Governor O'Lovitz urges lawmakers to fund schools by reining in tax exemptions, not new property taxes

SALT LAKE CITY — Governor Michael O'Lovitz told a joint convention of the Utah Legislature that Senate Bill 1 seeks to repair inequities in the state's school finance system by shifting the first line of funding from property-tax increases to a systematic review and, where appropriate, elimination or tightening of tax exemptions.

"The solution before you today, known as senate bill 1, is better," O'Lovitz said as he framed the issue as one of "substantial importance" and, in parts of the state, an "emergency." He asked lawmakers to adopt a process that would prioritize revenue from exemption review, then other state revenues, and make property-tax increases a last resort.

O'Lovitz said SB1 keeps the existing property-tax base used under last year's HB65 (commonly called "Robin Hood") but changes how additional aid is raised and targeted. Under the proposal, half of the new funds would be distributed by the established "foundation" equalization formula and the other half by a newly described "critical school fund" intended to address districts with the most acute needs.

The governor outlined projected state contributions that would be built on an initial base he said the state had already appropriated: roughly $9,000,000 as a starting base, then $14,600,000 in fiscal 1995, about $20.2 million in 1996 and $23.2 million in 1997. He also said the plan would "level" the Robin Hood revenue stream to a perpetual $5,000,000 backbone while reducing long-term property-tax pressure.

O'Lovitz described a five-part criteria for reviewing exemptions and gave recent examples of how the approach would work: trimming the oil "workover" tax credit by 40%, a change he said saved the state $1,800,000, and shortening a Geneva Steel exemption request from five years to two years with a permanent sunset. "We saved the state $1,800,000 that now can be applied to this formula," he said.

Lawmakers questioned how SB1 would weigh potential job losses if exemptions were revoked and whether the cost of collecting newly assessed taxes could erode revenue. An unidentified representative asked whether the review would consider jobs that could leave the state and whether administrative costs might eat a large share of collections. O'Lovitz responded that job preservation is part of the evaluation and that his fifth criterion — ensuring an adequate return on the state's investment — covers administrative-cost concerns.

Representative Wright asked whether SB1 sets standards for capital facilities to avoid widely divergent local building choices. O'Lovitz said the critical school formula would include building standards so the state would invest only to a defined standard and local districts would be responsible for costs above that level.

On process, the governor said exemption reviews would go through the tax-review commission and the Office of Planning and Budget; legitimate exemptions would remain, and those that did not meet the criteria would be adjusted or eliminated. He acknowledged there will be difficult judgments: "If it meets the criteria, then it's serving our state well, and we need to leave it in place. If it's not, we need to adjust it or eliminate it," he said.

O'Lovitz also said the legislature could amend SB1's cap or any other element; if exemption reviews did not produce sufficient revenue in a given year, other state revenues or a return to the SB199 formula could plug the gap temporarily.

Procedural business followed the address: lawmakers moved to print the governor's message in both House and Senate journals and subsequently dissolved the joint convention and recessed for caucus. The session's questions and O'Lovitz's examples outlined the administration's approach to balancing equity in school funding with concern for economic impacts of tax changes.

The joint convention adjourned back to regular Senate business and recessed for caucus until 11:00 a.m.