Fiscal Follies in the 2016 Legislature

16 March 2016 Written by  

Voices for Utah Children pursued three priorities in fiscal policy this session: ending earmarks, restoring revenues, and building support for a state EITC.

Ending Earmarks

earmarks graph

It's been over a decade since Utah's explosion of budget earmarks began, diverting now over half a billion dollars of General Fund revenues to the transportation fund every year to make up for the Legislature's decision to not allow transportation revenues such as the gas tax to keep up with inflation and the state's growing needs. Voices for Utah Children has long called for restoring these earmarked revenues to the General Fund, where they are urgently needed to address unmet needs in education, social services, and other underfunded priorities.

Over the interim, at the request of the Legislature, the Tax Review Commission was convened for the first time in five years to examine the question of earmarking. The TRC developed a set of objective criteria for evaluating earmarks. On the basis of these criteria, the TRC recommended eliminating every earmarks save for one small one.

Unfortunately, no legislative committee was willing to embrace the TRC recommendation. TRC earmarksInstead, the 2016 Legislature agreed to a messy compromise that restores a small portion of the earmarked revenues to the General Fund while at the same time more deeply entrenching the earmarks practice by diverting one of the earmarks from transportation to water infrastructure.

During the first week of the session, Voices for Utah Children brought together a coalition of social service providers and advocates to stress the detrimental impact of the diversion of General Fund revenues by releasing a Top Ten List of Reasons to End the Earmarks. We will continue to make the case that earmarking should be replaced by a more responsible fiscal policy that allows the state to meet its obligations, be they in terms of education, social services, or infrastructure investment.

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Restoring Revenues

Utah Taxes Lowest pointThe reason that the earmarking policy remain so problematic is because the state finds itself at a multi-decade low in its overall public revenues, as documented last year by the Utah Foundation. In addition to the specific impacts in underfunding of education, social services, and so forth, and while tax cutting has certainly proved to be politically popular, the current reduced level of overall public revenues raises a larger question of whether the current generation of Utahns is doing its part, as earlier generations did, to set aside sufficient resources to invest in our children and lay the foundations for future growth and prosperity.

Unfortunately, the 2016 Legislature took no action to restore public revenues and instead focused its attention on several tax cutting measures. The business-sponsored education advocacy organizations Education First and Prosperity 2020 proposed that the Legislature place on the November ballot a nonbinding referendum question about raising the income tax from 5% to 5.875%, but the legislative leadership preferred to avoid such a potentially controversial issue in an election year. Another legislative proposal was also rejected, SB 104, which would have generated $179 million of new revenue by restoring the 6% and 7% income tax brackets that were eliminated under Governor Huntsman in 2007.

Tax cutting bills that passed included HB 61, which broadens the application of single sales factor in the corporate income tax at a projected cost of about $3 million annually.  The Legislature also spent quite a bit of time on HB 180, which sought to expand a sales tax exemption for certain businesses at a cost of $83 million annually. HB 180 passed the House overwhelmingly and then won a unanimous vote in the Senate Revenue and Taxation Committee the week before Sine Die. Fortunately, fiscal prudence prevailed in the Rules Committee, and the bill was never brought to a final vote on the Senate floor. Unfortunately, this proposal can be expected to return. 

Earned Income Tax Credit

While Voices for Utah Children supports restoring public revenues to a level that will allow state government to better meet its obligations to the public, we balance that against the need to ensure that no Utah family is taxed into poverty. The proven policy for accomplishing that aim is creation of a state version of the federal Earned Income Tax Credit, as most states have already done. Utah's House of Representatives passed state EITC legislation in 2013 and 2014, but the state Senate has yet to arrive at a position of support for the concept. While there was no EITC legislation in the 2016 Session, numerous conversations took place around this issue, and the Senate Chair of the Interim Committee on Health and Human Services has agreed to include this issue on that committee's agenda for interim study.

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For 30 years now, Voices for Utah Children has called on our state, federal and local leaders to put children’s needs first. But the work is not done. The children of 30 years ago now have children of their own. Too many of these children are growing up in poverty, without access to healthcare or quality educational opportunities.

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We look forward to the future of Voices for Utah Children and we hope you will be a part of our next 30 years.

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Matthew Weinstein 300Matthew Weinstein, State Priorities Partnership Director, joined the organization in 2014. As State Fiscal Policy Director, he conducts analysis and advocacy focused on the state budget from the perspective of what's best for Utah's children. He holds a Master of Public Policy degree from Georgetown University and a B.A. in Political Science from Amherst College.