Legislative leaders are growing increasingly concerned that Utah’s economic good times won’t last. They’re considering socking away possibly hundreds of millions of dollars from this year’s extra cash to prepare for a downturn.
As UtahPolicy.com first reported, lawmakers had discussed putting $100 million or more into the state’s rainy-day funds. Lawmakers have more than $800 million in excess income tax money to spend this year.
On Wednesday morning House Speaker Brad Wilson, R-Clearfield, said the plan to save some of that cash could be much more extensive than previously discussed.
“Our economy has been doing really well,” said Wilson. “But, there are always stormclouds out on the horizon, and it looks like maybe they got a little bit bigger over the last week or two.”
The first move lawmakers want to make is shoring up the state’s rainy-day funds. Right now there’s $757.4 million in the two rainy day funds, with just over $500 million sitting in the education rainy day account and almost $250 million in the General Fund account. However, that’s just one-time money, and it’s difficult to tap into as it requires a fiscal crisis.
House Republicans are proposing is earmarking approximately $25 million in ongoing funds to create a kind of “working rainy day fund” to use for one-time expenses such as building or paying for wildfire suppression efforts. The logic behind that move is sound, meaning legislators would have that cash available every year, so long as the economy holds up.
Lawmakers also may take $57 million of ongoing money to create a rainy day fund to pay for Medicaid costs, which could balloon if Utah’s unemployment rate were to increase from the record-low 2.3 percent it sits at right now.
Maybe most prudent is a proposal to create what they’re calling a second rainy-day fund for education using ongoing money that they can tap for expenses such as enrollment growth, which carried a $50 million price tag this year or increases in the Weighted Pupil Unit.
“One of the things that education stakeholders told us is they would like to have more predictability in the future and creating an ongoing rainy day fund for education is a positive step toward that,” said Wilson.
A big advantage of earmarking ongoing money for a dedicated “rainy day fund,” (it’s more like a revolving fund) is lawmakers would not need to declare a fiscal emergency to tap into them.
“If the economy cracks, we’ll be very grateful to have these funds in an account to take care of the WPU or something like that,” said Sen. Jerry Stevenson, R-Layton, who is co-chair of the top budget committee.
There’s more than enough cash available this year, as there’s an extra $518 million of ongoing money in the Education Fund, so there would be no problem moving some of that to a revolving fund.
Due to the structural imbalance between the Education and General Funds, there’s only $92 million available in ongoing money for everything but education. Lawmakers have found a way to free up some funding for this year. Normally, lawmakers fund a portion of higher education out of the General Fund instead of the Education Fund, which totals about $315 million. Legislators have decided to shift approximately $100 million from the Education Fund for higher education this year, which should free up more funding for other purposes.
That $100 million extra in ongoing funds will be welcome news to legislative appropriators. A proposed 2 percent cost of living increase for state employees along with increased Medicaid spending was set to eat up most of the $92 million in General Fund money lawmakers were working with.
The big question remaining for lawmakers is what to do with a tax cut.
In the 2019 Legislature lawmakers put aside $80 million out of income tax surpluses for tax relief associated with tax reform. Ultimately, in passing the tax reform in a December special session, $160 million in an income tax cut was included in that reform. But that $160 million tax cut, the second-largest in state history, was repealed the second day of this session along with the new tax reform law. Utah House GOP leaders say that $80 million is still available. But, as of Wednesday, there were also hundreds of millions of dollars in ongoing and one-time tax surpluses — nearly all in income taxes — which Republicans could give back to voters this election year. All 75 House members and half of the 29-member Senate are up for election in November.
So, if a tax cut is given, it could be less than the $80 million set aside, or it could be much more, as lawmakers are facing a $921 million overall tax revenue surplus in this session.