Editor’s note: As a monthly publication, Nevada Business Journal doesn’t often get the chance to run a “Stop the Presses” story. However, as we were preparing our August issue with a cover article about healthcare issues, something occurred that was so important to our readers – and to all Nevadans – that we decided to reformat the magazine and prepare this special feature about the Supreme Court’s decision on July 10, 2003.
The Budget Battle
In January 2003, Gov. Kenny Guinn proposed a state budget for the 2003-2005 biennium totaling $12.016 billion dollars, a 17.6 percent increase over the 2001-2003 budget. At a budget briefing on January 8, Guinn estimated state lawmakers in the 2003 legislative session would have to find an additional $980 million in new revenues to finance this proposed budget, since Nevada, like many other states, requires a balanced budget. Thus began the start of a contentious and politically charged legislative session that pitted fiscal conservatives against liberals, created its own heroes and villains (often the same people, viewed by those on different sides of the argument) and will be remembered as one of the most watershed sessions in our history.
Assemblyman Bob Beers and his supporters argued that the entire “budget crisis” was a political creation rather than a mathematical calculation. Legislators on both sides of the aisle eventually agreed that a certain amount of new taxation was necessary, although the actual amount was a bone of contention. The real sticking point became the method of taxation. One side supported a broad-based tax on businesses calculated on their gross receipts (a franchise tax), a model proposed by the Governor’s Task Force on Tax Policy. The Task Force and its supporters, which included Big Gaming and Big Education, insisted it was time for Nevada’s non-gaming businesses to “pull their own weight” instead of depending on revenues from the gaming industry. Opponents protested that a gross receipts tax would, in effect, set up a state Internal Revenue Service for Nevada businesses, would keep companies from relocating to Nevada and drive many low-margin firms out of business. They proposed several other methods of raising funds. Both sides dug in their heels and it was apparent from early in the session that any compromise would be difficult to obtain.
Further complicating the issue was the requirement that a two-thirds majority in both the Senate and the Assembly had to approve all bills related to generating or increasing taxes, fees or any other kinds of assessments. This provision was added to the Nevada Constitution as a result of the Gibbons Tax Restraint Initiative, a referendum that was approved by over 70 percent of the voters in both the 1994 and 1996 elections. Therefore, even if one side convinced a simple majority to agree to a compromise, that wouldn’t be enough to break the impasse. Two-thirds would have to agree on an acceptable tax plan.
A Political Ploy
Because the Nevada Constitution also contains a requirement that each legislative
session must conclude in 120 days, June 2 became the deadline to decide on a tax plan. On this last day of the session, the Legislature – by a simple majority – appropriated a total of $3,264,269,361 to fund the budget, with one vital exception. The education budget for schools from kindergarten through high school (K-12) was not approved. Adding in the K-12 budget, an $860 million gap still remained between the total budget’s projected income and its budgeted expenditures. Gov. Guinn quickly signed the approved section of the budget into law, and then requested legislators to convene in a special session to resolve the budget shortfall and approve the education budget. According to Assemblyman Bob Beers: “The K-12 portion was amended into the $860-million tax package required by the total $1.25-billion dollar spending increase. The difference is the $400-million in new money that our existing structure will bring in.”
Splitting the budget was a blatantly political ploy designed to pressure the legislators who were refusing to support the proposed tax increases. Legislators had already garnered bipartisan agreement to spend the $1.643 billion to support schools, an increase of 27 percent over the 2001-2003 figure. It was the rest of the budget that was disputed. But in order to fund the rest of the budget, Gov. Guinn and his Democrat supporters held up the one item they knew would create a firestorm in public opinion and the press.
A statement from Nevada Concerned Citizens pointed out: “Appropriations for the Distributive School Account and Class Size Reduction were unconstitutionally bundled with tax legislation in the regular and special legislative sessions for the express purpose of pressuring legislators to pass the tax legislation based on the merits of the school-related legislation, which is exactly what Article IV, Section 17 of the Nevada Constitution is intended to prevent.” That section requires each bill to have only one subject.
The Special Sessions
The 19th Special Session of the Nevada Legislature convened on June 3 and adjourned on June 12 without reaching a decision. After the exhausted and frustrated lawmakers took a few days off, the 20th Special Session convened on June 25. The following day, the Senate passed SB6, which would have raised $873 million for the biennium. Its centerpiece was a 1 percent payroll tax, and it also included a 3 percent net profits tax on banks starting in 2005. The Assembly version of SB6 would have brought in $834.5 million. It included a 0.1 percent tax on companies’ gross receipts, a 0 .5 percent tax on payrolls and increased fees for Secretary of State transactions. Once again, the gross receipts tax became the sticking point, and once again, neither side would budge.
Meanwhile, the state’s school officials were facing the beginning of the fiscal year (July 1) with no budget and no money to hire teachers or support staff. The ploy of handcuffing the school budget to the gross receipts tax was working just as Gov. Guinn and his Democrat supporters had planned, and the outcry around the state was reaching a fever pitch, with soccer moms picketing government buildings and crying that their children were being held hostage. Presumably, they didn’t realize that it was Gov. Guinn and Big Education, along with the Democrat legislators, who were holding the children hostage, not the Republican holdouts who couldn’t justify voting for a gross receipts tax that would irreparably harm Nevada’s business community and by extension, the entire state economy.
On July 1, Gov. Guinn petitioned the Nevada Supreme Court to force the Legislature to take action to pass the school bill and balance the budget. Supporters, including the Nevada State Education Association (the teachers union), filed “friend of the court” briefs also urging immediate action. After considering the matter, the court issued a ruling on Thursday, July 10, which shocked everyone, pleased Gov. Guinn and Big Education and outraged voters throughout the state. The court’s majority opinion stated that the constitutional provision requiring a two-thirds majority was a “procedural” requirement, and the state’s obligation to educate its children took precedence over it. Therefore, the court ruled to “issue a writ of mandamus directing the Legislature of the State of Nevada to proceed expeditiously with the 20th Special Session under simple majority rule.”
In one stroke of the pen, the Supreme Court struck down a law that more than 70 percent of Nevada voters had approved – not once, but twice – in a statewide referendum. For reactions from Nevada and across the country, see the accompanying sidebar, which summarizes the objections to this ruling more eloquently than we can here. However, the following points need to be made:
First and foremost, the court is overruling the vote of the majority of the people in the state. The justices seem to think Nevada voters don’t know what it is they really want and need to be told by those who are wiser and more educated. The Gibbons Tax Restraint Initiative became a part of the Nevada Constitution, and it reflects the wishes of Nevada voters, whether the governor and the Supreme Court like it or not.
The court revealed its liberal bias when it stated, “The Legislature, faced with a rapidly increasing population, a substantial budget deficit and record-high needs, was unable to reach a two-thirds majority and left its constitutional obligations unfulfilled.” The justices obviously believed that these “needs” in the governor’s budget were actually needs and not items on somebody’s political wish list. That Nevada has “record-high needs” is a political statement, not a fact.
Secondly, the court did not explore other avenues to resolve the question. Justice Maupin, the lone dissenter, wanted to give the Legislature until July 28 to solve its problem and reach a compromise solution. Another answer would have been to request that the governor re-open the budget and let legislators trim down those areas they found unacceptable. If the budget is in a deficit, reasonable people would suppose there would be two choices: either raise taxes OR reduce spending. The court totally ignored the option of re-opening the discussion on the budget.
The court could have objected to the 11th-hour political ploy of tying the education bill to the budget, but chose not to do so. As Steven Miller of the Nevada Policy Research Institute pointed out, “Article IV, Section 17 requires that “Each law enacted by the Legislature shall embrace but one subject…” Had the court condescended to enforce this actual provision of the constitution Thursday against its actual violation by Assembly Speaker Richard Perkins, the entire education crisis could have been ended simply and instantly, with no violence to the 2/3 rule.”
Here’s another worrisome thought, pointed out by the Nevada Appeal’seditorial board: “If the court’s logic says a two-thirds majority is too steep a requirement in order to fulfill a constitutional mandate to fund education, what would happen if the Legislature couldn’t find a tax plan that satisfies even a simple majority? Would the court then say a tax plan that gets 45 percent of the vote is okay? Forty percent?” This may sound absurd, but it is a logical projection of the court’s decision.
Gary Peck, executive director of the ACLU in Nevada, pointed out that the court ruling creates a dangerous distinction between “procedural” and “substantive” laws. Who decides what is procedural and what is substantive? Why is one more important than the other? This is especially important when the “procedural” law was passed by such a large majority of Nevada voters.
It is fair to point out that there is an inherent problem with the requirement for the two-thirds approval for new or increased taxes. While the Nevada Constitution requires a supermajority to increase taxes, spending may be approved by a simple majority, which is what happened on the last day of this year’s legislative session. Although it makes no sense to approve spending without also approving the means to finance it, that is exactly what happened in this case. This loophole was used to create an intolerable situation for the political advantage of one group – the governor and his Democrat legislators.
However, this doesn’t justify throwing out the Nevada Constitution and creating a dangerous precedent. Although the justices insist this ruling only applies to this one situation, there is no guarantee that it will not be used as political blackmail in future legislative sessions whenever agreement cannot be easily reached.
At Press Time
On July 13, theAssembly, acting under orders from the court, passed $788.5 million in tax increases by a vote of 26 to 16 – two votes fewer than the two-thirds supermajority – in a revised version of Senate Bill 6 that included a 0.1 percent tax on gross receipts and 0.5 percent payroll tax. The following day, the Senate convened and rejected 19 to 1 (with one abstention) the Assembly’s bill. An announcement that Federal Judge Philip Pro had issued a restraining order against the Legislature halted further action.
The Claremont Institute Center for Constitutional Jurisprudence, under the direction of Chapman University law professor John Eastman, a national constitutional law expert, together with local Reno attorney Jeff Dickerson, filed the request for a Temporary Restraining Order (TRO) in federal district court on behalf of the citizens of Nevada and state legislators. The TRO charged, among other things that, “Voter Plaintiffs who voted in 1996 for the Gibbons Constitutional Tax Initiative, which added Article 4, Section 18(2) to the Nevada Constitution, have had their constitutionally-protected right to vote (and to have their votes counted and given effect) infringed, in violation of the Equal Protection and/or Due Process clauses of the Fourteenth Amendment and the Republican Guarantee Clause of Article IV.”
It wasn’t bad enough that the state courts had to decide legislative issues for us. Now the federal courts are getting involved, and it has been suggested that the next stop could be the Ninth Circuit Court of Appeals, or even the U.S. Supreme Court.
No matter how this thorny issue is eventually resolved, the following 15 Republican Assembly people deserve the thanks of all Nevadans, and especially those in the business community. These brave lawmakers stood firm in the face of opposition from Big Government, Big Education and Big Gaming and held the line to stick up for the rights of businesspeople and ordinary taxpayers.
Walter Andonov R-Henderson
Sharron Angle R-Reno
Bob Beers R-Las Vegas
David Brown R-Henderson
John C. Carpenter R-Elko
Chad Christensen R-Las Vegas
Pete Goicoechea R-Eureka
Tom Grady R-Yerington
Don Gustavson R-Sun Valley
Lynn Hettrick R-Gardnerville
Ron Knecht R-Carson City
Garn Mabey R-Las Vegas
John Marvel R-Battle Mountain
Rod Sherer R-Pahrump
Valerie Weber R-Las Vegas
These Senators also held the line and deserve our thanks:
Barbara Cegavske R-Clark 8
Ann O’Connell R-Clark 5
Sandra Tiffany R-Clark 5
In addition to Gov. Kenny Guinn and the six Supreme Court justices, the following legislators need to be singled out for shame for their role in selling out the interests of Nevada citizens for political considerations. They include the entire contingent of Democrats in the Assembly, and four Republican turncoats who joined them:
Bernie Anderson D-Sparks
Morse Arberry Jr. D-North Las Vegas
Kelvin Atkinson D-North Las Vegas
Barbara Buckley D-Las Vegas
Vonne Chowning D-North Las Vegas
Jerry D. Claborn D-Las Vegas
Tom Collins D-North Las Vegas
Marcus Conklin D-Las Vegas
Jason Geddes* R-Reno
Dawn Gibbons* R-Reno
Chris Giunchigliani D-Las Vegas
David Goldwater D-Las Vegas
Josh Griffin* R-Henderson
Joe Hardy* R-Boulder City
William Horne D-Las Vegas
Ellen Koivisto D-Las Vegas
Sheila Leslie D-Reno
Mark Manendo D-Las Vegas
Kathy McClain D-Las Vegas
Bob McCleary D-North Las Vegas
Harry Mortenson D-Las Vegas
John Oceguera D-Las Vegas
Genie Ohrenschall D-Las Vegas
David Parks D-Las Vegas
Richard Perkins D-Henderson
Peggy Pierce D-Las Vegas
Wendell P. Williams D-Las Vegas
A RISING TIDE OF OPPOSITION
Take a flying leap, fellow Nevadans. That’s what your Supreme Court told you on Thursday, when it ruled the Legislature could go ahead and raise taxes without a two-thirds majority vote. The logic behind the court’s ruling is tortured and tangential, not to mention just plain wrong. And the fact it throws out the wishes of Nevada taxpayers, who twice voted to impose the two-thirds majority, shows a disdain for Nevada residents that – if there is any justice – should get them voted out of office on election day.
Nevada Appeal, editorial opinion, July 11, 2003
The Supreme Court’s decision might as well have told everyday Nevadans to go to the back of the bus, because when it comes to the law, taxpayers are second-class citizens. The black robes of this Court can’t conceal the political agenda of the teacher unions and others who support a blank check for big government.
Pete Sepp, vice president for communications, National Taxpayers Union
“Activist high court justices tell lawmakers it’s OK to ignore constitution.” On Thursday, six justices of the Nevada Supreme Court – with a lone justice dissenting – drooled all over the state Constitution, wadded it up and tossed it in the trash.
Las Vegas Review Journal, editorial opinion, July 11, 2003
In a state that has given us the quickie divorce, legalized prostitution and gambling, you’d think it would be hard to raise eyebrows. But compared to their Supreme Court, Nevada’s sin industries are looking downright respectable.
The Wall Street Journal, Review and Outlook, July 15, 2003
Judges are just deciding to take the law into their own hands, just like the Old West when the outlaws decided that the law didn’t appeal to them. They’re just going to do things as they please – “To hell with the people.” The symbolism here [is that] the old renegade outlaws of the Old West now wear black robes and occupy judicial chambers at the state and federal level.
Rush Limbaugh, July 14, 2003, broadcast on KXNT radio
Judges like to posture as wise and fair authority figures. But the reality is that any judge is an amalgam of two of the most-often-despised occupational types of American life: the lawyer and the politician. And sometimes it shows….Yet even given this record, the court on Thursday outdid itself. And in so doing it deeply injured every man, woman and child in this state for years and years to come – for as long as Thursday’s decision stands….Having sown the wind, they will now reap the whirlwind.
Steven Miller, policy director, Nevada Policy Research Institute
No matter their differences, area lawmakers are unified on at least one aspect of the state’s legislative impasse over taxes – Thursday’s decision by the Nevada Supreme Court was a bad one and bodes ill for the state’s future.
Elko Daily Free Press, July 11, 2003
The Supreme Court created a problem that didn’t exist before and then created a remedy that nobody asked for. Its decision appears to disregard a substantive constitutional provision. I cannot believe that our Supreme Court would choose a political decision rather than a judicial decision to solve this problem.
Congressman Jim Gibbons July 16, 2003
Our attorney pointed out that it has been abundantly clear from the beginning of the session that the reason the education budget was not passed was so it could be used as the tool to rid the state of the pesky 2/3 majority rule that gaming and the state teacher’s union have opposed since the initiative first passed in 1994.
Assemblywoman Sharon Angle, R-Reno
The Supreme Court ordered the Legislature to violate the state constitution by passing a tax plan with less than a two-thirds majority. Even worse, Legislative leaders proceeded to do so. I believe those legislative leaders violated their oath of office.
Assemblyman Bob Beers, R-Las Vegas
If we have businesses that move here because of low taxes, maybe we don’t want those businesses. Let’s pass these taxes to help people, and not worry about the businesses.
Assemblyman Harry Mortensen, D-Las Vegas
With a wave of its hand, the Supreme Court made the will of the voters go away. The court…wasn’t trying to bring a logical or legal conclusion to the budget question. It was trying to find a way to allow the Legislature to raise taxes. Nevada’s Supreme Court has dismissed its voters. The voters should respond in kind.
Nevada Appeal editorial opinion, July 13, 2003
The Nevada Supreme Court has broken the deadlock in the Nevada Legislature. It’s also broken the will of the people of Nevada. Twice Nevadans by overwhelming majorities voted to require two-thirds of our legislators in both houses to support tax increases in order for them to become law. But the court ruled Thursday that the constitutional requirement to fund education trumps the constitutional requirement for a super-majority to jack up taxes.
Ely Daily Times, editorial, July 15, 2003
It’s time for Assembly Speaker Richard Perkins, a Henderson cop who supposedly dreams of serving as governor one day, to go back to police work. He failed miserably at legislative hostage negotiations. While we’re handing the bums their bindles, give one to Gov. Kenny Guinn, who hid behind the findings of the Gaming Inc.-tilted Task Force on Tax Policy and failed to build a coalition of support for his unprecedented tax plan. He performed his duties in keeping with a long Nevada tradition of company men in the Governor’s Mansion.
John L. Smith, Las Vegas Review Journal columnist, July 13, 2003