Just as the leaves are turning and the snow starts to coat the tops of the mountains in Utah, lawmakers at the Capitol start turning their attention to the upcoming legislative session that kicks off in January. While legislation covering many different topics starts to formulate, one of the heaviest lifts that they face each session is setting the budget for the upcoming fiscal year. It is a critical part of what the Legislature does and it is the key driver behind what concerns all taxpayers – tax policy. One of the immutable laws of the universe is: taxes are a direct function of government spending.
In recent years, budgeting has been made easier as tax revenues have flooded the coffers of the State with cash, giving appropriations committees the ability to grow spending at the State level at a healthy pace. As you can see from the charts below, spending in the general fund and income tax fund have risen sharply since 2019. The growth in spending has not only increased, the rate of increase has also spiked, growing 25% year over year from FY 2023 to FY 2024.
|Total GF/EF/USF Spending|
The state budget operates on a fiscal year that starts on July 1st of each year and ends on June 30th. So, we are almost halfway through the fiscal year for 2024. The spending level for the fiscal year 2024 was set during the 2023 session and the legislature will now set spending levels for the 2025 fiscal year during the upcoming session in January. Elected officials look to the revenue forecasts done by the Legislative Fiscal Analyst Office (LFA), the Governor’s Office of Planning and Budget (GOPB) and the Utah State Tax Commission in order to determine what levels of spending are possible.
Those forecasts and the current revenues being collected are clearly starting to flatten out. Sales tax revenue is still growing, but that growth has dropped from around 10% growth to 4% and income tax revenue is now slightly negative at -1.2% in the latest monthly report. Whether it is sharply higher interest rates, rampant inflation or other factors, the cause of the slowdown will be debated.
However, one thing is certain: the rampant growth in spending needs to stop. Appropriations committees need to cool their jets.
As we detailed in our Pork Barrel report in 2023, not only has “ongoing” spending increased from $7.5 billion in FY 2019 to $11.1 billion in FY 2024, additional “one time” spending has been as much as $6.5 billion in just the 2021 and 2022 legislative sessions. With tax revenues looking like they will not be growing much at all year over year, the legislature needs to say no to endless requests for one time spending and implement cuts to the ongoing budget.
Cuts would not only be prudent and appropriate, they are miles away from draconian. With the massive growth in ongoing spending in recent years, the ongoing budget of $11.1 billion could be cut by as much as 10%, or around $1 billion, and still be $1 billion above the level of spending from less than 2 years ago in 2023, which was $9.3 billion.
While some might bemoan any cuts to education spending, recent data would make such a position seem greedy. While getting zero credit for it, the Legislature has given massive funding increases to education in recent years, growing state funding by 45% with a more than $1.5 billion dollar increase from FY 2019 to FY 2024. In addition, not only has local property tax revenue to education grown sharply in recent years, property taxes generated from the Statewide Basic Levy have ballooned more than $220 million in the last five years. Despite the piles of cash that have been shoveled into education budgets, there will no doubt be an endless list of demands and additional funding requests from the education community while enrollment growth has come to a halt this year and no improvement in education outcomes for Utah’s children has surfaced anywhere.
With critical spending decisions being made as soon as the December Executive Appropriations Committee (EAC) it is clear: the legislature needs to say no to endless requests for one time spending and implement cuts to the ongoing budget.