Should Utah’s education funding remain earmarked or should the state’s share of the food sales tax be eliminated? That’s the compromise Utah voters will decide in November.
The Constitution of Utah States Revenue from the income tax, which accounted for 35% of the state budget in fiscal year 2023, must be allocated to public education, higher education, and services for children and people with disabilities in Utah. This longstanding earmark began in 1931 but has been modified over the years. The most recent change came in 2021, allowing the income tax to fund services for children and adults with disabilities.
Lawmakers want more flexibility in how income tax money is spent. If voters approve a constitutional amendment to eliminate the education requirement, lawmakers will eliminate the 1.75% state share of the state’s 3% sales tax on groceries.
The income tax is the only pot of money that the Constitution requires to be spent in a specific way. Other tax revenues, such as sales and property taxes, have more flexibility in how they are spent.
A new report from the Kem C. Gardner Policy Institute at the University of Utah analyzes the proposed constitutional amendment.
“It would be very similar to how the sales tax currently works,” said senior education analyst Andrea Brandley. “Voters also pay sales tax revenue. That revenue is deposited into the general fund, and then the Legislature decides where the money goes each (legislative) session.”
What the state politicians are demanding
Republican congressman. Karen Peterson sponsored the resolution passed by the legislature to put the amendment on the ballot. Although the exact wording of the ballot is not yet available, Petersen said it should be ready “within the next few weeks” and would not “remove” the earmark but would add that the income tax can be spent on other state purposes.
“Let’s guarantee basic funding for education, and then talk about the needs of our state. We can then move forward from there and not create these artificial silos that are currently in the Constitution,” she said.
Peterson added that she doesn’t know if anyone has a specific funding need in mind if the income tax could be used to fund other things, but it would not be replaced by another earmark.
Instead of a requirement to spend taxpayer money on things enshrined in the Constitution, the use would be at the discretion of lawmakers. Phil Dean, chief economist at the Kem C. Gardner Policy Institute, said lawmakers could use money from the income tax to fund things like public transportation, public safety and improving air quality. Overall, “the legislature funds things exactly to the extent that there is political will to do so.”
“So if you look at the state budget in its current form, it represents the will and priorities of Parliament and people can judge whether it is good or bad.”
Abolition of food sales tax
There was a cross-party push abolish VAT on foodalthough it hasn’t gotten very far in the past. During the 2023 legislative session, it finally crossed the finish line – more or less.
If voters approve the constitutional amendment, this would automatically triggers a statue This will abolish the state’s share of 1.75% of the sales tax on food. The population would continue to pay the local and regional tax of 1.25% on food.
The Gardner Institute found that the average Utah family pays about $110 annually in state food sales tax. Dean considers this tax a “regressive” tax, meaning it hits low-income families harder than upper- and middle-class families. But her analysis found that a 1.75 percent tax cut would put more money back into the pockets of higher earners.
“A large portion of the tax cut, if the bill passes, will actually benefit higher-income households because they pay a higher dollar amount in sales tax on groceries,” Dean said.
Overall, they estimate that “30 percent of the highest-income households will receive about 40 to 50 percent of the proposed tax cut, while the 30 percent of the lowest-income households will receive about 10 to 20 percent of the tax cut. The middle 40 percent of households will receive about 35 to 45 percent of the tax cut.”
Income tax reform is not the only way to address the potential flexibility problem.
Lawmakers could decide to cut the income tax and raise the sales tax. “That would shift money into the general fund, which offers more flexibility,” Dean said. They could also eliminate funding for programs altogether or “overstep the boundaries of interpreting current constitutional language,” which narrowly dictates how income tax money can be spent. For Dean, that option carries “legal risk.”
Peterson said there were discussions in Parliament about introducing a sales tax or fees as a source of revenue in addition to income tax.
“We could make this change as a state and simply abolish income tax altogether. I think that’s difficult as a state,” she said.
Dean said, however, that even if the amendment is not passed, the state will still have to ultimately resolve the issue of budget flexibility.
What it means for education
The proposed constitutional amendment would allow lawmakers to use income tax money for any “state purpose” as long as they first use the money to maintain a “statutory funding framework for public education.” This does not guarantee how much will be spent on education, it simply states that the state must first use a portion of income tax revenue to cover certain training courses needs before we move on to other things.
Brandley pointed out that the current education earmark only guarantees what income tax revenue will be used for. It does not guarantee that education funding will reach a certain level.
“As for the functionality of the earmarking itself, it currently guarantees nothing. The proposed one guarantees a little more, but it’s not a super-guarantee either,” Brandley said.
State law already requires adjustments to education funding to cover enrollment growth, inflation and a budget stabilization account.
The state’s largest teachers’ union is against the proposed amendment to open the income tax fund.
“The Utah Education Association Board of Directors believes the proposed change runs counter to our values and challenges what we stand for,” President Renée Pinkney wrote in a letter in March.
Pinkney continued, “We have yet to achieve a fully funded public education system in Utah.”
Utah has been known for years for spend less per student than in most states.
Yet Utah’s spending has increased over the past two decades, according to the Gardner report. Brandley pointed out that Legislators have repeatedly Per-pupil spending has increased beyond statutory levels to cover rising student numbers and inflation.
“However, education spending as a share of personal income (often used as a measure of expenditure on education) declined over this period. In 2002, education spending in Utah accounted for 5.1% of the state’s total personal income, the 16th highest share in the nation. In 2022, that share fell to 3.5%, and Utah ranked 40th among states,” the report said.
In addition, the report states, “The growth of education spending is not closely correlated with the growth of income tax revenues over time. In practice, income tax earmarking does not directly guarantee the level of education funding for grades K-12.”
Petersen believes public education will receive more funding if the amendment passes because the requirements will be enshrined in the state constitution, not just the state code. She sees it as a greater guarantee because the state code can be amended more easily. She said per-pupil funding could also be increased.
If voters approve the constitutional amendment, this would also HB394a companion bill from 2023 entitled “Hold Harmless for Public Education Enrollment.” Enrollment of students in Utah is expected to fall in future years, and much of the funding is tied to enrollment numbers. The law says that for at least the next five years, when the state is expected to save money due to declining enrollment numbers, those savings will be used to increase per capita spending. Lawmakers could extend the law for another five years after that, or let it expire.
As a reminder, the official wording of the voting question on constitutional amendment has not yet been published.
