Exclusive: Lawmakers are in negotiations with stakeholders over possible changes to education funding

Utah Capitol 16

Legislative leaders and education stakeholders have been quietly discussing either changing or eliminating Utah’s constitutional requirement that all income taxes must be spent on public or private education. At the same time, a new poll shows a slim majority of Utahns would support doing away with that constitutional earmark.

After the collapse of the tax reform bill at the start of the 2020 session, it was widely thought that the effort to remove the mandate that all income taxes go toward education was dead as well since it would require a majority of voters to approve the change in November. 

However, UtahPolicy.com has learned that lawmakers are still working to either remove that requirement through a constitutional amendment or make some changes to education funding to help ease the structural imbalance that is plaguing budgeting efforts this year. Several sources spoke to UtahPolicy.com on the condition of anonymity as they were not authorized to speak about the ongoing discussions.

UtahPolicy.com is told that there have been no direct talks between legislators and the Utah Education Association over possible changes to education funding.

That constitutional earmark sets up two separate funds that lawmakers use for budgeting. The Education Fund is fueled by income taxes while the General Fund is mostly made up of sales tax revenue. The Education Fund has been growing like gangbusters and delivering hundreds of millions of dollars of extra revenue because of the state’s red hot economy. This year the EF has more than $500 million in extra ongoing revenue and another $323 million extra one-time funds. 

The General Fund is not growing as fast as the Education Fund, which is hampering the ability for lawmakers to fund other critical state needs. This year, for example, there’s only $92 million extra for lawmakers to meet all of the funding requests.

The failed tax reform effort sought to raise sales taxes on food and some services in order to boost revenue in the General Fund while cutting income taxes, which would come out of the Education Fund. 

Removing that constitutional earmark would simplify things for lawmakers as they would only have one fund for meeting the state’s needs instead of the two. 

A new poll from Y2 Analytics and shared with UtahPolicy.com finds a slim majority of Utahns would support ending that constitutional earmark. 52 percent of Utahns said they favor eliminating the budget sequester so lawmakers would have more flexibility in budgeting. 32 percent say they want to keep income tax money flowing exclusively to education. 16 percent said they would like to see a change to the constitutional spending requirement that may shift other state expenses for children covered, which could include health insurance for poor children or programs for the disabled.

20200303 Y2 Poll

UtahPolicy.com is told the education community may be open to adding some limited expenses for Utah children to the Education Fund, possibly the state’s costs for the Children’s Health Insurance Program (CHIP). 

Making any of those changes would require a 2/3 vote in both the House and Senate, then approval by voters during November’s election. If the constitutional change is not made this year, the next opportunity for lawmakers would be 2022 as the public vote needs to take place during a general election.

If lawmakers cannot secure that constitutional change, sources tell UtahPolicy.com that legislative attorneys and budget staff have identified $2 billion in funding that could be moved from the Education Fund to the General Fund without violating the constitutional earmark. That could include approximately $500 to $600 million in property tax that the state currently spends on schools. 

Additionally, legislators could shift an estimated $1 billion in tax credits that currently go to income tax to sales tax. That shift would be revenue-neutral, but the money would be in the General Fund instead of the Education Fund.

Another idea lawmakers could use to raise some much-needed revenue in the General Fund is a fee for filing your state income tax return. Idaho has a $10 fee to file. Utah could charge a $100 fee, with the payment coming out of your income tax payment, but the money would go to the General Fund instead of the Education Fund. Your income taxes would not go up, but this shift could potentially raise hundreds of millions of dollars annually for the General Fund.

Said one leading Republican:  “These are all last-ditch efforts” to get more money from the income tax area into the General Fund. “We don’t want to do any of them, but they are out there” if the education community fights the earmark removal/changes.

“The clean way is to change the earmark. We prefer that,” they added. 

Lawmakers aren’t under a deadline to address any of these ideas before the end of the legislative session next week. They have the option of coming back in a special session later this year to pass changes to the tax code or even put a constitutional amendment on the November ballot.