New revenue estimates say the current budget year should end with either a $30 million deficit or (more likely) a $60 million surplus.
These are only estimates, and will be updated in November, when Gov. Gary Herbert puts the final touches on his budget recommendations to the Legislature.
The current fiscal year ends June 30, in just a few weeks.
If the estimates are on the positive side, after some mandatory siphons (like to the Rainy Day Fund), lawmakers and Herbert will have those monies to spend or save in the 2013 Legislature.
While the governor’s and Legislature’s budget offices work in ranges on revenue updated estimates (in this worst case $30 million in the red or $60 million extra) in recent years as Utah’s economy rebounds from the Great Recession the updates have turned out to be in the positive range – maybe not as much as updates predicted on the top end, but still providing more cash for lawmakers and the governor to spend or save.
The June revenue update says: “The economic recovery continues to take hold, although momentum from the previous year’s expansion is fading as evidenced by employment growth.”
Job growth grew by 2.9 percent earlier this year, but is expected to drop to 2.2 percent for the rest of the year, the analysis says.
While Utah housing starts are up, state economists still worry about the possibility of federal tax hikes (the Bush tax cuts come up for renewal later this year), less demand for U.S. goods in Europe, where several countries’ economies are staggering, and the “fickle nature” of consumer confidence in America, the report says.
Some important predictions:
-- The state’s General Fund, where most non-education spending takes place, should be either down $15 million or up $15 million.
-- The Education Fund, driven by personal and corporate income taxes, should be down $15 million or up $45 million.
-- Sales tax is up. February collections were up an impressive 17 this year over last.
-- Severance tax collections, which really boomed last year, are “under-performing.” That’s mainly because there has been so much natural gas production throughout the U.S. that the price has gone down from $13.30 per 1,000 cubic feet to $2.20.
-- Cigarette and tobacco taxes are also coming in below estimates. Those tax collections have never rebounded as predicted after a $1-per-pack tax hike of several years ago.
The big tax hike has resulted in some Utah smokers traveling to buy their cigarettes in Idaho, Wyoming, Colorado and Nevada, proven by increases tobacco sales in those states, state economists say.
Legislative economist Thomas Young said the state is losing about $4 million a year in tobacco tax to surrounding states.
Of the drop in tobacco revenues, about 70 percent comes from Utahns either stopped smoking or cut down in smoking, about 30 percent from out-of-state purchases by Utahns.
-- Finally, Happy Birthday to the Utah State personal and corporate income taxes, who turn 80 this year. (Yes, few Utahns can even remember a time when they didn’t pay state income taxes.)
How times have changed. When first imposed in 1932 (to fund public education in light of the Great Depression’s crushing of education budgets) the gross income tax burden of all Utahns was $248 million.
Today that personal income tax burden is $2.4 billion.
Of course, wages are up as is population.
The personal income tax take is expected to increase above estimates this year.
Corporate income tax is also 80 years old this year. In 1932 the burden was $112 million, today it is $230 million.
Rep. Brian King, D-Salt Lake, noted that while the report shows that Utah’s corporations are showing profit growth – 13 percent up last year, 11 percent this year -- the taxes they pay are about flat, no growth. Why? He asked.
Legislative chief economist Andrea Wilko said there is a disconnect between corporate profit growth and corporate tax collections because of how the tax is applied and other factors.
“That gap should narrow over time,” she said.
Unfortunately, the state road fund is likely to be down by up to $20 million this year.
Utah has a per gallon gas tax. As the price of gas goes up, said Young, Utahns drive less. As more fuel-efficient cars come into use, road miles may go up, but the tax revenue down.
In short, the days of Utah’s per-gallon gas tax is dying.
Herbert and lawmakers have no interest in raising the state gas tax in an election year like 2012, when Herbert is up, all 75 House members and half other 29-member Senate.
Something may be done about the Transportation Fund revenues come 2013, a non-election year for the governor and lawmakers.