Utah House wants a temporary budget that strips out most new spending. Senators look at removing education earmark for income tax.

(Rick Egan | Tribune file photo) House Speaker Brad Wilson conducts business in the House of Representatives, on the first day of the 2019 Utah Legislative session, Monday, Jan. 28, 2019.

The Utah House and Senate approved competing budgets on Monday, setting up a rare spending conflict in the final days of the session that could also include a constitutional amendment diluting the primary state funding source for public education.

In an unusual turn, the budget bill that cleared the House didn’t appropriate any money and would simply make transfers from the state’s booming education coffers to its ailing general fund, Rep. Bradley Last, R-Hurricane, explained. The proposal leaves open the door for continued negotiations between the House and Senate, he said, and would guarantee that — even if lawmakers walk away this session without passing a traditional budget — the state will have a balanced bottom line.

But senators voted to approve their own budget plan — based on agreements reached before a major tax reform bill was shelved for the 2019 session — boosting per-student spending by 4 percent and spending all but $75 million in new state revenue, which could later be used to fund a tax cut as part of a larger tax legislation effort during a special session.

“We’re trying to get on the same page and we’ve been working on it,” Senate President Stuart Adams, R-Layton, told reporters shortly before senators voted 29-0 to advance their budget proposal.

The Senate also voted 21-8 — with two Republicans joining the Democrats in opposition — for an amendment to the Utah Constitution allowing income tax revenue to be spent on “services for the poor, the disabled, or the elderly.”

Currently, state income tax revenue is earmarked exclusively for public education. But Riverton Republican Sen. Dan McCay’s proposal would adjust that constitutional language and potentially dilute the state’s education fund for use on other programs.

“As we are considering the realignment of our tax system, there are some that want to make sure there is a lot of options on the table," McCay said. “This will add another option to the conversation.”

House representatives have been pushing a different solution to the state’s funding imbalance, suggesting that state lawmakers pass a “skinny” or “low-carb” budget that would leave hundreds of millions of dollars unspent. The bill approved by the House on Monday would preserve the option of adopting either a skinny or normal-sized budget before Thursday, Last, the House budget chairman, said.

The point of the zero-spending bill is to “shed a bright light” on the fact that sales tax revenues, which support most government services, aren’t keeping pace with the state’s growing needs, Last said. To make up for that, the state has been gradually shifting higher-education costs from the overburdened general fund to the education fund, where it competes with state aid to K-12 students.

“So we have a bill here that does nothing more than move money back and forth from the education fund to the general fund through the institutions of higher learning,” Last said.

The House budget bill passed by a 71-4 vote, with several Democrats dissenting. The next step for the House, Last said, is to look at the Senate’s budget and decide whether to pass it, change it or reject it and revert to the skinny budget.

The state’s off-kilter revenue structure was the subject of weeks of closed-door negotiations on tax reform during the legislative session as lawmakers explored ways to boost the state’s sales tax collections by broadening the taxation of service-based businesses. Those negotiations broke down last week, with leaders of the House and Senate, as well as Utah Gov. Gary Herbert, expressing interest in reconvening the Legislature during a special session to implement changes to the tax code.

But the failure to arrive at a consensus on taxes left the Legislature’s budget process in disarray, with House and Senate leaders cancelling a critical committee hearing on Friday and advancing competing legislation on Monday.

House Speaker Brad Wilson, R-Kaysville, said budget negotiations up to this point were based in the assumption a tax bill would pass, correcting an “imbalance” in the state’s coffers and freeing up hundreds of millions of dollars in unrestricted spending.

“We don’t want to make commitments that we don’t believe we’re going to be able to keep if that problem is not fixed,” Wilson said.

The governor indicated Monday that he agrees with the House Republicans’ proposal. Paul Edwards, the governor’s spokesman, said in a prepared statement that Herbert is in favor of “modest” spending plan that could jump-start a new round of tax negotiations.

“We support the process to pass a modest budget that meets the needs for core services,” Edwards said, "while leaving room for a sizable tax cut when we reconvene to modernize our tax system.”

Herbert has repeatedly stated that education is his No. 1 priority, but was unavailable for comment on McCay’s income tax resolution, which would require two-thirds passage in both the House and Senate as well as ratification through a statewide vote.

But Austin Cox, with the group Our Schools Now, objected to McCay’s amendment, saying a dedicated funding stream for public education has served the state well for more than 100 years.

“With a serious shortage of teachers and lagging student achievement,” Cox said, “we need to be increasing our investment — not reducing the funding available for Utah kids.”

Utah’s public schools are among the lowest-funded in the nation on a per-student basis, and broadening the income tax earmark would only diminish the revenue available for education as the state’s sales tax can already be appropriated in any form lawmakers choose.

Revenue estimates for this year showed a roughly $1 billion surplus in the state’s education fund, while most of the state’s sales tax surplus was appropriated in December toward construction of a new state prison. In recent years, lawmakers have removed general fund dollars from the higher education budget to prop up sales tax receipts, but Wilson said that budget tool could turn “into a pumpkin” by July.

“It’s growing at roughly half the rate of the education fund,” Wilson said of the sales-tax based general fund, “which is causing this problem.”

Before it was abandoned, the tax reform bill was designed to shift roughly $340 million in state receipts between the education fund and the general fund by combining an income tax cut with a corresponding increase in sales taxes. That money would have been prioritized for higher education, lawmakers said, in order to mitigate the impact on public education.

Senate leaders remained optimistic Monday evening that agreement could be reached between the two chambers, including the potential for a conference committee to iron out the differences between competing pieces of legislation. That type of negotiation is not uncommon at the Legislature, although it is rare such a committee is formed to address the state’s spending plan.

“It’s just a little bigger than we usually work with,” said Sen. Jerry Stevenson, R-Layton, the Senate’s budget chairman.

Stevenson said he had been meeting with colleagues throughout the day, and suggested those talks would continue until either a budget is passed, or the session adjourns.

The Utah Education Association opposed the Legislature’s tax reform proposal. And on Monday, UEA President Heidi Matthews said teachers have waited patiently for lawmakers to make good on promises that Utah’s growing economy would yield new spending on students and schools.

“The economy has grown. The Education Fund has grown,” Matthews said. “Now is the time for those investments. I know the Legislature can do more for our students.”

Tribune reporter Bethany Rodgers contributed to this article.