Advocates urge Utah’s governor to veto tax cut to make sure the state doesn’t lose COVID-19 relief funds

Voices for Utah Children also wants state lawmakers to refrain from considering further cuts.

(Rick Egan | Tribune file photo) Matthew Weisntein, with Voices for Utah Children, calls on legislature to include lower-income Utahns in tax reform, during a news conference at the Capitol, Friday, March 2, 2018.

Utah advocates are warning that new state tax cuts could put at risk millions of dollars in federal coronavirus aid and are urging Gov. Spencer Cox to veto the only tax relief proposal he hasn’t yet signed.

Voices for Utah Children lobbied against the $100 million tax cut package that the Legislature approved during its recent session — with the nonprofit arguing that the state needs the money for other priorities, such as full-day kindergarten and mental health and substance abuse treatment.

And because of a provision in the $1.9 trillion federal coronavirus relief signed into law this week, the nonprofit’s leaders say Utah’s tax cuts will be even more costly than they initially thought.

“Now we learned this week that their price has just doubled,” Matthew Weinstein, with Voices for Utah Children, said in a Friday news release. “Because the new federal COVID relief law penalizes states for tax cuts on a dollar-for-dollar basis, they will actually cost Utah $200 million of revenue next year, not just $100 million.”

State budget managers have estimated that the American Rescue Plan will direct about $2.7 billion in federal funds into Utah’s state and local government coffers. The state government is expected to get about $1.52 billion, with $1.09 billion going to local governments and the remainder for capital projects.

The plan indicates that states should not use this funding “to either directly or indirectly offset a reduction” in revenues from any tax cut approved after March 3. These restrictions stay in place until after state and local governments spend all of the relief money — which they have until 2024 to do.

Weinstein interprets that to mean Utah will lose $1 in federal aid for each $1 it provides in state tax relief this year.

However, a spokeswoman for the Utah Senate says she doesn’t think the federal bill’s prohibitions would apply to the state’s new tax cuts, noting lawmakers set aside funding for these relief measures back in December and approved them more than a week before the American Rescue Plan passed Congress.

“If the state were to use the federal money to plug a deficit, I could see how one might argue that the federal funds indirectly financed tax cuts,” Aundrea Peterson, spokeswoman for the Senate, said. “But it is expected Utah’s state revenue will continue rising, and the federal funds would be used for additional spending on one-time projects.”

Cox on Thursday signed two of the state’s tax relief bills, one that puts nearly $53 million toward restoring Utah’s income tax dependent exemption and another that creates an income tax credit for military retirement pay. He has not yet endorsed the third and final piece of the tax package enacting a tax credit for Social Security recipients.

“We’re working to understand how the recently passed American Rescue Plan Act affects actions taken during the legislative session,” Jennifer Napier-Pearce, Cox’s spokeswoman, said in response to the Voices for Utah Children analysis. “This assessment will be considered as part of the governor’s bill review.”

Congressional Democrats added language barring tax cuts to the American Rescue Plan to stop states from using COVID-19 relief money to pay for tax relief — a decision that drew condemnation from Republican U.S. Rep. John Curtis.

“It is unconscionable that the federal government passed legislation that prevents Utah from giving taxpayers their own dollars back, effectively punishing Utahns for being responsible and making hard financial decisions to keep the state afloat during the COVID-19 pandemic,” Curtis said in a statement Friday. “This is just one consequence of a partisan legislative process — House Democratic leadership didn’t adopt a single one of the hundreds of Republican-offered amendments.”

Weinstein acknowledges that it’s not yet clear how the federal government will enforce the prohibition on using relief dollars to backfill a tax cut, but he noted several states are also concerned about paying a penalty.

Though Missouri lawmakers are pushing forward with a reduction in state income tax rates, Republican legislators say they are looking at whether such a move could threaten their eligibility for federal aid, according to the St. Louis Post-Dispatch. And a top legislative leader in Georgia has written to the U.S. Treasury secretary asking her not to block that state’s tax cut proposals, the Atlanta Journal-Constitution reports.

Even if this year’s Utah tax cuts are already a done deal, Weinstein said he hopes state officials will hold off on considering any new ones until they’re no longer in danger of losing federal dollars.

State officials are allowed to spend federal relief money to address the COVID-19 emergency and offer help to businesses, nonprofits and others impacted by the pandemic, according to the National Conference of State Legislatures. They can also use those funds for essential worker pay; for water, sewer and broadband projects; and to prop up government services that would otherwise be impacted by a pandemic-related revenue loss.

But Weinstein’s group argues that Utah shouldn’t be cutting taxes right now in any event. Instead of relinquishing that $100 million in revenue, he said, the state could’ve used it to provide all-day kindergarten at an estimated cost of $52.5 million or set aside $59 million to cover all of the state’s uninsured kids.

“Tremendous unmet needs remain and we cannot lose federal funds at this time,” Moe Hickey, CEO of Voices for Utah Children, said in a statement. “We urge Gov. Cox to consider whether it may be best to save these tax cuts for future consideration now that their price tag has doubled.”