Pension Reform

State of the State: Utah

Thank you, members of the legislature, for investing in good policy.

Few states in the nation can rival Utah’s commitment to fiscal responsibility and economic competitiveness. A lesser writer would even say that the Beehive State’s economy is buzzing.

Utah’s consistent tax and fiscal policy has made it the top-performing state eight years running in the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index. There is a lot to like about how Utahns manage their economy, which is why the skyline of Salt Lake City graces the cover of the report’s eighth edition.

Utah’s state government reliably works to eliminate or suppress disincentives to work and produce. The state is Right-to-Work, has no estate tax, enjoys a reasonable court system and has some of the nation’s lowest average workers’ compensation costs. One of Utah’s biggest draws, however, is its flat income tax. Both personal and corporate rates are a flat five percent, ensuring the kind of predictability that individuals and businesses rely on when budgeting for a given fiscal year.

Given that record, Utah Governor Gary Herbert did not hesitate to talk fiscal responsibility during his state of the stat address on Wednesday. After highlighting the $528 million Rainy Day Fund that Utah has been building, Herbert continued:

Six years ago, our state found itself in the most severe recession since the Great Depression. The unemployment rate at the time was 8 percent. Each of us had family members and friends who struggled just to get by. Our economy had been weakened, but we did not give up hope. Together, we set a goal to not only recover from the Great Recession but to become the top performing economy in America.

The people of Utah have met that goal, but in the constantly evolving economic climate of the United States, more can always be done. As Herbert himself noted, Utah enjoys a mere 3.5 percent unemployment rate, which is significantly lower than the national average.

The American Southwest is home to some of the most economically competitive states in the nation. That ongoing competition is a driving force behind continue reforms. To maintain Utah’s competitive edge, Herbert made several propositions.

With the caveat that it is the private sector’s role to create economic success, Herbert noted ongoing and future investments designed to make Utah’s rural areas more business friendly. The cost of investing in infrastructure should be lower in Utah than in other areas of the country, however, thanks to Utah’s lack of a prevailing wage law and dedication to public-private partnerships to complete public works projects. ALEC has adopted cost-saving model policies relating to both.

Herbert promised that his proposed budget calls for no new debt or any tax increases, and instead calls to pay down existing debt in the amount of $350 million. This would be an exceptional act of fiscal responsibility for a state that already has a AAA bond rating. Often the largest reason for a state’s indebtedness, unfunded pension liabilities can be burdensome to its economy. However, Utah is trending in the right direction on pension reform, thanks to 2011 reforms spearheaded by then-Senator Dan Liljenquist. These reforms were featured in the ALEC publication Keeping the Promise: State Solutions for Government Pension Reform.

Another way to save costs, both immediate and long-term, is through controlling the size of the public sector workforce. Herbert was particularly proud of his efforts on this front:

If we simply added new employees over the last five years at the same rate as our growing population, we would have more than 2,200 additional full-time state employees today. Instead, we have reduced the number of state employees by 11 percent, saving Utah taxpayers over $177 million in 2015 alone.

By keeping to that commitment, Utah ranks 13th in the nation with a mere 4.88 percent of individuals employed as full-time public workers. A smaller, more efficient public workforce saves immediate costs on salary, but also long-term costs on pensions and healthcare.

The 50 states, being laboratories of democracy, are in constant competition for businesses and population. If Utah and the surrounding states continue working to outdo each other’s’ competitiveness, the Southwest will continue to represent a race to the top of America’s economic ladder.

This is an entry in the ALEC Center for State Fiscal Reform series, “State of the States 2016,” which will perform analysis of tax and budget issues raised in every state of the state address delivered by America’s governors. Check back frequently over the coming weeks to see the results for your state.

In Depth: Pension Reform

Modern, 401(k)-style plans are now commonplace in the private sector. For state workers, however, traditional pensions are still the norm. As former Utah State Senator Dan Liljenquist wrote in Keeping the Promise: State Solutions for Government Pension Reform, this is not a partisan issue, but a math problem. State Budget…

+ Pension Reform In Depth