Lawmakers hope big budget surplus will power tax cut proposal

Utah Capitol 30

The 2020 Legislature will start with at least $85.5 million in surplus when it begins Jan. 27, state leaders were told Tuesday.

But more likely it will be more than that, as tax revenues continue to come in above state budgeting spending.

Anticipating a significant tax cut coming sometime this year, GOP legislators and Republican Gov. Gary Herbert put aside $75 million in ongoing revenues in the 2019 Legislature after tax reform failed last general session.

Now, is told, leaders would like to give at least a $100 million tax cut in a special December session, all part of a complicated tax structure overhaul.

And if ongoing revenue estimates — to be disclosed in December — are also better than anticipated, then even more money would be available in tax relief.

And tax relief is important — for it will be needed in any public relations campaign by state officeholders to justify the kind of reform the Tax Reform Task Force is now talking about.

And here is something interesting in a “routine” budget summary report prepared for the Executive Appropriations Committee in a Tuesday afternoon meeting:

— Each year the GOP-controlled Legislature is “rolling over” around $300 million in the Education Fund and General Fund.

Like a family checking account that each month rolls over some cash into the next month, the state does the same thing, from one fiscal year to the next.

When lawmakers meet in January, they will have around $292 million in that rollover — ready to be allocated in the new budget, 2020-21.

That is if legislative leaders decide to do so.

The $292 million is just one more example of the state government doing very well financially.

And the annual tax surpluses are actually being used as a political club against the conservative GOP state leaders by critics of the reform tax effort.

These critics are popping up on conservative/GOP websites.

Salt Lake County Councilman Richard Snelgrove, a former state Republican Party chairman, is already one, and opposition like his seems to be growing.

Why are GOP legislative leaders and Herbert talking about putting the full state sales tax back on unprepared food?

Why looking to repeal a current, large sales tax exemption on wholesale gasoline and diesel?

Why looking to extend the sales tax to some currently untaxed services?

Those are all tax hikes.

OK, the leaders argue, but with the anticipated tax reductions in the plan, the average family of four in Utah will see a small tax reduction over all.

But with such a small tax cut, why mess with the system at all?

The reasons are explained time and again by House Majority Leader Francis Gibson, R-Mapleton, who is also the co-chair of the Tax Reform Task Force.

Tuesday at the EAC meeting, a frustrated Gibson said while Utah does not have a tax revenue problem — yearly surpluses verify that — it does have a severe revenue flexibility problem.

First — the state sales tax isn’t growing as fast as the personal and corporate income taxes.

Just look at the above chart to see the issue. Last year there was a deficit in the General Fund because the growing sales tax didn’t meet budgetary numbers.

There was a large surplus in the Education Fund because personal and corporate income taxes came in well above estimates. The personal income tax grew by 8.1 percent; the corporate income tax by a whopping 17.1 percent.

The sales tax funds more than half of the dedicated Transportation Fund, a bit of higher education, and all the rest of state government, highway patrol, corrections, human services, and on and on.

And unless the sales tax base is expanded (sales tax back on food, some exemptions repealed, and some services now not taxed are taxed), then this imbalance will just get worse and worse.

Second — the Utah Constitution earmarks all income tax revenue to only K-12 and higher education.

But powerful pro-education groups, like the Utah Education Association, the main teacher union, are poised to fight against a constitutional amendment tooth and nail — they want the earmark to continue so public school funding grows right along with the income tax revenue.

As reported previously by, there is a behind-the-scenes working group trying to come up with amendment language that, while removing the earmark, still gives hefty revenue increases to public education.

Lawmakers are being tight-lipped about what that working group is discussing. Sources with knowledge of the negotiations tell that discussions are centering on coming up with a way to make it easier for local entities to raise property taxes in order to boost school funding. One idea being floated is creating a mechanism that would allow for property tax increases without the requirement for truth in taxation hearings, but it’s unclear how that would work. Several legislative sources have indicated proposals to eliminate truth in taxation would be an extremely hard sell.

There is also talk of some statutory or constitutional language that would protect education funding without the current constitutional earmark, but discussions on that are reportedly not as far along as the property tax element.

Sources say that stakeholders are currently evaluating how the proposals would affect local entities.

The answer to all of the above problems is comprehensive tax reform.

But the politics of that is looking more and more difficult.