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COMING OUT OF COVID: Governor of Utah Candidate Jan Garbett Announces New COVID-19 Series Guest Public Policy Analyst Steve Kroes

Is Utah prepared for the recession caused by the coronavirus? What can Utah's leaders do to help Utahns make the best financial decisions during and after this crisis?

In this vlog, Jan interviews Steve Kroes, a Public Policy Analyst who was the President of the Utah Foundation for 16 years. Steve has worked extensively as a trusted, nonpartisan advisor to governors, legislators and regional and local officials. Much of his work has focused on public finance, infrastructure and education. Jan breaks down the current state of Utah's economy, how state officials can help Utahns

Jan Garbett: Hi, I'm Jan Garbett. I'm running to be your next governor. This is one in a series I'm calling Coming Out of COVID. It's about this crisis, how we're coping and our future. Today, I've invited Steve Kroes to join us. He has over three decades of experience in public policy analysis. He was president of Utah Foundation for 16 years. He's worked extensively as a trusted, nonpartisan advisor to governors, legislators and regional and local officials. Much of your work, Steve, has focused on public finance, infrastructure and education. I'd like your input on Utah's fiscal strength and what that means for us right now. So my first question individually, many of us are relying on personal savings, the state to have something like this–they call rainy day reserves. Can you explain how this can help the state?

Steve Kroes: Yeah, Utah is pretty good at saving up reserve funds, at least during this cycle, they have been. And so there's nearly a billion dollars in reserves now. About half of that is in the education reserve. And then there's a couple of other reserve funds for the general fund and other things. And that money gets set aside during the boom years and the legislature doesn't spend all of the increasing tax revenue. And sometimes there's criticism of that because people want the money to be spent on programs. But it turns out to be pretty wise when the economy turns down. And then we've got that savings account. Usually that money is not spent immediately during the first year of a downturn. And that's also pretty wise. You need to... we never know how long a downturn is going to last. And so spreading that money out over two to three years of economic hardship is useful.

Jan: So that's really interesting to know and even that concept of maybe waiting a little bit to do something with that money. What is something this state could do really soon in helping us get back to work? You say, you know, those funds are maybe for programs or something to keep those working. But does the state have any ability with doing grants or something to help projects that maybe they've been putting off that could help us get back to work sooner?

Steve: Everything takes a little bit of time to get legislation passed or regulations approved, but there are things that could be started immediately. The first thing that happens during any downturn is unemployment benefits. And Utah does have a healthy unemployment insurance fund, trust fund, and that's the natural process of people applying for unemployment benefits. But one thing that can be done to change things is to increase the unemployment benefit allowance per week. And so that can be done. If we wanted to get more money into people's hands to be able to handle this downturn and to stimulate the economy, things that take a couple more months to accomplish. The legislature could reconvene and pass some bond measures to spend state debt money on infrastructure projects like improving highways and bridges and even building buildings like school buildings or higher education buildings. And that money can be paid for with long term debt. They'll be paid over the next 20 years or so. And Utah has been pretty prudent in terms of how much debt it has. There was an increase in debt levels in the past decade and then it's been going down again. And there is room under the debt limits. The state has a constitutional debt limit and a statutory debt limit. There's room to issue more debt and put some people to work on building some infrastructure projects that it takes a little bit, especially highway projects, for example. You have to have approval from the Federal Highway Administration to use their money to help on a project that the state is sharing the expense. But there are some projects that have been approved that are they might say shovel ready. I know that term was somewhat used liberally a decade ago during the Great Recession, and not a lot of projects or not all the projects really were shovel ready. But that's what we would look for, the things that have been through some sort of approval process that we could spend some money on now and pay for with debt. And when we've been thrifty with debt over recent years, it is quite possible that that's a prudent approach.

Jan: So, yeah, that's a little bit different than like a grant that we might normally go after to do something or to do a certain development projects. So I appreciate that understanding about now's the time maybe to bond and putting people back to work would be a good reason to issue some bonds, it sounds like.

Steve: Now, in terms of grants, there are some federal grant programs that might be able to provide some money to Utah for some projects, but they wouldn't be as big as something that you could do on its own with issuing general obligation bonds. There are all kinds of federal grant programs, but a lot of them are already in the hopper, so to speak. State agencies and local agencies have been applying for those grant moneys already.

Jan: Okay, that's good clarification. But let's jump to this, because I know that there's there's a connection between people being out of work and sometimes wondering, oh, now is is now a good time for me to look at finishing my education, getting my bachelors or maybe even doing something a little bit different, getting reskilled.

Steve: Yeah, and this is something pretty common, especially in Utah, because it's got such a young population. There are plenty of people who maybe haven't finished their degrees yet or might want a different degree for a career change or something that could help them make more money. But they're currently working in a job that's been paying the bills. But then the recession comes and they get laid off and they decide now is the time to go back to school. And so during the Great Recession 10 years ago, we saw a really large increase in student populations in the higher ED systems in Utah. And that includes the community college, Salt Lake Community College, as well as the four-year universities and colleges, as well as the vocational colleges and the private universities and all of that. So there was quite an influx of students during the Great Recession, people who had been idle who don't have a job and say, OK, now I've got the time, I may go back to school. Maybe the student loans can help support me for a while while I'm going back to school. But then I'm going to increase my skills for when the economy gets better and I can get out there and get a job.

Jan: So we've talked a little bit about higher education. And I just want to hear your comments about K-12 in our recent legislation this past session. We wanted to increase funding the WPU from 3 percent to 6 percent with this recession upon us. I don't know if that will still be possible. Another thing we wanted to do was put a constitutional earmark that funds education on the November ballot. I really think that right now is not the time to put that on the ballot. And I would hope that we could get through this next time period and see how we can continue to fund our education that's so important to me and so important to the future of Utah. Do you have any ideas on that?

Steve: Well, I think it is quite likely that the increases that are slated for the next fiscal year will be scaled back just to try to help make sure that the education reserve fund lasts a little bit longer and to be prudent with what will likely be a shrinking income tax over the next couple of years. I mean, we've just seen nationally in the last two weeks, six million people filed for unemployment. And the graph has gone up so steeply that it looks like it's just the right axis of the graph as it's a straight-up line. And we've never seen 6 million people file for unemployment in just a couple of weeks. So we're in for a decrease in income taxes probably. And most people understand that the income tax in Utah is dedicated to education. So we're going to see a slowdown or an actual decline, probably an actual decline in income tax revenues in the coming year. So it probably will happen that the legislature will maybe even zero out that 6 percent increase. WPU probably will be a special session and. And so there are likely to be some hard times for K-12 education. You know, getting rid of the WPU increase would mean smaller or no raises for teachers. It might mean fewer teachers get hired and class sizes have to get bigger. So there will be some adjustment. But one of the things we saw during the last recession was state government tried really hard. The governor and the legislature tried really hard to protect education from the level of cuts that other programs saw. And I think the reserves that we have this time around, which are larger than we've had in the past, should be able to help smooth that transition and help K-12 education, especially receive lower cuts than other state government activities.

Jan: Steve, thanks so much for joining us today. I. I know there are so many things on people's mind, you know, getting the food on the table, and can I go to the grocery store tonight and will there be some lettuce so that I can have some vegetables for my kids. And then we stop and we pause and we think, wow, this check that I got coming in, how long will it keep coming in? So I appreciate your thoughts on adjustments to unemployment benefits. And the state legislators will be called back to a special session. They have a lot to work on and some budgeting things that they've got to address. But I hope that they will in keeping these things in mind, as long with education and higher education, help us keep that solid option that's open for us as people to keep our kids going to school, to even keep us with options, to get reskilled and to go back to do some things that might help us and even open our future in a better way.

Jan: So any last words Steve?

Steve: Well, I think, you know, in addition to all the economic hardship, we definitely need to first acknowledge the challenges, too, with loss of life and health. And for me personally, it was the final the moment when I actually knew somebody who'd passed away from this is when I saw the news about Bob Ghaffar passing away. And this is sad stuff that many of us are going to know somebody who loses their life because of this. And I just think that that adds to the motivation to take the stay at home directive seriously and to do everything that we can. I saw a commentary today about how amazing is it that the world's largest capitalist economy would even stop working for several weeks to save some lives. And we're all hurting from loss of income because of this. And some people are going to be desperately hurting from loss of income. But we're all trying to save some lives. And I think that's first and foremost.

Jan: Thank you, Steve, for sure. I think this has been a rather shocking time for all of us, not only, you know, that fear and that concern for loss of lives, which is huge, but how our lives will all change because of this, how someday we'll be around how things that we thought were normal and would go on forever will be different. And to me, it just has made me think that as we try to protect ourselves into it individually or are our aged mother or somebody in the nursing home that is so closely related to our neighbors in China, all of the sudden this world has become this small globe and we realize that kind of this our brother's keeper kind of philosophy really keeps us well, too. So, yeah, this may be a time to examine immediate needs, long term needs and even our philosophies on how we govern ourselves and move forward in more sustainable preparatory ways.

Steve: Absolutely. Thanks again. Appreciate your time. Thank you.

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