The Herbert Budget Anticipates a Tax Hike

The Herbert Budget Anticipates a Tax Hike?
Utah Governor Gary Herbert (Source: Wikipedia Commons)

[Correction: page 22 of Governor Herbert’s budget proposal contains a tax hike on e-cigarette’s by changing how they are considered under Utah law. According to page 22 of the Governor’s proposal, the change is worth an anticipated $10 million.H/t Robert Gehrke]

A Big Boost to Education

To much fanfare, Governor Gary Herbert released his proposed budget for fiscal year 2016 on Thursday. The budget proposes the largest increase to education funding in 25 years, and that’s laudable.

Delaying Medicaid Expansion Costs and Betting on the Future

In addition to boosting education funding (which I like, even if I’m not so excited about the how, but more on that in a moment), the budget proposal borrows against the future by allocating just $4.6 million to the Governor’s preferred form of Medicaid expansion (aka Healthy Utah), even though Medicaid Expansion is expected to cost $93 million by 2021.

Why not just set aside the ongoing amount, rather than gamble on future revenues? It’s like buying a car now, but not starting payments for three years.With the recession only recently in the rear view mirror, it’s not hard to imagine a scenario where the Healthy Utah costs more than we expect or the economy does worse than we hope. A fiscally conservative move would be to pay for it now rather than put it off until later.

Budget Should Have Been Based on the Current Fiscal Year

Shortly after Herbert announced his budget, a cryptic response appeared on the Utah House of Representative’s website.  After expressing appreciation for the Governor’s proposal, the incoming House leadership team noted that the Governor’s proposal “relies on statutory changes to our current tax law that will be considered and debated in the 2015 Legislative Session.”

I could be wrong, but “changes to our current tax law” sounds a lot like “a tax increase.” I’m also pretty sure that Herbert does not want to be stuck with being accused of proposing a tax increase.

Additionally, by proposing a budget that is higher than projected revenues, the proposed budget may not be in compliance with state statute.

Utah code calls for the Governor to propose a budget based on “a plan of proposed changes to appropriations and estimated revenues for the next fiscal year that is based upon the current fiscal year state tax laws and rates and considers projected changes in federal grants or assistance programs included in the budget[.]” (Emphasis added).

By proposing a budget that appears to be based on “statutory changes to [Utah] tax law,” the Governor might be pushing the envelope of what is required of Utah statute. His budget is based on changes to “state tax laws and rates” rather than on current tax laws and rates.

No New Taxes…But Counting On A Tax Hike?

While Utah code allows that the Governor’s proposal may propose changes to Utah tax law, the Herbert budget appears to assume changes to Utah tax law but doesn’t actually make those proposals.Technically, that means a change to the earmark formula, which in all likelihood is a gas tax increase (currently at 24.5 cents per gallon). Pragmatically, that means a tax hike at the gas pump.

The Governor’s proposed budget spends more money than currently in the General Fund and Education Fund consensus ‘surplus’ numbers, shifting money out of the Transportation Fund and presuming the success of legislation that raises two taxes, on e-cigarette tax and motor fuel. [Correction: page 22 of Governor Herbert’s budget proposal contains a tax hike on e-cigarette’s by changing how they are considered under Utah law. According to page 22 of the Governor’s proposal, the change is worth an anticipated $10 million.H/t Robert Gehrke]

Did you follow that? No one can ever accuse Governor Herbert of proposing a tax hike, because he never actually did. He just went ahead and spent the money from a tax increase (proposed variously by Greg Bell, former Lieutenant Governor, and Natalie Gochner, chief economist for the Salt Lake Chamber of Commerce), without ever having to propose the tax increase. Herbert will get all of the credit for a large increase in education funding without the visceral anger a tax hike will bring from voters.

Bob Bernick suggested that a look at former Governor Norm Bangerter might indicate how that could turn out. Despite polls that showed voters supported a tax increase for public education, Bangerter’s proposed, and pared down, tax increase incited a “citizen tax revolt” and “Bangerter was hammered politically and narrowly won a second term in 1988 by 2 percentage points in a tough three-way race.”

An Eye on 2016

Add the education funding increase (via an assumed tax hike) with the Medicaid expansion under Healthy Utah, and it’s hard not to wonder if Herbert is looking at 2016 with more concern about a challenge from moderate Democrat Jim Matheson than from conservative Republican Jonathan Johnson. Proposing Medicaid expansion and increased education spending, without proposing a tax increase, Herbert is trying to weave a narrow path down the political middle.

All Utahns benefit from an educated population. No one wants neighbors who are ignorant, employees that require remedial training, or voters who are uninformed. That’s why we have public policy that requires all of us to bear the burden of educating rising generations, even when we don’t have children ourselves. Long before I had children, I paid property taxes to support the schools in my neighborhood, and long after my kids head out into the world, I’ll be glad to continue paying my fair share.

If taxes need to be raised to fund education, Governor Herbert should use the bully pulpit to explain why he believes that a tax increase is right way for the state. Proposing a budget that assumes a tax increase without actually proposing the tax increase not only dodges the statutory requirements but dodges telling voters the full story.

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