Utah Capitol 27

The idea, UtahPolicy.com is told, is to basically add three words to the Utah Constitution: “disabled and children.”

And with that change -- to be announced in a press conference in a few days -- public education advocates and Republicans on Capitol Hill will agree that the current income tax earmarks for higher and K-12 public schooling will be extended to include those two groups, and for a time, at least, solve the state’s real revenue balancing problems.

That is if voters approve such a constitutional change in November.

As reported first by UtahPolicy.com, GOP legislative leaders have been quietly negotiating with public school stakeholders for several weeks, seeking a compromise that would change the current constitutional earmarking that all individual and corporate income tax revenues only go to public colleges and K-12 schools.

That earmarking -- because income tax revenue is growing so much faster than sales tax revenues -- is causing cash flow problems between the state’s Education Fund and the General Fund.

There are other parts of the “grand compromise,” as some are calling it, that include new laws/budgetary rules that have been reported previously in one form or another by UtahPolicy.com.

They are:

-- Guarantees that the annual student growth and educational inflation will be funded each year by the Legislature as part of their basic increases, plus some sort of mechanism to tie education funding to inflation.

-- A special “savings account” of at least $100 million will be set up, so if (more likely, when) income tax revenue drops in the next economic downturn, public education will have a slush fund to fall back on.

-- “Flexibility” will be given to local school boards/districts in which locals can use previously-encumbered funds, like property tax levies, to meet unexpected fiscal needs.

There's also an interesting internal budgetary move, which shifts all public education appropriations into the Uniform School Fund. That fund, set up in the state Constitution, will “protect” the additional education monies, and ensure that future Legislatures can’t use education appropriations for non-public education programs, like for programs to benefit children or disabled Utahns, which are to be added to income tax revenues earmark. It also will protect public education funds from being spent on higher education needs. 

Overall, the compromise means between $600 million to $650 million in income tax revenue can be “shifted” to the General Fund programs outlined above -- if needed after an anticipated new tax reform package is passed by the Legislature and new governor next year.

All the above will give lawmakers and the governor the ability to move income tax monies into non-education programs -- which would have been “starved” beginning as soon as the 2021-2022 fiscal year.

This fiscal “crisis,” as it has been called, was the real reasons for tax reform this year -- a move that, GOP state bosses admit -- was politically mishandled and resulted in a likely-successful repeal voter referendum. The Legislature and Gov. Gary Herbert repealed tax reform the second day of this Legislature.

While tax reform is still needed -- the state sales tax base is not growing, actually shrinking -- the agreement to add those words to the Utah Constitution, along with the accompanying new laws to be passed this session, will give fiscal balancing breathing room for several years ahead, at least.

A section on public taxation in the Constitution now reads: “All revenue from taxes on intangible property or from a tax on income shall be used to support the systems of public education and higher education as defined in Article X, Section 2.”

By putting in those who are disabled and services for children, income tax revenue can now be spent on General Fund programs that deal with those issues, like the CHIP health care for minors, various disabled programs in the Human Services Department, and much more.

There is an $800 million ongoing and one-time surplus in the Education Fund this year -- driven by higher-than-anticipated income tax revenues.

If two-thirds of the Utah House and Senate vote to amend the Constitution (and that is almost assured with the compromise) and a majority of voters agree in November, then the change will be made, and the income tax can be used on programs that help the “disabled and children.”

Three small words that will make a world of difference to Utah state government operations.

As UtahPolicy.com reported Tuesday, Republican lawmakers were looking to making what public educators may call draconian changes to current tax law as a way to grab and/or shift what were income tax allocations into the General Fund to keep spending on non-education programs viable.

Educators and public school advocates may have cried foul. Even sued.

Now with the compromise that will be moot.

While the new laws can be passed this session, the constitutional change must be approved by voters. And Republicans -- after the tax reform fiasco -- didn’t want public education advocates, especially the Utah Education Association, the main teacher union, to fight them at the November polls.

The UEA, UtahPolicy.com is told, were not in direct negotiations with GOP legislative leaders -- those folks were the elected 15-member State Board of Education, the local school boards association and the school superintendents association.

But the UEA has been briefed on the compromise, and it is hoped its leaders will agree with the deal -- the “guarantees” on annual funding increases key to it all.

Meanwhile, a new Y2 Analytics poll, obtained by UtahPolicy.com, shows that a close majority (52 percent) SUPPORTS removing the constitutional income tax earmarks, thus allowing the Legislature and governor to use tax surplus in “one stream” of revenue as needed by the state.

Thirty-two percent said the earmarks should stay in place (which they will under the compromise), and 16 percent said programs for the disabled and children should be added to the earmark -- which is apparently what the “grand compromise” also will do.