Utah legislative leaders were told Tuesday that tough financial times are still ahead for state government — with tax collections not rebounding for another 12 months.

And come July 1, the start of a new fiscal year, the state could be up to $40 million in the black, or $40 million in the red.

While those two scenarios may not mean much to citizens of the Beehive State now, ending this budget year in the red and a prolonged recession could well mean some targeted tax hikes come the 2010 Legislature.

"We will have a very daunting year in 2011," said Sen. Lyle Hillyard, Senate budget chairman. The 2011 budget will be set by the 2010 Legislature.

Because legislators in March pumped a lot of one-time moneys into the 2010 budget and used hundreds of millions of dollars in federal stimulus money for next year, it is really the next fiscal year — 2011 — that is so troublesome. Lawmakers could find a $700 million gap to fill, most likely through another round of budget cuts, $400 million of which were preliminarily set in March, combined with some tax hikes.

Legislative leaders have talked about increasing both the cigarette and alcohol tax rates next year.

Meanwhile, Democrats could already be sharpening their political knives for the next legislative elections.

Sen. Minority Leader Pat Jones, D-Holladay, said that if the Legislature had not cut the income tax from 7 percent to 5 percent and had not reduced the state sales tax from food, Utah would have had another $360 million.

However, Hillyard said that money would have just been built into ongoing budgets, and state government would have still faced relatively the same budget shortfalls as it does now.

Tax collections for the state's two main funds — the education and general funds — have dropped by nearly $1 billion over the last two fiscal years, legislative budgeters told the Executive Appropriations Committee, the main budgeting body made up of GOP and Democratic leaders in the House and Senate.

Considering that Utah's budget is only $10.5 billion, that's a considerable cash plunge.

A June tax-collection report by the state Tax Commission, released Tuesday, shows that taxes in the state's two main funds are down 11.7 percent for the first 11 months of this fiscal year.

The largest percent drop comes in the corporate income tax, down 33 percent from a year ago. Personal income-tax collections are down nearly $300 million, the largest dollar amount of loss.

Utah's economy slipped into recession March 2008, although state officials couldn't measure that until later.

The economic prognosticators' report said the Utah economy and state revenues won't recover this next fiscal year, which ends June 30, 2010.

That's bad news.

Lawmakers had hoped — now apparently in vain — that state tax revenues could rebound quickly, avoiding what could be a fiscal train wreck for fiscal 2011.

Still, Utah is far better off than many other states. California, for example, is facing bankruptcy. And some governments can't sell their bonds, while Utah has a AAA bond rating and recently sold some bonds at 1.7 percent, a very fine rate.

House Speaker Dave Clark, R-Santa Clara, a banker, said that for all the hundreds of millions of dollars that the federal stimulus poured into Utah, state government itself is doing a better job of stimulating the local economy.

The feds gave Utah more than $200 million for road construction, but the state's reconstruction of I-15 in Utah County costs $2.2 billion. Unfortunately, most of that state money won't be flowing into the local construction economy for months, if not a year, he added.

Andrea Wilko, chief economist for the Legislature, ticked off economic indicator after indicator, all down and some still dropping in Utah.

The state won't likely see job growth come back into a positive range until mid-2010, if then, she said.

In fact, while state government has cut back its work force, federal government employment in Utah and some local-government employment are actually growing.

The only other area of job growth is health care; all other sectors are losing jobs, Wilko said.

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