Ambitious legislative session ends with no action on its No. 1 priority of tax reform and with a shaky budget down the road

(Rick Egan | The Salt Lake Tribune) Speaker of the House Brad Wilson takes a phone call during proceedings in the House, late in the evening, on the final day of the 2019 Legislature, Thursday, March 14, 2019.

Forty-five days ago, two new legislative leaders called their respective chambers to order with an ambitious vision that they said would demand the industry of Brigham Young and the enterprising spirit of the American revolutionaries.

This would be the year, they said, that lawmakers would finally take on the herculean task of overhauling Utah’s tax code and correcting a longstanding revenue imbalance that threatens the state’s financial health. And if that weren’t enough to do, House Speaker Brad Wilson also tossed in the goal of delivering a record-breaking $225 million tax cut to state residents.

Over the weeks that followed, this ambitious vision would gradually melt before their eyes. A massive tax reform bill that had taken months to prepare ended up collapsing under a mound of doom-and-gloom predictions from the businesses that would’ve had to pay up. When the 2019 session closed Thursday almost an hour before the midnight deadline, the state’s income and sales tax rates hadn’t budged by a single fraction of a percent.

And it all ended with an unusual budgetary stalemate between the House and Senate, after which lawmakers didn’t even seem entirely sure where they stood with each other.

“I don’t think our relationship is strained,” a weary-looking Sen. Jerry Stevenson said Wednesday about his friendship with Wilson. “We’re just all under some tension here right now with what’s gone on, and I will be totally happy with leaving here ASAP.”

Wilson and Senate President Stuart Adams, both Davis County developers, didn’t shy away from tough issues during their first stint as chamber leaders. The Legislature scaled back a voter-approved Medicaid expansion initiative over a chorus of critics who accused them of arrogantly overriding the Utah electorate. They also passed a hate crimes bill that had faltered on Capitol Hill for years and took on the politically charged issue of allowing stronger beer than 3.2 in grocery stores.

“It was ambitious for sure,” Wilson, a Kaysville Republican, said of his inaugural session as speaker. “My goodness, why would we want to be here if we weren’t doing things that were ambitious?”

But the Legislature’s leading concern — and biggest task — of the session centered on tax policy.

State leaders have long known that the sales tax, which supports most government programs outside of education, has been weakening as a revenue source. For years, they’ve been able to tiptoe around the issue with the help of some budgetary maneuvering, but now the problem has reached a boiling point and can no longer be ignored without imperiling the state’s finances, many lawmakers say.

“I’m telling you: If we don’t come up with a solution, we are going to be in a budget crisis next year,” Rep. Tim Quinn, R-Heber City, said Wednesday.

Quinn, a business owner serving his second regular session, was named the House’s point person on tax reform and spent months working on a massive overhaul plan that would modernize the sales tax by expanding it to service-based businesses. The idea was to pair these changes with a cut to the sales and income tax rates for an overall tax reduction.

To play it fair, Quinn said, the bill would demand contributions from all parts of the economy.

“We tried to piss everybody off equally,” Quinn told a group of business representatives in late February.

The underlying idea — broadening the sales tax base while lowering the rate — was backed by economists and Gov. Gary Herbert as a solution to the state’s revenue struggles.

Quinn crafted the legislation with a work group that included state senators and representatives from Herbert’s budget office, and both the House and Senate seemed resolved to take on the heavy lift. The 257-page bill went live online a couple weeks before the end of session and motored through a House committee two days after its introduction, over a flood of objections from lawyers, accountants, broadcasters and other businesspeople covered by the expanded sales tax. It even proposed a sales tax on funerals.

Just days later, the fast-moving overhaul bill came to a crashing halt, with state leaders announcing its demise in a relentlessly upbeat news conference staged in the Capitol’s glittering Gold Room. Lawmakers weren’t giving up on tax reform, they said, but they’d heard loud and clear that the overhaul bill was too much, too fast and couldn’t happen this session.

Asked whether he was disappointed that tax reform didn’t happen this session, Herbert alluded to the daunting nature of the task, especially given the constraints of a 45-day session.

“I appreciate the fact that the Legislature really rolled up their sleeves and got to work,” he said during a Thursday interview.

But in the Legislature, the effort’s implosion set off the budgetary standoff and subtle finger-pointing that would stretch into many of the session’s remaining days.

Voicing concern about the state’s financial future, House members put forward what they called a “skinny” budget, which would’ve only covered the basics and withheld hundreds of millions in funding for bills expected to cost money. The Senate was determined to pass a well-rounded budget, with Stevenson, co-chairman of the main appropriations committee, leading the charge.

The bare-bones spending plan, Stevenson said, wouldn’t have even appropriated money for the Golden Spike celebration to commemorate the 150th anniversary of the completion of the nation’s first transcontinental railroad.

“We’ll be in the national spotlight on that, so that needs to be taken care of,” the Layton Republican said.

Earlier this week, House and Senate leaders declared they’d arrived at a compromise — a budget that is complete but moved $300 million in annually recurring funding into the one-time category, meaning money for those programs and initiatives will disappear next year unless lawmakers renew it. That way, lawmakers should have an incentive to fix the state’s revenue problems over the coming months, Adams and Wilson have said.

“There will be urgency,” Adams, R-Layton, said. “Three hundred million reasons for urgency."

Herbert agreed, calling it a “good ploy to keep us engaged."

A task force including five representatives and five senators will study tax-reform solutions and deliver their recommendations to the Legislature in August, potentially triggering a special session to deal with the overhaul and pass a $75 million tax cut. That plan gives state residents, businesses and lawmakers the time they didn’t have this session, some lawmakers say.

Quinn maintained that the clock didn’t have to run out on the tax-reform bill and that he had the House votes to pass it through his chamber. To understand why that didn’t happen, Quinn said, “talk to the Senate.”

Senate Majority Whip Dan Hemmert, who sat on the reform work group with Quinn, called the comment a “cheap shot” at his chamber. Senators did have deep reservations about expanding the sales tax to business-to-business transactions — such as the legal and accounting services provided to a construction firm. Many businesses predicted this would cause “tax pyramiding,” meaning that they’d have to bake these stacked-up tax costs into their final products.

“We had some serious concerns about tax pyramiding that would hit all taxpayers and would essentially ruin our economic landscape in Utah,” Rusty Cannon, vice president of the industry-backed Utah Taxpayers Association, said.

Quinn was supportive of carving out these business-to-business services, but as the session’s final day crept closer, lawmakers still didn’t have any idea how that would change the overall tax plan, Hemmert said. Turns out, the impact would’ve been major: The original bill would’ve expanded the state’s sales tax base by more than $36 billion, and exempting these business-to-business transactions would wipe out about $28 billion of that, the Orem Republican said.

But those numbers didn’t come in until it was already too late to adjust the overall proposal, according to Hemmert.

Ultimately, the senator said, the legislative system worked the way it was supposed to — lawmakers listened to business representatives and the public as they called for a slower approach to tax reform.

“The process worked, the legislative process that is messy and argumentative or collaborative,” Hemmert said.

Tribune reporter Benjamin Wood contributed to this report.