Food-tax foes hit snag

The effort to take the sales tax off food ran into trouble Monday as Gov. Jon Huntsman Jr. and legislative leaders acknowledged they've been warned that the move could jeopardize the status of $1 billion in bonds issued by local governments.

Senate Republicans wasted no time in using the situation to push their caucus position — an income tax credit for the amount of sales taxes the average Utahns pays annually on food, somewhere around $75.

But the governor didn't budge from his pledge to wipe out the hated tax at the cash register, a promise he made during his campaign and repeated last week in his second State of the State address.

And even with the controversy over a new opinion issued by the state's bond counsel, House debate could begin as early as today on a bill removing the sales tax from food — legislation that's backed by the governor.

The opinion from two local law firms that serve as the state's bond counsel warns that eliminating or substantially reducing the sales tax base "presents significant legal issues and financial concerns" relating to bonds backed by sales tax revenues.

Those concerns, outlined in a document dated Jan. 19, could result in "substantial litigation involving the state and the municipalities, technical defaults . . . bond rating downgrades, reduced marketability" and even impair local governments' ability to issue future bonds.

According to the four-page document, since 2001, at least 28 cities, eight counties and a public transit authority in Utah have issued a total of approximately $1 billion in sales tax revenue bonds.

In a joint statement issued Monday, Huntsman, Senate President John Valentine, R-Orem, and House Speaker Greg Curtis, R-Sandy, said they'd been "recently notified that any significant changes in Utah's sales tax structure could have a negative effect on bonds issued by the state's political subdivisions."

Their statement goes on to say that the governor and legislative leadership have agreed to support legislation calling for an immediate moratorium on the issuance of any new bonds guaranteed by sales tax revenues "pending further analysis of the situation."

Valentine said the opinion is a "major obstacle to removing the sales tax on food at the cash register" and called his caucus' proposed income-tax credit "the most elegant solution" to deal with the issue.

The Senate GOP has yet to agree on specifics about the income tax credit, including which Utahns would qualify and how much they would receive. They have, however, decided all tax cuts given this year should total $100 million.