GOP Gov. Gary Herbert presented his fiscal 2015 budget Wednesday, a spending plan that is 3 percent higher than the state’s current budget.
As part of his budget, Herbert recognizes that income tax revenues dropped off by $82 million from the year before because of federal income tax changes.
For a state that has been leading the nation in economic recovery from the bad days of the Great Recession, this is not welcome news.
But Herbert stressed that public and higher education – mostly funded out of income taxes — is treated well in his new recommended budget.
Speaking at a special press event at Utah Valley University, Herbert laid out his spending plan for the next fiscal year – the budget that the 2014 Legislature will adopt before adjournment in mid-March.
Overall, says Herbert, the state budget for fiscal 2014-2015 should be $13.3 billion, up 3 percent from the current year’s spending plan of $12.89 billion.
You can read the governor’s budget proposal here. The Legislature’s adopted 2013-2014 budget for the current year is here.
While legislative Republicans always take a look at the governor’s recommended budget, by no means do they cow-tow to it.
In fact, it’s expected that the GOP majority in the House and Senate will act like previous Legislatures and not even list in their per-member massive budget books what the governor is recommending.
If you want to make comparisons between what Herbert wants for this or that agency’s spending next fiscal year, you’ll have to compare those numbers with the Legislature’s own numbers yourself.
Still, the governor’s budget is a starting point for the agency bosses themselves and for special interest groups – like public education – who are always seeking more to make their cases before the Legislature’s eight joint budget subcommittees – which will start hearings the end of January.
“We’ve reached the proper tipping point” between taxing Utahns to provide needed government services and not harming growth in a still struggling state economy, said Herbert is a 45-minute presentation.
In his briefing Wednesday, Herbert said that because of federal tax law changes that took effect in January 2013, many wealthier Utahns took capital gains profits in 2012.
That pushed up state and corporate income tax take back in 2012. And it meant that those special-circumstance revenues aren’t coming in the current budget year.
“Unrestricted General Fund and Education Fund revenue collections for fiscal year 2014 (which ends next June 30) are forecast to decline by 1.5 percent” – or $82 million, his budget-briefing book says.
If the state ends the current fiscal year in the red, the money will be made up from the state’s Rainy Day Fund – a surplus account specifically designed to fill in end-of-year budget shortfalls.
That fund stands today at around $400 million, or 7 percent of the whole annual budget, said Herbert.
The Rainy Day Fund was nearly drained during the Great Recession, when legislators and Herbert had to cut budgets and use one-time surpluses to make up severe revenue shortfalls.
But in the last several years the Rainy Day Fund (there are actually two of them, one for the General Fund and one for the Education Fund) has been growing as the state ended budget years with cash surpluses.
While the General and Education funds could be short at the end of this fiscal year, state economists forecast that they will grow by 3.8 percent, or $200 million, for fiscal year 2015 – which will be set by legislators this general session which starts Jan. 27.
The Legislature will have $132 million in one-time surpluses monies to spend in the current year (the lion’s share of that surplus comes from extra tax collections in the fiscal year 2013, which ended last July 1).
And they will have $206 million in new, ongoing, revenue growth for fiscal year 2014-2015.
“That’s good news,” said Herbert.
The Legislature’s main budget committee – the Executive Appropriations Committee – has seen its members (made up of leaders in the House and Senate, both parties) singing the blues in October and November meetings – warning that while there will be one-time surpluses and ongoing revenue increases in the 2014 Legislature, don’t think for a minute that there will be a lot of cash for big program increases.
Herbert said much the same Wednesday.
As in recent years, the governor’s new budget fully funds additional students coming into the state’s 41 school districts’ kindergarten programs. There should be 10,300 new students come the fall of 2014, and $64 million is allocated for them.
“Again, my No. 1 budget priority is education,” said Herbert. “And more than half of the new money goes there.”
In addition, Herbert suggests a 2.5 percent increase in the Weighted Pupil Unit. The WPU is the basic, system wide formula to fund public education.
That 2.5 percent, whether actually fair or not, sets the standard for employee pay raises/benefit increased costs for school teachers, state employees and college professors and other workers as legislators go about their budget-setting.
Herbert suggests a pay hike for state workers of 1.5 percent – 1 percent in paycheck increases and 0.5 percent for bosses to use for “market and retention issues.”
Asked by a reporter if public education should get nearly double the amount of possible pay hikes than state and college workers, Herbert said the WPU increase shows his budget priorities, and that other factors besides wages are part of the WPU.
Herbert is also putting about $3 million into the education system with the aim of getting 66 percent of Utahns with a post-high school degree by 2020 – a goal that some education officials feel may be too aggressive.
A reporter said he doesn’t see how Herbert can get so many more Utahns to have post high school degrees or certificates by that time.
“It’s doable,” said the governor. “But it is a big ask.”
To reach the 66 percent by 2020 goal, Utah’s technical colleges, public colleges and private education institutions need to increase their “outputs” by 50 percent, Herbert said.
He’s putting money into those resources. But it is not only about money. “We have to find more effective ways to teach our students,” he said.
As has been previously announced, there are no tax increases, not tax cuts, and no increased bonding in Herbert’s budget.
A number of groups are advocating for some kind of tax hike for Utah’s deteriorating roads. The per-gallon state gasoline tax of 24.5 cents has not been raised since 1997.
Various ideas have been kicked around.
And it appears there will be some bills introduced next month that would increase the gas tax, maybe put the state sales tax on gasoline, or some other kind of revenue producer.
But with Herbert and GOP leaders not eager to deal with transportation tax hikes this session, those likely won’t pass.
2014 is an election year for all 75 House members and half of the 29-member Senate. Historically, any tax hike comes in off-election years.
Herbert said discussions about increased revenues for transportation will start this Legislature. “We’ll see where they go.”
The state will pick up employees’ pension and medical cost increases, 8.5 percent and 2.2 percent, respectively.
Compared to other states, Utah’s pension fund is looking pretty good. But big losses in investments during the Great Recession means Utah needs to put more and more money into the fund over the next few years.
Quizzed several times about the Medicaid expansion, which is part of Obamacare, Herbert said his budget puts in $13 million more for the federal/state health care program for the poor and low-income.
But that money is needed for the current program. The Obamacare Medicaid expansion would be paid 100 percent by federal monies for the first few years, then the feds would pick up 90 percent of the increased cost.
A number of GOP governors, including in a big state like Texas, have rejected the expansion.
Herbert said he’s still talking to GOP legislative leaders and they will have a joint proposal about Medicaid expansion in Utah before the session beginsJan. 27.
But since the feds would pick up 100 percent of the expansion cost, the expansion isn’t part of his budget recommendation this session.
“The federal government is borrowing 40 cents of every dollar it spends,” said Herbert.
It can’t continue to do that. And everyone one, not just him, worries about the long-term affects of Medicaid expansion, Herbert said.
The Medicaid expansion money “comes out of your pockets, Utah taxpayers’ wallets,” said Herbert.
“There are legitimate concerns and long-term ramifications” to Medicaid expansion, the governor said.