Surplus poses problem

The General Funds surplus account is topped out at $132 million. The surplus fund for the USF, the main fund for public and higher education, is topped out at $123 million. So the state has a quarter of a billion dollars sitting in those accounts.

The Rainy Day funds are used just as the name says — to help the state get by when tax revenues fall short of expectations. In the early 2000s, when the state faced a $700 million shortfall over several years in anticipated revenues, the funds were drawn down to just $19 million. State lawmakers cut back on building projects, trimmed programs and spent the Rainy Day funds to get by.

While other states were forced into significant tax increases, Utah lawmakers raised only a few small taxes, according to the Utah Taxpayer Association.

"There will be extra cash available" when legislators meet in mid-January for their 2007 session because those funds have reached their limits, says Massey.

"They could just raise the 6 percent cap" on the Rainy Day funds, allowing more money to flow into them at the end of this fiscal year, he adds.

But there will be another challenge: Utah also has a spending cap law on non-education and non-transportation funding. And only $12 million more can be spent in the current fiscal year before that cap is also reached.

That General Fund spending cap bill was sponsored by Hughes several years ago. "We can still meet the challenge of paying for more public school students," said Hughes. But by not raising that cap "we won't find ourselves, as we did in 2002, coming back into special session six times to pare down budgets in midyear" if, or when, Utah tax revenues go south.

So legislators will be faced with a lot of cash and fewer places where they can spend it — leading to pressure to either lift the various caps, give tax cuts or spend the money in areas that may not be first on lawmakers' list of priorities.

"This will not be fun," said Hughes about setting the new budgets. "But these caps are actually a good thing — much better to deal with it now than later when we are in a revenue crisis."

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