For anyone with a personal budget, it’s the eternal question: “Do I spend just about everything I have on my current needs and wants, or do I shrink my spending budget so I have money to put into savings? If I start saving, I’ll eventually earn enough interest on my investments to get back what I’ve been putting into savings. But I won’t have as much to spend now if I do that, and I really have some pressing needs.”
Local, state and federal governments face similar questions, as Utah’s House of Representatives did today when it debated HB 210. Carried by Representative Jim Nielson, R-Bountiful, HB 210 would require severance tax funds to be placed in a trust that would eventually throw off tens or hundreds of millions of dollars in interest, which could be used as part of Utah’s general fund budget.
Briefly, severance taxes are levied against companies that extract, or sever, nonrenewable resources (such as oil, gas and minerals) from the earth. The bill would send those funds to the Permanent State Trust Fund unless three-quarters of both houses voted to direct the monies to something else in the general fund.
According to the Utah Taxpayers Association, several other states have substantial severance tax funds already in place.
For example, New Mexico’s Severance Tax Permanent Fund has existed since 1973, and now holds more than $3.5 billion. The Permanent Wyoming Mineral Trust Fund has existed since 1974, and today contains more than $4.2 billion. A mere 5% annual return on those trust funds translates into more than $150 million per year for each of these states. Forever.
But contrasted with this picture of potential savings are the apparent needs the state has to fund existing or needed programs. Representative Brian King, D-SaltLake, argued that the state cannot afford to send (for fiscal year 2013) $20 million to the Permanent State Trust Fund when state programs have already been reduced by 20 percent over the last five years.
Representative David Litvak, D-SaltLake, said the general fund cannot afford to lose more money for higher ed, transportation, social services and cost-of-living increases for state employees. “I’m not going to make my kids today skip a meal or go hungry so we can save for tomorrow,” Litvak said.
Representative Eric Hutchings, R-Kearns, countered, “There is never going to be a day in the state of Utah where we’re standing there going, ‘Everything’s funded, nobody needs any extra money,’” Hutchings said that in his field of personal finance, the saying goes that the “best time to plant a tree was 10 years ago. The second best time is now.”
Because these funds result from taxes on nonrenewable resources, which will one day be depleted, now is the time to add savings to a trust fund, argued Representative Ryan Wilcox, R-Ogden. “Investing these taxes is the only way to preserve the value of what we removed from those Utahns here and yet unborn,” Wilcox said.
Nielson closed debate with this summation:
I know these times aren’t great, I know things are tough. There’s never a good time. But what if this is as good as the economy gets? What if federal funds go away? If we haven’t done this, then in a few years we are talking even bigger cuts. It will take less than one generation of putting this money into the trust fund before the earnings on the trust will exceed our current severance tax revenues. We would have over $1 billion in 15 years. I think it’s sound fiscal policy. We must invest for the future.
The House voted against the bill, 36-39.
So, having heard some of the legislators’ arguments, what do you think? Would this bill be the right way for Utah to save for its future? Should all state funds be used to fund current programs? If not, how much shouldUtahsave? What should savings be used for? Rainy-day funds? Emergency funding? Trust funds? The Legislature continues to grapple with these difficult questions, just as we do with our personal finances.