Utah voters to decide whether to nix Utah’s education earmark. Here’s what’s at stake

Students work in a French class at Wasatch Junior High School in Salt Lake City on Tuesday, March 12, 2024. (Photo by Spenser Heaps for Utah News Dispatch)

Utahns have a complex but important question before them on the November ballot.

Should Utah wipe out its nearly 100-year-old constitutional earmark on income tax revenue (currently reserving that money for public and higher education and some services for children or people with disabilities) to, in a way, open the door to tax reform 2.0 and help address a budget flexibility issue?

Or should it leave that earmark in place — something Utah’s largest teacher union wants — and as a result, Utah lawmakers will need to find another way to deal with their constitutional budgetary constraints.

Those questions were center stage Wednesday when researchers with the University of Utah’s Kem C. Gardner Policy Institute provided a deep dive on the issue in an effort to unpack the crucial question before voters and what implications their decision will have on the state’s future.

In front of a room of reporters at the Thomas S. Monson Center in Salt Lake City, Andrea Thomas Brandley, senior education analyst, and Phil Dean, chief economist and senior research fellow, presented a policy brief published Wednesday titled “ Decoding the Income Tax Earmark: Proposed Changes to Utah’s Constitution .”

The briefing paints a picture of Utah’s budgetary reality: how income taxes are the state’s largest tax revenue source, making up 35% of state and local taxes. And it’s a revenue source that’s wildly outpaced other tax revenue sources such as state sales and use tax, and especially the gas tax, which has slowly declined.

A key factor voters should consider while weighing the constitutional amendment is the state’s “fiscal stability,” Dean told reporters.

“We have a long-term track record of being a very prudently fiscally managed state,” he said. Additionally, Dean said voters need to also consider any future impacts to education funding.

“Whatever the mechanism is, education funding is critically important,” he said, adding that the state’s education system has a significant impact on its workforce and its future economic health.

At the same time, Dean noted the state has other priorities that also need investment, as well as “a changing economy and a changing population.”

“Where we’ve been in the past is different than where we’re going to be in terms of the future, where we’ve had very heavy demands from our younger population,” Dean said. “Now what we’re seeing with declining enrollment in K-12 schools and other places, there are other demands that are also out there.”

If the constitutional amendment doesn’t pass at the ballot box, “the state has the risk (of needing to find another way of) figuring out how to deal with the 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,” he said. “And (lawmakers) are trying to head that off as best they can with this. So not passing this doesn’t make the problem go away. 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.”

Currently, state lawmakers can shift dollars between state accounts to create some budget flexibility within existing constitutional constraints, but Dean said they’re “bumping up against those limits.”

“In the past few budget cycles, the Legislature generally maxed out its budget flexibility on a one-time basis under existing constitutional arrangements,” researchers wrote in the policy briefing. “The Legislature shifted dollars between state accounts near the maximum extent possible under conventional interpretations of its budget flexibility.”
Even though about $1.5 billion in “ongoing funding flexibility remains available,” researchers wrote, “largely using one-time flexibility in recent budget cycles highlights the state’s flexibility challenge.”

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“Depending on other policy decisions, reduced flexibility over time potentially impairs the Legislature’s ability to fund General Fund programs such as law enforcement and public safety, housing, water (including the Great Salt Lake) and other infrastructure, air quality, mental health services, and other health care services, including Medicaid.”

The debate

In 1931, Utah enacted an income tax earmark reserving 75% of income tax revenue for public education. In 1947, the state increased that earmark to 100%. That constitutional earmark has been loosened twice, including in 1997 to allow income tax revenue to be spent on higher education, as well as in 2021 to open income tax dollars to social services for children and people with disabilities.

Now, the question is whether to remove the earmark entirely and open the income tax revenue to other uses — but only after using an unspecified portion of income tax revenue growth for student enrollment fluctuation and inflation.

Legislative leaders at the helm of Utah’s GOP-supermajority Legislature have long warned the state’s budget has faced a structural imbalance between sales tax and income tax revenue. That prompted the passage of SJR10 last year , putting the constitutional amendment on the 2024 general election ballot.

‘Against our values’: Teacher union opposes constitutional change to remove education earmark

The resolution asks voters to decide whether to open the state’s income tax revenue to also be used to pay for “other state needs.” The change would also specify in the Utah Constitution that the state can only use those dollars for other priorities after it uses a portion of revenue growth for “changes in student enrollment and long-term inflation.”

While those in favor of changing the constitution have argued it still protects education spending, critics say it doesn’t include strong enough language to guarantee the Legislature funds education at high enough levels.

The Utah Legislature passed SJR10 in 2023, but it wasn’t until March of this year that the Utah Education Association Board of Directors (Utah’s largest teacher union) officially voted to oppose the proposed constitutional amendment . UEA President Renée Pinkney said it was a decision that was “not taken lightly,” and ultimately the board decided the amendment “goes against our values and challenges what we stand for” while Utah “has yet to realize a fully funded public education system.”

In the face of concerns that it will open the door to income tax dollars to be funneled away from public education, Republican legislators have insisted education will continue to be a funding priority with statutory assurances, and they’ve said removing the earmark will allow more flexibility within the budget.

Republicans including Senate President Stuart Adams, R-Layton, have argued SJR10 was drafted with the intention of protecting education funding while also allowing greater budget flexibility.

“This proposed constitutional amendment offers a dual advantage: it guarantees new protections for education funding in a way that allows greater flexibility in addressing the pressing needs of the state while simultaneously eliminating the burden of sales tax on food,” Adams said in a prepared statement in March, in response to UEA’s vote of opposition.

Realities of Utah’s current education spending

Critics of removing the earmark note that Utah (a state known for its large families and young population) has long lagged behind other states , historically ranking last in the nation when it comes to per-student spending, according to the U.S. Census Bureau. In 2021, Utah moved up a slot to 50th in the nation when it outpaced Idaho , but in 2022 (the year of the most recent available data), Utah again ranked last, according to the census .

It’s worth noting Utah in recent years has increased public education spending, to the tune of more than $832 million this year alone.

While the share of public income tax revenue going toward public education has been decreasing since 1997 (after opening the fund up to higher education), the total amount of per-pupil spending has also increased over that same time period, from about $10,000 per pupil in 2000 to roughly $14,000 per pupil in 2024, according to the Kem C. Gardner Policy Institute briefing.

“However, education spending as a share of personal income (often used as a measure of education spending effort), declined over this period,” researchers wrote. “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.”

Though the debate over the proposed constitutional amendment has largely centered on the threat to public education funding, Brandley and Dean noted in their report that it would come with some assurances that at least some portion of income tax revenue be spent on public education

“While the proposed amendment allows use of income tax revenue to ‘support other state needs,’ the Legislature must fund the basic education funding framework as specified in the proposed amendment before using income tax revenue to fund other state purposes,” researchers wrote.

Current Utah law already includes a requirement to fund enrollment growth and long-term inflation in public education, as well as maintaining a budgetary stabilization account. However, state lawmakers could, if they wanted, change those requirements — unless the proposed constitutional amendment passes. Then those requirements would be enshrined in the Utah Constitution.

“While the Legislature controls state appropriations, the constitutional framework provides some security for certain education funding before the Legislature can fund state purposes outside of public education, higher education, and services for children and people with disabilities,” researchers wrote.

Brandley said the proposed amendment “does have a little bit more of a guarantee, technically, because of this public education funding framework.”

“However, the funding framework itself, again, doesn’t necessarily guarantee any amount. It just says there has to be a framework that allows some of the revenue growth to go to changes in student enrollment and long-term inflation,” she said.

Companion bills

Along with enshrining those statutory assurances, if voters were to pass constitutional amendment, two other “companion bills,” as Dean and Brandley deemed them, would take effect.

The two bills, passed in 2023, include:

• HB394 , which would ensure that certain public state education funds would remain in place even if enrollment drops in future years, as projected. Contingent on the constitutional amendment passing, it would increase per-pupil spending every year for five years (from 2026 to 2030). Then lawmakers could opt to let it expire, or continue the program for an additional five years from 2031 to 2035.
• HB54 , would repeal the state’s portion of sales tax on food, which makes up 1.75% of the 3% rate Utahns currently pay in grocery taxes) the 1.25% local rate would remain. Should voters pass the constitutional amendment, this bill would provide a roughly $200 million tax cut that’s long been sought by advocates for low-income Utahns, who typically spend a bigger percentage of their budget on basic needs like food.

While HB394 would create an additional assurance that Utah increase public education spending at least over the next five to 10 years should the constitutional amendment pass, that guarantee is not permanent.

Additionally, making the repeal of the state’s food tax contingent on the passage of the constitutional amendment doing away with the education earmark left a sour taste in critics’ mouths. It was a move that some Democratic legislators called “gamesmanship” bordering on Washington, D.C.-style politics, by trying to entice voters with an issue not directly related to education.

Read the full policy briefing here:

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