Fiscal-note abuse costs 'real money'

Friday, December 8, 2006

(Deseret Morning News)

By Doug Macdonald

The influential and powerful Republican minority leader, Sen. Everett Dirksen, once quipped, "A billion dollars here, a billion dollars there, pretty soon we're talking real money." Divide by a thousand, and one could say for Utah state government, "A million dollars here, a million dollars there, pretty soon we're talking real money." Over the past four years disturbing practices have taken place in Utah's fiscal note-writing that technically put the current state budget out of balance.
Fiscal notes are estimates made by economists and analysts of the impacts of new legislation. Over the past two years, tax commissioners have developed end runs around the fiscal note process to get zero-dollar fiscal notes for legislation that really costs the state millions of dollars per year. Below are four end runs, which have proved effective.
1. "This bill only codifies existing Tax Commission practice." Lobbyists have convinced commissioners that if auditing practices change before the legislative session, they can argue that the bill has a zero fiscal note. One example of this was SB89, Sales and Use Tax — Attachment of Tangible Personal Property to Real Property, 2006 session. In the spring of 2005 a commissioner wrote a "letter opinion" ruling that the current practice of taxing repairs and parts to oil pipelines and storage tanks was not taxable. In the fall of 2005, business lawyers persuaded legislators to sponsor legislation that would now "codify existing Tax Commission practice." With a zero fiscal note coming from the commission and no supporting documents such as the letter opinion or the original $5 million note from this economist, the legislative fiscal analyst was misled to conclude that there was no revenue loss due to the bill. The bill passed with little discussion.
2. "Jawboning the fiscal analyst." In the 2006 session, a bill came before the Legislature to exempt telecommunication equipment from the sales tax base. A half a dozen mobile telephone company lobbyists persuaded the fiscal analyst that the cost of the SB29, Sales and Use Tax Exemption — Telecommunications, was $7.5 million. The original note from this economist was closer to $17 million. Several deputy attorneys general put the cost at $24 million. With the lower note, the bill easily passed both houses.
3. "This is my bill. It has no fiscal note." Two or three 100- to 200-page bills came through the Legislature, which enacted the so-called "Streamline Sales Tax." In each of these bills, 20 to 30 parts of the sales tax system were altered. But in the last two streamline bills, all these changes happily netted out to zero notes.
4. "It only affects one company." With only one day and often just a few hours to answer a fiscal note request, fiscal notes impacts tend to be minimized. When this economist heard from a commissioner that SB198, Property Tax — Intangible Property, 2006 session, would only affect one company and cost state and local governments $500,000, he took the commissioner's word for it. A few days later this economist was chagrined to learn from a deputy attorney general that all mobile telephone companies would soon adjust their taxes to reflect the change. Attorneys estimated the cost in property taxes to reach $50 million per year in five or 10 years out.
In the spring, this economist and a deputy attorney general alerted the governor and the speaker to this pattern of fiscal-note cheating. To their credit they called for a legislative audit. Without a special committee of economists to review fiscal notes before the end of the legislative session, more end runs around the fiscal note process are likely. Who knows, someday a gusher might be unleashed that costs the state hundreds of millions of dollars. Then we might be talking about "real money."

Doug Macdonald is the interim executive director for Utah Issues: Center for Poverty Research and Action.