Governing generally is a bit easier during good times than bad, but good times often reflect good governing, especially when that translates into a minimum of interference in the private sector.
Gov. Gary Herbert’s proposed budget for 2018, unveiled this week, certainly reflects good times. However, it hits a lot of right notes that make us hope lawmakers join the chorus.
In particular, his emphasis on education, dedicating 72 percent of new revenue to things such as enrollment growth, teacher salaries and technology development, are the right approach in a state known for large families, and where education spending as a percentage of personal income has declined steadily in recent years.
Such spending priorities are made easier by an economy that, according to the most recent figures, maintains a 3.3 percent unemployment rate and is projected to provide the state with $382 million in new ongoing revenue. Utah’s fast rate of population growth presents many challenges, but it also provides added tax revenues and new jobs.
Government’s job is to keep up with that growth through essential services such as public education and transportation infrastructure. Herbert’s proposal would make the state’s transportation budget more flexible regarding mass transit, which is a welcome change (albeit prudently tied to some necessary administrative reforms by the Utah Transit Authority).
But it is in the realm of tax policies and reforms that the governor’s budget plan hits the best notes. It’s hardly news that the state grants too many exemptions, particularly for sales taxes, to various businesses and industries. The state’s subsidy of water districts, mostly through property taxes, inadvertently encourages people to use too much of an important and limited resource.
The governor’s budget discusses the role of a tax system in sending signals to citizens about how much it costs to provide services. “Consumers tend to spend more judiciously when paying directly for a service than when someone else pays for the service,” the report notes. That is in line with a legislative auditor general’s report two years ago that said Utah is going to need new and expensive water projects unless people begin using less.
When it comes to private businesses, Herbert notes that a chunk of the service sector is taxed, while another chunk is exempted from sales taxes. The state has issued more than 90 tax exemptions on specific items.
The answer is to reduce these exemptions and broaden the tax base, which could allow for the reduction of tax rates without hurting revenues. Governments have no business choosing winners and losers among private businesses.
Herbert also mentions making redevelopment and economic development agencies more transparent, and he suggests funding transportation projects through more direct user fees, such as expanding congestion pricing tolls or charging drivers a tax based on miles driven, rather than through gas taxes.
The only sour note he hit concerned a proposal to allow property taxes to rise with inflation. Utah’s truth-in-taxation law, which requires all local governments to declare a tax hike when collecting more revenue than the previous year (allowing adjustments for growth), has been a boon to homeowners.
A few years ago, the Utah Foundation issued a report showing Utah property taxes, as a percentage of personal income, had actually dropped since the 1960s, because of this law.
Governments have long clamored to be able to capture more taxes based on inflation. The concern they often ignore is that this hidden increase would make it harder for low-income and retired fixed-income people to survive.
The governor suggests expanding the so-called “circuit breaker” safety net that would keep such people from losing their homes to a tax sale, but the real harm would be to families whose incomes are just marginally above that safety net.
But while state lawmakers, not the governor, write the final budget during their annual legislative session, we hope lawmakers take the governor’s call for a fairer tax structure seriously.
While governing may be easier during good times, major tax reforms sometimes can be harder because the need isn’t as apparent. Smart and prudent reforms, however, can be important ways to ensure the good times continue.