After months of discussion on tax reform, legislative leaders appear to have coalesced around an approach that would cut Utahns’ combined tax bill by $80 million to $100 million through a series of income tax cuts and sales tax hikes.
But a new piece of the tax reform conversation, with less definition and considerably less public debate, could erase and begin to reverse that tax cut in as little as five years by allowing school district property taxes to passively capture inflation each year.
Unlike current law, which requires property tax rates to drop as property values rise, the new proposal would index school district revenue to the chained consumer price index.
An outline of the education funding plan that became public late last month included estimates that the property tax indexing would grow from $18.6 million in new taxes in the first year to $97.7 million in new taxes in the fifth year.
“It would be an annual tax increase with no vote,” said Sen. Lincoln Fillmore, R-South Jordan and a member of the legislative task force dealing with tax reform. “And that’s what makes me the most uncomfortable.”
Ogden Republican Sen. Ann Millner, who has led the closed-door negotiations around the plan, said the changes are intended to rebalance the roles of income and property taxes in Utah education funding, while also creating a dependable financial floor that would increase in step with enrollment growth and inflation.
The proposal is still in a “conceptual” stage, she said, but currently combines the indexed property tax increases with supplemental state funding that would be used to equalize the disparities between school districts and to bolster the state’s education rainy day fund for use during economic downturns.
The general outline of the plan was briefly presented to the task force with minimal discussion at its most recent meeting. Legislative leaders’ estimates of a net tax cut of up to $100 million do not include this aspect of the proposed reforms.
Millner, the retired president of Weber State University, was unable to answer whether the education funding plan would be considered at the final meeting of the task force next week, or whether it’s intended to be part of a special legislative session in December — or held for the 2020 general session that begins in January.
“We’re working as hard as we can,” she said. “I don’t know the timelines yet.”
Legislative leaders have signaled their desire to amend the Utah Constitution to either remove or adjust language that sets aside all income tax revenue for funding public education. It is unclear whether the constitutional change would be part of a special session, but it seems unlikely, given the controversy involved.
Lawmakers contend the earmark deprives them of flexibility to meet the government’s spending needs, while educators say it provides a needed guaranteed source of revenue for the state’s schools.
Millner said her proposal would benefit education in the long run because it would assure growth of funding over time while the income tax earmark only guarantees a source of funding.
“The reality right now," she said, “is there’s no guarantee for anything.”
Some task force members have suggested their support for a constitutional amendment could be contingent on the creation of a new education funding model. And Terry Shoemaker, executive director of the Utah School Superintendents Association, said a new approach to education funding would need to be guaranteed by the state constitution, and not merely state statute.
“This proposal, of itself, doesn’t matter much to us if we don’t have constitutional language to accompany it,” Shoemaker said.
The Legislature can change state law at will but the constitution can be amended only with voter approval.
Shoemaker said his organization has not yet taken a position on Millner’s proposal, but that Utah’s school districts have differing levels of enthusiasm for its components. In addition to letting property taxes rise each year, the proposal currently calls for allowing districts to shift some of their funding between capital and operating expenses.
“That kind of flexibility is unique,” Shoemaker said, “and something that some school boards would be interested in doing. [But] not all.”
Shoemaker said his understanding of the negotiations is that the property tax indexing would continue in perpetuity, capturing more and more revenue with each passing year. He also said the property tax rates would be automatically adjusted, meaning school boards would not need to vote — and by extension, be blamed for — annual tax increases.
“It can’t be local school districts, because this is a state proposal,” he said. "It’s going to use local property tax, though. The distinction there is not easily understood.”
But Millner pushed back on those characterizations. She said the negotiations “haven’t gotten to that level of detail” on what entity would be responsible for adjusting the tax rates, and that some limitations would need to be placed on the indexing to avoid runaway taxation in the future.
“We’d have to put appropriate guardrails in,” she said, without further explanation.
Millner also declined to comment on whether she expects the yearly property tax increases to be offset by corresponding cuts to the income tax rate beyond what has been discussed by the task force.
“We have not talked about that,” she said.
Fillmore, who works with charter schools, said he’s not a fan of undoing Truth in Taxation, or the requirement in state law that school districts hold a public hearing and vote before adjusting property tax rates.
He said Truth in Taxation is one of Utah’s great tax achievements, promoting transparency and helping taxpayers to know what rates they’ll be expected to pay. But he added that the promise of yearly tax increases might win over some critics who would otherwise oppose school district equalization.
“That may be a lot of lubricant to swallow some other pretty big pills,” Fillmore said.
The education funding proposal needs more discussion and vetting than it has received so far, he said, and it potentially contradicts the already controversial tax reform bill the task force is considering.
“If these are combined it would be a much more difficult sell, I think, to legislators and the public,” Fillmore said.
Utah Education Association President Heidi Matthews said she’s encouraged by some of the elements in Millner’s plan, particularly that the state would commit to funding inflation and student enrollment growth every year.
But she also worries that the Legislature is failing to look beyond a minimum funding floor when schools are in need of significant investment. And she questioned the approach of passing a big income tax cut next week when Utah voters could not weigh in on a potential constitutional amendment until November 2020 at the earliest.
“Having a special session without all of these pieces in place," she said, “is entirely premature.”