How does tax reform repeal impact state funding for public schools?

Written by Derek Monson

January 31, 2020

With December’s tax reform law now repealed by the passage and signing of HB 185, the Legislature is currently working to determine state funding for public schools for the upcoming fiscal year. We may not know exactly how much public schools will get right now, but we can get a general understanding of what the short-term budget and revenue impacts of tax reform’s repeal will be.

Based on analysis of the estimated fiscal impacts of tax reform legislation passed in December 2019 and the fiscal analysis of the repeal of tax reform, repeal will likely mean more education fund revenue is available for public K-12 and higher education in the short-term (the next fiscal year):

  • Increasing the income tax rate back to 4.85% from 4.66% and canceling new tax credits for individuals and families will mean more available funding for public schools (+$640 million)
  • Canceling a provision to shift higher ed funding from the education fund to the general fund will mean less available funding for public schools (-$391 million)
  • Canceling a tax reform provision to shift school lunch and underage drinking prevention programs from dedicated credits to the education fund will mean more available funding for public schools (+$39 million)

So what will the state public school budget be in FY 2021 with the repeal of tax reform? While repeal should make more education funding available in the short term, the Legislature will decide in coming weeks how many taxpayer dollars at the state level will be spent on public schools, colleges and universities.

Over the long term, the underlying problem with Utah’s revenue structure remains – a general fund, education fund and transportation fund balance that is insufficient to sustainably meet demand for state government services – and it will have to be addressed. This could mean many things for public schools. On the one hand, public school funding could become a mix of education and general fund revenue, or services connected to public schools currently funded by the general fund could be shifted over to the education fund. On the other hand, perhaps someone will discover a reasonable policy solution that does not significantly change education funding.

What seems certain is that, over the next several years, there will need to be changes to Utah’s tax policies. The immediate goal should be a long-term process to deliberate tax reform from the perspective of sound tax policy principles and a thorough study of the facts, and that is insulated from the pull of political expediency and the power of special interests.

If Utah can accomplish that, we may be able to avoid a repeat of what we just experienced in tax reform.

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