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SALT LAKE CITY — The overall tax cut in the tax reform plan that appears headed to a special session of the Utah Legislature next week is now twice as large as before, doubling from $80 million to $160 million Friday after new revenue estimates were released showing state coffers are expected to grow by almost half a billion dollars.
“This year’s revenue estimates show that our economy continues to thrive,” Gov. Gary Herbert said in a statement. “This success is due to hard-working Utahns. Our continuing efforts to find efficiencies in state government and the success of our economy have helped produce another year of strong revenues.”
Herbert, along with House Speaker Brad Wilson, R-Kaysville, and Senate President Stuart Adams, R-Layton, have been negotiating how big a tax cut Utahns should receive as part of a Republican-driven tax reform plan that would raise sales taxes on food, gas and some services while lowering income taxes.
The governor said he asked lawmakers to boost the bottom line of the plan that will be reviewed for a final time Monday by the Legislature’s Tax Restructuring and Equalization Task Force to $160 million “as part of the tax modernization effort,” and said it should be targeted to help low- and middle-income families.
He has not yet called a special session, but it is expected to be held on Dec. 12.
The tax reform effort is intended to shore up sales tax revenues that have not been keeping pace with increasing income tax collections. The estimates released by the governor’s office late Friday afternoon show that trend is continuing.
A whopping $440 million in new money is coming into the education fund from income taxes, which under the Utah Constitution must be used for education, while the remaining $42 million is expected in the state’s general fund that pays for just about everything else in the state budget and is supported largely by sales taxes.
“I think the numbers show how critical it is that we fix the structural imbalance,” Adams told KSL, saying it’s something lawmakers have to deal with it as soon as possible. “The numbers speak for themselves. We’ve got a problem.”
Wilson said he is “stunned that people think this is better to do in the general session.” The speaker said tax reform has already been the subject of 17 public hearings, including town hall meetings held around the state over the summer. “It’s crazy to me anyone would think there’s a better way to do this than a special session.”
But there has been public pushback to the plan, including at a news conference Friday where Santa and the Grinch joined forces at the Utah State Capitol to ask that lawmakers hold off on tackling tax reform until the 2020 Legislature.
“Christmastime is a time to show love and kindness and not to hold special sessions. We are calling upon legislators and the governor to come up with a tax reform that will actually help people,” said Derrick Dean, who dressed as Santa.
Later, he and others, including Greg Zenger in a furry green Grinch suit, marched up to the governor’s office and attempted to deliver brightly colored bags of petitions they said had been signed by thousands of Utahns opposed to the tax reform plan.
Herbert’s constituent services director, Kelli Lucero, met them at the door and said she couldn’t accept the petitions because of security concerns over packages that had not been inspected but promised to share their issues with the governor.
Both Adams and Wilson said the money for the larger overall tax cut will come from what they called finding “efficiencies” in the state budget that would be identified later in addition to the revenue growth. Lawmakers set aside $75 million last session to cover the cost of a tax cut as part of tax reform.
The budget cuts, both legislative leaders said, wouldn’t affect education. They also said while the income tax cuts would take effect at the start of the new year under the tax reform plan, the sales tax increases would be delayed until April.
The latest version of the tax reform plan, also released late Friday, drops the state’s 4.95% income tax rate to 4.66%, and there would be new tax breaks, including an increased dependent exemption and a grocery tax credit aimed at low- and middle-income families, as well as for Social Security benefits.
It also would restore the full 4.85% state sales tax on food, now taxed at 1.75% by the state, and add sales taxes to gas and a limited number of services — such as pet boarding, towing, parking lots, Uber and other ride-hailing apps, and dating referrals — while also lifting a number of sales tax exemptions.
Wilson met Friday with the Utah State Board of Education, explaining that the education-related parts of tax reform would wait to be addressed in the 2020 Legislature, which begins meeting in late January. GOP legislative leaders want to remove the restriction in the Utah Constitution that income taxes can only be used for education.
A separate education funding proposal is being put together for the 2020 session that in its current form relies largely on local school districts raising property taxes while spelling out that the state will continue to cover student growth and other areas.
Legislative leaders have stressed the need to put the rest of the tax reform plan in place by the end of the year so Utahns can see a reduction in the amount of money withheld in their paychecks starting in 2020, an election year for all of the House and half of the Senate.
The groups assembled at the Capitol Friday said the process has been too rushed.
The tax reform plan “has not been sufficiently vetted or debated. A one-day session is simply not sufficient to responsibly consider a bill of this magnitude,” said Brett Hastings, Utah Legislative Watch founder and director. “A one-day session will only result in bad law and is bad legislative practice. Utahns deserve better.“
Hastings said if the plan is approved, voters may turn to the referendum process. He said from his organization’s perspective, lawmakers shouldn’t be increasing sales tax collections to compensate for slowed growth but instead slashing income taxes to match.
Chase Thomas, of the Alliance for a Better Utah, said there’s agreement that the current tax reform plan needs to be stopped.
“We should not be saddling tax reform upon Utahns who already are struggling under financial burdens. The sales tax on food and raising taxes on gasoline would both harm low-income Utahns,” Thomas said, noting they couldn’t afford lobbyists unlike some of the service providers left out of the plan.
He said the alliance supports “the need for a sound, stable tax system. This is how we invest in our future. This is how we maintain services now. But we need to make sure we’re doing it right. We need to lift people up with our tax system, not pull people down. We need to turn this sham process around.”
Thomas also signed a letter along with 10 other community-based organizations that serve the disadvantaged, including the Catholic Diocese of Salt Lake City, the Coalition of Religious Communities and Crossroads Urban Center, asking the governor, legislative leaders and the task force not to enact tax reform in a special session.
“Putting a lengthy, complicated tax initiative with such broad impacts to Utah households and businesses on a special session agenda does not ‘elevate’ the issue as some have claimed, it obscures it,” their letter said. “Special sessions in Utah are opaque and largely inaccessible to the public, and are rightly viewed by voters as a ‘done deal’ sealed in closed caucuses.”
Wilson told the State School Board help will be needed on the education piece of tax reform, which has already met with resistance from teachers and others.
“It’s going to take everyone to think outside the box a little bit,” he said.
If the Legislature does nothing, Wilson said higher education will continue to require a growing share of income tax, although there are much broader effects looming from the structural imbalance between the education fund made up of income taxes and the general fund that mostly comes from sales taxes.
“The truth is, we’re within two to three years of the state not being able to fund social services programs, not being able to fund some of our corrections needs, criminal justice issues, take care of our natural resources because of how far out of whack our revenue streams are,” the speaker said.
He called the anticipated revenue estimates “shocking in terms of the general fund’s growth relative to education funds. It underscores the importance of getting our structural imbalance fixed.”
While some State School Board members reiterated their desire that the public education system maintain a constitutional guarantee for funding, Wilson said that earmark has done nothing to budge the state’s per-pupil spending from 50th in the nation.
The earmark “feels good but it doesn’t give us any kind of funding certainty,” he said.
Another point of concern for educators in the proposal is an estimated $98 million to be raised annually in local property taxes within five years, although the state would contribute to help equalize funding to the districts that have less taxable land or generate less tax revenue.
“We already have challenges with equity in property tax. The first thing I would say is, we can’t make it worse if we go down this path. How do we even make it better over time?” Wilson said. “The only way we would be able to manage it effectively is to have the state come in with state money and equalize it like we do in other cases already.”