With an eye toward the state’s growing population and aging tax code, Gov. Gary Herbert unveiled a $19 billion budget on Wednesday with a $200 million sales tax cut proposal as well as full Medicaid expansion and an education boost.
“Our budget is designed to maintain the great quality of life we’ve come to appreciate and expect and still allow for continued economic growth and expansion,” he said. “That’s a challenge.”
Speaking at Lehi nonprofit Silicon Slopes, home of the state’s burgeoning tech community, Herbert said his proposed budget will address the state’s growth-related challenges such as air quality and crowded schools while modernizing the state’s tax code.
The Republican governor’s signature proposal this year would allocate $200 million of new revenue to create a net sales tax cut reduction targeted at lower- and middle-income families while also proposing a host of new taxes and fees for lawmakers to consider.
“It’s a heavy lift,” he said of the number of proposals lawmakers will need to consider — from closing loopholes to taxing luxury services such as limousine rentals and cosmetic surgery. The Legislature has the final say over the state budget when it meets in January for the general session.
“We’re going to recommend to fix these inequities that disproportionately affect low- to middle-income earners,” said Herbert.
Over the last few decades, the state has experienced a decline in sales tax revenue as the economy has shifted toward online commerce and service-based businesses.
The governor said he hopes by broadening the base of goods and services taxed, the state will stabilize its coffers. At the same time, he said, offsetting those regressive levies with an income tax credit for lower income brackets could still yield savings for most taxpayers.
“If everybody pays their fair share, they can pay less,” said Kris Cox, director of the Governor’s Office of Management and Budget. “Our sales tax rate is the most vulnerable, and the most in need of reform.”
The governor’s budget blueprint is seeking a sales tax rate that is below 4 percent, down from its current 4.85 percent.
Pressed on the inclusion of a controversial food tax hike in his proposal, Herbert said he was not personally recommending it but would leave it on the table as a range of options lawmakers discuss next session.
“It depends on what the offset is,” he said.
The budget marks a 13 percent increase over the previous year’s, mostly due to a voter-approved expansion of Medicaid that would add close to $1 billion in spending.
More than $800 million of that will come from the federal government and only about $88 million from the state, funded through a slight increase in the sales tax.
Herbert, who opposed full expansion, warned that the sales tax increase that accompanied the law may not cover the state’s full share.
State budget experts say the low-income insurance program will now account for 26 percent of the budget, or about $3.5 billion, and cover 150,000 Utahns.
After voters rejected a gas-tax question to raise money for schools, Herbert said he is again prioritizing education in his budget, adding $445 million in new spending.
He said with this year’s proposal he’ll meet his administration’s goal of pouring $1 billion into the public education system in four years instead of five.
“The economy really is the goose that’s laying the golden egg,” he said.
Much of the new ongoing money comes from a complex funding compromise reached between the Legislature and backers of the education reform initiative Our Schools Now last session.
That works out to a 4 percent weighted pupil unit and $11,500 per student statewide.
“We can’t have long term economic success without a skilled workforce,” Herbert said.
The budget suggests another $30 million in one-time teacher bonuses and $32 million for school counseling and mental health prevention as the state grapples with a skyrocketing youth suicide rate.
Air Quality & Water
As winter inversion season starts, Herbert said he wants to pour an “unprecedented” $100 million of investment to address air quality issues. Utah’s Department of Environmental Quality can use those funds, he said, for updating old equipment and grant programs for swapping out gas lawn mowers or wood-burning stoves.
“The environmental issues are real,” he said, noting the state has work to do meet a goal of 25 percent reduction in carbon emissions by 2026.
As to the state’s most precious resource — water — Herbert will also push a statewide user fee to pay for water, a funding shift from current sales tax earmarks.
“The more that we can promote user fees, we feel, the better control individuals have over what they use and the more likely they are to conserve,” said budget director Kris Cox.
The governor is also proposing $50 million to encourage adoption of water-saving technologies, including smart meters for all schools, homes and state buildings.
$50 million to fund a higher education endowment for low-income, first-generation college students.
$6.2 million for an accelerator program designed to get college students to earn bachelor’s degrees in three years.
$20 million to purchase land to create Utah’s first state forest at Tabby Mountain in Duchesne County.
$17 million for the Olene Walker Fund to support affordable housing projects statewide.
$5 million to implement Utah Medical Cannabis Act passed by the Legislature on Dec. 3 during a special session.