howardnlby Howard Stephenson
Governor Olene Walker just unveiled her first (and probably last) proposed budget which, for me, is my twelfth as a State Senator. During my tenure in the legislature I’ve seen tight budgets, loose budgets, difficult budgets and easy budgets, but I’ve never seen a bad budget — until now. Walker’s budget is viewed so uniformly unacceptable that even Walker’s own party caucuses in each house have rejected it outright and have decided to start with the current year’s budget as a base, rather than beginning the debate with the governor’s budget.

Many legislators believe Governor Walker’s budget proposal is irresponsible because it steals funding from critical areas such as roads and water which ultimately must be funded, and spends the money on public and higher education. This inevitably sets up the next governor and even local governments for huge tax increases over the next eighteen months. The governor claims that her budget restores “structural balance” to state finances which she says is necessary to please the bond rating firms, but her proposal accomplishes exactly the opposite. Olene Walker’s budget unabashedly creates even greater structural imbalances, by putting off until next year the tough decisions about how to pay for transportation projects and existing bonds. To prevent this from happening, the legislature will have to play Scrooge while Walker gets to play Santa Claus to the spending lobby.

Walker is proposing shifting $98 million in sales tax revenues from transportation and water projects to public and higher education. This includes taking $65 million in cash from the already-strapped Centennial Highway Fund (CHF). Walker was asked during the Republican Senate Caucus last week whether this raiding of the CHF will put the fund in an upside down position by making it unable to retire current bonded indebtedness She said said it would, but pointed out that even it the $65 million were kept in the fund, it would not solve the fund’s fiscal crisis. This is somewhat like a family which has only $1,000 to pay next month’s $1,500 mortgage, so they decide to spend the $1,000 on Christmas presents.

In recent years, Utah has consistently been recognized as the best fiscally-managed state in the nation and is one of only a few states with a Triple-A bond rating. These recognitions have resulted from commitment to maintaining reserves, ensuring revenue streams to pay our debts, and keeping spending within budget limits. As a result of this approach, Utah was one of the few states which made it though the recent economic downturn without general tax increases and without decimating essential services. Unfortunately, Governor Walker’s budget proposal would push Utah exactly in the opposite direction and would begin a California-type approach to budgeting.

The governor has justified the raiding of transportation and water projects because of the impending public school enrollment boom. Fortunately, legislators correctly understand that increased enrollment should be funded as the students arrive, not before. Capital expenditures should anticipate needs and be paid for over time, as the school buildings are occupied. On-going, operational spending should be funded on an as-needed basis. If operational expenditures are increased in advance of the 145,000 student enrollment increase, the spending lobby will surely insist on even more funds as these students actually enter the education system.

Walker has justified the transfer of sales tax revenues from water and transportation projects by claiming that these projects should be funded by user fees and that state taxpayers should not subsidize local governments. This proposal has several flaws.

Funding water and transportation projects with user fees makes sense, but fees are still a form of taxation. Increased reliance on user fees should be accompanied by decreasing the general taxes that are being supplanted by increased user fees. Otherwise, this is a net tax increase, contrary to Walker’s claims that her budget contains no tax increases. Similarly, shifting funding responsibilities to local governments must also be accompanied by a reduction in general state taxes since local governments will simply raise their taxes and fees. The people paying local taxes are the same people paying the state taxes.

Interestingly, the groups lobbying for an end to sales tax subsidies for state roads and highways are adamantly opposed to ending similar subsidies for mass transit, even though mass transit is more heavily subsidized by general taxes than state roads and highways.

Utah’s state and local sales tax burden is 9th highest in the nation and is 38% higher than the national average. Much of this is attributable to state and local sales tax subsidies for highways and transit. Due to this heavy sales tax burden, which impacts low income families the most, increased reliance on user fees should be offset by returning sales tax dollars to taxpayers.

Reducing general taxes while increasing user fees is sound policy since Utah’s state and local tax burden as a percent of personal income has increased from seventeenth highest in 1993 to ninth highest today. This increased tax burden is negatively impacting Utah’s long-term economic growth.

If the Governor’s proposal is accepted, you can count on the 2005 legislature being left with nowhere to turn but to increase taxes significantly. Local governments will also be forced to hike taxes as Walker takes their traditional revenue streams for her own spending priorities. The next Governor will be the bad guy in proposing tax hikes, while Olene Walker will enjoy a legacy of being the biggest friend public education ever had. When I described this scenario to her in a recent private meeting, Governor Walker said, “Next Governor? What makes you think I won’t be the next Governor?” She’s smart not to disclose until after the legislative session that she’s not running. Otherwise, she’d be treated like a lame-duck. But my money is on her not running. Nobody would set the stage for this kind of budgetary train-wreck if she were planning on being around to clean up the mess.