Natalie Gochnour, associate dean in the David Eccles School of Business at the University of Utah and chief economist for the Salt Lake Chamber, addresses the Utah state budget in her article published on October 3, in the Deseret News: http://www.deseretnews.com/article/865612299/Utah-state-budget-2-the-rest-of-the-story.html.
Paul Harvey used to end many of his radio broadcasts with the tag line “and now you know the rest of the story.” It was a signal to listeners that every story has a story behind the story and only when you probe a little deeper do you capture the whole truth.
The same thing is occurring right now with the Utah state budget. There is a well-deserved but incomplete story about surpluses backed by a strong economy … and then there is the story behind the story. Utah lawmakers keep robbing Peter to pay Paul. Ultimately something will break.
Like a lot of idioms, the term “robbing Peter to pay Paul” has uncertain origins. I like the version that describes the act of taking money from St. Peter’s Cathedral in Westminster to pay for St. Paul’s Cathedral in London. Both cathedrals serve an important and valued service. By taking from one, you hurt the other, and yet both are important. Eventually you pay the price.
The same thing can be said about the Utah state budget. For over a decade the state has been cutting taxes, earmarking revenues and shifting funds to pay for critical state needs. It has worked great in the short term, but it is not a long-term strategy for success.
Here are the facts:
Tax cuts — Utah’s post-Olympic prosperity led to significant tax cuts. We reduced the sales tax on food and went to a flat 5 percent income tax. Together these changes reduced state revenues by approximately $400 million annually. Utah’s tax burden has now fallen from the 13th highest in 1999 to 32nd today.
Road building — Utah started an unprecedented and needed road-building campaign that included the I-15 core. We did so without raising the motor fuel tax, the primary and best user fee to pay for highway construction.
Lost purchasing power — Utah’s 24.5 cents-per-gallon motor fuel tax has lost approximately 45 percent of its purchasing power since 1997, the last time the Legislature raised this tax. Motor fuel tax is a per gallon tax and does not keep pace with the price level. Just to stay even the state must increase it regularly.
Earmarking — The Legislature began earmarking significant amounts of sales tax dollars to build roads. The earmarking of general fund money used to be frowned upon and avoided because it limited legislative flexibility. Now it is an accepted practice. General fund earmarks have grown from approximately $42 million in 2005 to $527 million today. Gov. Gary Herbert tried to reverse the trend by vetoing the last major earmark bill but was overridden by the Legislature.
Constitutional amendment — Utah voters passed a ballot measure that enabled legislators to use income tax dollars for higher education. This, combined with the use of sales tax earmarks for roads, started the complex practice of robbing Peter to pay Paul. In fiscal year 2015, the state spent $630 million from the education fund for higher education, $432 million in general fund for higher education, and $458 million in sales tax earmarks for transportation. The budget buckets have become completely co-mingled.
Significant need — Utah’s big three — education, transportation and water — all have significant needs. A growing economy requires investment in human and physical capital. As a high-growth state, Utah must provide Utah’s workforce with the skills of the 21st century and constantly maintain and invest in roads, pipelines and other infrastructure. It costs a lot of money to stay in front of the curve.
The president of the Utah Senate, Wayne Niederhauser, understands this dilemma and has been using his bully pulpit to force the difficult conversation. “The solutions are simple,” he says, “but they are politically charged.”
What are the solutions? I’m sure there are many worthy of consideration. We certainly need to be more innovative with the money we have. I also believe Utah should raise motor fuel taxes to recover lost purchasing power, increase water rates to help with water infrastructure needs, and consider a variety of ways to improve education funding.
Herbert and the Legislature deserve our praise for managing state finances so admirably during the Great Recession. Now we need to stop shifting monies and make the difficult decisions that lie ahead.
Now you’ve heard the rest of the story.