Utah lawmakers to consider constitutional change but promise to keep guarantees for education funding

By Marjorie Cortez and Katie McKellar Mar 4, 2020, 3:27pm MST

SALT LAKE CITY — A proposal legislative leaders say would ensure that public school enrollment growth is automatically funded while at the same time allowing income tax revenue to help children and people with disabilities will be rolled out on Thursday.

It would require amending the Utah Constitution so that income tax revenues could be spent on other things than education, something GOP legislative leaders referred to as their “last option.”

House Speaker Brad Wilson, R-Kaysville, said the proposal is intended to protect, grow and stabilize education funding while giving lawmakers greater flexibility to address the cost of social services that supplement educational needs.

The proposal would move Minimum School Program funding to a constitutionally protected account for K-12 education, some $3.4 billion by fiscal year 2022, which ensures the funding dedicated to public education, Wilson said,

Also, revenue reserves would help “smooth out the bumps” of fluctuations in school funding that have resulted from wide swings in income tax revenues, Wilson said.

Although income tax revenues have grown steadily during the current economic expansion, they dropped by 10% and 9% respectively in 2009 and 2010 during the economic downturn. In 2007, income tax revenue rose 12%.

Currently, there is no dedicated system to protect education funding during economic downturns, he said.

A hearing on the constitutional amendment, SJR9, is scheduled Thursday afternoon before the Senate Revenue and Taxation Committee. If it passes, SJR9, sponsored by Sen. Dan McCay, R-Riverton, would ask Utah voters whether the Utah Constitution should be amended to allow income tax to also fund services for children and people with disabilities, which are now funded through the General Fund.

Companion legislation, HB357, will be heard by the House Revenue and Taxation Committee at 5 p.m. Thursday.

Senate President Stuart Adams, R-Layton, said this approach leaves it to the voters to decide whether to expand the uses of income tax revenue.

A key selling point for the approach is “it gives us stability in funding education, which income tax doesn’t have right now, and it allows us flexibility so we can better manage our affairs in the state that fixes structural imbalance.”

It’s not a long-term fix to the structural imbalance between sales tax and income tax revenues, “but it buys time,” Adams said.

“I think if we get more time we’ll be able to solve this and continue to have the best tax and regulatory policy in the nation, but we just need a little more time,” he said.

HB357, sponsored by Rep. Robert Spendlove, R-Sandy, would expand local school boards’ ability to levy property taxes “for other needs in support of the school district.” Currently, the levy is limited to capital projects or technology programs or projects.

HB357 would only go into effect if a majority of Utah voters agree to amend the Utah Constitution to add new earmarks besides education.

Constitutional amendments require a two-thirds vote of the House and Senate to place the issue on the ballot in November. A majority of voters would need to approve the amendment for it to take effect.

Earlier Wednesday, House Majority Whip Mike Schultz, R-Hooper, said this proposal to amend the constitution is a last resort to solve Utah’s funding imbalance before it runs out of budget flexibility.

“We have one to two years left after this year before we hit the fiscal cliff,” Schultz said. “We heard loud and clear the public does not like taxes on services. So then we went and tried the sales tax on food. We heard loud and clear that does not fly.”

Now, “this is basically our last option,” Schultz said, and one that he said “has to be done” this year, an election year, as time runs out.

House Majority Leader Francis Gibson, R-Mapleton, added that “no one’s ever said we do not want to fund education,” pointing out there have been increases in education funding the past nine years. “It does show we’re dedicated to protecting school education.”

Under the Utah Constitution, income taxes can only be used for education, both public and higher education, although the state’s higher education system has also been funded by the General Fund. The education earmark would not change under SJR9, Wilson and Adams said.

The state’s other major revenue source, sales taxes, pays for much of the rest of the budget. But income tax growth has outpaced sales tax growth as the economy changes — an issue legislators sought to address with tax reform. Though last year’s tax reform package would have given Utahns an overall income tax cut of $160 million, the effort failed amid public outrage over legislators’ proposal to raise sales tax on food.

The reform bill in December came after legislative leaders pushed during the 2019 session to expand sales taxes on services, but they scrapped that bill after opposition from the business community.

Gibson said any perception that the constitutional amendment would not help education would be “shortsighted.”

“This is creating a guarantee for education,” he said. “There is no guarantee now.”

Schultz said lawmakers plan to set up a “public education stabilization and expansion account,” aiming to create a $100 million nest egg for education in the event of economic downturns. He said education advocates have complained the Great Recession “killed us,” and any recent raises lawmakers have given education funding have only “got us back to where we should have been.”

“The idea is to take the dips and valleys out of it, the high times-bad times, and keep a more stable steady trend that grows public education over time,” Schultz said.

Adams told reporters that House and Senate leaders have worked together on the plan.

”Looking at the structural imbalance and thinking about what might be palatable, trying to actually shift some of the income tax money so it can be used for CHIP and other children’s health services seemed to be a natural event. It seemed to be logical,” he said, along with people with disabilities.

”The two of them combined are something we’ve been talking about. The challenge is when you do that, there’s probably some question about the education funding,” Adams said.

Children may be added to the constitutional areas where income tax dollars can be spent, he said, because “a lot of people have commented it’s pretty hard for a child to do well in school (if they) don’t have good health care.”

Adams said money is continually being moved between the education fund and the general fund, so income taxes “doesn’t seem to be the warm blanket of stability that the education community needs.”

“So we’re actually suggesting we put in place in statute” commitments that state lawmakers will fund student growth and an annual inflationary adjustment that would take effect if voters approve the constitutional amendment, along with a $100 million or more education rainy day fund, he said.

There would also be new flexibility for school districts to use existing property taxes for operations, the Senate president said.

State Superintendent of Public Instruction Sydnee Dickson said the Utah State Board of Education has not yet taken a position on the proposal.

“While we’ve been at the table over the last week and a half with legislative leadership trying to find a solution, we are certainly expecting to go back to those that we represent and get their input and support for it. So, that’s the next step, making sure the education community is together on this and if that’s not the case, it likely won’t go forward to the people,” she said.

Terry Shoemaker, representing local school boards and superintendents associations, said neither organization had formed a position on the proposal.

One aspect that will likely appeal to them is automatically funding enrollment growth and inflation. “It sets a base that we’ve never had before,” he said.

The proposal is “relatively new and we need to analyze how it all works together,” he said.

House Democrats were frustrated that they learned of the proposal so late in the session — and increasingly frustrated when Schultz, who was expected to come to their caucus meeting Wednesday, didn’t show.

“What I am incensed with is expecting us to vote on this between now and the end of the session when it is sprung — not too harsh a word — on the 40th, what 38th day? Whatever the day is,” House Minority Leader Brian King, D-Salt Lake City, said. “Not cool.”

Chase Clyde, director of government relations and political actions for the Utah Education Association, told House Democrats the UEA has not taken a position yet on the proposal, noting negotiations are ongoing.

Contributing: Lisa Riley Roche, Sahalie Donaldson