Economic shock waves from the COVID-19 pandemic could deliver a $1.3 billion hit to revenues in the coming budget year, state analysts report, and Utah lawmakers are preparing sizable spending cuts in anticipation.
State legislators set in motion a budgetary review Wednesday that could wipe out funding increases approved earlier this year and result in reductions of up to 10% on top of that. They made no exception for per-pupil education funding, which had received one of the biggest increases in years.
The forthcoming budget cuts, which could happen during a June special session, will be painful, legislative leaders acknowledged. But they’ll be necessary to keep the state afloat during years ahead, they added.
“These are difficult times,” said Sen. Jerry Stevenson, R-Layton, who co-chairs the legislative committee that crafts the state budget. “But ... we’re going to emerge from this probably a lot better than most other places.”
The executive appropriations committee voted unanimously Wednesday to make plans for agency budget reductions of 2%, 5% and 10% — bracing for economic blows of varying severity. The most optimistic legislative forecasts have state general fund and education fund revenues slipping by $600 million in the next budget year, while the losses could total $1.3 billion under a worst-case scenario.
To begin filling budget holes for this year and next, legislative analysts on Wednesday said the state can free up about $200 million by using bonds instead of cash to fund state prison construction and highway projects. Jonathan Ball, who directs the Office of the Legislative Fiscal Analyst, said the developing plan is also to undo the spending increases that lawmakers passed earlier this year during their annual legislative session.
“This isn’t necessarily a budget cut, because the budget hasn’t started yet,” Ball said. “But we’re dashing your expectations for increases by $600 million.”
Even after that, state leaders might have to slash an additional $700 million in spending just to break even, Ball said. Legislative subcommittees plan to discuss some of these potential reductions the last week of May, with the Legislature potentially convening next month to enact them.
The impending actions could reshape the education funding plan that the Legislature passed this session after finally reaching a negotiated deal with teachers. Lawmakers agreed to increase per-student spending by 6% — or more than $200 million — matching the Utah Education Association’s primary budget request for the 2020 legislative session.
In exchange for that and other concessions, the UEA agreed to support legislation for a constitutional amendment to loosen restrictions on the state’s income tax revenues, currently earmarked for public and higher education. That question will come before Utah voters later this year.
Reached by phone Wednesday evening, UEA president Heidi Matthews said teachers recognize the budgetary challenges presented by the pandemic and want to work together with the state. However, she said the coronavirus has, if anything, intensified the need for student funding.
“We understand that it’s a unique time, but the entire foundation of a compromise can’t exist if one side has to give everything,” Matthews said. “And so, we’re looking for ways to move forward respectfully.”
In a written statement, House Speaker Brad Wilson said lawmakers are including public education in their cost-cutting exercise because it represents half the state budget.
“If it were not, every other part of the budget would have to be reduced by twice as much,” Wilson, R-Kaysville, said.
He also noted that the proposals for 2%, 5% or 10% cuts are supposed to be “targeted/precision reductions” rather than “across-the-board indiscriminate cuts.”
Still, the prospect of lowering health and social service funding was worrisome to Sen. Luz Escamilla, who noted Wednesday that needs for these programs are only growing during the pandemic. Escamilla, D-Salt Lake City, said a cut of 5% to social services would be “getting to some of the bones of some of the programs that are critical to sustain families and people.”
Rep. Brad Last, who chairs the appropriations committee with Stevenson, said that’s where the subcommittees will come in, using their judgment to guide the budget reductions.
“We’ll have to decide based on all the options that the subcommittees give us, based on what we think will be the very best for the state as far as stabilizing and moving forward, from a social services standpoint and an economic recovery and development standpoint,” Last, R-Hurricane, said.
The news Wednesday wasn’t all bad. Legislative analysts told state lawmakers that Utah is in a relatively strong position compared to other states. Utah has about $5.4 billion of available reserves, and lawmakers can easily tap into about a third of that funding, according to a committee presentation.
That would count such things as cash-funded buildings, Medicaid and transportation funding and water project earmarks on top of the regular rainy day account.
“Utah is well-positioned to weather the economic shock of the coronavirus through utilization of relatively accessible reserves,” fiscal analysts wrote in a report.
The current projections do not account for a second economic slump due to another wave of coronavirus infections in Utah, the analysts reported.