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Denied: How a key state Supreme Court decision may change the legislature forever

Most of the attention during the 2011 Legislature was focused either on the legislative building or across the tree-lined courtyard at the state Capitol, where Gov. Brian Sandoval works in an expansive office.

But the most significant event of the session actually happened at a third building that lies between the other two, set far back from Carson Street behind monuments, trees and greenbelts. It was at the Nevada Supreme Court’s building that justices composed the court ruling that turned a session headed for certain disaster into a collaborative lovefest that ended on time.

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Prior to that, first-term Gov. Brian Sandoval, first-time Assembly Speaker John Oceguera and state Senate Majority Leader Steven Horsford were headed for a standoff, a special session and perhaps even a government shutdown.

But the session turned on a pivotal case, which gave both sides the incentive they needed to compromise with less than two weeks before the final day of the session. Had the justices not ruled the way they did — or had they announced their decision after the Legislature had adjourned — things could have gone very differently indeed.

A new hope

Sandoval was elected in 2010 on a pledge to not raise taxes, a pledge he modified to include allowing a set of temporary taxes passed in 2009 to “sunset,” or expire. But the pledge left him in a tough spot: If he built the budget only on the revenue the Economic Forum predicted, he’d have to cut far too deeply into education and health care budgets.

So he decided to find new revenue without taxes, a time-honored practice in Carson City that usually leaves local governments nervous — and poorer. He proposed diverting local property tax money to the university system, and sweeping school district bond reserve money into school operations, relieving the state of the obligation. The locals would protest, but the state had always won the day.

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That was the case back in 2009, when the Democratic majority in the Legislature took $62 million from the Clean Water Coalition, a group formed to build a pipeline to carry treated wastewater deep into Lake Mead. The need for the project had dimmed since the coalition was formed, and the pot of money seemed like easy pickings for Carson City. The M Resort, which had paid into the fund, objected to the pilfering and sued, but the lawsuit was still pending in the state Supreme Court when Sandoval wrote his budget and delivered it to the Legislature.

Democrats, especially Horsford, declared the governor’s budget dead on arrival. Horsford said the cuts to education and social services were simply too high, and said he would never pass the plan out of his Senate Finance Committee. Oceguera was more cagey in his public response, but similarly opposed.

The session unfolded, with Sandoval repeatedly challenging Democrats to show him an alternative to his budget, while Democrats held highly visible hearings designed to attack it. Democrats, with majorities in both houses, muscled through more than $900 million in additional spending before reality began to set in. Although by May they’d proposed a tax package that would have extended the sunsets, expanded the sales tax to services (while lowering the overall sales tax rate) and added a “margins tax” on business profits (while eliminating the hated payroll tax), it was too little, too late.

Horsford sensed the mood when he admitted extending the sunset taxes was all Democrats could hope to get. “The last option is the last, best offer,” he said. “We need sunsets. We need to extend current revenues.”

But cuts would still be needed. At a painful joint meeting of the Assembly Ways & Means Committee and Senate Finance Committee, they pared their ambitious budget back, still spending more than Sandoval wished and at levels that would nonetheless require taxes. Even business leaders came — literally — to the table, testifying that extending sunsetting taxes would be fine with them.

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“We would just as soon not get a tax cut,” said lobbyist Billy Vassiliadis, speaking for the Nevada Resort Association. “It’s not necessary to give us a tax cut.” 

The end of the session was only days away, and lines had been drawn in the sand. It appeared the Legislature would be unable to pass a balanced budget, and a special session would be necessary.

The ruling that
changed everything

Then came May 26, and everything changed. The Supreme Court released its decision in Clean Water Coalition v. M Resort v. State of Nevada. According to the justices, the state acted unconstitutionally in 2009 when it swiped the coalition’s money.

The immediate impact was slight: The ruling only directly applied to $62 million. But Sandoval, a former federal judge and state attorney general, saw what other lawyers saw: The ruling could easily apply to other money he’d built into his budget, putting $656.7 million in doubt.

Dale Erquiaga, a senior adviser to Sandoval, announced shortly thereafter that the ruling would cause Sandoval to do the unthinkable: He would reconsider his no-tax pledge, but only with respect to the “sunset” taxes.

“The Supreme Court has completely changed the rules,” Erquiaga said. “You can’t gamble with the state budget. … It is a game-changer.”

Some Republicans who’d stuck with Sandoval through the entire session thought he’d given up far too quickly. Freshman state Sen. Michael Roberson — an attorney himself — would continue to insist until the end of the session that it was “a $62 million problem, not a $657 million problem.” But Sandoval refused to ignore the risk that local governments would sue to keep their funds intact. And the alternative was off the table.

“To take $656 million from those budgets is not acceptable to the governor,” Erquiaga said at a news conference in the Capitol’s Guinn room, a portrait of the popular former governor looking on. “It can’t be $656 million lower.”

In that defining moment, Sandoval proved that while his rhetoric may have matched that of his predecessor — the notoriously anti-tax Jim Gibbons — his philosophy did not. Where Gibbons would have cut further, Sandoval was ready to give ground.

“We’re about to find out whether we have a statesman for a governor,” one longtime lobbyist said.

Negotiations proceeded over a series of very long days and nights, with leaders shuffling between the legislative building and the Capitol. Those long nights finally ended at noon on June 1, as Republican and Democratic leaders and Sandoval gathered on the front steps of the Capitol to announce a deal had been reached. The brief news conference was an exorcism of sorts; two years before, in the same spot, Gibbons had vetoed with gusto a series of budget bills — including one containing the “sunset” taxes that were about to be extended.

“This is a proud day for Nevada,” Sandoval would declare a couple hours later, as the details of the deal were outlined in a packed room in the legislative building. “We have reached a groundbreaking agreement to bring the 2011 session to a successful close.”


The endgame — 
and the future

Perhaps the most unusual thing about the final deal was the silence. Apart from explanations of the bills, there was virtually no debate on the budget or tax bills on the floor of the Assembly. No speeches, no overwrought rhetoric. In the Senate, debate was brief and to the point. Sandoval signed the bills without fanfare — including the tax extensions, waiting until the last constitutional day before doing so. He wasn’t having second thoughts; once the deal was struck, it was done.

But it’s only done for 2011. What about 2013, when analysts are predicting yet another budget shortfall? Now, not only will there be no federal stimulus funds to help the state through hard times (as there were in 2009), there will also not be the popular budget “gimmicks” that lawmakers have often used to raid local coffers.

Although the constitution calls for a balanced budget — and any Nevada politician worth his or her salt will claim publicly to have “balanced the budget” — it’s always been a carefully constructed lie. The truth is this: While the rule requiring a two-thirds vote to raise taxes, Republican opposition and general cowardice have often prevented traditional tax increases, Nevada’s leaders have added revenue to the budget anyway by taking money from local governments, special funds or savings accounts. They haven’t called that money “taxes,” but it’s essentially the same thing. Nobody took the Economic Forum’s forecast, built a budget around that and cut what couldn’t be paid for; they fudged the numbers, moved money around and, when circumstance finally forced their hand, actually raised a tax or two.

Is it possible the impact of Clean Water Coalition v. M Resort v. State of Nevada will reverberate into the future, as the moment when the state finally decided to be honest about its budgeting? The time when, denied access to local pots of money, state leaders decided to level with taxpayers and explain they cannot have all the things they want without first paying for them? Did the court’s ruling, as Erquiaga said, “forever change the way we budget in the state of Nevada”?

After all, the state constitution prescribes a simple formula for spending: “... whenever the expenses of any year exceed the income, the legislature shall provide for levying a tax sufficient, with other sources of income, to pay the deficiency, as well as the estimated expenses of such ensuing year or two years.”

There will always be some gimmickry in Nevada’s budgets. Taxes will always be a sore subject, especially when the economy is down and unemployment is up. But in 2011, Nevada finally faced up to the reality that state government costs money, and that there are some budget cuts too high to bear. That two diametrically opposed sides found agreement on that point is perhaps the best evidence for at least a little bit of optimism for the future.

Besides, thanks to the state Supreme Court, we’re pretty much out of alternatives. 

Steve Sebelius is the Review-Journal’s political columnist and a member of KLAS TV Channel 8’s I-Team. He blogs at