, and Wilson said help was given with the questions that were asked but he did not pay for the poll.

But a new Deseret News/Hinckley Institute of Politics poll found that only 10% of Utahns want to see surplus state income tax revenues used for a tax cut, while 41% say the best use of the funds is teacher pay raises or bonuses; 19%, hiring more teachers to reduce class sizes; 12% increasing per-pupil spending; 7%, classroom supplies; 3%, extracurricular activities; and 7% weren’t sure.

The poll for the newspaper and University of Utah institute was conducted Feb. 24-March 1 by independent pollster Scott Rasmussen of 1,000 registered Utah voters and has a margin of error of plus or minus 3.1 percentage points.

The Senate Revenue and Taxation Committee voted 6-2 to support amending the constitution, which was opposed by the Utah Education Association but backed by the Utah Taxpayer Association. Senate Minority Whip Luz Escamilla and Sen. Gene Davis, both Salt Lake City Democrats, voted against the bill.

Brad Bartels, executive director of the Utah Education Association, said the resolution would be “a generational change in education funding.”

He urged committee members to study the proposal in a special session instead of addressing it in the waning days of this session.

Sen. Curt Bramble, R-Provo, shot back that the UEA didn’t want tax reform handled in a special session last year.

“When in the world do you think we ought to address this problem?” Bramble asked. “Not once has UEA come forward with constructive, practical solution to the problem.”

Bartels said the chief concern is that the resolution does not define “support children and to support individuals with a disability.”

Sen. Dan McCay, R-Riverton, the sponsor of SJR9, said the proposed constitutional amendment is part of lawmakers’ “constant effort to address budgetary constraints.”

McCay said the Legislature heard loud and clear during tax reform efforts that the public wants more say in changing tax policy.

Lawmakers could have bypassed a statewide vote and defined support for children and people with disabilities as “education” in state statute, thereby making the programs eligible for income tax funding, he said.

Instead, legislative leaders decided to take a constitutional amendment to the people and give the public a say, McCay said.

Constitutional amendments require a two-thirds vote of the House and Senate to place the issue on the ballot in November. A majority of voters would need to approve the amendment for it to take effect.

Following the committee meeting, Bartels said UEA members are unclear on the practical effect of funding services for children and people with disabilities.

“That could be tens of millions of dollars in funding. That could be hundreds of millions of dollars in funding. It’s not really clear from the provision what that means so it’s very hard for us to support that resolution without more time to explore what those things are,” Bartels said.

As the Senate Revenue and Taxation Committee met Thursday, the Utah State Board of Education debated SJR9, ultimately deciding to support the resolution by a vote of 11-4.

The board also voted to support HB357, which would expand local school boards’ ability to levy property taxes “for other needs in support of the school district.” Currently, the levy is limited to capital projects or technology programs or projects.

State School Board President Mark Huntsman said the board spent nearly two hours discussing the legislation, which is part of a proposal that would also ensure public school enrollment growth and inflation are automatically funded.

Legislative leaders say the proposal is intended to protect, grow and stabilize education funding while giving lawmakers greater flexibility to address the cost of social services that supplement educational needs.

Some board members wanted more assurances about raising education funding by increasing the value of the weighted pupil unit, and also expressed concerns about dedicating funding to others that were not clearly defined.

Huntsman said the plan has “guard rails” that would protect education funding and ensure automatic adjustments for enrollment growth and inflation, and he expects by the time of a final vote, the definitions would be better defined.

HB357 would only go into effect if the constitutional amendment passes. The latest version of the bill, heard by the House Revenue and Taxation Committee Thursday evening, was approved by a 12-1 vote.

Sponsored by Rep. Robert Spendlove, R-Sandy, the bill calls for a constitutionally protected account for K-12 education, automatically adjusting education funding for enrollment growth and inflation and reserving revenues to meet education commitments during economic downturns in a “public education stabilization fund.”

House Speaker Wilson called the proposal “a once in a lifetime opportunity” to bring predictability and stability to education funding.

Wilson said it’s one thing to ask state parks, the Utah Highway Patrol or the judiciary to tighten their belts during an economic downturn. It’s not optimal but it’s doable on the short term.

“You know what’s not OK? It was not OK that my 5-year-old went into kindergarten during the Great Recession and the schools were dealing with budgets that were reeling. That was not OK,” Wilson said.

“We get one shot at educating those kids,” he said.

Wilson said the important aspect of the plan is the stabilization fund so in good times or bad “we’re going to have a smoother cycles.”

Rep. Joel Briscoe, D-Salt Lake City, who voted against HB357, said he was having difficulty tracking how income tax revenue would flow to services and programs outside of education.

“I’m looking for a schematic. I think everyone in this room could use a schematic,” he said.

Jay Blaine, UEA’s director of policy and research, spoke in opposition to the bill. “We’re very close to an excellent bill” but the state’s largest teacher association cannot support it in its current state, he said.

Contributing: Katie McKellar