As Republican leaders in the Utah Legislature and GOP Gov. Gary Herbert prepare for a summer of public hearings across the state concerning the “structural imbalance” of the state’s taxing system, they have a political problem:
Utah state government continues to have healthy tax revenue surpluses, a recent report to the Executive Appropriations Committee shows.
And so how do you make the political argument to citizens that the state needs to extend the sales tax to services, or take away the constitutional earmark that all income taxes go to higher and public education, or make other tax changes?
If Utah is doing so well financially, why change the tax structure at all?
Herbert and GOP lawmakers know this problem.
And since last December – when Herbert released his recommended budget for 2019-2020 – and during the 45-day general session, January-March, GOP leaders talked and talked about sales tax reform.
In their May meeting, EAC members – the elected leaders in both parties, both chambers – heard an excellent report from Jonathan Ball, their budget boss, about how the state’s sales tax system is not keeping up with income tax revenue take.
And down the road – a rather short road says Ball – because of the constitutional income tax earmark for education, other state programs funded by the sales tax will fall short of revenue, with a lot of unpleasant financial consequences coming.
All this is true.
But it is also true that later in that meeting Ball’s office of Legislative Fiscal Analyst presented an analysis of state tax revenue for the first 10 months of this current fiscal year, when ends June 30.
And, once again, for many years running the state will have a very healthy revenue surplus at the end of this fiscal year – in percentages individuals and businesses would love to have in their own finances.
Some examples from the Monthly State Revenue Snapshot:
The state sales and use tax (in the General Fund) was projected to increase by 5.5 percent in the current fiscal year.
It is up 5.6 percent so far (after 10 months). So that is basically a wash – a very good job by Ball et al. of hitting the revenue estimate in their budgeting.
Other General Fund revenue sources are down, however, so overall the GF was projected to increase by 5.3 percent, but will only grow by 4.2 percent, a downturn.
But the individual and corporate income tax (the Education Fund) was projected to grow by 4 percent this fiscal year, and it is growing at 7.3 percent.
Add in some other Education Fund revenues, and overall the fund was estimated to grow by 6 percent but is really growing by 9 percent over a year ago.
How many of us would like to see our household income increase by 9 percent from last June?
All this, of course, is due to Utah’s excellent economy, one of the best in the U.S., which has seen a decade of economic growth since the Great Recession.
Now, if the General Fund comes in under expectations the end of June, that can be a problem for balancing the books – remember that the income taxes can only go to education, and thus the Education Fund.
But it looks now that the GF will be OK.
GOP leaders say, however, that the next fiscal year, which starts July 1, could be the last year where sales tax revenues keep up with demand in the General Fund.
And what then?
There is a plan for that. But the key to that plan is taking action via the Sales Tax Reform Task Force coming through this summer and fall with ideas on how to restructure the state tax system.
However, that plan will have to be sold to citizens, especially if one element requires a constitutional change to take away the income-tax-for-education earmark in the 2020 election.
That’s a move that no doubt public education advocates – like the Utah Education Association, the largest teacher union – will have a public campaign about.
And if Utah ends the current fiscal year with more than $100 million, or $300 million, in tax revenue surpluses, how do you ask citizens to extend the sales tax to services – even if that tax shift comes with an overall sales tax cut as GOP lawmakers and Herbert promise?
It is kind of like climate change. Experts tell you the Earth is warming at an alarming rate. But then you have a record snowfall last winter and the wettest May in generations.
Utah state government revenues may look very green right now – just like our hillsides. But there is a serious, structural drought coming.
That is the sales job GOP state leaders need to find a way to make to voters – and soon.