Position Paper on Education Finance and Reform
For Utah Foundation Forum on September 7, 2006

Submitted by the Utah Education Association

Prepared by Kim Campbell, President, Utah Education Association

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Investing in Public Education

The UEA kicked off its “No Excuses! Invest in Public Schools,” campaign during the 2005 UEA Convention. The campaign by Utah teachers has been and continues to be aimed at informing the public of the economic value of investing in public schools and encouraging policymakers to make that investment. The UEA’s concern for adequate funding levels for education predates the No Excuses campaign, however.

Former UEA President, Pat Rusk, has outlined the benefits of investing in public schools. The benefits range from economic to social. Pat has said, “Economic models show that an investment of our tax dollars into K-12 (kindergarten through 12th grade) public schools will create more jobs than an investment in any other sector. That’s because public education is about people. And those people are located in every single community in our state, not just along the Wasatch Front. These are jobs that support our communities, local businesses, and our own families.”

Investing in public schools also helps attract new businesses to the state. Pat has also stated that the top factors in [businesses] choosing to locate in a state are great public schools and access to transportation routes, not tax breaks. And when they judge the state’s school system, the top two criteria [for businesses] are per pupil investment and class size.[1] Quality public schools are primary factors in raising and sustaining the value of homes. Economic development occurs not only when new businesses are attracted to the state but also when existing businesses add to their workforce and purchase business inputs from other Utah businesses.

Investing in education reduces income inequality, because it raises the income particularly for those at the lower end of the spectrum. That means more is spent in the community, since people in the lower income ranges must typically spend a very high percentage of their money. This directly benefits business by way of increased consumer spending.[2] Research also indicates that the more education a person attains, the higher his/her income will be.

Education Revenue

The UEA believes that a larger percentage of income tax (education fund) revenue should be allocated as an investment in public education.

As a result of the 2006 legislative session, public education received $44.4 million of the $309.6 million one-time new income tax revenue that was available. That is 14.3%. Public education received $215.8 million of the $376.5 million ongoing new income tax revenue that was available. That is 57.3%. Overall public education received $260.2 million of the total $686.1 million total new income tax revenue which was 37.9% of the total. Public education received $7.5 million from the general fund to fund UBSCT vouchers. Where is the rest of the income tax money? Statutorily income tax must be spent on higher education or public education.[3]

During the 2005 legislative session there was $428 million of new income tax revenue available. Public education received 30.6% of that new revenue for a total of $131 million. Higher education received 32.9% of the total new revenue for a total of $143 million.[4]

The UEA believes that shifting funds from other government programs to fund public education is not necessary. The reverse has been the problem—shifting education funds to fund other government programs.

A 1996 amendment to the Utah Constitution allowed income tax to be used for higher education. Previously, income tax revenues were dedicated solely to support public education. The legislature has taken advantage of the amendment by trading income tax money for general fund money to fund higher education. This passing of funds from one account to another frees up money to fund road construction, buildings, and other state programs.[5]

The latest tax revenue surplus report was recently released by the State Tax Commission. It indicated that there will be a tentative year-end surplus balance of $351.3 million. Of that total $162.6 million is growth in the individual income tax and $113.5 million in the corporate franchise tax.[6] Another year of surplus in the education fund should result in a greater investment in public education, “No Excuses.”

Tax Policy

The UEA does not believe that a tax increase is necessary to adequately fund public education. A tax cut will decrease revenues that would otherwise flow to the education fund.

A Dan Jones poll conducted the first part of 2006 found that nearly half (48%) of Utahns say they were not interested in a tax cut next year and would prefer that the state spend extra revenues on public and higher education. Only 21% said some of the $1 billion in extra revenue should be given in tax cuts to Utah businesses and residents.[7]

The 2006 legislature set aside $140 million for tax cuts--$70 million for a reduction in the state food sales tax--$70 million for a reduction in the income tax and $20 million for business tax cuts. Recent newspaper reports indicated the legislature is considering an income tax cut closer to $115 million.

The UEA remained neutral on the food sales tax cut. We opposed the corporate tax cuts and continue to oppose cuts in the income tax that would directly affect funding for public education. We are in favor of the elimination of the current deduction for one-half of the federal tax liability. Not many states have this deduction that favors the wealthy and reduces revenue for our schools.

The property tax has been clearly identified as the most reliable and stable source of revenue. The role of property tax in education funding has been greatly diminished over the last decade. What used to comprise about 25% of public education funding has now been reduced to 16%. The state minimum education tax levy has been cut in half over that time. Most troublesome is the fact that the current system actually forces continued reductions in that state rate and further exacerbates the situation. There is a need to incorporate some type of inflationary adjustment as part of the state rate-setting process. A similar situation exists at the local level with the impact of truth-in-taxation.

The UEA has long been concerned with the erosion of property tax revenues associated with questionable economic development projects. Increased scrutiny about future projects is entirely appropriate. We supported the meaningful RDA reform that passed the legislature last session. We believe that public education should have the option of choosing to participate or not in future RDA projects.

Concepts such as shifting education funding away from property tax to sales tax or allowing large diversions of income tax revenue to non-education areas create real and warranted anxiety within the public education community.

Private School Vouchers

The UEA opposes private school vouchers.

Parents and taxpayers in this state do not support the idea that we should spend precious resources subsidizing private schools. Vouchers are not about offering more choices, they are about who will pay for those choices. We already fund a public school system that offers a wealth of choice. A child can attend a neighborhood school, another school in the district, schools in other districts, charter schools, magnet schools, technical schools, or home school with dual enrollment. Taxpayers deserve a choice. They should not be forced to see their tax dollars taken away from public schools to pay for another education experiment that they continually say they don’t support. School vouchers offer no accountability for the tax dollars they siphon away, nor do they promise any more academic excellence than we already have.[8]

Recent Legislative Decisions Affect Future State Budgets

The UEA is concerned that recent legislative decisions to reduce general fund revenues by cutting the state food sales tax rate and earmarking a portion of transportation related sales tax revenues for the Transportation Investment Fund will put added pressure on the education fund.

As was mentioned previously in this paper, the diversion of income tax revenues away from public education to fund higher education has been occurring in greater dollar amounts since 1996. This legislative budgeting practice in recent years has at the effect of freeing up additional general fund dollars to be spent on other government programs and projects. The $70 million cut in sales tax on food and the creation of the Transportation Investment Fund that earmarks 17% of sales and use tax annual revenues on vehicles and vehicle related products which the fiscal analyst estimated to be $149.6 million for FY 2007 will almost certainly require increased diversions from the education fund to pay for other government programs.

There has been a lot discussion this past year about the need for greater economic development incentives to entice businesses to locate in Utah. Accompanying those incentives should be a law to ensure that the incentives are delivering the promised economic benefit.

The tax on radioactive waste disposal should be evaluated to determine if the state revenues generated are proportionate to what other states receive in tax revenues from allowing such activity. This may be a source for increased state revenue.

[1] Site Selection Magazine.

[2] Thomas Hungeford & Robert Wassmer, K-12 Education in the U.S. Economy, 2004.

[3] Patrick Ogden, Associate Superintendent Data and Business Services Utah State Office of Education, Sources and Use of New Income Tax Revenue in the 2005 General Legislative Session, May 2005.

[4] Ibid.

[5] Ibid.

[6] Utah State Tax Commission, T-23 Monthly Revenue Summary, FY 2005-06, July 2006.

[7] Bob Bernick Jr. and Jennifer Toomer-Cook, Deseret News, January 8, 2006.

[8] Pat Rusk, Taxpayer choice works, guest commentary in the Deseret News.