“Depending on what ultimately happens,” Senate budget chairman Lyle Hillyard, R-Logan, told UtahPolicy, “it could mean 5 percent (budget cuts) across the board.”
Tuesday afternoon the outgoing members of the Executive Appropriations Committee – made up of the leaders of the House and Senate, both parties -- heard a revenue update from top legislative economist Andrea Wilko on possible impacts of the federal government’s “fiscal cliff” and what it could mean to Utah state revenues.
The revenue shake-up comes in several areas – mainly personal income taxes if wealthy Utahns sell off investments in capital gains, cuts to military bases in Utah and cuts in other federal programs, from national parks to lands management to health care.
-- Instead of state government taking in an extra $300 million in fiscal 2013-2014 (the budget lawmakers must set in the January-March general session), Utah could lose $500 million in different types of revenue.
-- Utah would gain an estimated $15 million in one-time capital gains tax take, but that’s hardly worth what would be lost if Congress and the president don’t act and federal taxes go up on all Utahns and billions of dollars in automatic federal program cuts take effect.
“You would see a $500 million drop off,” said Wilko. “It’s not completely negative; you would see an extra $15 million in one time revenue.”
If Congress – the GOP controlled U.S. House and the Democratic controlled U.S. Senate – do what Obama wants and raises taxes on those making more than $250,000 a year but keep the Bush tax cuts for the rest of Americans, Wilko believes state revenue growth next year would go from an estimated additional $300 million to $105 million more – still painful.
Utah would still get that extra $15 million in one-time revenues, she said.
However, a month ago the EAC heard that there were $284 million in new revenue needs already tabulated for next year – money needed for new public school student growth, the cost of fighting wildfires this summer, and so on.
So if Congress does what Obama wants, Utah would still face a tight budget year – going from an additional $300 million to just another $105 million more.
Most of that comes in rich Utahns selling off various investments so they can pay the federal capital gains tax of around 14 percent instead of keeping those investments and having to pay a higher federal income tax later.
But there are other fiscal impacts of a congressional budget deal – yet to be adopted or even agreed to – that could cut Utah state government tax revenues and federal aid programs.
As state law and legislative rule require, EAC members went through the motions of adopted new revenue figures for the rest of this year and for the 2013-2014 budget and ordered that “base budget” bill be prepared.
Those decisions come based on the “status quo” as the federal government is conducted today, Wilko added.
But, said Hillyard, all that could change if and when Congress and the president act.
“We could be meeting again – and well may – to adopt new revenue projections” after the first of the year, said Hillyard.
The 45-day general session starts Jan. 28.
Utah has one of the earliest-starting, and shortest, annual session of any state, and that timing could really foul up Utah’s budget-setting process.
“We could fall over the cliff” in Washington, D.C., the first week in January only to see Congress act later in the month, or later in the year, Hillyard told UtahPolicy.
“Why are we even doing this?” – adopting the rosy revenue estimates that show a $300 million growth in fiscal 2013-2014 – retiring Senate President Michael Waddoups, R-Taylorsville, asked House budget chair Mel Brown, R-Kamas.
“Because it’s the rule,” said Brown.
If the state went from an estimated $300 million tax growth next year to a $200 million deficit, that would require about a 5 percent cut in the budgets from the current fiscal year, said Hillyard.
Of course, GOP leaders could find one-time monies to take up part of that slack – like the Rainy Day Fund and other areas.
But those funds were severely drained during the Great Recession of 2008-2010, and are just now being rebuilt with several years of one-time tax surpluses.
Republicans will go forward with introducing and passing base budget bills the first week of the 2013 general session, EAC members decided.
But depending on how Congress deals with the “fiscal cliff,” Utah legislators may well have to adjust budgets down or up later in the general session.
That means the Legislature’s budget subcommittees – unlike how they’ve acted in recent years -- really won’t be able to start adding back in any new tax growth monies until Congress acts and legislative budget staffers figure out just how those actions impact Utah state revenues.
In effect, said Brown, the budget subcommittees will have to spend their January and early February meetings going over current budgets and programs – and not be working on how best to spend any new revenues their state departments might see next year.
Finally, Hillyard noted that the 2013-1014 EAC members will look a lot different than those facing him Tuesday.
A number of the members aren’t coming back next year – retiring voluntarily or non-voluntarily by voters and internal leadership shake-ups.
In all, half of the current members, 10 out of 20, won’t be back in the EAC come January. Some may be in the 2013 Legislature, but a number will be out of office all together.
Those gone from the EAC:
The Senate: Waddoups (retiring); Senate Majority Leader Scott Jenkins, R-Plain City (who lost his attempt to become Senate president); Senate Minority Leader Ross Romero, D-Salt Lake (retiring); Senate Minority Whip Karen Morgan, D-Cottonwood Heights (retiring); and Senate Minority Caucus Manager Ben McAdams, D-Salt Lake (who resigned to become the newly-elected Salt Lake County mayor).
The House: EAC vice-chair John Dougall, R-Highland (newly-elected state auditor); House Majority Assistant Whip Ronda Menlove, R-Garland (retired from leadership); House Minority Leader David Litvack, D-Salt Lake (retiring); House Assistant Minority Whip Brian King, D-Salt Lake (lost his bid to be minority leader); and House Minority Caucus Manager Christine Watkins, D-Price (lost her re-election).
Brown and Hillyard could also be replaced by the newly-elected House speaker (Becky Lockhart, R-Provo) and Senate president (Wayne Niederhauser, R-Sandy).
Brown has a better chance of staying House budget chairman, he was appointed by Lockhart two years ago.
Hillyard noted that Niederhauser has yet to announce the new Senate committee assignments, and so he doesn’t know his fate.
EAC Senate vice-chair Kevin Van Tassell, R-Vernal, could be reappointed by Niederhauser. Van Tassell lost his bid to be the Senate assistant majority whip. Or Van Tassell could be off the EAC, as well.