Amendment a Joint resolution on the 2012 ballot.
CONSTITUTIONAL AMENDMENT A
JOINT RESOLUTION ON SEVERANCE TAX
2012 GENERAL SESSION
SENATE: 26-1-2
HOUSE: 54-17-4
Shall the Utah Constitution be amended to
require a portion of the revenue from all of
the state's severance taxes, excluding
severance tax revenue used for Indian tribes,
to be deposited into the permanent state
trust fund beginning July 1, 2016?
Constitutional Amendment A requires a
portion of the state's severance tax revenue to be deposited into an existing
permanent state trust fund beginning July
1, 2016. The severance tax revenue subject to deposit into the trust fund does
not include severance tax revenue that
state law designates for use by Indian tribes.
CURRENT PROVISIONS OF
THE UTAH CONSTITUTION AND UTAH LAW
Permanent state trust
fund
There currently exists a permanent state
trust fund, which was established under a 2001 amendment to the Utah
Constitution. As provided in the Utah
Constitution, money deposited into the trust fund may not be removed from
the fund unless approved by the governor
and three-fourths of the Senate and House of Representatives. Money
in the trust fund is required to be
invested for the benefit of the people of the state. Income earned on money in
the fund is required to be deposited into
the state's General Fund to be used for general state purposes, as
determined by the Legislature.
Severance tax
Under current Utah law, the state imposes
and collects a tax, called a severance tax, on those who remove oil,
gas, or minerals from land within the
state. The tax is based on the amount of oil, gas, or minerals removed.
Some of the severance tax revenue
generated from oil and gas removed from Indian lands is set aside to be used
for the benefit of Indian tribes in the
state. The remainder of severance tax revenue is placed in the state's
General Fund to be used for general state
purposes.
The total amount of severance tax revenue
over the past ten years, not including the revenue used for Indian
tribes, averages about $70 million
annually. State law currently requires annual severance tax revenue
exceeding a threshold of about $105
million to be deposited into the permanent state trust fund. In 2009, about
$23 million of severance tax revenue was
deposited into the trust fund under that requirement and a lower
threshold then in effect.
Currently the use of severance tax
revenue is governed by statute enacted by the Legislature. The Utah
Constitution does not mention severance
taxes or specify how revenue from severance taxes is to be used.
EFFECT OF CONSTITUTIONAL
AMENDMENT A
Constitutional Amendment A requires a
portion of the state's annual severance tax revenue, excluding severance tax
revenue used for Indian tribes, to be
deposited into the permanent state trust fund beginning July 1, 2016. The
portion to
be deposited into the trust fund is 25%
of the first $50 million of annual severance tax revenue, 50% of the next $50
million, and 75% of all severance tax
revenue over $100 million. By requiring that portion of severance tax revenue
to be T TITLE
deposited into the permanent state trust
fund rather than into the state's General Fund, the Amendment restricts the
ability
of the Legislature to determine how that
portion of the state's annual severance tax revenue is to be used.
EFFECTIVE DATE
If approved by voters, Constitutional
Amendment A becomes effective January 1, 2013.
FISCAL IMPACT
Under Constitutional Amendment A, some
severance tax revenue that would have been deposited into the state's
General Fund will be deposited instead
into the permanent state trust fund. Total General Fund revenue is therefore
reduced in any fiscal year by the amount
of severance tax revenue deposited into the permanent state trust fund during
that year. Once that revenue is in the
permanent state trust fund, it is invested to generate income. Any income
generated is required to be deposited
into the state's General Fund. The income deposited into the General Fund,
therefore, acts to offset any reduction
to the General Fund that results from severance tax revenue being deposited
into
the permanent state trust fund.
Based on current estimates of future
annual severance tax revenue and assuming that the amount remains constant,
approximately $36 million of severance
tax revenue will be deposited annually into the permanent state trust fund
beginning July 1, 2016. That $36 million
annual deposit into the permanent state trust fund will result in an annual
decrease of that amount to the state's
General Fund. The amount of that annual decrease will diminish over time as
income on trust fund money increases. By
2044, the decrease in General Fund revenue resulting from annual severance
tax revenue deposits into the permanent
state trust fund will be eliminated, because income on trust fund money being
deposited into the General Fund will
equal or exceed the amount of severance tax revenue being deposited into the
permanent state trust. These calculations
are based on an assumed 3.5% annual rate of return on money in the
permanent state trust fund.
The bipartisan supporters of
Constitutional Amendment A believe Utah’s natural resources belong to all
generations, not
just ours. A vote FOR Constitutional
Amendment A is a vote FOR investing a portion of our natural-resource revenues
for
future generations.
Utah collects severance taxes on oil,
gas, and minerals extracted from our lands. States like Wyoming and New Mexico
do the same. For decades they’ve invested
a portion of those revenues. Today they each have funds worth billions. By
comparison, Utah’s trust fund amounts to
$120 million—barely more than a year’s worth of severance taxes.
Today, rather than add to our investment
fund, we spend what we collect each year. This is unwise on two counts:
1. Revenues rise and fall sharply as
commodity prices and extraction activities fluctuate. Spending all of our
severance tax receipts when revenues are
up leads to program cutbacks when revenues decline.
2. Severance taxes come from
non-renewable resources. One day, non-renewable resources and associated
revenues will shrink and ultimately
disappear. At that point, if we haven’t invested any severance tax revenues for
them, future generations will do without.
When 66% of voters approved a similar
amendment in 2008, our goal in doing so was to increase our investments for
future generations. Unfortunately, that
is not happening. The 2008 amendment allowed Utah to invest severance tax
revenues into the Permanent State Trust
Fund. An associated statute required that combined severance taxes in excess
of $98.6 million annually be invested in
the trust fund. Once invested, fund earnings could be used, but principal could
be
spent only in case of emergency, with
concurrence of three-fourths of both House and Senate, plus the Governor.
Undoing the intent of the voters in 2008,
the 2011 Legislature increased the total allocated for annual spending to
$104.6
million. As a result, we spend everything
and invest nothing. It only took a simple majority to enact this 2011 formula
change. The same could readily happen
again without Constitutional Amendment A.
ARGUMENT FOR
CONSTITUTIONAL AMENDMENT
A (CONTINUED)
33
In keeping with the will of the voters,
Constitutional Amendment A does the following:
• Invests a set portion of
all severance taxes directly into the trust fund. Earnings will benefit each
future generation
increasingly.
• Establishes a base
investment formula that can’t be changed by a simple majority of the
Legislature.
• Delays the effective
date of the investment formula until FY 2017 to allow phased implementation.
• Continues the trust
fund’s role as a very secure reserve, backing up our rainy day funds, which can
be tapped
only in case of emergency with
supermajority approval.
One day Utah’s severance taxes will be
gone. We owe it to the generation that will experience this decrease in revenue
to
start planning today. Join us in voting
for Constitutional Amendment A to save some of our severance tax dollars. If we
truly are the best-managed state in the
union, it is time to invest in our children’s future.
Representative Jim Nielson
Sponsor
Senator Lyle Hillyard
Senate Sponsor
Utah typically sets aside part of the
revenue generated from natural resource extraction for future use. The amount
of
these funds, which are deposited into the
Permanent Trust Fund, will grow substantially as oil and gas prices rise in
coming years.
Utah also has boosted its Rainy Day Funds
by tens of millions of dollars every year that a budget surplus exists. The
success of Utah’s planning for the future
was evident during the recession. The balance of the Rainy Day Funds never
dropped below $209 million –50% of its
all-time record high. This provided a financial cushion to the state.
This recent experience illustrates that
Utah already embraces a prudent approach to budgeting. This approach allows
lawmakers to balance pressing current
needs with concern for the future, and to quickly make adjustments as
conditions
change.
Constitutional Amendment A would upset
this balance, permanently reducing Utah's ability to address economic
downturns. Should this measure be
approved, the next time the state faces an unforeseen downturn it could be
forced to
either raise taxes or make deeper cuts in
critical services affecting neighborhood schools, universities, state parks,
courts,
and the Utah Highway Patrol.
The current constitutional language –
approved by voters in 2008 – allows public officials to assess existing
conditions,
listen to the views of their
constituents, and make careful decisions about the appropriate balance between
Utah’s current
and future needs.
Vote NO on
Constitutional Amendment A. Utah will benefit from maintaining flexibility as it faces
the economic
challenges of the future.
Representative David Litvack
Minority Leader, Utah House of
Representatives
ARGUMENT AGAINST
CONSTITUTIONAL AMENDMENT
A (CONTINUED)
34
COMPLETE TEXT
CONSTITUTIONAL AMENDMENT A
JOINT RESOLUTION ON
SEVERANCE TAX
2012 GENERAL SESSION
UTAH CONSTITUTION
SECTIONS AFFECTED:
AMENDS:
ARTICLE XIII, SECTION 5
ARTICLE XXII, SECTION 4
Be it resolved by the
Legislature of the state of Utah, two-thirds of all members elected to each of
the two houses voting in
favor thereof:
Section 1. It is proposed to amend Utah
Constitution Article XIII, Section 5, to read:
Article XIII, Section 5.
[Use and amount of taxes and expenditures.]
(1) The Legislature shall provide by
statute for an annual tax sufficient, with other revenues, to defray the
estimated
ordinary expenses of the State for each
fiscal year.
(2) (a) For any fiscal year, the
Legislature may not make an appropriation or authorize an expenditure if the
State's
expenditure exceeds the total tax
provided for by statute and applicable to the particular appropriation or
expenditure.
Utah Voter Guide Page 31
Utah Voter Guide Page 31
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