The legislature will have plenty of money to spend on public and higher education this year, but the message to lawmakers on other state spending is to tighten their belts.
Lawmakers have been told by legislative leaders this year to scour their budgets to find any extra money to spend because of the collapse of tax reform. Budgets, except those for education, will likely be flat this year.
“We told everyone what money you can find, we’re going to leave in your committees. It’s going to be pretty flat,” said Sen. Jerry Stevenson, R-Layton, who co-chairs the powerful Executive Appropriations Committee.
“Leadership is telling us setting this year’s budget will be an exercise in futility,” said one unnamed lawmaker to UtahPolicy.com.
That budget scarcity is a direct result of the collapse of tax reform.
House Speaker Brad Wilson spelled the problem out in stark terms Wednesday morning. The Education Fund is once again running a projected surplus of more than $100 million dollars for this year. But, that money, which comes from income tax collections, can only be spent on public and higher education. The General Fund, which is fueled primarily by sales tax collections is currently $9 million underwater, and the situation is not going to get any better.
“We think we’ve got about $100 million of General Fund revenue we can use this year,” said Wilson. “By the time we pay for required Medicaid expenses of about $50 million and restore some other base budgets, it’s gone.”
In fact, financial projections show the general fund is $9 million underwater. The tax reform effort would have shifted revenue from the Education to the General Fund by raising sales taxes on some services and restoring the state portion of the sales tax on food. That change was estimated to give lawmakers approximately $250 million to spend on state needs that aren’t related to education. But, since the reform bill was repealed, that won’t come to pass.
Utah legislative leaders say there will be no direct reprisals for the tax reform repeal, but that doesn’t mean there won’t be consequences.
UtahPolicy.com is told that because of sales tax revenues coming in slower than anticipated — and since state employee pay raises come out of the sales-tax-fed General Fund — if 2 percent pay raises are given this year, little money will be left over for program growth in General Fund state departments.
“The budget will be balanced, and I think we’ll be able to take care of our employees,” says Stevenson. “I don’t know what that number is going to be, but they may want to think about buying a Volkswagen instead of a Volvo.”
Part of the problem is that the last TC23 Tax Commission report for the first six months of this fiscal year shows that gasoline tax revenues are actually DOWN slightly from a year ago.
And about half of the Transportation Fund uses the sales tax, half the gasoline tax.
Transportation needs will add another stress to the General Fund.
“New investment in transportation infrastructure will be a little tricky this year unless we bond,” said Wilson.
This structural tax imbalance is, of course, the underlying reason for the now-failed tax reform effort by GOP lawmakers and Republican Gov. Gary Herbert.
Herbert based his 2020-2021 fiscal year budget recommendation on the tax reform package passed in early December but repealed Tuesday. (Herbert signed the repeal law Tuesday afternoon with no public ceremony.”
Yes, there is a $482 million revenue surplus coming this year. But most of that is in individual and corporate income taxes.
And per the Utah Constitution, that money can only be spent on higher and public education. That money can, and likely will, pay for public education teacher/administrator pay raises via the WPU, the Weighted Pupil Unit used by lawmakers to fund individual student education, K-12.
And income taxes can pay for pay raises for university and college employees.
But income taxes can’t pay for regular state employees — who number around 22,000.
Herbert suggested a two percent pay raise for state workers. But that was before the tax reform repeal, which included putting the whole state sales tax on unprepared food, which would bring in $250 million in sales tax each year. Money to pay for regular state employee pay raises and General Fund program growth — including the full Medicaid expansion ordered by voters last November.
“This is kind of like a Christmas where you get socks and underwear and not skis,” said Senate Majority Leader Evan Vickers, R-Cedar City.
Vickers says lawmakers have a little bit of latitude in the General Fund this year, but not much.
“We can shift some funds around this year and next, but at some point in the future we’re going to have to address that, especially if we don’t see a turnaround in those general fund revenues,” he said.
