S.B. 65 Minimum Basic Tax Rate Amendments: transcript

Should largely look familiar to you. It was, uh, numbered Senate Bill 37 last year, passed the Senate widely passed the house was vetoed by the governor. We've worked to try to make some changes, um, uh, addressing some concerns that have been raised regarding, uh, structure and transparency. So, um, this bill recognizes the fact that taxpayers fund, uh, education in this state that divides things into several different funds. But as long as we're in a situation where some funds are growing very fast and others are growing very slow or shrinking, um, if the restricted fund is growing fast, then that creates a situation where a lot of, uh, urgent state needs can go unmet. So, uh, this bill makes one policy change that has two virtues. And the first of those virtues is to provide flexibility so that the state government can fund its priorities as they arise. Um, rather than dealing with, uh, uh, you know, the, the one, our restricted fund growing very fast, our unrestricted fund growing very slow, certainly slower than population and inflation. Uh, we've had several attempts to try to fix this over the years. Um, and this is yet another one of those. Um, so we've, we've made changes to the Constitution in that time, made, uh, uh, and made changes. You know, we've attempted to, in fact, we have done, we've, you know, raised some rates and lowered other rates. Um, this, I I, the reason that I like this solution is because it, uh, it simply recognizes the taxes are already being paid and, um, we are un unnecessarily restricting additional funds beyond what the Constitution requires. And that by freeing up those funds consistent with what the Constitution allows, we are able to, uh, gain budgetary flexibility to meet a broad range of state needs and do so in a way that protects public education so that they are still getting every dollar, um, uh, that they should get with one exception that I'll talk about, which is the second. Uh, the second benefit of this is that we have one school district in the state that is so property rich and so children poor that, um, they end up sitting on literally millions of dollars of taxpayer money that should be allocated to educate students, but just sits in bank accounts for between six and 18 months. And that one school district realizes, uh, all of the interest gains on that, the cashflow gains on that, while other school districts that are not as property rich or are not as children, poor end up receiving less funding as a result. So, uh, this bill, by making that one change, um, uh, Saul addresses those two issues. And that one change is just change where property tax is originally remitted, uh, that as it's paid to the counties, instead of flowing through to school districts directly, it would flow to the state, which would then flow money through the Uniform school fund to school districts. That concludes my presentation. Thank you very much. Okay.

Thank you, Mr. Chair. I just wanna, um, maybe ask with regards, so I think what we're clear on what the bill does, thank you for your explanation and I, I, I appreciate Senator, your, you being very direct about how things have you guys, there's been multiple attempts to do this, and if I respect someone's persistent, it's persistency. And, uh, I give you that you've been really on, on the message. I do have, um, a question about what the office of the Utah State auditor has raised with the, with regards to the accounting process and whether we will be out of compliance with accounting mechanisms. And, um, I know we have, you know, Gaby and all of this stuff, so I know that's more of a technical accounting, but if you can respond to that, that'd helpful. No, I, I Appreciate helpful. I appreciate that. That question, Mr. Chair.

The, the state auditor raised that with me yesterday. Um, uh, you know, we had a meeting where she outlined this concern, uh, uh, said that she, in her conversations, that the, the accounting board that she spoke to called it quote a pickle. Um, and I can understand that 'cause this is kind of an innovative approach, um, that, uh, it probably, uh, not addressed directly in their rules. Um, so since that time, I, I told her that I would take that under advisement, which I did. And so I, I've spent then time since then speaking with, uh, several other, uh, you know, some accounting groups and accounting professionals and, and other state agencies that deal with that. So I'd like to read a statement from State Finance if I can. So, uh, this is from the state finance office. From an accounting perspective, we can account for the transactions as directed by this statute under GASB standards, regardless of the policy outcome. We have previously discussed these issues directly with GASB and have found sufficient flexibility in how this activity can be reported. So, uh, I appreciate the auditor raising those concerns, but in conversations with other state agencies and other accounting professionals, I have yet to find one that has confirmed those concerns.

Okay. Um, just one last question, Mr. Chair, if that's okay. Um, in terms, so how do you answer about the current restrictions that are in our const that are in the constitution, that Utah constitution mm-hmm. And the fact that, um, when you look at what's happened, so we're just moving funds from one place to another to be utilized for something that was not necessarily allocated for. Do you find, is that, do you, how do you feel about that?

Uh, well, this would change that allocation, right? So now it would be allocated for something new. Uh, you know, our constitution restricts income tax dollars, but not property tax dollars. And so what we're talking about here is one line, you know, uh, one specific property tax levy school districts have, I don't wanna say dozens, but a lot. Um, so this would affect one of those. It's state directed, state imposed. We tell the school districts, in order to participate, you must levy this tax at this rate. And that's the only levy that it, that it, that it impacts. And it's true. Yeah. Passing this bill will change where that is allocated.

Okay. Thank you. Thank you, Mr. Chair. Thank you for the dialogue.

Thank you. Thank You. Um, Tina Cannon, Utah State Auditor, and, um, it's always a pleasure to come before Senator McKay's committees to talk about accounting standards. So I appreciate the opportunity twice in this month. Um, so as the auditors, we audit to the generally accepted auditing standards in the United States, um, we have met with the Governmental Accounting Standards Board about this issue. We are firm and we do believe that this is a violation of the restriction for how the property tax is imposed the way it is currently written. Our recommendation would be that if this tax is to go forward or this bill is to go forward, that the state, this be a state property tax because the restriction placed at the imposition of the tax goes on the entity who imposes the tax. So as long as this is a local government tax, this is a local government restriction for the use of that revenue. So there are ways to fix the accounting on this if it needs to be, if it needs to go forward. We're not opining on the policy, we're opining on the way this is currently structured. We will have a material dis, um, misstatement at both the state and at the local government level. So, any questions? I'm happy to answer any questions about that,

Um, thank you chair. Um, I'm Jennifer Partridge. I am a board member in the Provost City School district, and I'm also the vice president in the Utah School Board Association. And I'm here to speak today on behalf of the association and the Joint Legislative Committee of the association, as well as the Association of Superintendents. Um, we are opposed to this bill. Um, I do understand that, um, our state has many needs, not just education, and I appreciate that Senator Fillmore is, uh, working to find a solution to meet everybody's needs. Um, but we are just concerned about, um, how this is set up. Um, districts will miss out on about a month of interest when the money goes into the state fund before it gets redistributed. So, um, he spoke to one district, but this will affect all districts. Um, and it's a, a decent amount of money, um, that that would affect us. Um, we are concerned that this is possibly a short term fix and not a long term solution. And we would love to be a part of the solution to sit with everyone involved, education and, um, our legislators to talk about how can we safeguard education funding long term, while also meeting the needs of the state. Um, we are also concerned that this reduces the amount of money available to education generally, because now we're taking even more money from the income tax fund, um, to pay for education when we have been receiving the message that already money is tight for education. Um, and so to increase that amount significantly, and in an era where it has been very common to reduce the amount of income tax, um, coming in, uh, we just have a lot of concerns of how we would be able to safeguard our children's education, um, long term. So, um, we ask you to oppose this and let's keep having some discussions on how we can meet our financial needs.

My colleagues don't love it, but I'm not in love with the presenting from the DAAs presentation, so I always like people being down there to San Diego. Thank you. I appreciate to be here too. Thanks, Mr. Chair.

Thank you. I've got a Couple questions. Okay. Senator Fillmore, you don't have an updated fiscal note on this bill, correct?

Correct. The fiscal note that's there is the fiscal note and you'll, you'll see it just recognizes a transfer, uh, close to $900 million moving from one fund to another.

Uh, I just kind of further to that question and to a public comment that we heard earlier,

this does nothing to reduce the amount of money available to education. Education funding can come from any source and the fact that we use, uh, you know, source from one pot of money or another, it's all currently available for education. Uh, and it all still will be available for education. Um, potentially this could prevail more money for education if we use that flexibility to increase the weighted pupil unit. Um, I'd say the one exception to that is the gas tax. This makes no changes to the restrictions on the gas tax.

That was my next question, so, alright. I'm done with questions. Thank you. Okay, thank you.

Yeah, Mr. Chair, I will move that we favorably recommend Senate Bill 65.

No, I think, uh, I would just encourage you to continue to work with the, uh, auditor's office or whoever they've pointed you towards. Yeah. Uh, to resolve any auditing issues. Uh, I'd like to not have this come back and, and hurt us in the, on the, you know, other side of the, of the legislation. So, so I'll be a yes today, but I'm hoping that you'll continue to work with them and, and find a good ground on that. He's stepping on my sum, Mr. Chair. But yeah, thank you.

You. Yes, I appreciate that. And I, the state auditor raises, uh, a good point. I have yet to confirm with others that that's the, the case. Um, but I, uh, we are still looking right, but so far the division of finance has said that, uh, they believe that they, uh, that they can account for the transactions as directed under GASB standards and have previously discussed these directly with GASB and found flexibility in how that activity can be reported. Um, so, uh, anyway, we'll keep looking to try to get further clarity on that. I'm confident as those, uh, differing opinions go forward, we can all get on the same page.

Well, I, I reserve judgment on that, but there are, uh, varying opinions on this one from, uh, from, uh, numerous respected sources. And the, the state auditor's offices is certainly one of those. So that's why we're just seeking to confirm and make sure that, uh, we can get all the parties to agreement. Certainly that will happen before this bill passes.

Thank you, Mr. Chair. I'm actually in, now that you're being, you know, open to having the conversation, and I will be interested to hear from our state auditor's office as well in terms of, I mean, they oversee our audits and if we have to audit this, I Think, but they testified during public comment. I mean, Our state legislative, the legislator, sorry, the ones that are gonna be presenting on Friday, a lot of auditors. So the, our audit, um, staff. 'cause I think if it's about people's different opinions and to the good chair's point, whether they're attorneys or CPAs, you know, the devil's in the detail and I, one, this is a concern in terms of structural pieces. Um, I think there's a policy question to it, but also if we're gonna be, you know, so I, if you don't mind also getting maybe some feedback from them. Um, I know they do have some that are more experts on finances and all that stuff. That will be very helpful. Thank you, Mr. Chair.

No. Senator Escamilla. Okay.

Thanks Mr. Chair. We heard this, uh, bill last year and passed it. Uh, but since that time, it's been obvious that even though I think this is good policy, I haven't been able to convince the house to come along. Board I'd ask for a motion to adjourn if that's all right with you, Mr. Chair.

There is no rules Committee.

Uh, no further announcements. Just the final motion. Take the final motion. I move the Senate. Adjourn until Tuesday, February 10th at 11:00 AM.

You, uh, Mr. President Pro Tem appreciate, uh, the body cons, body's consideration, uh, of this bill. I, when I was, uh, appointed to be the head of the, uh, the chair of the Public Education Appropriations Committee, it was news to me that the legislature already appropriates the $880 million that are collected by local school districts through the basic levy. Now, the basic school levy is one that it, that the state requires school districts to impose as a condition of participation in the minimum school program. So they impose this local rate, they generate whatever they can locally and then the state, um, through, uh, income tax dollars or o or other dollars, uh, brings all the school districts up to the minimum, which is the basis of the weighted pupil unit. So we just ensure that as school districts participate to the degree that they can at the rate that is set by the state, we keep them whole. Uh, but that our appropriation bill already recognizes that we are appropriating the full value. That is we appropriate what is collected locally and what we put on top of it. This bill simply recognizes that fact and makes the reality match the budget. Where, uh, since we're already doing this in the budget, this would have counties when they collect that property tax instead of remitting that to a school district to send it to the state, uh, it would be deposited in the general fund and then the, uh, or in a special revenue fund. And then the state would replace that dollar for dollar on the same timeframe to the local school district at the same amount that they would've received otherwise at the request of Senator Stratton and some others. Uh, I've got a first substitute to this that also accounts for the fact that there is some lag. Uh, and my guess is that lag would be about two weeks or so out of the year. So that's not a lot of money in lost interest that school districts might collect by just holding this money, uh, in their savings. Uh, in their savings or in their PTIF account over a period of time. But they are, you know, they, they receive a lot of funding in November or December when people pay their property tax and then a smaller amount in January and then little trickles as it goes through the year. But they do earn some interest on that money as they hold it and then spend it down over the course of the year. So first substitute would, uh, ensure that any interest earnings that the state earned, you know, by holding that money over the Yes.

I'm gonna, there's no sub one online Then motion to circle.

the interest payments to the school districts. I'd like to thank Senator Vickers, Senator Stratton for, uh, bird dogging that issue. Uh, with that I will be happy to answer questions or, uh, make a motion

So, uh, I know this is all money. I I understand that, um, um, Senator Fillmore has been clear about its money, uh, whether it's property tax money or it's from income tax, it's still all money, but one of the things that has been good to say up here is we've been able to say property tax is done at the local level, not at the state level. And that's, I think, been helpful for us in terms of policy making that there's a fairly, um, not totally clear dividing line, but pretty close. Um, we do a little bit of it in order to be able to do, um, to do some equalization, but it, it's small. This means that now we are in the property tax business, um, as a state legislator and I just, I have concerns about that. Uh, we have dedicated our income tax fund to it. Um, we've said that's what we're going to use, that's what's in our constitution. We have gone through constitutional amendments with these things and um, now we are just kind of swapping money. But I think that in that swap we are taking the onus for property tax money at the state level and no small amount of property tax either. Um, this is a very large sum of property tax. So I discomfort with this bill because of that.

This was the bill that I intended to speak upon the last time this bill was, um, voted on last year. And then it was vetoed. People were upset that we were taking our property tax and moving over to the state fund. We had it, um, we had many emails about this bill. Our, my constituents do not feel comfortable about their state tax being put into the income tax and then possibly diluted into other buckets so that they could pay for other things. Uh, our property tax is already increasing dramatically and it should stay where it's local. So this is the bill that we saw last year that people did not like and it was vetoed. And so, uh, I still don't support this. Our school districts don't support this and our, um, superintendents don't support this. Our rural schools don't support this. So I don't support this. Thank you.

Thank you, Mr. President. I'll use, uh, a little bit of summation time just to address the comments that were made. Uh, first to the Senator from Cottonwood Heights. Yes, a version of this bill was, uh, vetoed last year, but, uh, we worked with the, uh, to address those concerns. For example, uh, there were concerns that the state auditor expressed that this would not be compliant with gap funding, but further research has indicated that this is compliant with gap funding. Uh, and she wrote a letter to the Reverend Tax Committee, uh, to that effect. Uh, second, uh, there was concern about, um, the, uh, that there was missing language on the tax notice. And even though the state does not dictate what gets put on tax notices, um, we have addressed that here to make sure the tax notice is very clear and to the senator from Weber County. Uh, we just say that when I get asked that question, my response is always yes, property taxes collected by the locals except there's for this basic levy, which the state imposes, right? The state sets the rate, the state, uh, requires school districts to impose it. And none of that changes here. Mr. Mr. President pro tem. Uh, so I don't think that this puts the state more in the property tax game than we already are because again, this is a state imposed property tax that we require districts to levy and that the state sets the rate and the state already appropriates the money. Um, so therefore I would like to call the Senate before I make a motion.

I move that Senate Bill 65 be read a third time and the question is, shall Senate bill 65 be read for a third time? Roll call vote.

Just the same as this morning, No change. Okay.

Senator Fillmore, thank you, Uh, Mr. President. Appreciate this and I appreciate the debate we had on this bill yesterday. Um, yeah, this bill really is just about directing money that the state already, uh, insists that school district's levy, um, uh, it, uh, shifts that so that instead of going directly to a school district, would come first to the state and then with interest be paid back to school districts on, uh, on, uh, on the exact same basis, the exact same timeframe. And that's true actually, Mr. President of all districts except for Park City, which is the only school district in the state that is in what's called recapture. Um, and so rather than have Park City, uh, hold all, all, all of this money for six to 18 months, uh, it would sweep that out and then use the interest that's earned on those. And that would be distributed equally among school districts. So actually 40 out of the 41 school districts in the state, uh, see a financial benefit from this. Um, I know that Park City is the one school district where that's not the case, um, because of their, uh, tremendous advantages when it comes to the valuation of their taxable property and the relatively few students they have. Uh, but I think this represents a financial win for most school districts in the state, is a win for, uh, the state budget. It allows greater flexibility while still guaranteeing that school districts get the exact same amount of money on the exact timeframe, including their potential interest earnings.

Thank you Mr. President. Uh, questions? The sponsor of yield. Senator Fillmore, will you yield? Yes. Senator Owens. Thank you, Mr. President. Um, and, uh, the question was, uh, uh, brought up to me by, uh, local, uh, administrator, um, wondering, can you just discuss that this, not just the funding, but the, the shifts power away from local boards, uh, to become dependent on the state redistribution rather than retaining, um, or, um, contributing their own base levy? Senator Fillmore,

Thank you Mr. President. I appreciate that question. Uh, no. This has, uh, literally no impact on local control over dollars. They will, uh, local school boards still will receive the same amount of money at the, on the same timeframe and to be able to allocate that money however they determine is best at their local school district. Thank you President. Thank you Senator Rebe.

Senator Fillmore? They don't mean the same thing Mr. President, but they have the same restrictions.

Senator Fillmore, Thank you, Mr. President. I appreciate that question. The quibble that I would have with the framing of the question is, I don't disagree with the sentiment that she stated. That is we are responsible to the people who elect us, but what I quibble with is the idea that we are elected by local school boards. We are not, we are elected by citizens and taxpayers, and our responsibility is to them. And, uh, so therefore, with that framing to answer the question is this provides greater flexibility within the state budget while protecting school funding. Uh, it, it allows the state to, uh, you know, education is a top priority for this legislature. And we have demonstrated that certainly every year that I've been here, uh, and, you know, as a public education professional for 10 years before I was elected, I saw the same commitment that the legislature has to funding public education. And this bill protects that funding. And again, for 41 40 out of our 41 school districts will grow that funding. Uh, but, uh, at the same time, it is not the only priority and we can't be in a position where we, uh, where we are not able to give raises to, uh, the Utah Highway Patrol because we are giving raises to teachers. You know, it, we cannot pit different functions of government against, uh, against each other. Um, you know, there are a lot of needs. Every appropriations committee went through a process to identify, uh, cuts. Those were hard in every committee and at every government department, uh, and that it is better for taxpayers to have greater flexibility within the budget so that we can put the money, uh, so that our budget reflects the statewide priorities. Thank you. Follow up?

Thank you. Uh, rather than some I'll, uh, like to call the Senate Mr. President, Call the Senate five or more standing. I think we have Senator Sandall and Senator Stevenson online. I believe they're online looking around. I see Senator Cullimore. We need to probably have, uh, Senator Balderree. I don't see Senator Balderree and Esche Escamia. Here's Escamia Baldry is in now. So Full house, Gonna go ahead and lift the call. I think we've got, uh, Senator Cullimore. Do we have Oh, there he is. Okay. I'm gonna lift the call. Senator. Thank you Mr. President. I, I appreciate the, the lively debate. I move that Senate Bill 65 pass.

Senator Bus, I wanted to explain my vote. Um, I've had this, uh, bill, uh, explained as a money laundering bill by many of my constituents, and for that reason, I cannot support it.

Mr. President, Senator Fillmore. I, I guess I, I take a little bit of issue with the accusation that this bill represents a crime. Um, Uh, I, I guess I don't have much to say beyond that. I do encourage the body. I didn't wanna make a point of order here, but I do encourage the body to be careful, uh, you know, in accusing the motives, uh, of people in, in running the bill or, uh, labeling legislation as a criminal act. Um, but I'll vote. Aye.