NPRI sues Governor’s Office of Economic Development over Catalyst Fund subsidies

  • Wednesday, February 19, 2014

CARSON CITY Nevada’s Catalyst Fund, administered by the Governor’s Office of Economic Development, provides unconstitutional taxpayer subsidies to private businesses, charges a new lawsuit filed today by NPRI’s Center for Justice and Constitutional Litigation.

CJCL filed the lawsuit on behalf of Michael Little, an alternative-energy entrepreneur and a taxpayer whose alternative-energy competitor, SolarCity, has received a commitment from GOED to provide it with a $1.2 million taxpayer-funded subsidy. Named defendants in the lawsuit include the State of Nevada, the Governor’s Office of Economic Development, and GOED Executive Director Steven Hill.

State subsidies to a private business, according to the complaint, violate Article 8, Sections 9 and 10, of the Nevada Constitution. Article 8, Section 9 reads, “The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.”

“Nevada’s constitution clearly states that state government has no business picking winners and losers in the economy by subsidizing the favored,” said Joseph Becker, chief legal officer and director of the Center for Justice and Constitutional Litigation. “Subsidies from state government to private businesses are unconstitutional and directly harm both taxpayers and competing businesses.

“Fully aware that Nevada’s constitution prohibits business subsidies by state government, politicians have tried to circumvent this constitutional prohibition by routing Catalyst Fund payments through local government agencies that it itself authorized to provide handouts. But GOED is still selecting and approving the subsidy-fund recipients and may not contract with or delegate to others authority it itself does not have.

“Having a so-called regional development authority or a local government give money it received from the state to a private business doesn’t change the fact that state taxpayer dollars are going to private businesses in violation of Nevada’s constitution,” said Becker.

In 1992, 1996 and 2000, Nevada voters overwhelmingly rejected proposed constitutional amendments that would have allowed government loans or gifts to, or so-called “investments” in, private businesses.

“Unable to get the voting public to change Nevada’s constitution, politicians have resorted to law-circumventing pass-through entities to dole out these subsidies. Nevada’s constitutional protections will be rendered meaningless if state politicians can avoid them by creating a local government agency for the express purpose of taking constitutionally prohibited actions,” said Becker.

“We urge the court to uphold and defend Nevada’s constitution by holding that subsidies through the Catalyst Fund are unconstitutional.”

Becker also noted that forcing a business to subsidize its competitor is fundamentally unjust and that similar programs in other states have led to charges of political favoritism.

“Taxpayers, at the federal level and in states like Texas, have given hundreds of millions in loans and subsidies to the companies of politically connected donors,” said Becker. “After receiving taxpayer handouts, numerous companies, including Solyndra, Abound Solar, Fiskar and ThromboVision, have gone belly-up. Along with being unconstitutional and unjust, GOED subsidies are bad economics.”

The lawsuit calls for the court to:

  • Declare all defendants, in operating the Catalyst Fund, are violating the Nevada Constitution
  • Enjoin all defendants from continuing the Catalyst Fund program or any such program that subsidizes private entities under the guise of economic development or any such label

Case documents:

The Center for Justice and Constitutional Litigation is a public-interest law organization that litigates when necessary to protect the fundamental rights of individuals as set forth in the state and federal constitutions.

Learn more about the Center for Justice and Constitutional Litigation and this case at http://npri.org/litigation/.

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