By: Deborah Gatrell
Utah educators should know how legislators are gathering information to revise Utah’s tax structure because it directly impacts education funding sources. For context, I strongly recommend reviewing what was discussed at the 30 May Tax Restructuring and Equalization Task Force kick off meeting. This summary with explanatory notes will help you understand the ‘crisis’ was the Legislature sees it, and the method they’ve adopted to gather information from the public to inform their tax reform plan.Only by understanding the process can we engage in the conversation effectively. Make no mistake – this will have long term ramifications on state level education funding.
You can find the minutes and links to supporting documents from the kick off meeting here. The official meeting summary, including audio clips, is here. In short, it started with introductions and a brief history of the tax question during the 2019 Legislative Session, then moved on to a description of the problem from Legislative Fiscal Analyst, Jonathan Ball. Next, the task force chairs presented a statement of “Vision, Purpose, Principles and Process” which was amended by Rep. Briscoe before adoption. Finally, the task force chairs outlined dates and locations for Task Force Town Hall meetings where citizens can share their ideas on how to best adjust Utah’s tax structure. The meeting lasted less than an hour.
The Task Force includes 5 members of the House and 5 members of the Senate who can vote on recommendations to forward to the Legislature. It also includes 4 tax experts as non-voting members. Both parties are represented. There are two women on the task force, one of whom is a voting member: Sen. Karen Mayne (D). A number of teachers, Education Association leaders and teacher-legislators were present in the audience as well. So were a lot of lobbyists.
Short Term Background
This is hardly the first time Utah has taken on questions of tax system overhauls. Sen. Hillyard joked that he’s been on 15 of these task forces (an exaggerated claim made in jest, for effect) during his time in the Senate. The problem came to a head this year when Legislators realized they were shifting ALL higher education spending into the Education Fund during the 2018 Legislative session. I’ll explain why that matters later in the blog post. For now, this shift means there is less flexibility for Legislators to prioritize needs by shifting funds into or away from education using higher education funding as the go-between, funded partly by General Fund (sales tax) and party by Education Fund (income tax).
Rep Quinn proposed HB411 during the session to address this ‘structural imbalance’ by reducing income tax and sales tax across the board while expanding the sales tax ‘base’ by increasing the types of services that are taxed. His goal was to lower rates and expand the tax base to stabilize sales tax revenue over the long term. However, the business community revolted en masse, as did many education leaders. The bill was shelved because there simply wasn’t enough time during the session to address legitimate concerns from stakeholders. Instead, HB3 shifted higher ed funding into the Education Fund using one-time money (in anticipation of structural tax changes) and HB495 established the Tax Restructuring and Equalization Task Force to deal with tax restructuring after the session.
In addition to creating the task force, the final budget held back $75 million in anticipation of a future tax cut and turned a number of on-going funding requests into one-time allocations, potentially creating automatic spending cuts if the problem is not solved. These appropriations decisions were intentional to encourage the Legislature to stay focused on the problem at hand. The task force has four reporting requirements in two phases: The task force will report on findings so far and progress to the Executive Appropriations and Revenue & Taxation committees in July and August. In August and September they will report on findings and make a final recommendation to the same committees. Then, if there is enough consensus, there may be a special session of the Legislature to discuss and vote on a final tax reform package.
The Tax Structure Problem
Jonathan Ball, Legislative Fiscal Analyst, presented an outline of the tax problem. In short, Utah has a ‘modern’ economy and growing population. The modern economy reflects spending shifts from goods (where sales tax is applied) to services (where sales tax is normally NOT applied). Nationally, in the 1930s and 40s between 55-60% of purchases were on goods, producing sales tax revenue for the state. During the 1950s and 60s this proportion started trending downward, drifting below 50% by 1970. By 2017, the breakdown in spending patterns was 66% services and 34% goods in Utah.
Consequently, sales tax revenue growth is slowing while the population continues growing rapidly. A growing population increases demand for government services, so it’s important for tax revenue to ‘keep up’ with population growth. Utah had the fastest growing population in the country from 2010-2018, increasing by 14.4% or about 400,000 people. That’s a lot more students in schools and cars on our roads, more homes in wildfire prone land and increased demands for healthcare. Most of Utah’s state government services are funded through the General Fund (or sales tax). This includes Medicaid (with Federal supplements), air quality improvement efforts, public safety, state parks and recreation, support for children, the disabled, the elderly, the homeless, etc.
As population growth outstrips increases in sales tax revenue, we’re faced with some difficult choices. The Analyst stated “as General Fund growth rate decays, we have less flexibility to manage our budget.” Flexibility in funding State needs is limited because some funding streams are ‘siloed,’ or ‘earmarked’ to pay for specific services. For example, revenue from the gasoline tax can only be used for the Transportation Fund and income tax can only be used for the Education Fund. General Fund money (sales tax) fills any gaps in Transportation and Education, then pays for everything else too.
From the Analyst perspective, there are four possible solutions: adjust existing tax rates (change the % of sales and/or income charged as tax), modify the tax base (expand taxation to include more services, for example), reduce services and investments (cut government spending), or break down revenue silos (ending Utah’s constitutional mandate requiring that income tax revenue be used solely for the support of public education). Of course these solutions could be combined, and it is understood that the task force will seek public input which may generate other new ideas for addressing the structural imbalance in tax revenues.
The presentation ended with a shoutout to Utah as the #1 state for fiscal stability, according to US News and World Report. Senator Hillyard commented that Utah is the only state to never lose its AAA bond rating, keeping borrowing costs low. This reflects a commitment by legislators on both sides of the aisle to take the long view, looking at least 20 years out, when making decisions on taxation.
The conversation then transitioned to a presentation of a set of guiding principles for the task force, presented by Senator Hillyard. He strongly recommended everyone planning to engage in the conversation about tax reform effectively read and understand the Vision, Purpose, Principles and Process document. Rep. Joel Briscoe (D) recommended an amendment the document to include “analysis of tax structure” included in the line on transparency dealing with revenue collection. This amendment was accepted and the guiding document was adopted.
Town Hall Meetings
Finally, task force committee chairs shared proposed town hall dates and locations. There will be eight of these Town Hall events across the state from June 25th – July 30th. Weeknight Town Halls are planned for 6 pm so folks who work day jobs can attend. Saturday Town Halls will be midday to allow task force members time to travel. Each event will include an Open House for an hour prior so community members can interact with legislators informally. The Town Hall events themselves are intended to be listening tours where stakeholders can offer ideas and suggestions directly to the task force members. They will NOT be debating the merits of various proposals during these events. The task force definitely wants public input because the tax problem isn’t just the Legislature’s problem, “It’s everyone’s problem.”
The proposed Town Hall agenda was approved and the chairs strongly encouraged task force members to make every effort to attend as many Town Hall meetings as possible. Co-chairs are committed to attending all eight events. Venues are subject to change based on availability, but dates and locations are listed here.
It’s important teachers and concerned citizens speak up at these Town Hall meetings to ensure concerns about public education are heard and considered.
You can be sure the business lobbyists are hard at work sharing their ideas with task force committee members. Multiple legislators have already started pushing the idea of eliminating the constitutionally dedicated income tax from the Education Fund. We need to generate and share ideas that will increase General Fund revenues while ensuring that education funding is protected and increased.
Read Reforming Utah’s Tax Structure: What Educators Should Know and Can Do for an in-depth look at how previous tax reform measures have negatively impacted K-12 public education over the long term and how you can effectively engage with legislators.