It was interesting during the recent Utah legislative session to see the four new top state officials in action: Governor Jon M. Huntsman Jr., Lt. Governor Gary Herbert, Senate President John Valentine, and House Speaker Greg Curtis. While there was some game-playing between the two houses, the four new leaders showed an ability to work together to achieve some pretty good things for a pretty great state.
Some observers are already pointing to the differences between Governors Leavitt, Walker, and Huntsman. Leavitt privately said he would rather be loved than feared, yet he had more than a few bare-knuckled fist-fights to get his way with the legislature. These rarely made the press. In Olene Walker’s single session of the legislature, this grandmotherly Governor showed herself to be a backroom negotiator with all the gentleness of a junk-yard dog as she won passage of her $30 million reading program.
Jon M. Huntsman on the other hand accurately describes himself as a trained diplomat, but a poor politician. With the tuition tax credit debate, there are many who hoped he would crack heads and win passage, but the measure narrowly failed in the House. He did work on swinging votes, but few feel there will be any price to be paid by those who told him they would vote for tax credits and then twenty minutes later voted against them. Many are wondering if Huntsman’s diplomatic approach will really work or whether he will have to learn some fighting skills to get through a four-year term.
The Utah legislature concluded the recent session by increasing expenditures by $592 million or 7.1 percent over the previous year’s FY2005 appropriation and by cutting taxes by $8 million. This year’s session is the first since 2001 that the Legislature did not have to deal with revenue shortfalls.
A recovering economy allowed the legislature to increase spending in excess of population growth and inflation while implementing some small tax cuts at the same time.
The Legislature was criticized by the press and various spending groups for appropriating an additional $120 million for transportation (“paving over the children”). However, transportation took the biggest hit by far during the recession, and even with the increased appropriations, transportation spending is still significantly lower now than it was before the recession.
This is the first budget in a few years which does not contain any bonding for capital projects.
The Legislature approved HB78 (Rep. Harper) that allows C-corporations to elect between the existing evenly weighted three-factor apportionment or double weighted sales factor apportionment for state corporate income tax purposes. This will reduce corporate income taxes by $7 million per year. Most states are currently using apportionment factors that place heavier weighting on sales factor. Utah exporters such as manufacturing, IT, and mining are disadvantaged under Utah’s current evenly weighted three-factor apportionment due to other states placing heavier emphasis on sales factor. In many cases, these Utah-based multi-state exporters have more than 100% of corporate profits subject to state income taxes when state taxable income from all states is considered . With heavier emphasis on sales factor, Utah exporters will be more competitive with their out-of-state rivals.
Tax and Fee Hikes
SB8 (Killpack) allows counties to impose a $10 per year motor vehicle registration fee that will be earmarked for transportation corridor preservation. If all Utah counties impose this fee, total impact to taxpayers will be about $17 million per year. Most likely, fast growing urban counties along the Wasatch Front as well as Washington County will impose this fee, which will result in a slightly lower fee increase of roughly $14 million. The bill was passed 20 minutes before midnight on the last night of the session.
A broad coalition of groups including The Utah Taxpayers Association, the Utah Association of Counties, citizens groups, and the UEA teachers union and other education groups, banded together to advocate for RDA reform. SB184 (Bramble) enacted the following reforms
- Prohibits RDAs funds for stadiums, convention centers, and cultural facilities
- Prohibits RDAs from using eminent domain
- Prohibits RDA extensions (time and size)
- Imposes one-year moratorium on new retail RDAs (those RDAs whose blight studies were authorized before February XX are exempt from moratorium)
Strangely, the Legislature’s most strident anti-business members resisted even minor attempts to curtail RDAs, rationalizing somehow that subsidizing soccer stadiums and Wal-Marts made more sense than cutting taxes for high-wage exporting industries like manufacturing, mining, and IT.
State Employee Accrued Sick Leave Conversion
HB213 (D. Clark) will save taxpayers millions of dollars by changing how state employees convert accrued sick leave at retirement. Under current law, retiring state employees can convert eight hours of accrued sick leave (after 480-hour deduction and any “cash out”) into one month of health insurance coverage. With HB213, 25% of accrued sick leave will be transferred into the employee’s 401(k) based on the employee’s hourly wage and the remaining hours – after deductions, which are phased out after 2012 – will be distributed to a Medical Savings Account.
The conversion of accrued sick leave to health insurance cost the state $8.8 million in FY2001. Without HB213, this conversion would have cost the state $16.3 million in FY2005, a 16.7% annualized increase. Within ten years, the cost would have quadrupled. This rapid growth is being driven by inflation in health care costs and growth in the number of employees retiring. Without HB213, taxpayers would have been faced with significant tax increases, or state employees would have been forced to forgo pay raises.
State taxpayers are treating state government employees fairly, despite an absence of pay raises in recent years due to a struggling economy that has caused pain for taxpayers and state employees alike. Utah is one of a small group of states where taxpayers still pay 100% of state employee retirement costs. State workers will continue to receive about 104 hours sick leave per year.
Streamlined Sales Tax (SST)
The Legislature passed to SST bills this year: SB127 (Hillyard) and HB107 (Harper). SB127 repealed tax increases from last year’s SST bill. SB127 repealed the following sales tax increases (which were never implemented due to the Legislature’s decision to delay implementation in last June’s special session).
- automobile rebates
- installation and repair of tangible personal property
- Separately stated FOB-origin shipping charges