Kristin Murphy, KSL

Big Utah budget surplus 'too good to be true,' could mean no tax cut, lawmakers say

By Lisa Riley Roche, KSL | Updated - Feb 22nd, 2019 @ 1:52pm | Posted - Feb 22nd, 2019 @ 11:41am

SALT LAKE CITY — Projections of a $1.3 billion budget surplus turned out to be "too good to be true," Senate President Stuart Adams said Friday, shortly before new revenues estimates were announced.

Adams, R-Layton, tried to be upbeat about what is now about $200 million less in money unspent in the current budget year and anticipated revenue growth in the next.

"The economy is still growing. We're still doing good. (It's) a little adjustment," the Senate leader said. "I think we knew the numbers seemed too good to be true and they were."

House Budget Chairman Brad Last, R-Hurricane, said on the House floor later Friday that there is now $529 million in one-time money and $570 million in ongoing revenues projected.

Last said lawmakers had been aware since the $1.3 billion estimate released in December that "there was some risk in the numbers" stemming from the effects of federal tax changes on state income tax collections.

He also stressed that Utah's economic indicators, including total wages, are still good.

"So the economy seems strong, there was just this little hiccup that we had with the federal tax changes and strategies that Utah taxpayers were using,” Last said, noting this is still "the best year we've had since the Great Recession" a decade ago.

In December, the revenue projections producted by the Legislature's fiscal analysts and Gov. Gary Herbert's budget office showed the state could expect $646 million in one-time funds and $675 million in ongoing revenue growth.

"That's when the initial celebrations started and when we started talking about the $1.3 billion surplus," Last said.

But lawmakers also made decisions to set aside some of that money in anticipation of an economic downturn, including planning to pay cash for about $350 million in prison construction rather than bonding.

The decline in additional revenues is likely to have a big impact on the Legislature's efforts to enact tax reform this session, following the governor's call to expand the shrinking sales tax base by taxing services and lowering the rate.

Sen. Lincoln Fillmore, R-South Jordan, said it's too soon to say what that will look like.

"The revenue neutral reforms, I think, are still on track, at least as much as they always have been," Fillmore said. "But paired with that was going to be some sort of tax reduction, and that is clearly going to be impacted by the revenue numbers."

Fillmore, who is leading the Senate's efforts on what will be a House bill, is referring to a proportional reduction in the rate to reflect new taxes coming in as the base is broadened.

Lawmakers had hoped to also include a $225 million tax cut in the reform plan, to both lower the sales tax rate further as well as make some reductions in state income taxes.

The tax reform plan has been worked on behind the scenes throughout the session and is not expected to be unveiled until next week in a bill sponsored by Rep. Tim Quinn, R-Heber City.

Few details have surfaced, but Fillmore said Friday there will be a 1 percent excise tax on health insurance policies rather than any sales taxes on medical services, one of the most controversial areas considered.

The reason for an excise tax is to ensure lawmakers are "not picking favorites among sick or healthy people," Fillmore said.

"If the tax comes on the transaction, then what you're doing is making sick people pay more, right? We just want to make sure as all the sectors are involved, that it is simple to administer, that it applies equally to everyone," he said.

Stevenson said the new numbers mean there "are a lot of requests that are either going to be cut drastically or they're not going to be funded at all" as lawmakers finalize the state budget before the session ends in mid-March.

He said income tax collections are lower than anticipated, with a 10 percent drop in December and a 7.7 percent decline in January. Those collections will continue to be monitored to see if the receipts are just coming in slower.

The Senate budget chairman, who described the original surplus number as having "evaporated into fiction" when announcing the updated estimate on the Senate floor, was not optimistic about a tax cut this session.

"These numbers will probably make it more difficult to do," Stevenson said. "You could paint yourself in a corner really fast. … I think we need to be very deliberative and not get ahead of ourselves."

Contributing: Katie McKellar

Related Stories

Lisa Riley Roche

KSL Weather Forecast