The Huntsman Record: 2005 to 2009

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Jon M. Huntsman, Jr. was elected governor of Utah in November 2004, assumed office in Janu-ary 2005, and resigned in August 2009 to become U.S. ambassador to China. Utah experienced several, mostly positive, changes during Huntsman’s four and half years as governor including:

The Good
-Utah’s individual income tax was reformed with a broader base and lower rates, with rates reduced from 7% top marginal to 5% single rate.
-The sales tax on food was reduced from an average rate of 6.5% to 3%.
-The sales factor on corporate income tax apportionment was increased from 33% to 50%
-The rainy day fund grew to $418.5 million, up from $146.1 million in 2005
-Taxes were reduced by $400 million annually.
-Revenues above certain thresholds from severance taxes began to be deposited in the state permanent trust fund.
-Charter school enrollment increased substantially and now accounts for more than 5% of total public school enrollment.
-State income tax spending per K-12 student grew slightly faster than inflation.
-Sales tax exemptions for business inputs were expanded.
-Utah passed the nation’s first comprehensive K-12 voucher program. However, the voters rejected this law in a referendum in November 2007
While Utah experienced positive changes, there were some not-so-positive changes as well

The Not-So-Good
- By most measures, state government spending grew slightly faster on an annualized basis during the Huntsman years than it did during the Leavitt-Walker years, although much of this can be attributed to lower K-12 enrollment growth during Leavitt’s tenure.
- RDA abuses and other forms of incentives for locally driven retail, recreation, and entertainment continued.
- Transportation reform, including congestion pricing and side-by-side prioritization of roads and rail projects did not go very far.
- The state budget became more dependent on federal sources, although this may be a temporary phenomenon.
- Transportation funding became more reliant on general fund dollars, peaking at nearly $800 million in 2008.
Generally, Huntsman must share credit for improvements or blame for lack of improvement with the Utah Legislature. Nevertheless, Utah’s governors have always had a large impact, for better or worse, on the outcome of legislation and public policy.

Government Growth
Government spending grew slightly faster during the Huntsman years than during the Leavitt-Walker years as outlined in the following table.

While total state spending increased at a faster annualized real per capita rate during the Huntsman years (1.5% vs. 1.1%), education and general fund spending (including earmarks and transfers) grew at a slower, even negative rate (-0.6% vs 0.7%). The higher total growth rate and the lower education/general fund growth rate during the Huntsman years is attributable to significant increases in federal funding in 2009 and 2010. In 2008, Utah state government received about $2.5 billion in federal funding. This increased to $3.2 billion in 2009 and 2010. While some growth in federal funding is expected, much of the growth is attributable to federal stimulus funding which will total about $1.5 billion over a three-year period.

Tax Cuts and Tax Reform
Gov. Huntsman’s single biggest accomplishment in fiscal matters was reforming Utah’s individual income tax, a process initiated by his predecessor Gov. Olene Walker. Prior to reform, Utah had a bracketed income tax system with a top marginal tax rate of 7%. Since tax brackets were not in-dexed to inflation (like they are at the federal level), Utahns experienced automatic tax increases of several million dollars per year. While Utah’s top marginal rate had been 7% or higher since the early 1970s, most other states were reducing their rates.

Utah’s 5% individual income rate is now lower than the national average rate of 5.3%, which includes nine states that impose no individual income taxes on ordinary income. With the elimination of brackets and the indexing of thresholds and credits, Utahns no longer experience automatic tax increases due to inflation-induced wage increases.

Since credits are phased out as income increases, progressivity is established even though there is only one tax rate.

The following table itemizes the tax cuts enacted in recent years. Tax cuts from 2005 to 2007 totaled $407 million, including local impacts of sales tax exemptions and reduction in municipal tele-communications license tax. About 85% of these tax cuts, including cable TV equalization and the second gross receipts tax repeal, directly benefited individuals while 15% of these tax cuts, including one-third of the reduction in general state sales tax rate, directly benefited businesses.

The accompanying table summarizes the tax cuts for the 2005, 2006, 2007, and 2008 General Sessions. In the 2002, 2003, and 2004 General Sessions, Utah increased taxes by nearly $60 million.

Tax cuts offset somewhat by increased local tax authority
While Gov. Huntsman and the Legislature were busy cutting taxes at the state level, they were also busy increasing taxing authority at the local level. On the last night of the 2005 General Session the Utah Legislature authorized counties to increase motor vehicle registration fees by $10 per year, with revenues earmarked for corridor preservation. If every county imposes this new tax, total statewide impact would be about $17 million, but most observers expect the increase will be about $14 million, since many rural counties will not impose the new tax. In 2009, motor vehicle registrations were increased by another $20.

In the 2006 Fourth Special Session, the Legislature authorized counties to impose an additional 0.25% increase in sales tax rates to fund roads and rails projects. If all counties impose this tax, the statewide impact would be $116 million annually. Based on historical trends, taxpayers can safely assume that all Wasatch Front counties will eventually adopt the 0.25% sales tax increase.

Some argue that increasing local sales tax authority wasn’t really a tax increase because the Legislature prohibited property tax for light rail and commuter rail. However, the main purpose for authorizing the 0.25% sales tax increase was concern that voters would not approve property tax in-creases for light rail and commuter rail.

The following table summarizes the total impact of state tax changes during Huntsman’s tenure as governor.

Severance Tax Trust Fund – good first step
During the Huntsman years, Utah finally passed legislation to deposit severance tax revenues into the state permanent trust fund. Oil and gas severance taxes above $71 million and metalliferous severance taxes in excess of $27.6 million will be deposited into the state permanent trust fund. While these thresholds are higher than necessary, Huntsman and the Legislature recognized what other states started recognizing decades ago. Severance taxes, which are taxes on the depletion of a non-renewable economic resource, should be placed in a trust fund instead of being spent on ongoing programs since severance tax revenues will disappear as resources are depleted
Education Reform – vouchers passed, then rejected

During his first campaign for Governor, Huntsman was an outspoken supporter for vouchers. And in 2007, the Utah Legislature passed the first statewide, universal voucher program. The teachers union and its allies succeeded in preventing the legislation from taking effect, and instead forced a public referendum on vouchers. Unfortunately, the public succumbed to the scare tactics of voucher opponents, and rejected the voucher program.
Taxpayers will endure the costs of the voucher rejection for many years to come. Instead of paying an average of $2000 to educate each student using a voucher, Utah taxpayers now must pay upwards of $8000 per student. These costs will escalate as Utah school districts bond for more and more schools to house the thousands of new students entering Utah classrooms each year.
Note: The Association anticipates updating the information in this report in subsequent years as budgetary and economic data are finalized.

Howard Stephenson

Our Corner – Howard Stephenson and Larry Shumway
Although Per Student Spending Rankings are Misleading, Money Matters in Public Education.

We recently read the latest Census Bureau re-port that shows Utah still ranks 51st in per pupil spending.  The rankings elicit both positive and negative feelings.  While we can be proud of efficiencies in Utah’s school systems, it’s discomforting to recognize our state spends nearly $4,000 less than the national average annually for each student in a Utah public school.  We spend about $900 less than the next lowest state. The report rekindles debate around a persistent question, “Does the amount we spend in public education matter?”
We are two people who are often on opposite sides of political issues.  In many ways, we see the world from very different perspectives.  But here are some things we agree on when it comes to public education spending:

We agree that the metric of per pupil spending is not a particularly good measure

Dr. Larry Shumway

of how money matters in education, nor are the rankings especially useful in comparing state by state educational performance.  There are important variables among states that make per pupil spending an “apples to oranges” proposition.  For example, Utah, with its highly consolidated school district organiza-tion—41 districts instead of hundreds—has extraordinary administrative efficiency when compared to states with lots of small school districts.  And Utah’s concentration of student population in metropolitan areas results in additional savings. Moreover, our growing student population ensures efficiencies compared to states with declining enrollments where school boards find it politically difficult to close half empty buildings. These factors enable Utah to get a relatively bigger share of scarce resources into the classroom.

But we also agree on a fundamental principle: Money matters in public education.  Anyone who has watched or participated in the appropriations process during a session of the Utah Legislature will understand how much it matters.  A representative wants a program of arts specialists in schools—and seeks an appropriation.  A senator would like to increase the availability of computers and instructional software in classrooms—and seeks an appropriation.  The State Board of Education proposes a program to make counselors more readily available to high school students—and seeks an appropriation.  Clearly, money matters.

We agree that Utahns are getting a great return on their public education investment. Teachers, principals, superintendents, custodians, transportation workers, and others, are generally pedaling as fast as they can.  We get, for our comparative spending, a solid program that produces solid re-sults.  We agree we should always look for efficiencies, to eliminate waste, and to do better.  And we agree that it is a mistake to think that money doesn’t matter.

Mostly, we agree that disagreements over how we talk about our problems far too often get in the way of actually FINDING SOLUTIONS TO OUR PROBLEMS. We agree that the discussion should not be whether we spend more or less than other states; rather the discussion must focus on what we want for Utah kids in the classroom, how we will go about getting it, and what resources are re-quired to accomplish that.  And we agree to work toward that end with respect, civility, and honesty.
Howard Stephenson is President of Utah Taxpayers Association and Utah State Senate Chair of the Public Education Appropriations Subcommittee.  He represents District 11 which includes Alpine, Bluffdale, Highland, Riverton, and parts of Draper, Herriman, and Lehi.
Dr. Larry Shumway is the newly appointed State Superintendent of Public Instruction.  He has thirty years experience in education as a teacher, principal, and district superintendent.

Tax Notices in the Canyons and Jordan School Districts
Utahns have received their property tax notices, and many people are confused, especially those in the Canyons and Jordan School Districts. Taxpayers who live in the Canyons School District have five separate line items for property tax levies imposed by the Canyons and Jordan School Districts. Meanwhile, taxpayers who live in the Jordan School District will see four separate line items for property tax levies imposed by the Jordan School District.

With so many line items – some zeroed out for last year, and others zeroed out for this year – many taxpayers are having trouble understanding how their school district related property taxes are changing. These tax notices are confusing for two reasons: the split of the old Jordan School District, and poor layout by the Salt Lake County Auditor of the property tax notices for property owners in the Canyons and Jordan School districts.

The School District Split
In 2007, voters in several cities on the east side of the old Jordan School District voted to break off, and create a new school district. As part of the split, the old Jordan School District’s existing debt was split between the new Canyons School District, and the remaining Jordan School District.

Recognizing that the remaining Jordan School District would have significant challenges in building all the schools for the district’s growing student population, the 2008 Legislature equalized a portion of the school property taxes in Salt Lake County. In practice, that equalization means the Salt Lake City, Granite, Murray and Canyons School Districts will contribute a total of $13 million in property tax revenue annually to the new Jordan School District.

Canyons School District Property Tax Notice
These split issues contributed to the complexity of the property tax notice taxpayers in the Canyons School District received.

Sample of 2009 Property Tax Notification for Property Owners in the Canyons School District
The “Canyons School Basic” and “Canyons School District” levies are the first levies on the property tax notice. Because the Canyons School District did not exist in 2008, the column labeled “Tax Last Year (2008)” has zeroes in these columns. However, the lines labeled “Jordan School District” and “Jordan School Basic” were the corollaries prior to the split.

To understand how property taxes imposed by the Canyons School District are changing, compare the “Canyons School Basic” line with the “Jordan School Basic” line. (School districts must impose the “Basic” levy to receive state funding from income taxes.) Similarly, the 2008 “Jordan School District” line should be compared with the sum of the lines labeled “Canyons School District” and “Jordan Sch Old Debt Service.” (“Jordan Sch Old Debt Service” repays the Canyons portion of the old Jordan School District’s debt that was incurred prior to the split.)
The line labeled “Canyons Capital Outlay” is the new levy the Canyons School District imposes to replace the equalized property tax revenue in Salt Lake County.

Because all these line items are separated on the tax notice, it’s very difficult for taxpayers to see how school district property taxes are changing. If the County Auditor had placed all five of these levies together, and provided subtotals for the school district levies, taxpayers would have had a much easier time of understanding their property tax notice. Given the amount of white space be-low the list of property tax levies, the auditor had the room necessary to provide these subtotals.

Jordan School District
The property tax notice for taxpayers in Jordan School District suffers from many of the problems afflicting the notice for taxpayers in the Canyons School District. However, some elements of the Jordan notice make it easier to understand.

Sample of 2009 Property Tax Notification for Property Owners in the Jordan School District
The “Jordan School District” levy is easily compared with the tax if the proposed budget is approved. The column labeled “tax this year if no budget change” seems misleading, because it is set at zero. However, that zero occurs only because the Jordan School District as it exists today did not ex-ist in 2008, so the Tax Commission did not manufacture a value for this column.

The “Jordan School Basic” levy is also straightforward, because the Jordan School District is simply imposing what the Legislature requires of each school district before the district can receive state income tax dollars.
The levy labeled “Jordan Sch Old Debt Svce” is a breakout of the Jordan School District’s property taxes to pay for its portion of the old Jordan School District’s debt that accrued to the new Jordan School District after the split.

Again, because the Salt Lake County Auditor did not put these various levies next to each other, and did not provide subtotals for overall Jordan School District property taxes, taxpayers are having a difficult time understanding this notice.

Utah doesn’t need publicly funded hotels
Since expanding the Salt Palace Convention Center, Salt Lake County has not won every convention that’s considered using the Salt Palace. That’s hardly surprising—even the 1927 Yankees, arguably the greatest baseball team ever assembled, lost 44 games. Because the Salt Palace hasn’t won all these conventions, Salt Lake County is considering building its own convention hotel.

They shouldn’t. If a dearth of suitable hotel rooms is preventing the Salt Palace from hosting some conventions, private investors will be more than happy to build meet that unmet demand. That’s the way markets work. And government’s job is NOT to compete with the private sector.

Nationwide trend
Cities and counties nationwide like to host conventions, especially large conventions that attract convention-goers from outside the state. These convention-goers buy large blocks of hotel rooms, and purchase lots of meals and swag from local merchants. Not only do all these purchases boost the local economy, but they also increase government’s tax coffers.

Over the past decade cities like St. Louis, Minneapolis, Dallas, Austin, Denver and Baltimore have attempted to make their convention centers more attractive by using public financing to build 1,000-room hotels connected to or immediately adjacent to their convention centers.

It seems curious that so many cities all lack the same ingredient, a 1000-room hotel. At least on the surface, it seems curious. Closer inspection reveals that the same consulting firm, HVS Consulting, recommended the same 1000-room hotel to each of these cities. In some cases, the publicly-funded hotel has performed as promised. In other cases, taxpayers are facing tax increases to bail these hotels out.

Why public ventures fail
Utah has abundant experience with government competing with the private sector. The most prominent recent example is the Utah Telecommunications Open Infrastructure Agency, more commonly UTOPIA. Originally UTOPIA was billed as a public alternative to the private sector tele-com providers. The public alternative would be better, they argued, because it would offer faster service to every home and business in every participating city. Moreover, the sales tax dollars pledged to back UTOPIA’s construction bonds would never actually be spent.
As past issues of The Utah Taxpayer have shown, none of those promises have panned out. UTOPIA has decided to only build in neighborhoods where they can earn enough return on their in-vestment, instead of building out entire cities. And they’ve announced plans to spend the sales tax dollars participating cities pledged.

Some argue that UTOPIA’s failure stems from its sclerotic customer care, its inability to manage its growth, even too much bureaucracy. All of that is probably true. Importantly, their failure is not because UTOPIA’s leaders aren’t “smart” enough. In many cases, the same elected officials who get burned in public ventures also run their own successful private businesses. Their failure comes be-cause they don’t have any “skin in the game.”
UTOPIA proponents argue that UTOPIA and iProvo have failed because the wrong people were in charge”.

Skin in the game
When private investors evaluate whether to invest in a telecom or hotel, they are assuming the entire risk. If the project fails, they lose their own money. When public officials decide whether to risk taxpayer dollars in a similar venture, they have no personal stake in the program’s outcome. If the project succeeds, of course they’ll reap public adulation, possibly even higher political office. But if it fails, the worst that can happen is that they lose an election. Losing an election is no doubt very difficult emotionally, but it pales in comparison with losing thousands or millions of your own dollars.

If elected officials who support a publicly owned convention hotel in Salt Lake City had to invest their own retirement money in the project, their approach to the project would be completely different. In all likelihood, they would insist on the same 22% to 26% return on their investment that to-day they complain about.
Salt Lake County should not build or finance its own hotel. The Utah Legislature should not assist them in building one. Salt Lake City should not assist. If Salt Lake City’s convention business really can support a 1000 room hotel, the private sector will build it.