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Up to $2 billion in state budget cuts coming

Up to $2 billion in state budget cuts coming

(Ravell Call, KSL, File)



Estimated read time: 5-6 minutes

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SALT LAKE CITY — Cuts in the upcoming $20 billion state budget approved earlier this year to offset the financial impact of the coronavirus pandemic likely won’t be made until mid-June, after lawmakers hold hearings to review reductions that could add up to $2 billion.

“It’s hard to be specific right now, just because things are so much up in the air,” said House Budget Chairman Brad Last, R-Hurricane. “We’re going to hold off as long as we can determining the 2021 budget that starts in July because we want to have the latest possible data.”

But both Last and Senate Budget Chairman Jerry Stevenson, R-Layton, said it’s not going to be easy to calculate just how hard the state is being hit economically by the deadly virus that caused historic spikes in unemployment and consumer spending to plummet, since the bulk of revenues come from income and sales taxes.

“We don’t know whether we’re going to be down $200 million or $2 billion,” Stevenson said, acknowledging it’s more likely the shortfall will end up closer to the higher estimate. “There’s a range there that’s hard to even comprehend. We’re going to have to make this up as we go along.”

The Utah Legislature’s Executive Appropriations Committee is scheduled to meet May 13 to get the budget review process going with what Stevenson called “a ranking of suggested cuts” that will be compiled by legislative leaders.

Those cuts would then be used by the various budget subcommittees to make recommendations for a range of budget cuts, expected to go as high as 10%. Last said the final decisions will likely be made in a special session of the Legislature in mid-June, just weeks before the new budget year begins on July 1.

Whether that list of cuts will include the pay increase of up to 5% planned for state employees remains to be seen, Stevenson said. But he said state departments have already been asked to hold the line on spending, including making new hires, and there’s little doubt some building projects won’t happen.

“I don’t think there’s a piece of that budget we’re not going to take a look at,” Stevenson said. “We’re going to start over really.”

State Treasurer David Damschen said he’s hoping to have more than a half-billion dollars in bonds sold by May 19.

‘We’re basically using up all the existing bonding authorization on the books with this transaction,” Damschen said, $350 million available for prison construction and another $177 million for road construction. Once the bonds are sold, the money set aside in the budget for those projects can be spent elsewhere — or cut.

“We’re fast-tracking this,” he said. “It’s unusual to put a transaction on the rails and get it done this fast.”

Natalie Gochnour, director of the Kem C. Gardner Policy Institute at the University of Utah and an associate dean in the David Eccles School of Business, made it clear that state budget officials have a tough job ahead.

“In roughly 45 days, we’ve lost 135,000 jobs and that’s about what we created in the last three years. That’s a hit. So there’s no question the state budget will be impacted significantly,” Gochnour said, adding that adjustments to revenue projections will have to be made quickly.

“We are in an uncertain environment and any forecast has a lot of risk associated with it. But I will tell you I think the worst of the impacts happened in April 2020,” she said, predicting that within 60 to 90 days, there will start to be employment gains in the state.

However, she said there still needs to be caution.

“We might be feeling good, things might be looking better but then we might see flare-ups of the virus,” Gochnour warned, so state government needs to “be prepared for starts and stops” as the economy gradually recovers while also dealing with the dilemma of an increased demand for many services.

Still, Gochnour said, Utah is prepared to handle the economic crisis.

“I feel like our state has been preparing for this for like eight years. Because when we went through the Great Recession, it was very difficult and our state systematically put in place fiscal tools to help us the next time something tough happened,” she said.

Those tools include what’s happening with the new bonds. Using existing revenues to cover the costs of projects so bonding capacity is available when needed creates what’s called a working rainy day fund, on top of the surplus revenues already being set aside for a downturn.

While revenue enhancements or tax increases are always an option, Gochnour said, she teaches her public finance students at the U. that Utah “is among the most fiscally prudent states in the country” because of its approach to budgeting.

“It’s still hard,” she said. “But Utahns should be very proud of our fiscal management.”

Utah has been recognized recently for such strengths, including a third-place ranking behind Iowa and New Hampshire in the national “Camelot Index,” a quality of life measure based on economy, health, crime, education, society and state government factors.

The Beehive State didn’t reach the top spot in any of those six categories seen as essential for the ideal state, including “a well-managed state government with strong bond ratings and low taxes,” where Utah was in fifth place, behind South Dakota, Wyoming, Alaska and Delaware.

But Utah was No. 1 in job growth and having the lowest percentage of single-parent families, among the 26 variables considered in the report released Wednesday by Federal Funds Information for States, a group that tracks federal budget and spending for state leaders.

Marcia Howard, the group’s executive director, said while the report was compiled last month, “none of the data would reflect COVID-19.” Howard declined to comment on what the report’s findings mean for a state’s ability to recover from the economic impacts of the pandemic.

Earlier in April, U.S. News & World Report said states such as Utah and Minnesota are better positioned because of their robust rainy day funds and regular stress-testing budget exercises, referring to the findings of a Pew Charitable Trusts report that also said states should have flexible legislatures and avoid unsustainable budgeting.

Lisa Riley Roche

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