House Republican leaders are pitching what they call a “skinny plan” for next year’s budget, with the intention to re-open the spending document once they pass tax reform later this year.
In Friday’s closed House Republican caucus, leaders told members the currently negotiated budget was “fiscally irresponsible” since lawmakers had not yet moved to fix the massive structural imbalance in the state’s tax system. In order to fix that structural imbalance, they need to set aside hundreds of millions of dollars to pay for a sales and income tax cut that will be part of whatever plan emerges from the tax overhaul negotiations.
Simply put, lawmakers don’t want to spend money they don’t know will be available next year.
If HB441 had passed this session, lawmakers were planning on more than $400 million in tax cuts, which included a $75 million sales tax cuts and a $341 million income tax cut. But, fixing the imbalance in the state’s tax structure is an urgent one, and lawmakers have essentially run out of time.
“We’re doing this (tax reform) because we have to, not because we enjoy getting the shit kicked out of us every day,” said one lawmaker talking about the public outcry that sprung from the effort to place sales taxes on services that were previously untaxed.
Here’s why overhauling the state’s tax system is critical. According to revenue estimates, there is only $187 million in new ongoing money in the General Fund, while the larger surplus this year is in the Education Fund (approximately $900 million). The General Fund is primarily fueled by sales tax revenue, while income taxes flow into the Education Fund. The revenue in the General Fund has been declining, while the Education Fund is more volatile, depending on the strength of the economy.
“The Education Fund is aligned with the economy and it’s on fire right now,” said House Speaker Brad Wilson, R-Clearfield. “The General Fund is aligned with a diminishing base, and it’s not growing enough to cover expenses.”
Lawmakers have been paying for higher education expenses out of the General Fund in order to protect public education. But, with just $187 million in new, ongoing money available, they’re essentially at the end of what the General Fund is able to pay for. And, don’t forget, this is a year with an astronomical budget surplus of over $1 billion.
“What happens during a flat year, or during a down year?” said one GOP legislator who asked to not be identified. “This problem is why we have to do tax reform.”
This may be the first time in recent memory that legislators will have to come back into a special session to basically finish the budget – even though the actual budget bills will be adopted before adjournment at midnight Thursday.
Don’t misunderstand – there will be a 2019-2020 state budget adopted before adjournment.
However, because so much discretionary spending is tied up in HB441, sales tax reform, and in large cuts in the sales tax ($75 million) and income tax (more than $340 million), and the accompanying rate reductions in both taxes, the budget passed in this session will be basically reopened and monies shifted around.
The sales tax expansion/reform will take effect in January 2020, as will the state income tax cuts.
The new fiscal year starts on July 1, 2019. So lawmakers don’t have to have their HB441 special session before then, although it’s likely they will.
The solution put forward by House Republicans is an austere spending plan that implements the base budgets lawmakers passed earlier this session with a few, minor increases here and there.
“We’d like to do this in two phases,” said Rep. Brad Last, R-Hurricane, who is the House Chair of the Executive Appropriations Committee. “We need to leave this session with the core functions of government funded. Then, we can reassess what needs to be done later this year. We have over $400 million that can be allocated however we think is best once we decide what to do with tax reform.”
As part of the “skinny budget,” the House is proposing increases in funding for education and pay for public employees but declined to provide specific figures, citing the ongoing negotiations with the Senate.
But, that’s about it for the new spending in this budget. Some committees were told none of their priority budget items were going to be funded.
Sources tell UtahPolicy.com the House GOP caucus voted unanimously on Friday in favor of the austerity spending plan. Those same sources indicate that the Senate is not yet on board with the stripped-down budget.
Legislators were supposed to make final decisions regarding next year’s budget by Friday, but negotiations between the House and Senate are continuing through the weekend.
The Executive Appropriations Committee is scheduled to meet at 7 am on Monday morning to hopefully hash out the final budget numbers before Thursday’s adjournment.
(Editor’s note: An earlier version of this article cited figures for increases in education funding and public employee compensation. Those numbers were not accurate, and the article has been revised.)
