Proposed constitutional school funding change stirs controversy in Utah

Utah voters will weigh a constitutional change in the Nov. 5 election that would provide more flexibility for the state budget through the use of revenue that has been allocated solely for specific funding purposes with K-12 public schools being the biggest beneficiaries. 

Currently constitutionally earmarked personal income, corporate franchise, and intangible property tax revenue could flow to other spending in the triple-A-rated state under Amendment A, raising concerns about future education funding.

Utah State Legislature

The Republican-controlled legislature placed the amendment on the ballot during the 2023 session. Utah Republican State Sen. Daniel McCay, who sponsored Senate Joint Resolution 10, said changing the earmark had been debated for years and the time has come to allow the state to use some of that money for non-education spending once education funding requirements are met.

"Taking that income tax fund and using it exclusively for public education does create budgeting issues when there are large surpluses and other needs where we have deficiencies," he said on the Senate floor in March 2023. "What this amendment will do is to protect and provide continued constitutional protections, but then allow for…revenue in the income tax fund to be used for other state purposes once we fulfilled our responsibilities for growth and for student enrollment and long-term inflation." 

In the wake of SJR10's passage, House Democrats issued a statement calling it vague and raising concerns it will significantly harm the state's investment in public education and make school funding "subject to the whims of political tides."

Utah's constitutional provision allocating income tax revenue and intangible property tax collections to K-12 public schools dates from 1931, when 75% of the money was earmarked for public education. In 1947, the earmark was raised to 100%. Higher education was added in 1997, followed by services for the disabled in 2021.

Revenue in the income tax fund totaled $8.8 billion in fiscal 2024, leaving an ending balance of $3.5 billion, up from $2.4 billion in fiscal 2023.

Democratic State House Rep. Carol Moss, a former high school teacher, said Utah should have a dedicated revenue source for education and passage of the measure would open the door to the state's many other funding needs. 

"I'm optimistic that Utahns like their public schools enough to know that you can't trust the legislators not to raid (the income tax fund) for any and everything," she told The Bond Buyer on Friday. "We have huge needs in other areas, transportation, other things. I just don't think that this guarantee is going to be sufficient and it'll end eventually." 

Utah's income tax revenue has grown faster than other taxes, including sales, in recent decades, according to an August policy brief from the Kem C. Gardner Policy Institute at the University of Utah.

"The proposed 2024 amendment would embed a K-12 public funding framework in the Utah Constitution and increase state budget flexibility, allowing the legislature to use income tax revenue for a broader range of state functions," it said, adding the framework must be funded before the revenue is tapped for other purposes.   

Utah is the only state that dedicates the entirety of one of its major taxes, with only Alabama coming close by earmarking the majority, but not all, of its income tax to education, according to a Sept. 6 report by Jared Walczak, vice president of state projects at the Tax Foundation.

"The (Utah) income tax earmark, enshrined in the constitution at a time when the tax mix looked radically different, is increasingly unbalanced and makes it difficult for legislators to budget," Walczak wrote. "The income tax is, moreover, considerably more volatile than the sales tax, so using it as the source of education funding creates substantial uncertainty about year-to-year funding levels."

Utah lawmakers have cut the state's flat personal income tax rate from 5% to 4.95% in 2018, 4.85% in 2022, 4.65% in 2023, and 4.55% in 2024.

While the Utah School Boards Association is not advocating for or against the amendment, the head of the Utah Education Association, which represents teachers, called it "another power grab by state politicians."

"Amendment A would take funding from public schools to funnel to unaccountable, private religious school vouchers and politician pet projects," the group's president, Renee Pinkney, said in a statement. "There's a good reason teachers, parents, Republicans, and Democrats stand strongly opposed to Amendment A." 

The teachers' union is a plaintiff in a lawsuit filed in Salt Lake County District Court against Utah Gov. Spencer Cox and Attorney General Sean Reyes claiming the Utah Fits All Scholarship Program is unconstitutional. 

The up to $8,000-per-student voucher program was enacted in 2023 with a $42.5 million state appropriation from the income tax fund and priority given to lower-income households. High demand when the program launched earlier this year led lawmakers to increase funding by $40 million, according to local media reports.

The lawsuit contends the vouchers violate constitutional requirements by diverting income tax revenue to fund private schools that are not free, not open to all students, and not controlled and supervised by the State Board of Education.   

Passage of Amendment A would allow two other bills enacted in 2023 to take effect, according to the Gardner Policy Institute's report.

House Bill 394 would protect school districts from the loss of several hundred millions of dollars due to enrollment declines for at least the next five years with the potential of legislative action to extend the protection for another five years.

HB 54 would end the state's 1.75% sales tax on food starting Jan. 1, while leaving local sales taxes on food items in place. A fiscal note from the 2023 session said state sales tax revenue would fall by about $83.8 million in fiscal 2025 and $211 million in fiscal 2026 and beyond.

Proposed constitutional Amendment B, which resulted from the passage of House Joint Resolution 18 during the 2023 legislative session, is also on the Nov. 5 ballot. It would boost annual land trust distributions public schools receive from Utah's $3.3 billion Permanent State School Fund to 5% from 4%, which amounted to $106 million for the 2024-25 school year, according to the state treasurer's office.  An increase to 5% would have added an additional estimated $13 million. 

"Because of consistently strong investment returns, the fund needs to pay out more of its earnings today," Utah Treasurer Marlo Oaks said in a May statement. "The proposed constitutional amendment will give the School and Institutional Trust Funds Office the flexibility to meet its fiduciary obligation to balance funding between current and future students."