Keep the earmark on Utah’s education funding or get rid of the state’s portion of the food sales tax? That’s the trade-off Utah voters will decide on in November.
The Utah Constitution states revenue generated from income tax, which made up 35% of the state’s budget in fiscal year 2023, must be allocated toward public education, higher education and services for children and Utahns with disabilities. This long-standing earmark started in 1931 but has been altered over the years. The most recent change came in 2021 which allowed income tax to fund services for children and adults with disabilities.
Lawmakers want more flexibility on how they spend income tax dollars. If a constitutional amendment to remove the education requirement is approved by voters, the Legislature will do away with the 1.75% state share of the statewide 3% sales tax on groceries.
Income tax is the only bucket of money that is mandated to be spent a certain way because of the constitution. Other tax revenue, like sales and property tax, have more leeway when it comes to how it is spent.
A new report from the University of Utah’s Kem C. Gardner Policy Institute breaks down the proposed constitutional alteration.
“It would be very similar to how sales tax currently functions,” said Senior Education Analyst Andrea Brandley. “Voters are also paying sales tax revenue. That revenue is deposited in the general fund, and then each [legislative] session, the Legislature decides where that money goes.”
What state lawmakers are asking for
Republican Rep. Karen Peterson sponsored the resolution lawmakers passed to put the change on the ballot. While the specific ballot language isn’t available yet, Petersen said it should be ready “within the next few weeks” and that it doesn’t “remove” the earmark but adds that income tax can be spent on other state needs.
“Let's guarantee education a basic level of funding, and then let's talk about what our state's needs, and then go from there and not create these artificial silos that are currently in the constitution,” she said.
Peterson added she doesn’t know if anyone has an eye on specific funding needs if the income tax can bankroll other things, but that it wouldn’t be replaced with another earmark.
Instead of a requirement to spend income taxpayer money on things enshrined in the constitution, the spending would be at the Legislature’s discretion. Phil Dean, chief economist for the Kem C. Gardner Policy Institute, said the Legislature could use money from income tax to pay for things like public transportation, public safety and air quality improvements. Overall, “the Legislature funds things exactly at the level that there's the political will to fund things.”
“So as you look at the state budget as it's enacted, it represents the will of the Legislature and their priorities, and people can evaluate that whether it's good or bad.”
Getting rid of the food sales tax
There has been a bipartisan push to eliminate the sales tax on food, although it hasn’t gotten far in the past. During the 2023 legislative session, it finally got across the finish line – kind of.
If voters approve of the constitutional amendment, it would automatically trigger a statue that abolishes the 1.75% state share of the sales tax on groceries. People would still pay the local and county levy of 1.25% tax on food.
The Gardner Institute found the average Utah family pays roughly $110 annually in state food sales tax. Dean considers it a “regressive” tax, meaning it hits lower-income families harder than upper- and middle-class families. However, their analysis found a 1.75% tax reduction would put more money back in the pockets of higher-income earners.
“A large portion of the tax cut, if the amendment goes through, will actually go to higher income households because they pay more in terms of dollar amount of sales tax on food,” Dean said.
In all, they estimate that “30% of households with the highest incomes will receive about 40-50% of the proposed tax cut, while the 30% of households with the lowest incomes will receive about 10-20% of the tax cut. The middle 40% of households will receive about 35-45% of the tax cut.”
Reforming income tax isn’t the only option to deal with the potential flexibility problem.
Lawmakers could decide to cut income tax and increase sales tax and “that would shift money into the general fund that has more flexibility,” Dean said. It could also defund programs altogether or it could “push the envelope in interpreting the current constitutional language” that narrowly tailors how the money from income tax can be spent. To Dean, that option poses a “legal risk.”
Peterson said the Legislature has had conversations about a sales tax or fees as ways to generate revenue outside of income tax.
“We could make that shift as a state, and we could just eliminate the income tax altogether. I think that's difficult as a state,” she said.
However, Dean said if the amendment doesn’t pass, the state still needs to eventually fix the budget flexibility issue.
What it means for education
The proposed constitutional amendment would allow lawmakers to use income tax money for any “state needs” as long as they first use the money to maintain a “statutory public education funding framework.” This doesn’t guarantee how much will be spent on education, it simply says that the state has to first use some portion of the income tax revenue to cover certain education needs before moving on to other things.
Brandley pointed out that the current education earmark only guarantees what income tax revenue is used for. It doesn’t guarantee a certain level of education funding.
“As far as the functionality of the earmark itself, it's not currently guaranteeing anything. The proposed one guarantees, like, a little bit more, but also doesn't super guarantee anything,” Brandley said.
State code already requires the adjustment of education funding to cover enrollment growth, inflation and a budget stabilization account.
The state’s largest teacher union opposes the proposed amendment to open up the income tax fund.
“The [Utah Education Association] Board of Directors believes the proposed amendment goes against our values and challenges what we stand for,” President Renée Pinkney wrote in a March letter.
Pinkney went on to say “we have yet to realize a fully funded public education system in Utah.”
For years, Utah has been known for spending less per pupil than most states.
Still, Utah’s spending has increased over the past two decades, according to the Gardner report. Brandley pointed out lawmakers have repeatedly increased per-pupil spending above what’s statutorily required to cover student growth and inflation.
“However, education spending as a share of personal income (often used as a measure of education spending effort), declined over this period. In 2002, Utah’s education expenditures equaled 5.1% of the state’s total personal income, the sixteenth highest share nationwide. In 2022, this share fell to 3.5%, and Utah ranked 40th among states,” the report reads.
Additionally, the report says “Growth in education spending does not correlate closely with growth in income tax revenue over time. In practice, the income tax earmark does not directly guarantee K-12 education funding levels.”
Petersen believes public education will receive more funding if the amendment passes because it puts the requirements in the state constitution, instead of just the state code. She sees that as a bigger guarantee since state code is easier to change. She said per-pupil funding could also be increased.
If voters pass the constitutional amendment, it would also trigger HB394, a 2023 companion law titled “Hold Harmless for Public Education Enrollment.” Utah’s K-12 student enrollment is projected to fall in the coming years and a lot of funding is tied to enrollment. The law states that for at least the next five years, if the state is projected to save money because of declines in enrollment, those savings will be used to increase per-pupil spending. Lawmakers could extend it for an additional five years after that or let it expire.
As a reminder to voters, the official language of the constitutional amendment ballot question has not yet been made public.
