Utahns to vote on a constitutional amendment that would alter how income tax revenues can be used

Come November, Utah voters will once again consider a proposal to alter the long-standing earmark on income tax revenue for education.

The earmark has twice been expanded by Utah voters, first in 1996 to allow income tax revenue to also fund higher education and again in 2020, to include non-education services for children and people with disabilities.

This time, a proposed constitutional amendment would remove the earmark that limits the use of state income tax collections to only public and higher education, along with some social services needs.

Republican legislative leaders maintain the change is needed to give the Utah Legislature more flexibility in its budgeting process as the growth of income tax revenue has outpaced that of local property taxes and state and local sales and use taxes.

A new report by the University of Utah’s Kem C. Gardner Policy Institute says “removing the constitutional earmark would improve budget flexibility for state lawmakers.”

However, it is not the only alternative to maintain budget flexibility, the report states.

“The Legislature could also potentially balance the budget through various other mechanisms. Lawmakers could increase infrastructure user fees (such as the gas tax and water fees to free up statutory earmarks), alter its tax portfolio by adjusting tax rates (such as by reducing the income tax and increasing the sales tax), decrease funding for some services, or shift expenditures across funds. Each option carries various tradeoffs,” the report states.

Another option in the report was limiting state funding for general fund programs such as law enforcement and public safety, housing, water, air quality, mental health services, and health care services including Medicaid.

The income tax earmark for public education dates back to 1931, when an earmark of 75% of collections was established. In 1947, the earmark was increased to 100% for public education, which remained in place for nearly 50 years.

However, “throughout Utah’s history, differing levels of general fund revenue also funded public and higher education,” the report states.

If a majority of Utah voters vote in favor of the constitutional amendment, two companion bills would take effect. One would repeal the state portion of sales tax on food . Utahns currently pay a 3% sales tax on food, including a 1.75% state rate and a 1.25% local rate. This bill would repeal the state’s 1.75% portion of the sales tax on food.

Sales tax on food is considered a regressive tax. According to the policy brief, “higher income households spend a higher dollar amount on groceries” while “lower-income households spend a larger share of their income on groceries.”

The other legislation that would go into effect if voters approve the constitutional amendment is described as a “hold harmless” measure that would ensure certain state public education funding would remain in place for five to 10 years if enrollment declines as projected.

Phil Dean, the Gardner Institute’s chief economist and an author of the policy brief “ Decoding the Income Tax Earmark: Proposed Changes to the Utah Constitution ,” said one important factor that voters should consider is the state’s fiscal stability.

“We have a long-term track record of being a very prudently fiscally managed state so that’s, to me, it really and just give my background how to work in budget issues like I think that’s a really important one to think about,” said Dean, who has worked in the governor’s office as state budget director and a legislative analyst.

Educators should also consider the ramifications for education funding, he said.

“As an economist, I think a lot about our workforce and kind of where we’re at as a state now, and where I think we need to be in the future and certainly having an educated population is a critical part of that workforce,” said Dean, who is also the Gardner Institute’s senior research fellow.

Utah’s future looks very different from its past, with respect to the demands placed on the state budget for education with a growing student population to the anticipated decline in enrollment and other state needs, he said.

In March, the board of directors of Utah’s largest teachers’ association took a position in opposition to the constitutional amendment, noting “We have yet to realize a fully funded public education system in Utah. The Utah Education Association has been protecting the promise of public education for over 150 years, and we don’t intend to compromise our values now.”

At the time, Utah Senate President J. Stuart Adams, R-Layton, called UEA’s opposition “disappointing given the Legislature’s relentless dedication to prioritizing education. Our track record speaks volumes about our commitment to education, which is evident in increasing education funding by 94% over the past 10 years.”

If voters reject the constitutional amendment, “the state has the risk of figuring out how to deal with this budget flexibility challenge, which is real,” Dean said.

“In my mind, at least, it’s not a crisis right now, but it could become one in the future, and they’re trying to head that off as best they can with this,” he said.

If voters reject the proposed constitutional amendment “the state’s budget flexibility problem still exists. They just have to figure out another route to manage it if they can’t manage it this way,” Dean said.

Ballot language for the constitutional amendment has not yet been made public.