Utah schools appear to lose out with new tax codes

Education » Panel says some $400 M has been diverted.
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It's not exactly a groundswell, but pockets of school board members are grumbling about changes to Utah's tax code that they say have robbed schools of hundreds of millions of dollars.

Budget-starved schools are being portrayed as "victims of the economy," when in fact, "we are all victims of the Legislature's choices," said State Board of Education member Leslie Castle at last week's meeting.

At issue are three major shifts in the way Utahns calculate their income tax that, as of last February, had cost schools $400 million, according to the Office of Legislative Research and General Counsel.

"That's nearly half the state's current revenue shortfall. I'm not sure people realize that," said Kevin Cromar, a former legislator and member of the Canyons School District Board of Education.

Among the changes sold by Republicans lawmakers and former Gov. Jon Huntsman as tax relief and a way to spur the economy:

» A 2006 expansion of tax brackets and a reduction in the rate paid by the state's top wage earners.

» A 2007 law permitting taxpayers to choose between a flat tax or the old graduated, multi-tiered system.

» Full implementation of the flat tax in 2008, with everyone paying a single rate of 5 percent.

But some argue the cuts amounted to token tax relief for all but the wealthiest while hurting one of the state's most powerful economic engines, schools.

"The typical married family with two children gained $40 in income tax, but lost $400 per child in education services," said Matt Frandsen a Huntsville resident who heads up the grass-roots Rings True Coalition, which is pushing for a referendum in 2010 to roll back the flat tax.

Utah Gov. Gary Herbert has taken a strong stand against any tax hikes.

"The passage of the flat tax was appropriate at the time, as it resulted in more money being put into the state's economy, which has helped keep Utah competitive during these tough times," said the governor's spokeswoman Angie Welling.

Senators Lyle Hillyard, R-Logan, and Howard Stephenson, R-Draper, have made overtures to restore the state sales tax on unprepared food, which could net $140 million.

Whether that money would benefit schools is uncertain. Sales tax isn't dedicated to schools, unlike income tax. And Stephenson is talking about lowering the income tax rate from the current 5 percent to 4.7 percent, or lower.

But Stephenson said Wednesday, "The Legislature has always taken care of public education, regardless of the earmarking."

Stephenson concedes Utah schools are underfunded, but says the best way to find more money is through economic development.

"Our income taxes are the biggest deterrent to companies looking to locate here," said Stephenson, noting Utah's tax rate sticks out like "a sore thumb" against those of Nevada, Wyoming and Texas. Schools in those states benefit from money derived through gambling or severance payments on oil.

Acknowledging these are tough times, the Utah State Board of Education has proposed a conservative 2010 budget representing a 1.8 percent cut. It hinges on tapping $100 million from the state's Rainy Day Fund and finding another $93.5 million.

But State Board of Education member Kim Burningham said that low-ball strategy won't work for long.

Utah with its unsurpassed birth rate has nearly always struggled to fund education, but used to try a lot harder, said Burningham, pointing to education's declining share of the total state budget. "I'm not an advocate of high taxes, but we need to do better than we are."

Tribune Reporter Lisa Schencker contributed to this story