On the opening day of the 2020 Utah Legislative Session, House Speaker Brad Wilson took a direct shot at the referendum effort to overturn the tax reform bill passed by lawmakers just last month.
“Let me be clear. Legislation by referendum, while part of the political process, can be divisive and ruinous, and many times short of facts,” said Wilson during his opening day remarks.
“Our neighbors elected us to immerse ourselves in the details of each policy and to weigh the drawbacks and benefits. This is a significant amount of trust that’s been placed in us.”
The tax reform bill, the product of months of hearings and negotiations, went down in flames last week as lawmakers abruptly announced they would repeal the measure in the face of a referendum effort to overturn the bill. The bid to put the bill to a public vote was likely to qualify for the November ballot as organizers surprised legislative leaders by collecting more than enough signatures to achieve that feat.
So, what’s next?
Lawmakers have a little breathing room as Utah’s economy is still roaring. Tax collections are up more than $400 million in the first six months of FY2020 than the previous year, which means the tax reform effort is not a critical need right now. Income taxes are more than $170 million ahead of projections, but due to constitutional requirements, that money can only go to public or higher education, or lawmaker can return it to taxpayers in the form of a tax cut.
There are some warning lights flashing for lawmakers in other budget sectors, however. Sales tax collections are ahead of projections by a little more than 10% right now, which is good news. However, gasoline taxes, which are supposed to pay for roads, are lagging behind last year’s pace by about $700,000. The gasoline tax, which is supposed to pay for roads, is already not generating enough money to cover those bills.
“We will get by this year just fine,” says Sen. Jerry Stevenson, R-Layton. “Our real problems pop up next year and the year after that they become quite critical.”
Stevenson is right, to a point. Because of the failed tax reform effort, lawmakers have an extra $160 million to spend on top of whatever surplus comes their way this year. But, those dollars will be in the education fund, which, as the name implies, can only be spent on public and higher education. That $160 million was going to flow back to taxpayers in the form of a tax cut and rebate.
Lawmakers now admit there is very little political appetite this year for a proposed controversial amendment to change the way education is funded in Utah. Polls have consistently showed the public was overwhelmingly opposed to changing the constitutional earmark requiring that all income taxes, both personal and business, go toward funding education. Not surprisingly, lawmakers are gun shy following the referendum effort.
“We got our heads handed to us,” said one lawmaker who asked to remain anonymous.
“I really do believe we need a cooling-off period,” says Stevenson. “I could see someone trying to do that, but I doubt it would be successful.”
The blow from the failure of tax reform is softened a bit by the good economic conditions in the state. Utah’s unemployment rate hit an all-time low in December of 2019, coming in at just 2.3%. But, any economic downturn could scramble the state’s finances significantly.
The bill to repeal the tax reform bill was introduced on Monday morning, but likely won’t be taken up by lawmakers until later this week.