Dear friends and neighbors,
I hope you have a prosperous holiday season with your friends and loved ones. This is a great time for us all to gather in the spirit of unity, gratitude, love and joy. As you say farewell to 2019, I hope 2020 welcomes positive challenges and joyful experiences.
Last week the Legislature held a special session. I’ve received and read all your emails about tax reform. Below is a more detailed report on tax reform and the Medicaid appropriations bill:
1. What is a Special Session – Utah has one of the shortest legislative sessions in the country. Should an issue arise that requires attention outside the 45-day General Session, the Utah Legislators can ask the Governor to call a special session. Only legislative business in the proclamation issued by the governor may be considered while in a special session. A special session is unique because it allows for focused deliberation on uniquely specific matters. On Dec. 12, the legislature convened for a special session to consider the Tax Restructuring and Equalization Task Force’s recommendation following a call from the governor.
2. Why a Special Session/Tax Reform? – We have a budget problem. This is something that was brought to the attention of legislative leadership a few years ago by our non-partisan Legislative Fiscal Analyst’s office. When this first came to our attention, we thought we would have a couple of years before the issue started to impact our budget, but we are already beginning to see the impact of the imbalance of our budget structure.
In addition, this is a structural issue, not a revenue issue. We needed to find more reliable revenue sources that keep pace with the rate of population growth and can remain stable in times of economic hardship. The intention is not to implement a tax increase, but to change how we generate revenue for the three different funds.
After 17 public meetings, the task force arrived at an agreeable solution before the General Session. To have tax cuts begin in early 2020 and give us budgetary and revenue certainty as we prepare for the General Session, we needed to pass the legislation before the end of the year. Legislators came together to deliberate on this important issue in the Dec. 12 special session. Tax reform is an on-going effort; as we move forward, the 2020 General Session will allow us to make any necessary changes if and when they are needed.
3. SB2001 – Tax bills by nature are complicated and can be difficult to understand. S.B. 2001 Tax Restructuring Revisions enacts many changes to our tax code. You can read the complete bill here and a more technical bill summary here.
The tax reform package we passed last week created a $160 million net tax cut. The following graphic is a quick resource to help you see at a glance how the changes may impact you.
4. What’s Next? – Your input is valuable and highly encouraged as we continue to provide long-term, sustainable funding for public education, transportation and other core government services. During the General Session, we will be debating various issues on the Hill for 45 days, from January 27 to March 12. Thereafter, we will meet once a month during the interim to serve Utahns and our state in the best way possible. Please continue to provide feedback on this.
I will share just a few high-level points below:
Additionally, we expanded the “Utah Dependent Exemption” from $565 to $2,500. Many of our families were negatively impacted by the federal tax reform bill of 2017 when the U.S. Congress eliminated tax credits for dependents. This change in S.B. 2001 will be a great help to Utah families. Those who are eligible to receive this credit will receive a rebate in early 2020 based on 2018 tax filing.
An important part of stabilizing our revenue was restoring the full sales tax on unprepared food. We understand this can be burdensome to some of our population, which is why we created a “grocery tax credit” for low-to-middle-income residents. The grocery tax credit is a $125 refundable income tax credit for each member of the household, up to four people, then $50 for each additional member of the household. Those families and individuals at or below 100 percent of the Federal Poverty Level (FPL) will be able to receive a portion of the credit early, as a “pre-bate” if you will, in July 2020, to further offset the tax rate restoration.
For a few years now, I have heard from a number of my retired constituents about taxes on Social Security Income. This bill creates an income tax credit for Social Security retirement income. I think this is a real highlight of the bill and it will benefit our retired citizens who are living on a fixed income.
As a final highlight, on the tax credits created under the bill, we created an Earned Income Tax Credit for those experiencing intergenerational poverty.
b. Services – As we move to a service-based economy, we need to make sure we create a consistent approach for our businesses. Currently, a limited number of service industries collect and remit sales tax. This bill brings more service industries under that umbrella. It is important that we level the playing field for our businesses. You can find the full list of services in the bill in the technical summary I shared above.
c. Transportation Funding – It is essential that we properly maintain our infrastructure. Road maintenance and construction are best funded by true user fees. The gas tax is currently the best option we have for a user fee, but it is certainly not the perfect solution. As we see more hybrid and electric vehicles on our roads, we see a decline in gas tax revenue, even though there are more cars than ever on the road. As a temporary fix, we adjusted the gas tax to better fund transportation, but we need to transition to a true user fee option in order to fund infrastructure in a reliable and equitable manner. The Utah Department of Transportation (UDOT) is researching potential solutions on ways to implement a fair, true user fee and is required to report on the current status of user fees annually. Once net revenues reach certain thresholds relative to revenue generated by the sales tax on motor fuel, the Legislature will consider reducing the sales tax on motor fuel.
d. Education Funding – Education funding is an investment in the future of Utah. We have increased new spending on public education by $1.2 billion in the last four years, and that trend will continue. We did not address the constitutional earmark on income funding for education during the special session; this is something we will continue to work on and research as we look for more stable, flexible options that can offer additional funding for education. To create more funding for education this year, we shifted higher education funding from the income tax fund to the general fund, allowing more money to be rededicated to K-12 education.
Here are some articles I would recommend reading on this topic:
• Why Utah Has Become America’s Economic Star – Stephen Moore – Wall Street Journal
• How the Utah Legislature’s tax proposal will assist the most vulnerable – Natalie Gouchnor – Deseret News
• Utah’s tax reform plan is on the right track – Alan K. Ormsby, State Director, AARP Utah – Utah Policy
• Why Utah needed tax reform – Gov. Gary Herbert – Deseret News
• Utah Passes Tax Reform Bill in Special Session – Jared Walczak – Tax Foundation
Besides taxes, Medicaid funding was considered during the special session. As you know, behavioral health services in Utah are managed locally and funded through county programs. About 70-90 percent of that funding is appropriated by the state and comes from the federal government.
In the 2019 General Session, S.B. 96 expanded Medicaid and re-allocated $10.4 million in state funds from local mental health and substance abuse resource centers with the understanding that the money would be replaced with federal funds under the Medicaid expansion. In order for these federal funds to be replaced at the county level, Medicaid enrollment needed to hit certain forecasted targets, which it was projected to do. With enrollments coming in lower than originally anticipated, county programs are seeing budget shortfalls.
The bill passed during the special session–S.B. 2002 One-Time Appropriation for Behavioral Health, appropriates $3.9 million to behavioral health programs across the state to cover budget shortfalls. The bill does not appropriate new money to the program. It shifts unused Medicaid funds to the counties to continue to fund these important programs. Ongoing needs will be reassessed during the 2020 General Session following Medicaid’s open enrollment period in December.
Senator Ron Winterton
Utah Senate District 26