Tax referendum could complicate efforts to set next year’s budget

Utah Capitol 14

Utah GOP legislative leaders and their staffs are having a hard time figuring out what to do about budgeting in the general session with the citizen referendum on tax reform hanging over their heads.

Tuesday at 5 p.m. was the deadline for handing the voter signature packets to local county clerks.

The referendum backers — who seek repeal of the tax reform package passed by legislators and signed by Gov. Gary Herbert last month — need just short of 116,000 signatures, with 8 percent coming in 15 of 29 counties.

That bar is a tough one to reach, but referendum organizers announced they had collected more than 152,000 signatures before Tuesday’s deadline. They also said they believe they met the requirements in 18 of the required counties, two more than they needed.

Of course, this is a gross number, and there will always be a large percentage of signatures that are later thrown out by the clerks — the signees aren’t registered to vote, or aren’t registered to vote at the address they listed on their petition signatures, or some other problem.

We’ll know later this week or early next week.

Monday, the 45-day general session starts.

If the anti-tax reform folks fall way short on their verified signatures, then there won’t be a lot of fall-out on Capitol Hill this session.

The political ramifications, if any, will come in GOP legislative elections, either in spring party nominating conventions or in June primaries.

But if the tax reform haters get just enough signatures, the 2020 Legislature is in big trouble as far as their work process is concerned.

One idea is for the Legislature to just repeal the tax reform law, without waiting to know what voters will do next November. (How can you repeal a law at the ballot box that isn’t on the books?)

This, of course, amounts to basically giving up.

Sen. Dan McCay, R-Riverton, is floating the idea of repealing the law, saying it is the option that makes the most sense to him.

“My sentiment is, if they get the signatures and we don’t do a repeal immediately, it will put the budget in question long past the start of the fiscal year,” he said. “We need surety on the state budget. We have salary and benefits for thousands of state employees, plus funding for state programs and projects. We can’t do that with revenue numbers being suspect into November,” he said.

And once repealed, tax reform — and the $160 million tax cut that comes with it — may not pass again any time soon. polling by Y2 Analytics shows most Utahns don’t like the tax reform passed in early December.

But it’s also the case that many Utahns may not really know what was passed or how it all works together. It is a complicated reform, as Herbert and leaders in the House and Senate acknowledge.

If the signatures appeal likely to put the repeal question on the November ballot for voters to decide, then legislators could try to pass some kind of double, or “Plan B,” budget.

But House Appropriations Chair Brad Last, R-St. George, tells “We have enough trouble passing one budget. I don’t see how we could do two.”

And, notes Last, it is not just the legislative budget staff that will be hamstrung trying to figure out how to pass the budget reflecting the new, complicated tax laws, with the possibility that reform could be repealed by voters in November.

Almost every law drafted and passed by legislators has some kind of influence on spending.

And dozens of new/reformed programs ordered by law have direct fiscal notes — they cost extra money. But if the budget you passed in March, which starts July 1, doesn’t reflect the tax reform law, then you are out of balance before the new budget year starts July 1.

If voters reject tax reform, you could call a special session in mid-November to adopt a new budget, but you would have already been spending hundreds of millions of dollars under the tax reform budget from July 1 to the special session.

What a mess.

“We’ll have to do some real hard thinking about this,” said Last. It is not clear now what the plan may be.

Another idea is to pass the whole new tax reform package again this session, but delay implementation until Jan. 2021.

But, again, that puts off for a year the major problem in state finances: The state sales tax revenue is growing much slower than income tax revenue.

And per the Utah Constitution, all income tax revenues can only go to public and higher education.

For years, lawmakers and the governor have been backfilling college budgets with General Fund, sales tax revenues.

But Last and others believe the 2020-2021 budget will be the last year that can happen, without the new sales tax revenues in tax reform shoring up the General Fund’s base.

Programs like air quality (Herbert wants $100 million more for it this year), Medicaid reform, mental health, public safety, prisons and many more will fall short of sales tax revenue without tax reform.

Part of the public relations problem Herbert and GOP leaders face is that the state will have $482 million in new revenue growth for next fiscal year, plus about $200 million in one-time surpluses.

Why are we talking about revenue problems when we have $682 million in new cash?

Again, it is where the money is coming from, not the amount — and Last says there is about only $40 million in the General Fund revenues going to colleges now. When that is gone through program growth, the General Fund is poor, and non-education programs will suffer.

Herbert’s new 2020-2021 budget recommendation calls for an increase of 5.4 percent in overall spending, or about $1.5 billion bringing the new state budget to $20 billion.

Last says it’s unlikely the GOP-controlled Legislature will authorize 5.4 percent in growth. It may be smaller than that.

And for years legislators haven’t paid a whole lot of attention to Herbert’s recommendations. Joking, Last said trying to consider Herbert’s budget too closely, “We just get confused.”

House Speaker Brad Wilson tells that for the first time in a long time, student growth in public schools will be built into the base budget. But that is the base budget built on tax reform and the $160 million income tax cut.

If tax reform is uncertain, then the budget picture is cloudy, at best.

And if the referendum-backers get the required 116,000 signature voters, 8 percent in 15 counties, then budgeting for the 2020 general session is really up in the air.