Tax and Budget

BROAD COALITION CALLS FOR  INVESTMENT IN UTAH’S FUTURE,  NOT TAX CUTS, DOCUMENTS $5.2 BILLION IN URGENT UNMET NEEDS

Salt Lake City – On Monday, November 8, 2021 on the steps of the Utah Capitol, a broad and diverse coalition of advocates for the poor, for disabled Utahns, for education, health care, clean air, and a variety of other popular Utah priorities held a press conference calling on the Utah Legislature to avoid cutting taxes until it has developed a comprehensive plan to address Utahns’ top concerns by investing in Utah’s future.

Following nearly two years of the COVID-19 pandemic, Utah is fortunate to have achieved a more rapid economic recovery than nearly every other state. Utah has also received billions in federal assistance that have padded state revenues – but only temporarily. It is expected that the Governor and Legislature will have at least $2.5 billion in new revenues to appropriate in the 2022 General Session of the Utah Legislature. 

This has led some to say that Utah is “swimming in money” and should cut the state income tax rate from 4.95 to 4.5%, a tax break of $600 million (that mostly benefits upper income families rather than Utahns in need). This tax break would be over and above the roughly $3.5 billion that the Legislature has already cut from annual revenues in recent decades (seehttps://le.utah.gov/interim/2021/pdf/00003683.pdf slide #3).

In response, today the Invest in Utah’s Future coalition presented a list of urgent unmet needs amounting to $5.2 billion, more than double the amount of the expected new revenues.

The advocates also pointed out that, according to recent reports from the Utah State Tax Commission and the Utah Foundation, taxes in Utah are the lowest that they have been in decades, following repeated rounds of tax cutting. “We understand that tax cuts are popular, but we’ve reached the point where we must ask ourselves: Are we, as the current generation of Utahns, meeting our responsibility, as earlier generations did, to set aside sufficient resources every year to invest in our children, in our future, in the foundations of the next generation’s prosperity and quality of life?” said Matthew Weinstein of Voices for Utah Children.

Speakers also referenced the recent public opinion survey by the Deseret News and Hinckley Institute that found that only 27% of Utahns support tax cutting over investing in Utah’s future, consistent with other polls done in recent years by the same organizations as well as by Envision Utah and the Utah Foundation.

Here is the list of urgent unmet needs that Utah has not been able to address due to the state’s chronic revenue shortages, adding up to a total of $5.2 billion:

Live recording of the Invest in Utah's Future press conference 11/8/21: https://fb.watch/99bpgYEAqp/ 

Printable version of this document is here. 

Media coverage is posted at KSL and Deseret News and Fox-13.  

ONE PAGERS ABOUT THE VARIOUS UNMET NEEDS: 

• K-12 education: UEA data infographic and UEA 2022 budget priorities
• K-12 school nurses info from American Academy of Pediatrics - Utah Chapter
• Rural Utah economic development from CAP-Utah and additional information from Governor's Office of Economic Opportunity
• Disability services information from annual report of the Utah Division for Services to People with Disabilities
• Air quality: Classroom air purifiers from Utah Physicians for a Healthy Environment
• Air quality and low-income transportation access: Free Fare UTA one-pager from Crossroads Urban Center
• Sexual and domestic violence one-pager from YWCA-Utah
• Sales tax on food op-ed from  Deseret News
• Income tax rate cut vs Utah EITC one-page summary

Beginning this Summer 2021, Utah Local Education Agencies (LEAs) will be receiving approximately $615 million in Elementary and Secondary School Emergency Relief Funds (ESSER) funds from the American Rescue Plan. Now is the time to use this funding to help our youngest learners that will need the additional instruction and interventions now more than ever.

In this explainer, Voice's staff Anna Thomas and Laneta Fitisemanu will cover the ESSER funding Utah is set to receive as well as ways that we can use the funds and support full day kindergarten and preschool expansion. 

We have exactly two school years (2021-22, 2022-23) and three summers (2021, 2022, 2023) to spend these funds. It is critical that we think big picture about where we invest this money when it comes to education.

We have strong data and evidence supporting that full day kindergarten and preschool programs help improve learning gaps for children that participate particularly for our most vulnerable and underrepresented student groups. This is why using ESSER funds to help expand these much wanted and needed programs is critical and one of the most important investments we can make that will have a huge impact for years to come.

Let's invest in Utah kids by using this relief funding to expand early education programs and further support the value and importance of giving more of Utah children and families access to full day kindergarten and preschool programs! 

Resources and References

• ESSER Fact Sheet
• USBE Funding Allocation for ESSER (Will be posted by June 15, 2021) See American Rescue Plan Tab
• ARP/ESSER Explainer Powerpoint Slides
• American Rescue Plan for Early Education Flyer 

We appreciate the many legislators that supported bills affecting children. In summary, it WAS a good year for kids, but we still have plenty to do and we look forward to working together to #investinutahkids!

Early Childhood

Early childhood care and education had several key wins. The legislature approved:

•  $7m in new funding for Optional Enhanced Kindergarten (which many districts use, with other funding sources, to offer full-day kindergarten)

• $3m in new funding for School Readiness grants (to support high-quality preschool programs)

• $5m in newly restored funding for preK-3 teacher professional development.

• In addition, new legislation directed expansion in eligibility for working families to receive state childcare support, and several bills aimed to create efficiencies and financial stability for the childcare providers these working families rely on. 

Juvenile Justice

In the area of Juvenile Justice, legislators approved several bills that continue the state’s effort to refine ongoing efforts to reform and improve the juvenile justice system, which included:

• A bold bill outlining and clarifying the Miranda rights of youth who are interrogated by police (ensuring that either parents or attorneys are present for such questioning.

• An innovative pilot program to offer youth in secure care access to college courses through Dixie State University.

• Finally, school-based discipline and the role of School Resource Officers (SROs) received some attention, with legislators giving a moratorium on criminal enforcement of state truancy laws during the remaining months of the pandemic and providing additional direction with regard to SRO training in public schools. 

Health

We were thrilled to see our Legislature take significant steps to prioritize children’s health coverage this Session and reduce Utah’s too-high number of uninsured children.

• House Bill 262 (Representative Welton) provides ongoing funding for CHIP/Medicaid outreach so that more families can connect with affordable health insurance options for their kids. In addition, Senate Bill 158 would have removed barriers to health insurance, so all Utah children could get covered and keep their coverage.

• In addition to children’s coverage, we saw important steps forward for children’s access to mental health this legislative Session including HB 337, sponsored by Representative Eliason, which will allow more early childhood providers to receive valuable training in infant mental health and also strengthen statewide systems to respond to the mental health needs of young children.

• The legislature also made changes to ensure that funding for Utah’s maternal mental health program and awareness campaign were made permanent; thanks to Representative Dailey-Provost for championing this change for families.

• Finally, the legislature also passed a bill that will make it easier for kids to access preventive dental health care. Senate Bill 103, sponsored by Senator Todd Weiler, allows dental hygienists to bill Medicaid, which will help promote greater access to dental care in school-based and childcare settings. 

Cover All Kids Campaign Update

Senate Bill 158 passed the Senate with broad support, but unfortunately it was not funded. We look forward to continuing to support the bill sponsor, Senator Luz Escamilla, and floor sponsor, Representative Francis Gibson, to get this important bill across the finish line next year.

Continuous Medicaid Eligibility Update

Unfortunately, the Legislature did not restore state funding for continuous eligibility for children on Medicaid ages 0-5. Continuous eligibility was funded in the 2020 General Session but eliminated as part of budgetary cuts over the summer. Continuous eligibility guarantees children will have a year of stable Medicaid coverage, as they already have with CHIP. The good news is that thanks to temporary federal requirements, all children currently have this option. However, when the federal public health emergency ends, this option will end too, which could lead to significant loss and disruptions in children’s coverage if state funding is not restored. This past year has shown us just how vital it is that all children and families across Utah have access to health care and coverage. Stable, affordable health coverage for all Utahns will be critical to our state’s ability to rebound and recover.

Other Legislative Priorities 

During this past legislative session, we were happy to support a number of bills that are “good for kids” outside of our main policy priorities including the following bills that include policies that we will continue to work on this upcoming year!

• We supported and are glad to continue working with the International Rescue Committee on supporting our immigrant and refugee families through HCR 22: Concurrent Resolution Celebrating the Contributions of Multilingual and Multicultural Families to Utah Schools. 

• HB 338: School District Voter Eligibility Amendments would have created a pathway for school districts to choose whether students age 16-17 can vote in their local elections. It was led by a young person, Dhati Oomen, but unfortunately did not pass. We will continue to further advocate for greater youth civic engagement through this bill and beyond.

• Lastly, we supported and advocated for SB 214: Official Language Amendments as a positive first step to ensure we have greater language inclusion in our state. While we recognize that this is not a full repeal of the 2000 “English-only” law, this bill does remove funding restrictions and “official communications that exist” while keeping English as the official language in place.  We will continue to work on ensuring this law is repealed completely in the coming year.

Tax and Budget

Tax cuts were a big item of discussion, and there were three tax cuts passed:

• There was an $18 million Social Security Income Tax Credit

• $24 million Military Retirement Income Tax Credit

• $55 million Tax Cut tied to the personal exemption related to the dependent tax credit.  

Voices opposed these three items as they were primarily a benefit to the top 40% of taxpayers and excluded the lowest-income 40% almost entirely.  

We were also advocating for a $7 million Earned Income Tax Credit equal to 10% of the federal EITC targeted to Utahns in intergenerational poverty. This was passed in December 2019 as part of the tax restructuring law that was repealed in the 2020 Session. Lastly, there were two bills to lower the State Income Tax Rate, which did not pass. We were opposed to both bills for a number of reasons.  The cuts would have led to a more regressive tax structure and depriving us of much needed future revenues.

We have many unfunded needs and it is our opinion that we should not cut taxes any further until we address those needs and provide the required funds.

>> Check out our Facebook page for FB Live updates of each policy area. 

Legislative leaders have said that 2021 should be “the year of the tax cut.” Numerous public opinion surveys show that Utahns disagree. This may come as a surprise to policymakers, who have been in the habit of handing out tax break after tax break for decades.

But there seems to be an increasing public awareness that Utah is now paying a price for decades of tax cutting that have left us with the lowest overall tax level in 50 years relative to Utah personal income.

UTAH'S URGENT UNMET NEEDS

We all like being able to pay less in taxes. But there is a growing understanding that tax cuts are leaving us unable to address the long list of urgent unmet needs in education, infrastructure, social services, air quality, public health, and many other areas that affect our standard of living and quality of life. All of these issues will shape the Utah that our children will one day inherit. 

Outlined below are some examples of the urgent unmet needs in Utah. 

Early Care and Education

Health

Human Services

Infrastructure, Environment, and Housing

WHY TAX CUTS ARE A BIG DEAL

Some legislators have said to us, "What's the big deal with $100 million of tax cuts out of a $22 billion budget?".

The big deal is that we’ve been cutting, on average, about $100 million every single year for the last 25 years.

Voices for Utah Children’s research has found that tax cuts from the last 25 years has left us short $2.4 billion each year, amounting to an 18% cut to public revenues.

One could even call us a “slow-motion Kansas” because in 2012 they cut taxes overnight by 15%, leading to an economic slump and political backlash that saw the Republican legislature reverse the cuts in 2017 and the public elect a Democratic governor in 2018.

But here in Utah, we’re like the proverbial frog in the pot of water heating on the stove. The devastating impacts of these revenue reductions have been slow and incremental, so we’ve come to accept as normal a state of affairs that Kansans quickly reversed.

Instead of figuring out the fairest way to restore some of those lost revenues so we can address our most urgent challenges, Utah’s political leadership continues to pass new tax cuts every year, generally skewed toward the top of the income scale.

For example, Voices for Utah Children analyzed two of the tax cuts proposed this year and found that they excluded lower-income Utahns completely and mostly went to the highest-income households – even though their supporters said publicly that they are intended to help low- and middle-income Utahns.

Public opinion surveys conducted last year by the Deseret News and Hinckley Institute, by the Utah Foundation, and by Envision Utah all found a strong popular preference for public investment over tax cuts.

Same thing with surveys this month by the Deseret News-Hinckley Institute and by Voices for Utah Children.

Breaking old habits can be hard. As is often the case, the public appears to be ahead of our political leaders. But let's hope that they too will eventually come to appreciate the wisdom of their constituents, who are increasingly aware of the high price Utah is paying for lower taxes.

Utah has been fortunate in weathering the current recession. This gives us a unique opportunity to be able to make smart long-term investments at a time when other states are cutting budgets. As a State we need to take advantage of this situation and invest in Utah kids, not tax cuts.

THIS OP-ED APPEARED IN THE SALT LAKE TRIBUNE ON MARCH 1, 2021

 Detailed description of the 7 tax cut options in the survey above: 

 * Refundable means that it’s like the federal EITC – you get the credit even if it’s larger than what you owe on your income taxes, in which case you get a rebate. Non-refundable means that you only get it to the extent that you owe something, so no rebate is involved.

*********************************

At the end of the month we published the results from the hundreds of Utahns who took the survey -- see those at our Tax Cut Survey Results page.

The Utah Legislature is considering including $40-$50 million of retiree tax credits in a package of tax cuts this session.  But an important question has arisen as to whether these credits are actually designed properly to help the people that the sponsors say they want to help.

Social Security Tax Credits: SB 11 and HB 86

In his proposed FY22 budget, Governor Spencer Cox wrote that he would like to see "a social security tax credit for low- and middle-income seniors." In the first week of the legislative session, the Utah Senate passed SB 11, including what legislators have described as a Social Security tax credit for low- and middle-income seniors. 

The devil is always in the details with tax legislation.  Unfortunately, a close examination of the details of the Social Security tax credit included in both SB 11 and HB 86, as those two bills are currently drafted, reveals that they fail to achieve their stated objective of providing a tax credit for low- and middle-income seniors.  

According to data from the Office of Legislative Fiscal Analyst, none of the proposed Social Security tax credit goes to low-income seniors (0%).  Almost none goes to moderate income seniors (2%).  About a quarter of it goes to middle-income seniors (27%). But the overwhelming majority of this $18 million tax credit -- over 70% -- goes to the top two-fifths of Utah seniors, those with incomes above $90,000 annually.  The chart below from Voices for Utah Children's January 28th presentation before the House Revenue and Taxation Committee  illustrates who this tax credit is targeted to in its current form by dividing Utah households into quintiles or fifths: 

To better understand how this legislation works, the chart below shows how the credit would be calculated for two eligible households: 

This chart illustrates how the very long phase-out range makes the credit available mostly to upper-income households. The other fault with the bill is that it is not refundable, which means it's not available to lower-income seniors with no state income tax liability, which is likely to include most Utah Social Security recipients. It is certainly good news that our existing tax structures already shield low- and moderate-income seniors from having to pay Utah income tax on their Social Security income, thanks to the Utah Taxpayer Tax Credit and the federal government's treatment of most Social Security income as non-taxable for low-income households. Thus, this credit would need to be refundable in order to help low- and moderate-income Utah seniors by offsetting some of the other taxes they pay, such as property, sales, and gas taxes. 

And, indeed, low- and moderate-income seniors need such assistance. The federal government's official poverty rate for seniors (6.2% or 22,500 seniors, vs. 8.9% for Utah overall & 9.9% for children in 2019) actually understates elderly poverty by roughly 50%, according to the Census Bureau's own Supplemental Poverty Measure. Fully one-fifth of senior couples and nearly half of single seniors have only their Social Security to live on. They could use a tax break. It is very unfortunate that SB 11 and HB 86 do virtually nothing for them, all the more so given the statements from those bills' sponsors and proponents that helping low-income seniors is a central purpose of the bills. In addition, the loss of $18 million of revenue from this tax break that mostly benefits upper-income households will make it harder for the state to provide vital services to seniors in need. 

Military Retirement Tax Credit: SB 11 and HB 161

If the Social Security tax credit offers a fairly stark contrast between stated intent and actual effect, the proposed military retiree tax credit in SB 11 is even more jarring. While this proposed credit shares with the proposed Social Security tax credit that it helps virtually no one in the lowest-income two fifths of Utah retirees, it holds the distinction of being far more skewed toward the top of the income scale. Less than a tenth of it goes to middle-income seniors. Over 90% of this proposed credit goes to retirees in the top two-fifths of the income distribution, most of them with six-figure household incomes. The chart below illustrates this in detail, based on data from the Legislature: 

It is projected that recipients of the tax credit in SB 11 will each receive a credit averaging $1300 annually. This credit will leave Utah with $23 million less each year to invest in education, public health, infrastructure, clean air, or any of the myriad of critically important yet underfunded priorities on Utah's list. Needless to say, that list includes helping Utah's thousands of homeless veterans who, having returned from serving their country, should not find that their state or the nation has any higher priority than helping them get back on their feet.

Thus, while we understand the widespread sentiment that, as a matter of principle, military pensions should never be taxed, we hope that, as a practical matter, policymakers will consider the fact that current state tax law already effectively shields military pensions from the state income tax for low-, moderate, and most middle-income retirees as they prioritize among the various tax cut proposals that they are considering. 

Voices for Utah Children's Tax Policy Priorities 

In all of the tax policy work in which Voices for Utah Children engages, we pursue two priorities that serve our guiding principle that Utah should be a state where all children have the opportunity to achieve their full potential: 

1) Revenue sufficiency: Utah's tax system needs to generate sufficient resources to finance the critically important investments that lay the foundations for the success and prosperity of Utah's next generation, including education, public health, infrastructure, air quality, and other basic needs. While we understand that paying taxes is never politically popular, we are very concerned that the deep tax cutting of the last 25 years, amounting to $2.5 billion annually not available to state and local government budgets and which has left Utah at a 50-year low for our overall level of taxation, has hamstrung Utah's ability to prepare the next generation to meet the challenges they will face. 

2) Tax fairness: Utah's overall tax structure, while improved compared to 25 years ago, remains regressive overall. The highest-income Utahns still pay a lower overall tax rate than low- and middle-income Utahns. In addition, Utah taxes about 100,000 households into or deeper into poverty every year, including a disproportionate share of Utahns of color who already face numerous disparities and obstacles as they endeavor to raise their children and achieve the American dream. To alleviate these inequities, Voices for Utah Children supports policies like the Earned Income Tax Credit (EITC) that enable more Utahns to work their way out of poverty. 

 MEDIA COVERAGE OF THIS ANALYSIS: 

• Salt Lake Tribune
• Fox 13 News

Snow on the mountains, inversions in the valleys, and talk of tax cuts at the Capitol: It must be January in Utah.

Reports are accumulating that the state’s political leaders are looking to make 2021 “the year of the tax cut.” But, as always with taxes, the devil is in the details. What taxes would be cut, and for whom? And how would the revenue losses affect Utah’s children in the long term?

The Utah Taxpayers Association is proposing a cut in the income tax rate, which means the benefit goes overwhelmingly to the top of the income scale. Utah’s income tax is our only tax that is not a regressive tax. It’s the only one that actually reflects Utah’s income distribution. Three-fifths of all Utah income is earned by the top one-fifth of taxpayers (perhaps these are the taxpayers that the Association speaks for), and three-fifths of the income tax is paid by that same top one-fifth of taxpayers. Four-fifths of it is paid by the top two-fifths.

Cutting the income tax rate is a tax cut for those who don’t need one. It’s a tax cut for those among us who thrived over the last year despite the pandemic and recession -- and are, by all accounts, ready, willing, and able to do their part to help their fellow Utahns who were not so fortunate.

Because the truth is that not all Utahns are in a great spot right now. Poverty and unemployment remain elevated. Hunger has increased. Homeless shelters are full and encampments large and small have appeared all along the Wasatch Front. Nearly half of Utah parents lost income last year, and a third feared eviction or foreclosure as a result, according to the U.S. Census Bureau’s Household Pulse Survey.

And for all these indicators of distress, the disparities between different ethnic and racial groups are stark. For example, the Census surveys found that Latino Utah parents were 10-23 percentage points more likely to have lost income than White Utah parents, and 2-3 times as likely to not have enough food to eat.

The Census surveys also found a digital divide, with about a tenth of Utah children lacking consistent access at home to internet or to a digital device for educational purposes.

Health indicators tell a similar story. Between 2016 and 2019, even before the arrival of the coronavirus pandemic, our rate of uninsured children increased from 6% to 8.3%, from 59,000 to 82,000. We now rank among the worst in the nation, 46th place, when it comes to insuring our kids – and last in the nation for insuring Hispanic children for the third year in a row.

Certainly refundable tax credits like a Utah Earned Income Tax Credit (EITC) targeted to those in greatest need should be part of our response to the economic distress brought about by the pandemic. But tax cuts for middle- and upper-income Utahns would reduce our ability to make the investments in Utah’s future that are the key to our children’s prosperity and success.

The Taxpayers Association’s argument that “tax relief for Utah taxpayers is long overdue” ignores the reality that “Utah taxes are relatively low — lower now than in many years,” as Zions Bank CEO Scott Anderson wrote a year ago in the Deseret News. Data from the Utah State Tax Commission finds that our overall level of taxation is at a 50-year low, following repeated rounds of tax cutting. Voices for Utah Children has found that these tax cuts have reduced annual revenue by 18% over the last 25 years, adding up to an annual total of $2.4 billion.

Last year at this time, a broad and diverse coalition of Utah advocates for the poor, for persons with disabilities, for education, health care, clean air, and for a variety of other popular Utah priorities came together on the steps of the Utah Capitol calling on the Utah Legislature to avoid cutting taxes until it developed a comprehensive plan to address Utahns’ top concerns by investing in Utah’s future.

Last year at this time, Utah policymakers wisely concluded that the economic outlook was too uncertain to take a risk with tax cuts. We know the state’s political leadership wants what is best for Utah. Is the outlook for 2021 truly so certain that we can now give in to the tax cut temptation? Would this be the fiscal prudence for which Utah has been so widely recognized nationally?

Salt Lake City - Voices for Utah Children released publicly today (January 6, 2021)  "#InvestInUtahKids: An Agenda for Utah's New Governor and Legislature," the first major publication of our new #InvestInUtahKids initiative. 

Utah begins a new era in this first week of January, with the swearing in of a new Governor and Lt. Governor and a new Legislature. The arrival of 2021 marks the first time in over a decade that the state has seen this kind of leadership transition. Last month Voices for Utah Children began sharing with the Governor-elect and his transition teams the new publication, and on Wednesday morning Voices will share it with the public as well.

The new publication raises concerns about the growing gaps among Utah's different racial, ethnic, and economic groups and lays out the most urgent and effective policies to close those gaps and help all Utah children achieve their full potential in the years to come in five policy areas: 

• Early education 
• K-12 education 
• Healthcare
• Juvenile justice
• Immigrant family justice

The report, which was initially created in December and distributed to the incoming Governor and his transition teams, closes with a discussion of how to pay for the proposed #InvestInUtahKids policy agenda. The pdf of the report can be downloaded here. 

With Amendment G winning 54% of the vote this month, many of our partners and supporters have been asking us: What’s going to happen next?

What changes will result from this Constitutional amendment going into effect January 1, 2021, along with the legislation triggered by it (HB 357)?

The short answer is, “Probably not a lot, at least not immediately, but possibly quite a bit over the long term.”

As a result of the passage of Amendment G, the Utah Constitution Article XIII, Section 5, paragraph 5 changes from

“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.”

to the following:

“All revenue from taxes on intangible property or from a tax on income shall be used:

(a) to support the systems of public education and higher education as defined in Article X, Section 2; and

(b) to support children and to support individuals with a disability.”

The state’s budget leaders sought this change because they expect the long-term trend to continue of Utah’s higher education budget shifting from the General Fund (which is financed mainly by the sales tax) to the Education Fund (which is financed mainly by the income tax). This shift has made it possible to make more of the General Fund available for social and healthcare services. But once higher ed has shifted completely out of the General Fund, something expected to happen in the coming years, then budget writers will no longer have a mechanism to free up additional funds to meet the state’s obligations for healthcare and social services. This concern is what drove the decision to place on the ballot a Constitutional amendment to allow budget writers to begin to shift additional items (services for children and for Utahns with disabilities) out of the General Fund and have them financed by the income tax.

In the FY21 budget passed by the Legislature in March and then adjusted in June (the FY21 budget year runs from July 1, 2020 through June 30, 2021), just 4% of the higher education budget came from the General Fund and the remaining 96% from the Education Fund. The chart below shows how the higher education budget has been divided between the two funds in recent fiscal years:

Source: Office of Legislative Fiscal Analyst annual publication “Budget of the State of Utah” at https://le.utah.gov/asp/lfa/lfareports.asp?src=LFAAR

While the trend has not been a straight line, the general direction has been to shift the higher education budget out of the General Fund and into the Education Fund. And, indeed, two of the last three budgets have seen 96% of the higher education budget come out of the Education Fund.

This trend has also been facilitated by the fact that income tax revenue has been growing faster than sales tax revenue.

Assuming these trends continue, we can expect to see the FY22 and future year budgets begin to make gradually increasing use of income tax revenue to finance social and healthcare services for children and Utahns with disabilities, two items that until now were only funded from sales tax revenue (through the General Fund).

What will be the impact of Amendment G on education funding?

As part of the political deal that produced Amendment G, the Legislature passed HB 357, with implementation contingent on voter approval of Amendment G. HB 357 contains three main provisions intended to provide education advocates with compensation for losing the Constitutional earmark of the income tax for education:

• It requires that “when preparing the Public Education Base Budget, the Office of the Legislative Fiscal Analyst shall include appropriations to the Minimum School Program from the Uniform School Fund… in an amount that is greater than or equal to:

(a) the ongoing appropriations to the Minimum School Program in the current fiscal year; and

(b) … enrollment growth and inflation estimates…”

This is intended to avoid what happened in the Great Recession a decade ago, when annual appropriations were not sufficient to keep up with inflation and enrollment growth, and it took almost a decade to restore real per-student education appropriations.

• It requires that 15% of education revenue growth go into a new “Public Education Economic Stabilization Restricted Account” to be saved for recessions until it reaches 11% of the full Uniform School Fund. This is intended to build up a new reserve fund of about $400 million to finance the first commitment mentioned above, the commitment that education funding will always increase by enough to cover enrollment growth and inflation, even in times of recession. This new annual 15% savings requirement will mean smaller education funding increases in good times and larger ones in bad times, in effect smoothing out the annual changes in education funding. It does not change the overall amount available for education budgets over the full course of each economic cycle.
• HB 357 allows local districts to reallocate capital funds to cover operating expenses in recession years. This is something that was allowed on a one-time basis in the Great Recession a decade ago. Now it will be allowed in any year when the Legislature makes use of the new Public Education Economic Stabilization Restricted Account.

What impact will Amendment G and HB 357 have on funding for social and healthcare services for children?

On the positive side, budget writers will now have increased flexibility to use income tax revenues that are now going to education for social and healthcare services for children and Utahns with disabilities. On the negative side, there are no new revenue streams and no rolling back of past tax breaks, and HB 357 does promise an increased commitment to education in recession years (presumably including the current one), so that seems to imply that there will be less available for everything other than education, at least in the short term.

What impact will this have in the coming year?

This depends on how much revenue there is. Will there be enough new education revenue to cover inflation and enrollment growth? And if not, how will the state budget cover that commitment supposedly contained in HB 357 since the new Public Education Economic Stabilization Restricted Account does not yet have any money in it? The Legislature may face the same difficult choices as in the last recession a decade ago between funding enrollment growth and inflation in the education budget or funding life-saving social and healthcare services. And if they choose to keep their promise to fund enrollment growth and inflation in the education budget in the absence of sufficient education revenues, then that commitment will come at the expense of other areas of the state budget, such as social and healthcare services for children.

One wild card here is the question of how the calculations will be impacted by the unprecedented drop in student enrollment that was reported this fall. Student enrollment had been projected to grow by 7,000; instead it fell by over 2,000. This drop is probably a temporary blip due to the impacts of the COVID-19 pandemic. But the Legislature may see it as an opportunity to go with a low-ball estimate of enrollment for FY22 when it meets to pass that year’s budget this coming winter. Doing so would certainly make it easier to keep its commitment to fund enrollment growth and inflation even in the current downturn.

What impact will this new arrangement have in the longer term?

On the negative side, the fact that Amendment G and HB 357 provide for no new revenue streams to roll back any of what now amounts to $2.4 billion every year in tax breaks enacted since 1995 (18% of public revenues) does not bode well for education, for social and healthcare services for Utahns in need, or for any of the many areas of state responsibility that suffer from chronic revenue shortages because of these revenue losses.

On the positive side, the promise made by the state’s leaders to always at least fund inflation and enrollment growth could potentially lead to an increased commitment of existing state resources to education than might have otherwise taken place. If that happens, and since the need for resources in other areas is not going to change, there is the possibility that members of the state’s budget leadership might move closer to public opinion, which has expressed consistent -- and growing -- willingness to pay more to achieve improvements in areas of state responsibility like education, transportation, and air quality, as evidenced by the results of the following public opinion surveys this year:

• Deseret News
• Utah Foundation
• Envision Utah

If that happens, then we will be able to say that Amendment G led to positive changes in state fiscal policy for the benefit of all of Utah’s children. But if not, then we may well be in for many years of budget writers using their newfound flexibility to grant substantial increases to one area of the budget one year and another the next, making different areas of the budget compete with each other to be that year’s “favored child,” but leaving none better off in the long run.

THIS PAPER IS ALSO DOWNLOADABLE AS A PDF HERE.

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