Utah’s budget surplus is set to grow. What will lawmakers do with extra cash?

Utah lawmakers plan special session in May to distribute billions in federal coronavirus relief

(Rick Bowmer | AP) Republican Rep. Mike Schultz at the Utah State Capitol in February 2020. A special session is planned for May 2021 to distribute additional taxpayer revenues.

Billions of dollars in federal COVID-19 relief spending boosted Utah’s economy during the past year.

The spending fueled an astonishing increase in tax collections for the state, and it appears the trend may continue. If it does, lawmakers may have lots of additional money to spend next year.

New revenue numbers from the Utah State Tax Commission show overall tax collections for the first nine months of the fiscal year that ends in June are $1.52 billion more than the same period last year, which is a 19.3% increase.

Most of that money comes from increases in individual and corporate income tax collections. Individual income taxes are up by more than $1 billion while corporate taxes have increased by $119 million. Next year’s budget is $21.7 billion.

Those numbers are larger than what lawmakers were expecting. In the just-completed 2021 session, projections showed a little more than $1.4 billion in additional revenue, which they used to set the budget for next year. Given that there are still three months to go in the fiscal year, it stands to reason the revenue surplus will grow.

“We anticipated a lot of cash coming in, but it’s going to be hard to determine if it’s one-time revenue or ongoing,” said House Majority Whip Mike Schultz, R-Hooper.

Not all good news

Gas tax collections are about the same at the same point last year. Gasoline taxes are used for road construction and maintenance. Aviation fuel taxes have dropped by more than 23%, mostly because fewer Americans have traveled during the pandemic.

Some of the revenue increase can be attributed to the shifting of last year’s tax filing date to July 15, which was after the start of Utah’s current fiscal year. In practical terms, money lawmakers thought was going to be accounted for last year is showing up now. This year’s tax collection date was delayed to May 15, but it won’t cause the same problem because Utah’s fiscal year begins July 1.

Legislative budgeters were already wary of the potential impact of billions of dollars from the first two rounds of federal coronavirus spending. In anticipation, they took about $500 million of this year’s projected ongoing revenue and treated it as one-time money in case that cash evaporated in the future.

This is mostly so they avoided the temptation to fund ongoing programs with a source of revenue that could disappear. It’s also why Utahns probably won’t see a big tax cut, because those cuts come from ongoing revenue.

The newest federal relief package will inject another $8 billion into the state, with nearly half of that coming from the $1,400 direct payments to Utahns. All that federal cash could supercharge the state’s economy, and lead to significant revenue surpluses again next year.

“The federal government can’t keep spending that much money in Utah and sustain it,” Schultz said. “That where we think a lot of it is coming from. As soon as it dies down, it will go away.”

Special session coming soon

Lawmakers will have to hold a special session to accept and distribute incoming federal cash. They plan to hold it in May.

One-time money traditionally pays for things like buildings, roads or other construction. Schultz said they could use it to invest in infrastructure projects if they see another big surplus next year in one-time cash. But, he admits that might be a difficult sell as lawmakers just agreed to $1.2 billion in infrastructure spending, which includes $200 million in bonding for transit projects as well as millions for improvements at Utah’s state parks.

“We just approved the biggest one-time infrastructure bill in our history. I just don’t know how we spend all of that money,” Schultz said.