Utah GOP legislative leaders are getting into their “Eeyore” mode – don’t count on all this $1.3 billion in tax surpluses next year.
“So sad am I.”
The Legislature’s Executive Appropriations Committee – the all-powerful budget committee made up of leaders of both parties, both houses – was told Monday that the current revenue projections – while accurate to date – are not sustainable.
That is, growing the 2019-2020 budget by 13 percent – as GOP Gov. Gary Herbert’s recommended budget does – can’t keep going.
Economists use all kinds of fancy modeling to project what may be coming in economic growth.
Without going into details, the Office of Legislative Fiscal Analyst – the Legislature’s budget office – says the state’s revenue estimates for fiscal 2019 (the one we are in now) is $190 million over the sustainable trend.
While the revenues for the next budget year, fiscal 2020, is $100 million over what is sustainable.
Herbert took $100 million – that same amount – out of the consensus budget revenues, a set-aside if you will. If the Legislature follows suit, that amount of money won’t be allocated – either spent or put into a Rainy Day Fund.
Ultimately, the EAC on Monday took $100 million in one-time revenue estimates and $200 million in ongoing tax revenues and took them OUT of the base budget bills that the 104 part-time lawmakers will see the first day of the 2019 general session, Jan. 28.
What does this all mean?
The $1.3 billion – yes, the tax surpluses are that large – in estimated new revenues that lawmakers will consider in the 45-day session, still stands.
But for budgeting purposes, it is now down $300 million.
In mid-session, after the February tax revenue estimates are updated, legislative leaders can put any or all of that $300 million back in the budgets.
But as it now stands, the $200 million sales tax cut that Herbert recommends in his fiscal 2020 budget – which starts July 1 – is technically already paid for.
That sales tax cut would lower the state rate from 4.85 percent to below 4 percent.
Herbert, of course, doesn’t just want a tax cut.
He wants lawmakers to levy the sales tax on various “service” sector sales, which are not taxed at all now – from haircuts to Uber rides and such.
Now, being a popular politician, Herbert doesn’t say exactly which sales on services he wants to be taxed.
Instead, he has a list of considerations.
It will be up to legislators to pick and choose which services get taxed if any.
But Herbert doesn’t want the Legislature to put the state sales tax on unprepared food back on. Or at the very least, if the GOP legislative majority demands that the food tax is re-imposed, then some kind of cutout must be adopted, so low-income Utahns don’t pay that food tax, Herbert says.
Part of the EAC meeting Monday showed how the state sales tax, while growing, is not expanding nearly as much as the state personal and corporate income taxes.
Currently, the state’s General Fund (made up mostly of the sales tax) contributes $300 million a year to the state’s colleges and universities’ $1 billion state donations.
The rest of higher education funding comes from income taxes.
Herbert’s recommended budget for next year sees the General Fund only contributing $50 million to higher education.
So, if something isn’t done about the dwindling sales tax – soon other non-education state spending, like social services, public safety and such, will be strapped for funding, while the income-tax-based public and higher education will grow more, accordingly.
“We aren’t taxing the things people are buying” these days, said Jonathan Ball, director of the Legislature’s budget office.
Worse, the cost of now-not-taxed items, like internet streaming services, is rising faster than the now-taxed items, like manufactured products, clothes, et al., said Ball.
So there’s a double-whammy hitting Utah state sales tax revenue – we aren’t taxing a large part of the consumer purchases, and the prices of those that we are taxing is growing more slowly than the non-taxed items’ costs.
Ball sums up the EAC’s decisions:
Wait until the next recession hits, and then cut state budgets because there isn’t enough revenue.
Wait for some other economic/spending crisis hits, like General Fund programs don’t have enough sales tax to operate properly.
Or, do like Herbert asks, and change the sales tax structure.
While some on the EAC were advocating for lawmakers to save even more of the state’s $1.3 billion tax surpluses next year, retiring Senate President Wayne Niederhauser, R-Sandy, said just putting more money into the state’s Rainy Day Fund is not the answer, either.
Niederhauser, an accountant and developer, said there could be such a thing as the state saving too much:
First, doing so takes money out of the Utah economy, money that if in circulation would be growing the economy, paying wages.
Even if the state treasurer does a good job of investing the savings, interest rates are still so low that the state won’t be getting as much value as if it spent the money on needed capitol projects – buildings, roads, water development.
And even if a recession means tighter state budgets – even some cutbacks – those painful decisions are actually good for government, for they retard government growth and require greater efficiency in state programs.
Even in the recessions of 2001 and the Great Recession of 2009, state government didn’t spend all of its Rainy Day funds, and the program cutting that took place ended up to be a good thing, after all, he said.