Just last week, Utah Tax Commission economists said the state ended the fiscal year June 30 with a $106 million surplus in its two main accounts.

Utah House Speaker Marty Stephens, who is president of NCSL this year, said he agrees with Gov. Olene Walker that a fall special legislative session should not spend any of that money.

"It should be on the table when the (Utah) Legislature meets in January," said Stephens, who will retire in December after losing the GOP gubernatorial nomination earlier this year.

Legislatures across the land didn't react to the early 2000 revenue drops like they did in the 1991 recession, said NCSL Fiscal Program Director Corina Eckl, who wrote the new report. They didn't raise taxes as much.

In 1991, states raised taxes an average of 5.4 percent. If they had done the same thing in the last recession, they would have brought in an extra $30 billion to help balance their books. But, in total, states only brought in an extra $8.8 billion in new revenue sources in 2003, she said.

Instead, states were tapping their rainy day funds, which they built during the 1990s, Eckl said. Because of that, they were able to recover more quickly and not have to impact the taxpayers of their states.

"Lawmakers deserve credit for taking advantage of those robust years and building up their rainy day funds," she said. "A lot of states were very responsible."

Still, some states did raise taxes a bunch. Under court order to better fund its public education system, the Arkansas Legislature just recently raised taxes by more than 5 percent. New Jersey and Rhode Island also raised taxes significantly, according to the report, while Pennsylvania made slot machines legal in an attempt to raise funds.

But most states acted like Utah: They tapped into their rainy day surplus funds, cut budgets, spent tobacco settlement funds and raised a few special fees to get by.

Down the road, however, states are staring at some serious cash expenditures for federally mandated programs, especially Medicare. In Utah, however, said Rep. Ron Bigelow, R-West Valley, the outlook is not as drastic in other states because of the "conservative" budgets that are generally adopted, just as the budget shortfalls during the recession were not as bad for Utah leaders to handle.

"It's a little more subtle," he said. "We tend to not have radical swings."

The new report highlights concerns that taxing experts have pointed out for years and which Wyss also highlighted Tuesday: The U.S. state and federal tax systems need drastic reform.

"We tax production," Wyss said.

And if you're a business that also exports overseas, you are actually taxed twice. European and other growing economies tax consumption. And any European business that actually exports to the United States may pay no taxes at all.

"How can we compete in the world in that system?" asked Wyss.

But to get the federal and state governments to start taxing consumption — higher state sales taxes, a new federal "value added" tax — would be incredibly unpopular among voters and very hard to sell, both Wyss and Castellani said.

---

E-mail: bbjr@desnews.com