Fiscal maneuvering by Utah lawmakers during the 2022 legislative session helped the state build a budgetary bulwark should the nation’s economy slip into a recession.
As part of Utah’s $26 billion budget, legislative leaders paid off more than $500 million in debt and added nearly $400 million more to various funds to give them some flexibility if economic conditions begin to deteriorate.
They may very well need it, as the state’s economy is facing some significant headwinds.
Legislative staffers briefed lawmakers on the Executive Appropriations Committee on the state’s fiscal health and what the Legislature can expect for the remainder of the year. Inflation is a major concern.
April’s consumer price index showed prices up 8.3% year over year, which is slightly down from the previous month. But prices in several categories have skyrocketed in Utah over the past year. The cost of food is up by 9.4%. Egg prices have jumped more than 10%. Gasoline prices have shot up nearly 44% over the past year. When you remove food and energy prices, which are more volatile, the core inflation rate is 6.2%.
It’s still uncertain whether the current inflationary cycle is temporary or permanent. Dr. Maddy Oritt, a senior economist for the Utah Legislature, says psychology plays a big role in that determination.
“It can become a self-fulfilling prophecy. If consumers are starting to expect inflation to be of longer duration, it can become entrenched for that reason,” Orrit said.
It’s not all bad news, though. Overall employment in Utah has increased by 4% over the past year, while the state’s unemployment rate is sitting around 2%, compared to the national average of 3.6%. The employment silver lining has a corresponding dark cloud though, as legislative leaders were warned job growth and low unemployment usually leads to wage growth, which could have a chilling effect on the state economy.
While it’s not certain a recession is coming, Utah has prepared itself to weather the economic storm. The state’s rainy day funds are flush with cash. There’s $256.8 million in the General Fund’s reserve account, while the Education rainy day fund sits at $630.2 million. For comparison, the state’s rainy-day reserve funds totaled just over $430 million when the 2008 economic crisis hit.
Another tool lawmakers have at their disposal should the economy sour are so-called “working rainy day funds.” Normally, capital projects like buildings, roads and other infrastructure are paid for using one-time money. Enormous budget surpluses over the past two years, which have been padded with federal economic stimulus and infrastructure money, have allowed lawmakers to pay for those projects using ongoing money, meaning that money can be shifted to other needs or even used to balance the budget.
Senate President Stuart Adams, R-Layton, called the budgetary shift a significant change.
“When I was in the (Utah)House in 2002, we were bonding for our buildings. Now we pay cash. When the economy turns down, we can take that money to backfill the revenue we need to be able to sustain the state,” Adams said during the Utah Taxpayers Association conference last week.
While the framework is in place to deal with an economic downturn, lawmakers don’t need to panic just yet. Tax collections are still trending above projections, which means extra revenue next year. If those excess funds materialize, Adams is already making noise about another tax cut in 2023.
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