Here’s how much Utah’s schools would lose in a new tax cut

If lawmakers approve another tax cut in 2024, it will mean the Legislature will have cut $640 million from funding for public education and social services in recent years.

(Trent Nelson | The Salt Lake Tribune) The Utah Capitol in Salt Lake City on Thursday, Feb. 8, 2024.

Utah legislative leaders are warning there’s not much extra money to spend this year due to a cooling economy and inflationary pressures. However, they see no need to hit the brakes on a proposed $160 million tax cut.

On Friday, lawmakers unveiled new revenue estimates for the upcoming budget year, which show they’ll have slightly more cash to spend in the 2024-25 budget, which they will finalize over the next two weeks before they adjourn for their annual marathon of lawmaking on March 1.

If another proposed tax cut is approved by lawmakers this year, it will mean the Legislature has approved $640 million in cuts from funding that could go toward future public education and social service spending.

Sen. Jerry Stevenson, R-Layton, who is the Senate chair of the Legislature’s top budget committee, breathed a sigh of relief that there’s some extra money to spend, but it also means that most of the more than $1 billion in spending requests for next year won’t be funded.

“If I have a slow year, I’m going to drive my truck a year longer. There are lots of things you can do to reallocate as we go through the process,” Steveson said Friday. “Some things that were really important a year ago may not be quite as important now.”

Appropriations committees spent the first part of the 2024 session combing through the budgets of individual state agencies to identify potential cuts. Most of those savings were reallocated to other areas in the budget. The extra revenue means there’s no need to make additional cuts for next year.

The extra revenue is even better news, considering a $119 million shortfall at the end of last fiscal year. Senate President Stuart Adams, R-Layton, said lawmakers easily covered that deficit by shifting ongoing revenue to pay for one-time expenses like buildings and roads.

“Almost $2 billion of our budget is one-time expenses being funded with ongoing money. If we needed to, we could cut $2 billion out of our budget, stop building projects, and take that ongoing money and fund ongoing programs with it,” Adams said.

“I was just glad to hear there’s more, not less,” Sen. Jennifer Plumb, D-Salt Lake City, added.

Tax cuts — again

The new revenue numbers also mean lawmakers won’t have to back away from a coveted $160 million tax cut. Legislative leaders put that money aside in December.

Utah’s Constitution splits the state budget into two separate pieces. Revenue from personal and corporate income taxes can only be used to fund public and higher education and some social services for children and disabled Utahns. Everything else, like sales and gas taxes, must fund the remainder of the budget.

Most of next year’s projected extra revenue comes from income taxes. That makes a tax cut an easier sell politically since lawmakers don’t have to take an axe to the budget this year.

Over the past two years, legislators have siphoned off more than a half-billion dollars in future annual revenue that could go to public and higher education to pay for tax cuts and a private school voucher program. That could increase to three-quarters of a billion dollars in future revenues if lawmakers go through with plans for another round of tax cuts and expansion of private school vouchers in 2024.

In 2022 and 2023, lawmakers pushed through $480 million in income tax reductions, dropping the state’s tax rate by 0.3%, from 4.95% to 4.65%. Before the 2024 session began, legislative leaders put aside another $160 million for another 0.1% rate cut.

Paying for those tax cuts requires lawmakers to raid future revenues that could go toward those constitutionally mandated costs. If the Legislature pushes ahead with another tax cut this year, it will have siphoned $640 million away from funding that could go toward future public education and social services spending.

On top of that, lawmakers approved the private school voucher program, dubbed the “Utah Fits All Scholarship,” in 2023. That initiative currently takes another $42 million out of potential public school funding every year. A legislative committee has recommended increasing funding for the voucher program to nearly $100 million annually.

If those items are approved, nearly three-quarters of a billion dollars that could fund education and social services will have been spent on tax cuts and private school vouchers.

Changing the Utah Constitution

Utah’s budget situation could get easier or more complicated depending on which way Utah voters swing in November.

Last year, lawmakers promised to eliminate the state portion of the sales tax on food, but only if voters approve a change to Utah’s Constitution that widens how income tax money can be used to fund.

The proposed constitutional change does not require lawmakers to use a specific amount of income tax revenue to fund public education. Instead, they would only be obligated to maintain a framework for public education that uses future revenue growth to cover inflationary costs and growth in student enrollment and to create a reserve to cover any future shortfalls. Once those requirements are met, lawmakers are free to shift that revenue to other parts of the budget.

If voters approve that change at the ballot box in November, the promised elimination of the state portion of sales tax on food will go into effect. Theoretically, lawmakers could decide to go back on their promise to get rid of that tax at any time for any reason. Reversing the constitutional change would be far more difficult since only lawmakers can put an update to the Constitution on the ballot.