The challenge facing Gov. Sandoval is over the approximately $650 million worth of “temporary” tax hikes former Sen. Bill Raggio engineered with legislative Democrats in 2009 that are scheduled to sunset (expire) on June 30.
Make no mistake, despite dissembling by Sen. Raggio on Friday to the contrary, all of us were led to believe those tax hikes were, indeed, temporary and would not extend beyond next month. If they are, then Nevada’s citizens were lied to. Again.
For Sen. Raggio to claim otherwise is simply not true.
Anyway, at the center of the controversy is a pot of money, $62 million worth, which had been extracted from various casinos and major businesses in Clark County for the specific purpose of building some kind of clean water facility that never got built. The governor’s proposed general fund budget included taking that $62 million and using it to fund state programs educating our children, feeding the hungry and housing the homeless.
On Thursday, the Nevada Supreme Court, rightfully so, ruled that was a no-no. Since the money was specifically for the clean water project, and the clean water project was never built, that money should have gone back to the people who paid into that fund, not the state’s general fund.
And if that’s where the issue ended, no problemo as far as Gov. Sandoval’s commitment to not extending the sunsets.
You see, earlier this month the Economic Forum (led by a tax-hiking Democrat who last fall declared bankruptcy; good grief) estimated that thanks to an improving economy, the state would have an additional $300 million surplus to spend over and above what the governor proposed last January.
Now, in light of the Court’s decision, that means the governor can’t use that $62 million from the clean water pot; which simply means there’s now only a $238 million surplus instead of a $300 million surplus. Which means there’s NO NEED to extend the sunsets.
Broad vs. Narrow Reading
A broader reading of the Court’s decision also calls into question whether or not other “raids” in the governor’s budget by the state government of other pots of money – to the tune of approximately $600 million – would be overturned by the court in other lawsuits that will inevitably follow this decision.
Now, it’s important to understand that while all these various pots of gold are fruits, we’re also talking apples and oranges here. For example, one of the pots includes about $250 million in a “reserve” fund that had been established for school construction projects. That money had been set aside as part of a 1998 ballot initiative that raised taxes to build more schools. But here’s the thing…
First, that reserve fund is NOT money that was dedicated to actually building schools; it’s more of a surplus rainy day emergency fund in case the projected tax revenue for some reason fell short to repay the loans taken out to build the schools.
Again, this is NOT money specifically set aside to build new schools. And truth be told, legislative Democrats earlier this session tried to take this same money and use it for other things, just so Gov. Sandoval couldn’t use it in his budget to pay for programs to educate our children, feed the hungry and house the homeless.
Secondly, when taxpayers were “sold” the 1998 tax hike to build more schools, they were promised that the tax hike would raise “x” amount of dollars and build “y” amount of schools. Now here’s the thing: The money raised from that 1998 tax hike is actually WAY higher than was projected, and the government has built FAR more schools than taxpayers were promised.
So the governor’s budget is NOT taking away money that was dedicated to fund a specific project; it’s taking away a windfall surplus that probably should be rebated back to taxpayers….which we all know isn’t going to happen.
My point here is that just because the Supreme Court ruled the state couldn’t take money from a project that was never built doesn’t mean it would rule that the state couldn’t use windfall surplus revenue for projects that HAVE been built as promised.
Which means, as Assemblyman Ed Goedhart (R-Amargosa Valley) said yesterday, “This is a $62 million hole, not a $600 million hole.”
And that question of interpretation is the problem now facing Gov. Sandoval.
Rolling the Dice on Future Lawsuits
As I wrote previously, the governor and I discussed this situation at some length Friday afternoon. Here’s his concern….
Let’s say the governor only subtracts the $62 million that the Supreme Court specifically ruled he has to subtract from his revenue projections.
In that case, he has the votes to block any efforts by legislative Democrats to extend the sunsets. The session ends, the budget it balanced and everybody goes home….with Democrats cursing and spitting all the way from Gerlach to Carlin to Searchlight.
However, the Clark County school district and others, buoyed by the Supreme Court decision in the Clean Water Coalition case, will inevitably file lawsuits challenging the ability of the state government to take their own pots of gold to provide state services to educate the poor, feed the hungry and house the homeless.
Those lawsuits, once filed, could take six months to a year before they’re decided. And due to the Clean Water Coalition decision, the state *might* lose. And if the state loses, the governor would then have to call a special session of the Legislature to potentially fill some $600 million worth of new holes in the budget.
Me? I say roll the dice and force those other entities to sue to keep the money in their own pockets rather than let the state use it to educate the poor, feed the hungry and house the homeless. Again, since the circumstances are quite different, there’s certainly a reasonable chance the state would prevail in those lawsuits.
But even if the state lost down the road, there’s also a darned good chance that Nevada’s economy will continue to improve, and six months or a year from now maybe it wouldn’t be necessary to raise taxes to make up the difference. I say it’s a risk worth taking.
But as the governor pointed out to me, that would be an awfully big Damocles sword hanging over Nevada’s government for the next year. And such uncertainty would not be good for businesses that would have to wait to see how the legal cases played out before being able to make new hiring and investment decisions.
A valid point.
Tightening the Belt another Notch
The other option, as pointed out by economist Geoff Lawrence of the Nevada Policy Research Institute, is simply to make additional cuts…an option I’m completely in favor of. Here are the general numbers to consider.
The governor proposed a budget of approximately $5.8 billion last January. Because of the Economic Forum guesstimates earlier this month, as well as some other factors, the governor amended his budget proposal and increased it to $6.2 billion.
Now in a worst case scenario in a broad reading of Thursday’s Court decision, the governor might have to reduce his budget by $650 million…. or about $250 million less than his original budget in January.
Of course, a quarter-billion dollars isn’t chump change. But just as University Chancellor Dan Klaich recently pulled $22 million out of his wazoo that he had previously said simply wasn’t there, I’m certain we could find an additional $250 million in cuts to non-essential government programs and/or further minor reductions in public employee pay in order to continue educating our children, feeding the hungry and housing the homeless.
In fact, I’m pretty sure we could get more than $250 million if we just brought government worker pay down to the same level as similar workers doing similar jobs in the private sector.
And you know what? The governor still might do that.
It would be a bitter pill for Gov. Sandoval to break his word and go along with extending the sunsets. But he told me on Friday he would only do it if legislative Democrats swallowed some equally bitter pills with regard to serious government reforms he’s advocated that they have thus far rejected, especially in the area of education.
If the governor feels compelled to extend the sunsets, then the Democrats, at the very least, are going to have to stop protecting bad teachers!
And here’s the thing: Unlike the clueless Clouseaus over in the Republican Assembly Caucus who have essentially been negotiating with themselves from a position of weakness for reforms, Sandoval is in a position of strength. The Democrats can either make some serious concessions….or risk having the budget cut from $6.2 billion to less than $5.6 billion on the hope of winning the lawsuits down the road.
That’s a pretty big risk.
Either Way, Democrats are the Biggest Losers
Let’s look at the worst case scenario from the GOP’s side here. Let’s say the Democrats concede nothing. And let’s say the governor decides that the risk of uncertainty is just too great and agrees to extend the $600 million worth of sunsets anyway. Guess what?
All of that $600 million worth of additional tax revenue will simply go to replacing the lost $600 million worth of tax revenue deducted from the governor’s budget due to the Supreme Court decision.
In other words, the governor’s proposed spending budget of $6.2 billion…which the Democrats have been having a hyperbolic cow over; claiming it would starve children and kill old people….is going to be the budget the state operates under for the next two years.
Even with a broad reading of the Supreme Court decision; and even if the governor extends the sunsets, it shouldn’t result in increasing the amount of the governor’s proposed $6.2 billion budget. Democrats will have to accept a budget amount that they have been saying is absolutely, positively unacceptable.
So even in a worst case scenario for fiscal conservatives, where the sunsets are extended, the biggest losers will still be the Democrats who have been gloating, drooling and chortling over the Supreme Court ruling since it was handed down on Thursday. Which naturally reminds me of the old saying about he who laughs last.
Resurrection of the Sunsets: Back to the Future
And that brings us to the question raised by Laura Myers of the Las Vegas Review-Journal on Saturday morning: If – and I can’t stress this strongly enough, as no decision has been made yet – but *if* the governor does agree to extend the sunsets despite having promised not to, will he “pay a political price with the conservative right”?
Well, I can’t speak for all conservatives on the right, but here’s my personal position; take it or leave it.
First, the Democrat partisanship in this court decision stinks to high heaven.
That the Democrat Assembly Speaker reportedly discussed this case with the Chief Justice before the decision came down at the last minute stinks to high heaven.
And the Democrat Attorney General’s refusal of the governor’s simple request that she ask for a clarification from the Supreme Court over its decision stinks to high heaven….and beyond.
Going into this session, I believed the sunsets were going to be extended.
There was NO DOUBT in my mind that Senate Minority Leader Bill Raggio would have backed extending the sunsetted tax hikes that he himself engineered in the 2009 session. And because of his clout, there was NO DOUBT in my mind that he’d get the other two GOP votes the Democrats needed to extend those sunsets in the Senate.
And as for the Assembly, there was never any doubt that two or more wishy-washy, mamby-pamby, go-along-to-get-along Republicans would give the Democrats the votes they needed to extend the sunsets. Capitulation is the only thing those people do well.
The ONLY reason the sunsets were taken off the table was Sen. Raggio’s resignation after being ousted from his leadership position, and the written commitment of all ten Republicans in the Senate to support the governor’s budget and also oppose any tax hikes or an extension of the sunsets.
While Sen. Raggio’s unexpected resignation resulted in taking the sunsets off the table, the Supreme Court’s equally unexpected ruling put them back on. So in reality, we’re right back where we started from.
But here’s the thing: If not for the uncertainty of the ramifications of the Supreme Court ruling, no way, no how was Gov. Sandoval ever going to raise taxes, raise fees or extend the sunsets….and no way, no how, the Democrats ever could have made him.
Now….maybe the governor used his Jedi mind trick on me in our phone conversation on Friday, but I believe that to be 110 percent true.
So Will Conservatives Kick Sandoval to the Curb?
That said, I absolutely would prefer to see the governor not extend the sunsets and cut government some more. After all, I’m with Grover Norquist on this one; I’d like to shrink government to the size where we can drown it in the bathtub.
But I’m not the governor…and he’s been forced into a position of having to weigh an awful lot of completely unexpected real-world scenarios and their potential ramifications.
And while this might get me tossed out of the Vast Right-Wing Conspiracy, be it known that I’m not about to give the Democrats and their allies the satisfaction of seeing me toss Gov. Sandoval under the bus if he feels compelled by extraordinary circumstances to extend the sunsets.
I hope he doesn’t. I urged him not to. But if he does, I simply will not let the Left drive a wedge between this governor and this conservative over this issue. The governor and I will simply agree to disagree….and move on.
Now, I know some conservatives ain’t gonna like this. I know some of you are going to call Gov. Sandoval a sell-out and a RINO. That’s fine. I understand. But if you go to war with Brian Sandoval over this, just know that I’ll be on the governor’s side. On his “right” flank, of course.
With that said, please, remember what this weekend is all about and take a moment from your cookouts, picnics and fun to thank those who gave their very lives so that we might continue to live in the greatest country in the universe. Thank you, veterans!