Constitutional Rights, Government Spending, Regulation/Economic Development

Masto misses

Geoffrey Lawrence

Well, at least Nevada Attorney General Catherine Cortez Masto responded to a governor's pleas this time. 

When then-governor Jim Gibbons asked her to challenge the constitutionality of ObamaCare, Masto ignored her obligation under Nevada law to represent the governor's office. Today, however, Masto and Gov. Brian Sandoval find themselves on the same page – trying to skirt the state constitution.

Gov. Sandoval and his economic development team have been seeking a legal rationale for circumventing Nevada's constitutional ban against loaning or donating public money to private companies.  Yesterday, Masto sought to provide such a rationale, flawed though it may be.

With the passage of Assembly Bill 449 during the 2011 legislative session, Nevada lawmakers authorized a transfer of $10 million from the state's Unclaimed Property Fund to a newly created "catalyst fund" from which a new bureaucracy of economic development officers would "make grants or loans to, or investments in, businesses seeking to create or expand in this State or relocate to this State." 

This legislation passed both legislative chambers with bipartisan support, despite a provision within the state constitution stating: "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."

While economic knowledge would reveal problems galore with this scheme for state-directed economic development, the legal conflict is clear.  The plain text of the constitution prohibits state politicians from forking over money they've taken from the people to their chums in private industry.

Masto's opinion less-than-artfully attempts to sidestep this conflict by inserting her own language into the constitution.  According to Masto, "The Nevada Constitution prohibits the State from providing a gift or loan of public funds and credit to private companies if the gift or loan is not made for a public purpose." (Emphasis added.)  But then she opines that "…administration of the Catalyst Fund [does serve] a legitimate public purpose."

Masto's reasoning might stand up to scrutiny if the constitutional provision in question actually mentioned a "public purpose."  It does not.  The only exceptions to the rule allowed by the constitution are donations or gifts of money to "corporations formed for educational or charitable purposes."  Masto substitutes her own language for the constitutional language throughout her opinion in an effort to effectively rewrite and broaden the narrow exception allowed by the state's most fundamental law.

That's because the politically connected private businessmen to whom Sandoval and lawmakers want to dole out public money aren't from "corporations formed for educational or charitable purposes."

Masto further argues that the constitutional prohibition shouldn't apply to the legislative-executive plan for crony capitalism because AB 449 folds regional development authorities into the governor's bureaucratic hierarchy for economic development and, according to the governor's plan, it's these regional authorities that will disburse Catalyst Fund money after it has been filtered down through the governor's cabinet-level economic development officer.  These regional development authorities are local governments, says Masto, and therefore are not subject to the constitutional restriction placed on the state.

What Masto conveniently ignores here is that these "local governments" would, still, simply be dispensing state Catalyst Fund money – money belonging to state taxpayers.  The regional development authorities are simply pass-through entities. They will apply for funds directly on behalf of hand-picked private companies, according to the governor's newly published state plan for economic development.

Further, these regional development authorities were established by state lawmakers in the very same legislation that created the Catalyst Fund-AB 449.  It's quite disingenuous for Masto to claim an exemption for these entities as "autonomous" local governments when they're created for the explicit purpose of laundering state money.  By this rationale, politicians can get around any constitutional restriction on the use of public funds by setting up shell "local governments" at will.

Masto has bent over backwards to preserve and protect cronyism in the State of Nevada – despite the state constitution's clear ban on politicians taking money from the people and giving it to their favorites in private industry.

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

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.