by Howard Stephenson
Taxpayers dodged the bullet once again at the recent special session of the Utah Legislature. Lawmakers handled a $173 million shortfall in the now four-week old 2003 fiscal year budget by spending reserves, floating bonds to free up cash that had originally been budgeted for capital projects, and cutting or delaying spending. During the first six months of this year the legislature met in special sessions to solve a nearly $400 million revenue shortfall using similar methods, except that they did enact a $14 million, 18 cent per pack tax hike on tobacco users.
Lots of Painless Options
Thanks to sound fiscal practices of the past that just happen to have netted Utah numerous first place recognitions among the fifty states for best fiscal practices, Utah’s budget balancing has been easier than in many other states. The Beehive state had hundreds of millions of dollars in various types of reserve funds. Utah had a sizeable rainy day fund and had been paying cash for many capital projects, instead of bonding. This provided budget makers with the option of delaying projects or the option of bonding and using the cash to balance the budget. And Utah bonds have typically been issued for short terms of six to ten years rather than the 15 to 30 years that many states use. I-15 reconstruction bonds were planned to be paid off in ten years but had been issued for a 15 year term, to provide flexibility for budget makers. That flexibility is coming in real handy right now.
Education Budget Reductions Kept from Classrooms
Nearly all of the $45 million in cuts to public education spending for fiscal years 2002 and 2003 occurred by pulling back budget increases such as $10 million of increased school building equalization, $6.2 million planned to enhance voted leeway equalization, $20 million planned to create a new education rainy-day fund, and $5 million to fund one of two new teacher training days.
Those who claim that the legislature’s non-instructional cuts are resulting in larger class sizes or otherwise impacting the classroom, fail to admit that local school boards have built automatic cost increases into their budgets such as step and lane pay raises which, if not suspended during a year of no new revenues, require cuts in the classroom to balance school district budgets. But most local school boards aren’t suspending the automatic cost increases because local teacher unions won’t stand for it, and it’s easier just to blame larger classes and reductions in teaching staff on the legislature. The locals seem to know that the media isn’t about to take the time to explain the facts to the citizenry.
The Legislature Didn’t Cower in Cutting 2002 Budget
Last January during the first phase of budget cuts Governor Leavitt and many others insisted that the legislature use the rainy-day funds mid-year in January, and thereby reduce the need to cut spending. Fortunately for taxpayers, the Legislature held firm and left significant reserves in place in case the economic downturn continued into May and June — which it did.
The Legislature was under similar pressure back in 1997 when the plan for I-15 construction was set in place through the Centennial Highway Fund. The liberals and teacher unions at that time were calling for greater tax increases than the 5 cent per gallon gas tax hike that was passed and said that the legislature was “paving over people” and “putting highways ahead of children.” It is true that a significant share of the growth in income tax revenue, which had been previously reserved for public education, was spent for higher education to free up higher ed’s general fund sales taxes to subsidize the transportation fund. However, in hindsight, that practice was the best insurance policy imaginable against serious public education cuts in today’s bleak economy. That shift in revenue toward transportation in 1997 has now been shifted back into education, protecting our children’s education from what otherwise may have been draconian cuts.
The Legislature Caved to Pressure on 2003 Budget
The wisdom shown by the legislature in handling the $400 million budget cuts in 2002 was absolutely lost earlier this month when they dealt with the 2003 budget reductions of $173 million. Just as before, the Governor and leaders of the teachers union insisted that reserves be used to mitigate the size of spending cuts. This time the legislature initially held firm, but finally gave in and agreed to use most of the reserves. Legislative leadership’s original plan was to solve the $173 million problem with $103 million in budget cuts and the use of $70 million in reserves and cash for capital projects. By the time they were through, spending cuts amounted to just $73 million.
In the 2002 budget crisis, because the cuts came near the end of the fiscal year, the legislature was able to cut spending by only $105 million in addressing a nearly $400 million shortfall. The rest came mainly from reserves and bonding to free up cash for capital projects. But those were the options available at the end of a budget year.
Breaking the Rules the Made Utah #1
The Governor and Legislature broke a cardinal rule of budgeting in making the 2003 budget cuts earlier this month. The rule is that reserves are what you use at the end of a budget cycle, when you have no other choices, not at the beginning of the budget year. That is, unless you’re intentionally setting yourself up for a tax increase later in the year.
Because the governor and legislature violated this rule, the options are now seriously narrowed if the revenue picture continues to worsen. If revenues are seriously down next January when the legislature meets in session, the only choices left will be either difficult mid-year cuts in spending or significant tax hikes.
Hold on to Your Wallet!
There are already proposals for a 10 cent per gallon gas tax hike (Utah gas tax revenues per $1,000 of personal income already rank 7th highest in the nation), an individual income tax increase, and various new levies on Utah businesses.
Tax hikes are the worst thing lawmakers could do during an economic downturn. A state whose taxes and fees already rank 9th highest in the nation may find that tax hikes actually reduce revenue by stifling economic activity.
Let’s all hope Governor Leavitt was right last January when he predicted a “V” shaped economic recovery. If it’s “L” shaped, Utahns, hold on to your wallet!