Another fiscal year, another budget surplus.
On Friday, Legislative leaders unveiled new financial projections showing an additional $865 million in revenue for lawmakers to spend. But even with that extra money, the looming threat of inflation’s impact on the economy has lawmakers worried.
The Legislature already had an extra $1 billion to spend this year, most of which is one-time cash.
The majority of the new surplus is in the Education Fund, fueled by individual and corporate income taxes. That account has a little north of $2.68 billion extra to spend. $1.07 billion is ongoing, with the remainder as one-time cash.
Most of the ongoing money is already spoken for. Ahead of the session, lawmakers used $335 million to cover enrollment increases and inflationary costs for public schools, plus a boost in per-pupil funding. Another $200 million went to the tax cut package that passed earlier this session. Lawmakers have asked for another $86.4 million increase in per-pupil spending. The remaining has to cover everything else.
Sen. Jerry Stevenson, R-Layton, co-chair of the budgeting committee, says the substantial figures are reason to celebrate, but there are some dark clouds on the horizon.
“Our economy is performing at an amazing rate. The only disappointing thing is that we keep getting these inflation numbers, and that’s eating up everything we’re working on across the entire state and causing prices to go up,” Stevenson said.
“The purchasing power of $25 billion goes down goes really fast,” Stevenson added.
If there is an upside to inflation, it’s more money for General Fund, a result of more collected from sales tax. In Utah, sales tax collections are up to $410 million over the same time last year, a 20% increase.
The General Fund, which pays for everything else in Utah’s budget, has an additional $617 million in one-time cash and $429 million in ongoing money.
As with the Education Fund, some of that is already spent. Legislators plan to use $350 million in one-time cash to retire the debt on the new state prison and $200 million instead of bonding for the project to double-track FrontRunner.
The massive amount of federal money coming into Utah from stimulus and infrastructure packages are both a boon and a curse for legislative budgeters. They’re still trying to decide what projects they can use that money for, possibly freeing up the cash they can shift elsewhere in the budget.
A few years ago, lawmakers started creating what they call “working rainy day funds,” where they take ongoing money and use it for one-time expenses. That gives them more flexibility in case of an economic downturn, something legislative leaders are worried about.
“I’m very confident the economy will slow over the next year. We don’t know how much it will slow, so we are really careful about how we’ll spend this money,” Rep. Robert Spendlove, R-Sandy, said.
We’re already beginning to see signs of that slowdown. Income tax collections had been red-hot over the past two years as Utah saw one of the lowest unemployment rates in the country and has fully recovered the jobs lost during the pandemic. This year’s income tax collections are already $200 million less than the first seven months of the 2021 fiscal year, a 6.4% decrease. That’s still better than the 8.7% decrease state economists had expected.
Even as it appears income tax collections are beginning to slow down, Senate President Stuart Adams, R-Layton, was already teeing up talk of another possible round of tax cuts next year.
“We try to measure twice and cut once, and we’re taking money off the top to try to make sure we’re prepared for inflation or economic changes. Maybe 2023 is another year of the tax cut, but we’ll have to wait and see,” Adams said.