Tax collections that fund education and social services in Utah are down $119 million dollars in the first quarter of fiscal 2024, but lawmakers say they’re prepared for such a shortfall.
Under Utah’s Constitution, the state uses a bifurcated system for budgeting. Income taxes collected by the state can only be used to pay for public and higher education and some social services for children and people with disabilities. Everything else in the budget is primarily funded through sales and gas taxes.
Legislative budgeters anticipated individual income tax collections for July, August and September this year would be between $1.4 billion and $1.7 billion. The actual amount collected was just under $1.3 billion — about $119 million below the lowest projection.
Lawmakers predicted a drop in income tax revenue this year, projecting collections to be 2.4% less than the previous fiscal year. However, that decrease was not expected to manifest until next April due to the $480 million tax cut package approved by lawmakers in the 2023 session. So far, individual income tax revenue is down 1.2% from the first three months of last year, or about $16 million.
According to a revenue update provided to lawmakers on Tuesday, the state will need to see positive growth from individual income tax collections before April to meet the predicted negative growth rate.
Lawmakers already factored in the impact of the massive tax cut packages approved over the last two years into their projections, which makes the lower-than-expected revenues more troubling.
Outgoing House Speaker Brad Wilson, R-Kaysville, pushed back against the idea that revenues are falling, noting that lawmakers left about $500 million in anticipated surplus revenue unspent because lawmakers were wary it would not materialize.
“That revenue was what we called high risk,” Wilson said Wednesday. “We knew it was very volatile.”
Additionally, legislators can tap about $300 million in ongoing funding that is currently being used for one-time transportation projects. There’s also about $1 billion in several rainy-day funds if the situation were to worsen.
“I would not say that revenue was down by any stretch of the imagination. You look at where revenue is at today versus a couple of years ago, it’s really high,” Wilson added, saying that new revenue estimates expected next month would tell a different story.
Lawmakers want to change the state’s Constitution to, they say, provide more flexibility when setting the budget. The proposal, which will appear on Utahns’ ballots in 2024, would allow lawmakers to expand the current earmark for items beyond education and social services, but only after they meet certain budgetary goals for public education.