Jason Olson, Deseret News
Gov. Gary Herbert unveils his recommendation for the FY 2010 and 2011 state budget during a press conference at the capitol Friday, Dec. 11, 2009. Jason Olson, Deseret News

Gov. Gary Herbert is counting on the state climbing out of the red next year — without any tax increases.

"As we look forward, there is a sense of hope and optimism," the governor said after releasing his first state budget proposal Friday. "I think there is, in fact, some daylight at the end of the tunnel."

His $11.3 billion spending plan for the budget year that begins July 1, 2010, calls for no cuts in public or higher education and even a modest $151 million increase spread among other state agencies.

But even though the governor believes state revenues will finally start heading up, he said tax collections have fallen another $183 million short in the current budget year.

To help cover that shortfall, Herbert said he'll sign an executive order mandating a 3 percent cut for state agencies that will last through June 30, 2010, and recommended tapping other sources, including a $100 million fund set aside for schools. The governor is leaving it up to state agencies to decide how to cut.

Those reductions could mean furloughs for some state workers, possibly as much as one day a month for the next six months. Herbert said agencies are being asked to look everywhere for savings, such as money now being spent on bottled water and transportation.

Come the start of the next budget year, though, Herbert believes state finances will be on the rebound.

"That's not pie-in-the-sky," the governor told the Deseret News editorial board later Friday. "I'm not just being Pollyanna."

Of course, he said, the $34 million net gain in revenue he's budgeted isn't a lot. "But it shows we're moving in the right direction," he said.

Raising taxes now could reverse the turnaround, Herbert warned. The governor honored his pledge not to propose tax hikes in his budget, although he does suggest that individuals pay quarterly state income taxes if they don't have paycheck withholding. Herbert also wants lawmakers to take away the 1.31 percent of sales taxes that larger retailers are allowed to keep as compensation for collecting the revenue for the state.

"Tax hikes at this point would be counterproductive to our long-term economic stability and vitality," he said.

But there will still be special interest groups and some lawmakers, including Republicans in his own party, who'll want them. GOP legislative leaders are already talking about boosting the tobacco tax as well as restoring the sales tax on food.

Herbert said now is not the time to burden taxpayers who are struggling themselves as a result of the nation's economic crisis. Better, he said, to wait until the state's finances are on firmer footing before raising taxes.

"If we don't do it today, we can certainly do it tomorrow," the governor said. "It's not like we're going to miss out on the opportunity to raise taxes."

State income, sales and other taxes account for $4.8 billion of the budget, while the remainder comes from federal funds, fees licenses and other revenue.

No new revenue sources — and, likely, no more federal stimulus funds — means Herbert had to perform some fancy budget footwork to balance next year's budget. He's suggested using nearly 40 percent or about $166 million of the state's Rainy Day Fund; the rest of the money set aside two years ago for schools; more bonding for roads instead of paying cash; and a bit of leftover federal stimulus money to finally balance out both budget years, in addition to the tax collection changes.

And Herbert isn't funding growth in public and higher education, either. The state's public school system is expecting 11,000 new students next year, which the governor said means, on average, an additional student in every classroom.

Legislative leaders were briefed about the budget Friday morning.

Senate Minority Leader Pat Jones, D-Holladay, said she has some concerns. "I appreciate that he is trying to hold taxes down. We all are," she said. "But I am very concerned about the amount of one-time money going into the budget."

House Speaker Dave Clark, R-Santa Clara, said he likes Herbert's budget as presented, but worries that for the last several years Utah has been spending "9 or 10 percent more than we are bringing in," and filling the gap with one-time monies, be it the Rainy Day fund, federal stimulus or other sources, that "won't be around in a few years."

The governor's proposal tallies the total budget gap the state is facing at $693 million, considerably less than the up to $1 billion lawmakers have been discussing. Clark said it's "really sixes" how the gap is closed over the two budget years.

As important as Herbert's budget is, the Legislature will get new tax revenue updates in February which will determine the final totals for both this and next year's spending plans.

On the political side, Herbert denied that he drafted a "no new taxes" budget as part of his 2010 election bid, adding that good, responsible government is good politics, too. While that may be so, it's clear GOP legislative leaders are backing Herbert to the hilt next year, and supporting his budget is part of that.

House Majority Leader Kevin Garn, R-Layton, said, "He's our guy. We support him." They want Herbert elected next year, and they aren't going to rock the ship, either on the budget or in other areas, to harm his election chances.

As part of Herbert's-our-man attitude, Garn said, "We are inviting the governor to present his budget in our daylong (House GOP) caucus meeting on Monday. … We've never done that before. We will take this governor's budget recommendation seriously."

Indeed, the budgets of former governors Mike Leavitt, Olene Walker and Jon Huntsman Jr. were rarely discussed in official legislative budget committee meetings, lawmakers working off of agency base budgets put together by their own fiscal analysts office.

Herbert said his budget is different. "Based on today's economic conditions, it's a pretty remarkable thing we're doing," he said. "I think they're going to have a hard time getting away from the common sense of this one."

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