The end-game: Part II

Geoffrey Lawrence

As Nevada's 76th legislative session enters its final weeks, Carson City finds itself in the somber shadows of yesteryear. With lawmakers unable to reach agreement on whether to restrain spending or to increase the tax burden on Nevada families, many are reminded of the stalemate that occurred in 2003.

That year, most lawmakers sided with Governor Kenny Guinn, who envisioned a level of growth in state spending that outpaced what the state could then afford. Growth in state tax revenues had leveled off coincident with the 2001 national recession, and the Economic Forum was projecting that general fund resources would grow by only $328 million over the 2003-2005 budget cycle.

After spending $3.89 billion in the prior budget cycle, Guinn proposed to spend $4.84 billion over the 2003-2005 biennium — a period for which the Economic Forum was projecting revenue of only $3.90 billion. In short, Guinn was asking lawmakers to outspend revenues by nearly $1 billion.

While most lawmakers liked Guinn's vision for dramatically increasing the size and scope of state spending, some were reluctant to support the new taxes that Guinn wanted to finance his expansion of government. The centerpiece of Guinn's plan was a proposed gross-receipts tax on business that was never able to win a majority in the state senate and also inspired the state Assembly's Republican minority to firmly resist their Republican colleague in the governor's mansion.

Thanks to a 1996 voter-approved initiative, the Nevada Constitution requires a two-thirds supermajority in each legislative chamber to approve tax increases. That meant the 15 members of the Republican Assembly caucus controlled the minimum amount of votes required to block new taxes. Quickly earning the nickname "The Mean 15," the caucus unanimously rejected the governor's tax proposals.

But while The Mean 15 had the votes to block a record-breaking tax increase, Guinn's supporters in the legislature — majority Democrats in the assembly and a bipartisan group in the senate led by Republican Majority Leader Bill Raggio — were able to pass the appropriations bills with mere simple majorities. Lawmakers appropriated $4.83 billion in general fund spending — even though they lacked the supermajorities necessary to raise taxes to the level required to fund their spending.

This difference between spending and revenues remained unresolved through the end of the 72nd regular session. Essentially, the legislature had passed a budget that could not be funded — in violation of the constitution's requirement for a balanced budget.

At Guinn's request, Attorney General Brian Sandoval sued the Nevada Legislature for failing to balance the budget. The result was a disastrous ruling from the Nevada Supreme Court that set aside the constitutional requirement for a two-thirds super-majority and ordered the Legislature to proceed to pass a budget under the court's new rules.

The decision has since become a case study in failed jurisprudence, spawning many critical law review articles and inspiring at least one Supreme Court staff attorney to resign after losing faith in the Court's claim to impartiality. Later, the Court expressly reversed its Guinn v. Legislature of State of Nevada opinion in a 2006 decision, declaring that "the Nevada Constitution should be read as a whole, so as to give effect to and harmonize each provision."

Yet, this reversal was too little, too late. The Court's flawed 2003 decision forced the largest tax increase in history on Nevada families in order to finance a flawed and myopic vision of government growth. While this was a short-term victory for the governor's allies in the Supreme Court, most eventually paid a high price for their politically-biased opinion, either resigning their posts in shame or facing electoral defeat.

The Court's critical role in the 2003 tax hike debacle has lived in infamy ever since, casting doubts on any Court willingness to once again bail out high-tax advocates. The new justices on the Nevada Supreme Court — having seen what happened to their predecessors — seem quite unlikely to ever again produce an opinion similar to Guinn v. Legislature.

This means that the recourse followed by Guinn and his allies to get around the constitutional two-thirds super-majority requirement will not be available to tax advocates in the current legislative session.

Lawmakers will instead need to develop a legitimate solution — actually reconciling budget differences, not seizing additional wealth from the people.

Pathways to a legitimate solution will be explored in Part III of this series.

Geoffrey Lawrence is deputy director of policy at the Nevada Policy Research Institute. For more information visit http://npri.org.

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Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.