The Utah Constitution requires that the state balance its budget.1 That is as simple as aligning revenues with the annual budget expenses. Both the Governor and Utah State Legislature produce budgets. The Governor releases budget recommendations in November for the Legislature to consider. The Legislature produces the state’s final budget in late February or early March. But how do they know what Utah’s revenues will look like over the next year in order to ensure a balanced budget?
While individuals and households often base their budgets off of expected wages and annual salaries, Utah’s revenues are more complex. The state requires income from a wide array of taxes and fees. These revenues fluctuate based upon the economy and other factors. As a result, the amount of money those taxes and fees will bring into state coffers is a complicated estimation. Utah’s Revenue Assumptions Working Group is a collection of economists and experts from the Governor’s and Legislature’s staff, the State Tax Commission, and state academic institutions and departments.2 Each November they prepare an estimate of the coming fiscal year (which starts on July 1 and ends on June 30) for the Governor. The working group then updates those estimates in February for the Legislature.
These estimates put a cap on the Governor’s budget recommendations and the Legislature’s final budget. If the working group overestimates the state’s tax and fee collections, the Legislature will be forced to find ways to trim the budget back. If the working group underestimates, that leaves a chunk of money at the end of the year for the Legislature to spend. For fiscal year 2022, the working group underestimated how much Utah would collect by about $1.2 billion “after accounting for base budget adjustments and set-asides” such as rainy-day fund contributions.3 Evidence suggests that Utah is not alone.
The discussion so far has examined the difference between forecasters’ estimates and actual collections. However, the Legislature also expresses its opinion by not spending all of the working group’s estimated revenue. That compounds the fiscal year 2022 underestimation to 2.8 billion or 32% of the budget. (See the figure.) Thanks to a stronger than expected economy, in fiscal year 2022, the legislature of every state except Wyoming underestimated the amount collected in taxes and fees.4 Mountain States tended to underestimate more than average.
In our upcoming Revenue Report we will examine recent projections for Utah and how they compare to eventual outcomes.