With only one week left to go in the Utah Legislative session, the pace is fast and furious on Capitol Hill. All bills must clear the originating chamber by the end of floor time on Monday, March 6th or they will die and fail to advance this session. This deadline provides great inspiration to work quickly and for parties to find compromise as the prospect of having to wait until next year to advance an issue looms large! Below are a few of the issues I’m watching during the penultimate week of the session.
HB153 Uninsured and Underinsured Motorist Coverage Amendments (Rep. Mike Kennedy). The sponsor of this bill is seeking to address a gap he believes exists in commercial automobile insurance coverage. Under current law, owners of commercial vehicle fleets have the option to accept or reject uninsured and underinsured motorist coverage (UM/UIM) on their insurance policies. This is the portion of auto insurance coverage that kicks in when the driver of the insured vehicle is not at fault in an accident, but the driver who is at fault has no insurance or very low coverage limits.
If an off-duty employee is not at fault in an accident while driving a company car with another vehicle that doesn’t have insurance or has low insurance limits, the accident won’t be covered by workers’ compensation coverage. If UM/UIM coverage was rejected by the employer it effectively leaves the vehicle, and any injured passengers, without insurance coverage. The bill proposed requires that all commercial auto policies in Utah contain UM/UIM coverage. Amendments have carved out sole proprietorships, self-insured companies, and local governments from the bill’s requirements. The bill faces opposition from the insurance industry and business community who contend the proposal effectively removes choices in the marketplace and puts a higher burden on small businesses that might be rejecting UM/UIM coverage currently for cost reasons.
SB110 Sales Tax Collection Amendments (Sen. Curt Bramble). Revenue estimates for sales tax had been fairly flat this session, but a new 2017 agreement with Amazon to collect and remit sales tax on a portion of its Utah sales that they warehouse and ship (estimated to be 40% of Amazon’s total Utah sales) boosted sales tax revenue projections by $13 million. Traditional sales tax collection systems are falling behind the shift in retail purchases to online markets. Black Friday 2016 marked the first time that the National Retail Federation reported that more people shopped the holiday sales online than at brick and mortar stores. With Congress’ continued failure to facilitate sales tax collections for online purchases, many states are taking matters into their own hands. Utah’s bill redefines “nexus” as a certain level of economic activity conducted in the state by a retailer ($100,000 of Utah economic activity). Once that threshold is reached, an online retailer would be required to collect and remit sales tax. This bill follows the model of South Dakota and Alabama, which have enacted similar laws. Several other states have also proposed bills in their 2017 legislatives sessions to deal with online sales tax collection, including: Georgia, Idaho, Maryland, Mississippi, New Mexico, North Carolina, North Dakota, South Carolina, Virginia, and Wyoming.
HB272 Regulatory Impact Amendments (Rep. Brad Wilson). In Utah, every bill is required to have a fiscal note, an independent, non-partisan analysis of the implementation costs to the state, local governments, and businesses/individuals. In addition, legislative rule prohibits any bill with a negative fiscal note greater than $10,000 from advancing through both chambers until the Executive Appropriations Committee has funded the note.
Rules promulgated by agencies can have significant impacts on local jurisdictions, businesses, and individuals, but new or amended rules do not undergo any fiscal review. Rulemaking typically takes place in venues that aren’t quite as transparent to the public as the Legislature, so those financially affected by the rule might not be aware of the potential cost until it is too late. This bill creates a process for agency rulemaking similar to the legislative fiscal note.
We are nearing the halfway mark of the Utah Legislative Session. From this point onward, the pace increases and more time will be spent debating bills and less on evaluating the State budget. It is always a sprint to the finish with long days on Capitol Hill. If you have questions or concerns about bills or budget line items, please feel free to email or use my mobile number (801-599-9017) for a faster response.
The Legislature really has two main responsibilities each year: passing laws and balancing the state budget. At just over $16 billion, the management of the State budget is a pretty big task. While that dollar amount might seem staggering, you would be amazed at how quickly requests arrive to spend the funds! The end of Week 3 marks the conclusion of the "base budget" process. These are the building blocks of the budget that basically ensure last year's level of funding, plus growth and inflation costs. As a State with a growing population, we know that the enrollment at the public schools grow each year by about 10,000 children which means the Public Education base budget has to keep pace to the tune of about $94 million in growth funding. Similar cost increases for construction, labor, or utilization expenses exist throughout the State budget and the funds start to quickly add up.
The bulk of the State budget is contained in the base budgets (one budget bill for each sub-appropriations committee). After all the base budgets are settled, the state usually has a small amount of revenue growth and budget surplus from the previous year that can be used for new buildings, programs, teacher or state employee raises, just to name a few. This year that pool of surplus revenue is $285 million.
The wrangling over this remaining pool of revenue will be intense because $550 million in spending requests have already been submitted, almost double the amount. Week 4 is when the final budget estimates are received that could increase or decrease the projected $285 million by some degree, though huge swings aren't expected. This is often the hardest part of the budgeting process because it is the last of the money available for an entire year and everyone thinks their need or idea is the best and highest use of the money.
Phase Out of the Residential Solar Tax Credit:
A drop in solar panel pricing and a residential solar tax credit has driven consumer demand for Utahns to install solar panels in a big way. In the first half of 2016, 7,700 Utahns installed solar panels. The tax credit cost to the State totaled nearly $42 million in 2016, and it is projected to cost nearly $60 million in 2017. Under our State Constitution, funds for income tax credits are drawn from the Education Fund. The impact of the increases in solar panel credits essentially pits solar users against the needs of K-12 students.
HB23 Income Tax Credit Modifications has been proposed for the 2017 session to phase out the residential solar tax credit. After extensive negotiations between bill sponsor Rep. Jeremy Peterson (R-Ogden) and the Utah Solar Energy Association, the bill contains a four-year phase out of the tax credit from $2,000 in 2018 to $0 in 2020.
Growth of Local Food Movement & Regulatory Landscape:
The growth of the local and "slow" food movement has created some interesting challenges for local growers, producers, and consumers. Some of who participate in the local food scene believe the current level of regulation required for inspections and labeling is cost prohibitive for small-scale growers and producers and makes the food items they produce inaccessible. Others worry that if standards are lowered for small producers, the integrity of the food safety system could be compromised. Supporters of the regulation argue that food-borne illness outbreaks impact sales up and down the supply chain and standards should be the same no matter the size of the grower/producer or the intended consumer.
Competing bills have been introduced from two legislators and a third legislator is seeking to create an advisory council to help navigate the future of food produced in Utah.
HB58 Direct Food Sales Amendments, Rep. Scott Sandall (R-Tremonton) This bill modifies existing cottage foods statutes. In some respects it makes the law more liberal (inspections) and in others making it more restrictive (labeling). The bill provides rulemaking authority to the Utah Department of Agriculture & Food.
HB 121 Local Food Advisory Council, Rep. Steve Handy (R-Layton) This bill creates a new local food advisory board that will report to the Natural Resources, Agriculture & Environment Interim Committee. The board will be a recommending board and will have wide latitude to study issues related to the local food economy.
HB277 Direct to Consumer Food Sales Modifications, Rep. Marc Roberts (R-Salem) Under this bill, certain kinds of food would be exempt from certain state, county, or city regulations regarding the preparation, serving, use/consumption, or storage of food and food products. Those exempt foods include: 1) food produced and sold within the state; 2) food sold directly to an informed end consumer; and 3) food grown for home consumption.
Budget Update & New Revenue Numbers
Final revenue estimates are always released in the last third of the Utah session as legislators work to finish balancing the state’s budget. The release of the final revenue estimates is a highly anticipated event. Last week, I reported that after base budgets were passed, the state had about $285 million in surplus and revenue growth available for new programs, teacher raises, and other spending priorities, but had received over $550 million requests for the money. This week the new revenue numbers gave the proponents of those spending requests reason to hope they might make the final cut, as they learned there is approximately $100 million in additional revenue now available.
The vast majority of the new estimated funds will be allocated to the Education Fund, because it is derived from income tax which is constitutionally dedicated to this fund. Of the $100 million in growth, $77 million will go toward education. The remaining $3 million in growth will flow to the General Fund and is largely being attributed to the State’s new deal with Amazon to collect sales tax on the marketplace items it sells to Utah consumers.
Tax Reform Proposal
Year-over-year growth in Utah is still positive, with the General Fund tax revenues growing by 4.6%, and the Education Fund tax revenues growing by 5.75%. However, rumors have been flying at the State Capitol for the past week that an omnibus tax reform proposal might happen this year. It is late in the session for a proposal of this size and nature, but it seems the Governor and leadership of the House and Senate are in agreement on key principles. If they are able to come to full agreement, several tax bills will be drafted and likely moved through the legislative process quickly. The overall goal of the reform proposed is to broaden the base and lower the rates while also providing tax stability. The proposals include:
- Lower the state income tax and phase out tax credits for federal exemptions at a lower adjusted gross income level than is currently allowed.
- Broaden the sales tax base by reinstituting the state portion of the sales tax on food and also pass online sales tax collection reform bills. This would include lowering the overall state sales tax rate so the proposal is revenue neutral.
- Increase the number of industries that can utilize single sales factor apportionment of business income.
- Adjust the gas tax trigger threshold that is tied to a wholesale rack index price. With the dramatic and sustained drop in oil prices, the trigger mechanism developed two years ago to slowly raise the gas tax by 5 cents, is now many years from being reached.
- Property Tax Basic Levy Freeze: The statewide basic property tax levy is used for education funding. The proposal would add a floor to the basic property tax levy so the tax rate doesn’t decrease as property values rise.
Education is one of the policy areas that always interests people. Here are a few funding updates on the Education budget that are known in this last third of the session. The Public Education Appropriations subcommittee is recommending a 3% ($90 million) increase to the K-12 budget this year. This is in addition to the $68 million that was also appropriated for student population growth.
My husband is a teacher so I’m very aware that teachers buy classroom supplies out of their personal household budgets. I’m very happy to report that the subcommittee also recommended moving the teacher supply budget from one-time funding to ongoing funding at the $5 million level. Hopefully over time this line item will grow.
Finally, I know that many students, parents and teachers are frustrated with SAGE testing. SB220 Student Assessment and School Accountability Amendments repeals the requirement for students in grades 10-12 to take the SAGE test and instead replaces it with the ACT test.