Foxes in the Henhouse

It’s an increasingly bizarre spectacle: The Guinn administration—working hand-in-glove with the Nevada Resort Association—is trying hard to stampede legislators into sticking Silver State citizens with heavy and unjustified new taxes.

Nevada’s real problem is not that its residents and employers are taxed too little. Throughout the 1990s, Nevada consistently ranked in the top 10 heaviest-per-capita-tax-burden states, according to the Washington, D.C-based Tax Foundation. In 2000 and 2001 Nevada came in below the top 10, but only because certain other states increased taxes faster.

So if Nevada taxpayers aren’t to blame, what are the real causes of the state’s current financial embarrassment?

The resort association and the governor have long tried to argue that Nevada growth simply does not pay for itself. But to the extent that proposition is true, it’s only because political decisions in Carson City have exempted powerful special interests—primarily firms represented by the resort association itself—from paying the full social costs of their activities.

As a highly illuminating demographic research paper from the Nevada Commission on Economic Development showed in 1999, “… it is the population growth sustained by hotel industry jobs that [most] conceivably cause[s] a ‘strain on resources.’” The paper also noted numerous efforts of the Resort Association over the years to discourage diversification of the Nevada economy. (The text of the NCED study—inexplicably removed from state websites—can be accessed at http://www.npri.org/docLib/20101116_NCED_paper.pdf.)

Other relevant evidence can be found in comparative growth percentages published by the U.S. Department of Labor. In the 11-year period FY 1981-82 to FY 1992-93, Nevada population growth was 59 percent, while Nevada state tax revenue growth was 223 percent!

Nevertheless it is undeniably true that, over the last 25 years, Nevada state government spending has always kept bumping up against whatever ceiling of available revenues the state currently faced—no matter how much that revenue had recently been increased.

So what has been going on?

The roots of Nevada’s real problem lie in the late 1960s, when Silver State taxpayers were deprived of two key constitutional protections. First, the Warren Court killed Nevada’s “little federal plan” system of apportionment, which for over a century had allocated Nevada state senate seats on a geographical, or county, basis. Parallel to the U.S. Constitution’s design for the U.S. Senate, the arrangement had mitigated the power of state population centers and kept Nevada more of a representative republic than a direct democracy. America’s founders knew from history that direct democracies tend to degenerate behind the scenes into oligarchies run by special interests, and many states had used the federal plan for their own legislatures.

Second, in 1967 Nevada Attorney General Harvey Dickerson reversed both himself and earlier attorneys general on the meaning of Article III, Section 1 of the Nevada Constitution. In a badly written AG opinion, he now held that public employees were no longer barred from sitting in the state legislature at the same time they drew government salaries.

The result, gathering momentum over the years, has been to concentrate more and more state power among public employees—a group of tax-consumers whose financial interests are often distinctly contrary to those of average taxpayers. Government employees are not the “citizen legislators” who were originally intended to occupy the Silver State’s part-time legislature. They routinely see tax cuts, not as something that “leaves more money in our pockets,” but rather as something that “costs us money.”

Yet, in the 1999 session of the Nevada Legislature, for example, 44 percent of the members—28 out of 63—also held government jobs or were married to government employees. And in the 2001 Assembly, public employees occupied every position of power—all the critical committee chairmanships as well as the Speakership and the Majority Leader post.

The stranglehold that tax-consuming public employees exercise in the Nevada legislature is a major reason why Nevada taxes and fees have gone up virtually every biennium over the last quarter century. Largely hidden from the general public’s view, those increases have fed an ever-growing army of special-interest tax consumers—a constituency now too large and politically powerful to be satisfied any longer by small and surreptitious tax increases.

It is revealing that the Guinn administration—for all its eagerness to wring new taxes out of Nevada citizens—has had remarkably little to say about any reforms to address the actual underlying sources of the state’s current mess.

But until new constitutional safeguards are in place, Nevada will not return to genuine fiscal health.

Steven B. Miller is policy director with the Nevada Policy Research Institute.