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State revenue shortfall could hit $2 billion because of pandemic, lawmakers told

‘There’s going to be a little panicking,’ Senate leader says

SHARE State revenue shortfall could hit $2 billion because of pandemic, lawmakers told

Spenser Heaps, Deseret News

SALT LAKE CITY — State revenues could fall close to $2 billion short due to the impact of the COVID-19 pandemic, Utah legislative leaders were told Wednesday.

The updated revenue estimates delivered to members of the Legislature’s Executive Appropriations Committee come as lawmakers are being asked to recommend cuts of up to 10% from the state’s $20 billion budget set to take effect July 1.

“This is not going to be an easy process,” Senate Budget Chairman Jerry Stevenson, R-Layton, said, warning that some state services may end up being eliminated when lawmakers meet in special session next month to approve the budget cuts.

The Legislature’s appropriations subcommittees are to come up with proposed reductions of 2%, 5% and 10% during meetings scheduled for May 26-29 — a prospect that raised concerns from Senate Minority Whip Luz Escamilla, D-Salt Lake City, about the effect on social services, especially during a pandemic.

“There’s going to be a little panicking after this meeting,” she said after questioning the need for the “blanket approach” of across-the-board cuts.

“I’m not sure that that’s necessarily the best public policy process to follow. Is there anything else beyond just everyone cuts 10%?” Escamilla asked. “That’s definitely getting to the bones of some of the programs that are critical to sustain families and people.”

The new estimates show that in the current budget year, revenues will fall at least $200 million and up to $600 million short, while in the upcoming budget year, those numbers jump to between $600 million and $1.3 billion. Andrea Wilko, the Legislature’s chief economist, said the forecast moves from “optimistic” to “less optimistic.”

Wilko said the estimates assume the economic recovery from the outbreak gets underway this month and does not account for the possibility of a second wave of the new coronavirus hitting as some scientists have suggested could happen in the fall.

Stevenson, who told the Deseret News Tuesday he believes it could take four years or more for the state to recover economically from COVID-19, acknowledged to the committee that “this is a very difficult time because we’re not only experiencing a loss of revenue, but we’re experiencing a demand for an increase in service.”

But he also said, “There’s not equity in all kingdoms in state government, if you will,” pointing out it would be a bad time to focus cuts on areas of the budget that produce revenue, such as the tax commission and comparing the situation to the “fairly drastic cuts” made to the budget a decade ago during the Great Recession.

“You need to follow these guidelines with the 2, 5 and 10 (% cuts) and see what we can come up with here,” Stevenson said. “There may be some services that we have to eliminate, and there may be some that will have to be increased. But these are difficult times. There isn’t a simple answer to a very difficult question. This is tough.”

House Budget Chairman Brad Last, R-Hurricane, said he understands the pressure to meet social services needs.

“But we’re going to have to make some judgments,” Last said, that will be “based on what we think will be the very best for the state as far as stabilizing and moving forward, both from a social services standpoint and an economic recovery and development standpoint.”

Legislative fiscal analyst Jonathan Ball said $350 million in bonds have been issued for the construction of the new state prison and another $177 million in bonds for road construction, freeing up money already budgeted for those projects.

Other actions that could be taken, Ball said, include taking some $600 million in new spending in the budget off the table, then cutting $400 million from the current budget and another $700 million in the new budget, in part by halting new construction and other projects.

“Assuming there is political will to do that, that balances your budget under the worst-case scenario,” Ball said.

Stevenson said in an interview later he does not expect, for example, money set aside in the new budget for student growth in public schools to be cut. However, he said the 6% increase in the weighted pupil unit, the state’s funding mechanism for schools, is unlikely to remain.

“It’s really hard to go in and come up with a number that’s that generous in an economy like we’re dealing in today. Yet we know that it’s deserved, it’s needed,” Stevenson said, adding that officials hope to ensure government jobs stay secure and “we’re not laying people off.”

He said the revenue estimates will become clearer as the state nears the start of the new fiscal year, but may not be better. The plan is for the Legislature to meet in special session in mid-June, after the committee — as well as legislative leaders and party caucuses — have time to consider the subcommittee recommendations.

House Speaker Brad Wilson, R-Kaysville, said after the meeting that lawmakers are being asked to come up with “targeted/precision” budget reductions “not across-the-board indiscriminate cuts,” adding that because public education represents about half the budget, the cuts would be twice as high if schools weren’t included.

Wilson said legislative leaders will refine those recommendations, “perhaps even adding new money” to cover inflation in public education and social services “if we can afford it.” He said “the most prudent approach is to explore government spending reductions and program eliminations first.”

Also Wednesday, the committee heard a report on the allocation of Utah’s $1.5 billion in federal coronavirus relief funds. The money was split 55-45 between the state and local government, with Salt Lake County already receiving $203 million and Utah County $111 million as the state’s largest counties.

The remaining $246 million in local funding is being distributed to cities and counties based on a calculation of $175 per resident. Only a third of the money is going out now, with the rest due to be sent in the summer and fall. That way, the allocations can be adjusted to help any COVID-19 “hot spots,” Stevenson told the committee.

House Majority Leader Francis Gibson, R-Mapleton, questioned whether the money would be used to reimburse governments for coronavirus-related expenses or be treated as a stimulus check, while Senate Majority Leader Evan Vickers, R-Cedar City, said some are “very fearful” the Wasatch Front will get some of their share of the funds.

“Everyone’s being killed economically,” Vickers said.

Salt Lake County Mayor Jenny Wilson told the committee the money is needed to respond to the health emergency the county continues to face. That will include quickly vaccinating county residents once a vaccine becomes available, hopefully this year, she said.

“There are a lot of unknowns right now,” Wilson said, including the cost of a vaccine.