Citizen Referendum Suspends Tax Reform, Resulting in General Fund Uncertainties

Utah Legislators passed Senate Bill 2001, Tax Restructuring Revisions on December 12, 2019, to address decreasing sales tax revenue. Over the past several weeks, a referendum campaign sought to collect citizen signatures to express dissatisfaction over the proposed structure, specifically the increased grocery tax. These efforts culminated in roughly 152,000 signatures in support of the referendum. If the signatures are certified, the referendum will suspend any changes until the General Election in November 2020.

The revenue sources for these funds are currently dictated by the Utah Constitution. It states that all income tax revenue will go directly to the Education fund, and all sales tax revenue will go to the General fund. Due to Utah’s changing economy, sales tax revenues are steadily decreasing, while income tax revenue is steadily increasing. Governor Gary Herbert stated, “The issue is not how much [revenue] we are collecting, but how we are collecting it… Nearly 70% [of consumer spending in Utah] is going to largely untaxed services.” The depleted general fund has caused challenges in funding critical government operations.

House and Senate leaders aimed to address Utah’s changing economy and bolster General Fund revenue prior to the 2020 General Session. For many years, Utah’s economy has been transitioning from a goods economy to a services economy, leading to a depletion of the general fund. Dramatic alterations to the state’s tax structure were discussed during the 2019 Legislative Session, but failed to pass before the session adjourned. Due to House and Senate disagreement, lawmakers formed a task force to research and draft a bill. Throughout 2019, the taskforce held 17 hearings totaling 60 hours of public comment.

The Utah Public Employees’ Association (UPEA) released an official position statement on the tax bill on Dec. 9, 2019, with Executive Director Todd Losser speaking on behalf of public employees that evening at the final task force committee meeting before the vote. Losser urged legislators to keep state employee compensation in mind as they give credit to public employees for their money-saving efficiency, which has allowed for a large income tax cut. State employees have not received a pay increase above 2.5% since 2008. The Association advocated for a supported general fund, and for that money to be used to give appropriate compensation increases and benefits to public employees whose compensation is currently far below market.

Referendum Impacts

During the upcoming General Session, decisions regarding funding allocation will rely heavily on Utah’s tax structure. The referendum causes fiscal uncertainty regarding General Fund disbursement, including employee compensation increases.

Whether or not the proposed changes are implemented, UPEA must convince legislators to fund compensation increases for state employees. Achieving a significant increase will require the hard work of UPEA’s staff, leadership, current members, and all public employees. There is no better time to contact your legislators and boost UPEA membership!