Governor Huntsman’s Proposed 2008 Budget

Total Spending Growth
Except for last year, we can’t remember the last time state spending was projected to grow so fast. Total state budget growth is proposed at 6.7% including federal funds, dedicated credits, etc. General fund /education fund spending is projected to grow a whopping 15.0% or more than $750 million.

For up-to-date analysis of the Governor’s budget, visit the Utah Taxpayers Association’s BLOG by going to http://utahtaxpayer.blogspot.com Edited by Association Vice President Mike Jerman, the BLOG offers current information on government spending and taxes which cannot be found from other sources.

As the current BLOG shows, the state surplus for 2007 is projected at $498.2 million compared with 2006 surplus of $308.4 million. Total new revenue is projected at an unbelievable $1.57 billion.

The governor is also proposing $114 million in supplemental appropriations for 2007. If approved, the 2007 post-supplemental budget will officially be 19.7% higher than the 2006 post-supplemental budget.

Are growth rates correctly stated?
To its credit, the governor’s office — unlike the Legislature — has always calculated budget growth rate by taking the difference in the proposed budget for the next fiscal year with the original, pre-supplemental budget for the current year.

The Legislature’s approach, on the other hand, understates eventual budget growth because it includes supplemental appropriations in the current year but excludes supplemental appropriations for the next year (because next year’s supplemental appropriations won’t be known for twelve months).

However, the governor’s office — like the Legislature — excludes earmarked general fund revenues when calculating general/education fund growth rates. Since the amount of earmarked general fund revenues continues to increase — from $102 million in 2006 to $215 million in 2007 and maybe even more in 2008 — total general/education fund growth rate is understated. Huntsman’s budget projects earmarked general fund revenues of $222.7 million in 2008, but the Legislature may increase that again.

Obviously, these are exceptionally high growth rates, and taxpayers should be concerned that government is growing at an unsustainable rate. Fortunately, the governor has budgeted a lot of ongoing and one-time cash for capital projects. This will be discussed further on the Utah Taxpayers Association’s BLOG.

Huntsman’s Proposed Tax Cut

Gov. Huntsman is proposing an ongoing individual income tax cut of $100 million starting in FY2008 as well as a one-time $50 million tax cut retroactive to FY2007. The income tax cut will be coupled with tax reform, including further reductions in Utah’s flat income tax.

Is the tax cut too small, too big, or just right?
Some people, like the editors at the Provo Daily Herald, think any tax cut is too big and any tax hike is probably not big enough. These people will never be satisfied no matter how fast government grows and no matter how much funding government has in reserve. Consider the following facts about Huntsman’s proposals for general/education fund expenditures:

– Governor Huntsman’s FY2008 budget is 15% higher than FY2007’s pre-supplemental budget (14.5% if earmarked sales taxes are included).

– Huntsman’s FY2007 budget including supplementals is 19.7% higher than FY2006’s final budget (21.9% if earmarked sales taxes are included).

– FY2007 rainy day fund balance is expected to reach $275 million, an all-time high and about 129% higher than the rainy day fund balance of FY2001 (the year before the legislature drew down the rainy day fund to balance the budget during the recession).

– Huntsman’s FY2008 budget includes $700 million in cash for roads and $200 million in cash for buildings.

– Huntsman is not proposing any new general obligation bonds. In fact, Huntsman’s FY2008 budget projects debt service expenditures of $239.5 million, which is 12.7% less than debt service expenditures in FY2005.

Considering these facts as well as our high state/local tax and fee now is an ideal time for a substantial tax cut.

Some argue that state government isn’t really growing even though state government is growing
Despite the proposed massive General Fund and Education increases, some argue that Huntsman’s budget proposal isn’t really growing government because a lot of the increase is being used for capital projects and the number of state employees isn’t increasing.

First of all, the number of official state government employees may not be growing, but the number of school district employees — mostly teachers — is growing. While nearly everyone agrees that more teachers are needed to handle enrollment growth, these should still be counted as employment growth since state funds account for about 68% of school district operating costs and since K-12 education is the largest single item in the state budget.

Second, capital projects are still government expenditures, even if they are considered “one-time” expenditures on a year-to-year basis. Moreover, since Utah will be growing at significant rates for the foreseeable future, capital projects — including transportation — really aren’t one-time expenditures from a long-term structural budget perspective since the state will have to continue to spend massive amounts of tax dollars on transportation for the next several decades.

How much will the tax cut be? The House Republican proposal of $300 million is the ceiling, and the Governor’s proposal of $100 million is the floor. Senate Republicans have deferred their decision to January. Democrats have not publicly addressed the issue yet.