Taxes & Government Spending

The end-game: Part III

Geoffrey Lawrence

If one word could describe the end-game that played out in the 2011 Session of the Nevada Legislature, that word would be "unpredictable."

Twelve days before the 76th Legislative Session was scheduled to conclude, the Nevada Supreme Court dropped a bomb that policymakers in the Legislature and the governor's office should have seen coming, but didn't.

Well, perhaps some did.

Frustrated at their failed attempts to levy new taxes on struggling Nevada families and businesses, legislative leadership in the Democratic majority asked the Court to expedite a decision they believed could undercut Gov. Brian Sandoval's Executive Budget proposal and break the Republican resolve to fight tax increases.

The Court obliged and rendered a decision in Clean Water Coalition v. M Resort that said the state had violated the constitution's requirement that "all laws should be general and operate uniformly throughout the state" when it took $62 million in sewer bills and connection fees in order to maintain state spending. For years, state policymakers had ignored this constitutional protection, assuming that their exclusive authority over local government revenues — in accordance with Nevada's status as a Dillon's rule state — allowed them to use taxes levied against narrow populations for broad state purposes.

The Court's decision directly invalidated $62 million that Sandoval had relied upon in constructing his Executive Budget proposal. Sandoval further interpreted the Court's decision to mean that an additional $419 million in local property-tax diversions, mining claims fees, and local school district debt reserve funds that he had factored into his budget proposal would violate constitutional provisions. As a result, the governor abandoned his anti-tax stance and decided that new taxes would be necessary to finance the spending plan he had proposed.

Some conservative observers immediately claimed that Sandoval was reading the Court decision too broadly and that the ruling only directly affected $62 million in funding. As such, they claimed, there would be no need for new taxes. The governor could reduce spending by $62 million and await further clarification as local governments lined up to sue the state.

However, Sandoval's prudence in adopting the full implications of the Court's decision is difficult to argue against — as is the constitutional strength of the Court decision. In fact, the Nevada Policy Research Institute has argued for years that state authorities have shown far too little respect for multiple constitutional provisions that limit government's powers.

What was peculiar about Sandoval's about-face on taxes concerned not the Court decision itself, but internal administration policy. After much debate over which revenues would be affected by the decision, Sandoval eventually concluded that a total of $481 million would be unavailable. And yet, just three weeks earlier, Sandoval had added $440 million in additional spending to his budget proposal when new Economic Forum projections and higher federal Medicaid match rates indicated that more money would be available in the upcoming biennium.

At that time, Sandoval said, "Businesses cannot afford a tax increase, or further intrusion by government. They should not be asked to choose between paying Carson City's bills, meeting their own payroll, or hiring that next unemployed Nevadan."

Despite this rhetoric, when the Court decision essentially neutralized the amount of new spending Sandoval had added to his budget, he became curiously unwilling to support a spending level that he had championed just one month prior. Instead, he shifted course and negotiated to reauthorize $620 million in taxes that were scheduled to expire.

While the 76th Legislative Session will be remembered as yet another session when the Court, to the surprise of many, threw a monkey wrench into the budget debate, what should be equally memorable is the governor's sudden unwillingness to support a spending level that he himself initially proposed.

In truth, it was a session in which politics, once again, interfered with sound policy. Small but meaningful reforms were made to K-12 education, collective bargaining for local government workers and retiree benefits. However, these reforms fell far short of the aggressive reform package initially proposed by the governor — a package that included universal school choice.

Presumably, these tempered reforms may not have been politically possible had Sandoval not abandoned his anti-tax viewpoint. But they were all worthwhile on their own merit, and therefore lawmakers should have pursued them anyway. Instead, legislative leadership watered down needed reforms and held them hostage for higher taxes, with the governor eventually conceding.

In this trade-off, it is clear who the losers were: Nevada taxpayers.

Geoffrey Lawrence is deputy director of policy at the Nevada Policy Research Institute. For more 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.