Of Note Nevada

Now What?

As all remain hopeful that the recent special session will keep the state budget in the black through the biennium, the looming problem of a budget deficit that could reach $3 billion (around 50% of the general fund ) in the next biennium inches closer.  Anjeanette Damon wrote a comprehensive overview of the situation here.

The stimulus crutch will be gone, and most of the temporary tax increases from the 2009 session are set to expire.  The fiscal problem facing the state is severe and the solutions that come out of the 2011 session will surely reverberate for years.  Going into an election year, candidates are loathe to discuss specific ways to solve the problem, as nearly all solutions will be difficult and unpopular.  Other states have enacted a variety of solutions, including tax increases and spending reductions, to solve their budget problems. 

But the sheer magnitude of the upcoming deficit in Nevada means even a combination solution will require dramatic action on both the spending and revenue fronts.  Consider that the two largest tax increases in Nevada history occurred in the past decade, each being around $1 billion.  Another tax increase of that size would only go to about 1/3rd of the budget deficit.  Consider also that the SAGE Commission recommendations are estimated to be $2 billion.  And given that much of the SAGE recommendations are long-term savings, even implementing every recommendation in the next biennium (which is impossible anyway) will not solve the budget shortfall.

With respect to existing revenues, the state is projecting general fund revenues of approximately $2.7 billion for the 2011-2013 biennium.  In terms of actual dollars, that equates to revenues received in the 1995-1997 biennium.  In terms of dollars adjusted for inflation, it's equivalent to revenues received in the 1989-1991 biennium.  (Information courtesy of the Nevada Department of Administration).

In hopes of an economic turnaround, the state has swept nearly every reserve fund possible in forestall further cuts to operating expenses.  While this action has allowed the state to keep it's budget balanced for the current biennium, it leaves a significant funding cliff for 2011-2013.  The budget decisions that seemed so contentious and difficult in 2009 and 2010 will likely seem easy compared to what is to come in 2011.

The Bigger Question in the Health Care Debate

The vigorous debate on the health care bill has largely focused on policy.  Questions such as whether the bill will help or hurt and how expensive it will be for Americans are important and strong arguments have been made on both sides.  But there is a deeper more fundamental question on the bill that has little to do with policy and more to do with the scope of Congressional authority.

One aspect of the health care bill in particular brings this question to light.  The bill includes a mandate, effective in 2014, that Americans obtain health insurance or face monetary penalties.  This part of the bill was enacted by Congress under the authority of the Commerce Clause of the United States Constitution.   While the scope of Congressional authority under the Commerce Clause is undoubtedly broad, some legal scholars have opined that Congress has exceeded the limits of their power with the insurance mandate. 

The analysis goes like this.  The Commerce Clause has traditionally been used to regulate economic activity of an interstate nature.  For example, Congress has passed legislation limiting the amount of wheat that a farmer could grow in an attempt to avoid wheat surpluses.  That legislation was upheld under the Commerce Clause because farmers were willing participants in the wheat industry, and wheat prices had national economic impacts.    Congress has also used the Commerce Clause to pass legislation regulating the growth and possession of home-grown marijuana for personal medical use.  As with the wheat legislation, the marijuana legislation was upheld because it regulated a class of willing participants engaged in the production of a tangible good.

Critics of the health care bill point out that the difference with the insurance mandate is that instead of regulating economic activity, Congress is attempting to regulate economic inactivity.  In other words, Americans will be required to enter into private contracts with insurance companies not because they are willing participants in a particular economic industry, but because they happen to be Americans.  

Those critics point out that if there is a justification under the Commerce Clause for such legislation, there are effectively no limits on what Congress can do under the Commerce Clause.  For example, could Congress seek to stimulate the economy by passing a law that every American must buy a new car or face a monetary penalty?  It might sound far-fetched but it's a similar Commerce Clause rationale as the insurance mandate.   

At the end of the day, and despite how one feels about the policy of the health care bill, the legislation raises fundamental questions about the limits of federal power.  The answers to those questions hold significant ramifications for Americans both today and tomorrow. 

Who Can Represent the Governor in a Lawsuit, Redux

With the passage of the health care bill, the Governor has renewed his call for the Attorney General to file suit to challenge the legality of the bill.  Earlier in this blog, I wrote a post about what might happen if the Governor demanded the Attorney General file a lawsuit and the Attorney General refused.  Now that the health care bill has been signed into law and other states have already filed legal challenges and the Nevada Attorney General has refused to comply with the Governor's request that Nevada join in the litigation, that question deserves further scrutiny.

You can see a copy of the primary legal challenge to the health care bill here.  Thirteen states joined in this lawsuit, and you can see that the plaintiffs are each respective state "by and through" their Attorney General.  The case was filed in a Florida federal court.  Another case is pending in Virginia.

NRS 228.110(2) says that ""[n]o officer, commissioner or appointee of the Executive Department of the Government of the State of Nevada shall employ any attorney at law or counselor at law to represent the State of Nevada within the State, or to be compensated by state funds, directly or indirectly, as an attorney acting within the State for the State of Nevada or any agency in the Executive Department thereof unless the Attorney General and his deputies are disqualified to act in such matter or unless an act of the Legislature specifically authorizes the employment of other attorneys or counselors at law."   (emphasis added).

Because the litigation in which the Governor wants to join is pending outside of Nevada, the general prohibition on hiring outside counsel in the statute may be inapplicable.  In that case, the Governor could be within his legal authority to utilize outside counsel to join in the pending litigation over the health care bill, so long as that litigation is conducted outside of Nevada.  On the other side of that argument however, NRS 228.110(1) says that the Attorney General is the legal adviser on "all state matters arising in the Executive Department," which could be interpreted to mean that only the Attorney General can represent the state outside of Nevada.  The issue is uncharted legal territory in Nevada, and it will be fascinating to see how this one unfolds.

On the political side of the issue, the Georgia Attorney General is facing talk of impeachment after he refused a similar order to file suit from the Georgia Governor.  You can read about it here.  Governor Perdue has since talked about hiring outside counsel to represent the state.  The Nevada Attorney General will likely catch similar political heat over her decision in the months to come.

The Dust Settles on the Special Session

Early this morning the Legislature concluded its 26th special session.  In a showing of bi-partisanship and cooperation between the executive and legislative branches, elected officials enacted a series of fixes (many of which are temporary) in an attempt to shore up the general fund budget deficit for the current biennium.

The major components of the plan, including spending reductions, have been comprehensively covered in the mainstream media.  Here are a few of the other aspects of the plan, including what ended up in the plan and what was proposed but didn't make it.

IN

Increased mining fees

Increased gaming application fees

Tax Amnesty (penalty and interest waiver on certain tax payments)

Increased bank foreclosure fees

Removal of a sales tax increase sunset provision in Clark County with the money going to road construction

Increased business filing fees

Removal of prohibitions on certain generic drugs in Medicaid

A desk audit of the Insurance Division and the fees and taxes collected

Increased license fees for unarmed combat

A change to the use of student test scores for teacher evaluations in order to apply for Race to the Top funds from the US Department of Education

OUT

A change to water law in response to a recent Nevada Supreme Court decision

Sales taxes on internet sales

Changes to the collective bargaining process

One Minute to Midnight

As I've discussed in earlier posts, there is a long-running legal dispute between executive and legislative lawyers about whether the Governor has the authority to set an end time for a special session.  The issue has never come to a head in Nevada, although there is an Attorney General's opinion to the Guinn administration opining that the Governor can in fact declare a time by which the Legislature must adjourn.  But the issue has not been tested in court. 

Today, the Governor released an amended proclamation on the special session, adding several agenda items for consideration, and also setting the end of the special session at 11:59 p.m. on Sunday.  For history buffs, this provides a nice reference to the doomsday clock, which was used to track how close the world came to nuclear armageddon during the cold war.  With midnight representing all out nuclear war, the closest the clock ever got was 11:58 p.m. in the 1950's.

It's a fitting analogy as the pieces are now in place for the executive and legislative branches to engage in a legal showdown that could forever change how special sessions are conducted in Nevada if an agreement cannot be reached by Sunday night, which could result in either the erosion or solidification of the power of the executive branch.

Poll Shows Angry and Frustrated Voters

A new poll from renowned national pollster Glen Bolger shows that Nevada voters are generally dissatisfied with their government and are looking for change. 

37% of those involved in the poll described themselves as Republican, 42% as Democrat, and 18% as independent or tending to lean towards one of the parties.  Interestingly however, when asked if they would vote for the Republican or Democrat running in their legislative district, 34% picked the Republican and only 28% picked the Democrat (with the rest generally undecided).

80% said that the situation in Nevada "has pretty seriously gotten off on the wrong track."

Perhaps unsurprisingly, the primary issue of concern to voters is "jobs and the economy" at 66%, while a subject that has dominated the national headlines of late, health care, came in at just 13%.  Taxes were even lower at 12%.

64% believe the worst is still to come in this recession.  And as we begin the third special session on the budget shortfall in Nevada, 79% believe the budget shortfall is "very serious," compared to 62% who believed so in May of 2009.

On the issue of taxes, more people (47%) believed it was prudent to raise taxes to resolve the budget shortfall than to reduce spending (38%).  However, 58% felt that the tax burden in Nevada was "about right" and 60% felt that tax increases would increase unemployment, and only 26% felt that spending cuts would "hurt important programs." 

On Jon Ralston's "Face to Face" earlier this evening, Glen Bolger rightfully described the poll as voters sending "mixed messages."  The unpredictable nature of voter's responses, combined wtith the clear seriousness of the budget situation, threatens to leave many elected officials in a very tough spot, with unforgiving voters demanding straightforward and effective solutions to exceedingly difficult problems while disliking any of the most likely outcomes. 

Some Observations on the Call for the Special Session

Earlier today Governor Gibbons issued a proclamation calling the Legislature into a special session beginning at 9:00 a.m. on February 23, 2010.  Without rehashing everything contained therein, I did note some interesting aspects of the proclamation.

1.  No specific ending time and date is set for the session.  In the two special sessions in 2008, a specific ending time and date was established in the proclamation itself. 

2.  There is no express prohibition on the consideration of new or increased taxes.  Of course, both the Governor and legislative leaders have said that taxes are off the table.   

3.  Some major issues were not included, such as the change to Nevada law needed to apply for Race to the Top funds, and a change to Nevada law to address the recent water law decision in Great Basin Water Network v. State Engineer.

4.  Although the proclamation lists 12 specific issues for consideration, it also concludes by stating that the Legislature "shall consider solutions to reduce state government spending."  In other words, the Legislature is not necessarily limited to considering just those 12 specific issues.  Perhaps the Legislature will take the opportunity to review more of the SAGE Commission recommendations that did not receive much attention in 2009.  (Note: a few of the agenda items are SAGE recommendations). 

5.  The Governor reserves the right to amend the agenda as the session progresses.  An amendment at some point seems a given, and the Governor has significant authority to dictate the course of the session with his ability to set and limit the agenda.

The State of the State

Today the Governor announced he will call a special session beginning February 23 to address a projected budget shortfall of almost $900 million.  The Governor has yet to issue his official proclamation calling the session, where the agenda for the session will be spelled out.

In his speech, the Governor pointed out the continuing economic woes plaguing Nevada and blamed the Legislature for raising taxes and failing to enact stiffer budget cuts in 2009.  The Governor took potshots at Senator Harry Reid as well, noting that Nevada came in 50th in per-capita stimulus funding.  Just about all that was missing from the critique was a challenge to settle things out behind the bleachers after school.

As for specific budget solutions, neither the Governor nor the Democratic response provided exact details on how to come up with $900 million.  The Governor spoke of reducing state salaries, closing the aging Nevada State Prison, laying off hundreds of state employees, reducing health care levels, and reducing spending for both K-12 and higher education.  The Governor reiterated his vow to not raise taxes, and said he would not look to county or municipal revenue coffers.  The Democratic response from Senator Steven Horsford noted the already severe cuts in state services and disagreed in principle with the Governor's recommended budget cuts.  While Senator Horsford said there is no appetite to raise taxes in a special session, he was very straightforward that tax reform would be on the table in 2011 and that mining and big business would be expected to pay their "fair share."  Senator Horsford also said the state must do a better job of collecting unpaid taxes which seemed somewhat odd given that just recently the Department of Taxation concluded a successful tax amnesty program that brought in $40 million in unpaid taxes without costing the state anything.

What was very apparent in the speech and response was the lack of an agreement between the Legislature and the Governor on how to fix the budget shortfall.  Recent media reports claimed there had been good cooperation and communication between the Governor and the Legislature but that cooperation and communication will certainly be strained by the Governor's aggressive comments about the Legislature.  Leaving the solutions for a budget deficit unresolved also threatens to result in a lengthy and contentious special session. 

As dire as the situation appears now, it will only grow worse in the next biennium when the budget shortfall could reach 50%.  Coupled with the loss of many experienced legislators to term-limits, the 2011 session may well be one of the most challenging sessions in our state's history.  In the current biennium, the challenge for the Governor and Legislature has been to maintain the existing state government.  In the 2011 session, they will have to redefine how that same government functions in the 21st century.

Who's To Blame For Losing Out On Mag-Lev Funds?

A proposal to build a high speed magnetic levitation train between Southern California and Las Vegas with the help of $83 million in federal stimulus dollars suffered a major setback when the application for those funds was denied.

The political finger-pointing started quickly, with Governor Gibbons blaming Senator Reid for failing to ensure the funding and Senator Reid blaming Governor Gibbons for failing to ensure the application was submitted correctly.

However, a closer look at the denial suggests that the denial was due not to political failings, but instead to the way the Commission that applied for the funds was structured in California.  The California-Nevada Super Speed Ground Transportation Commission was established in 1987 to study and pursue a magnetic levitation rail line between Southern California and Las Vegas.  The bi-state Commission was structured as a state agency in Nevada, but the California component of the Commission was structured as a non-profit.  The use of a non-profit as part of the Commission meant the Commission was deemed ineligible to apply under federal rules, which required the application to be submitted by "states, groups of states, interstate compacts, and public agencies established by one or more states." 

On a side note, California did get $2.3 billion for intercity passenger rail programs.

How Citizens United v. FEC Applies to Nevada

This week the United States Supreme Court, in a 5-4 decision, issued an opinion with dramatic consequences for federal elections throughout the country and particularly in Nevada.  The Court overturned part of a federal law prohibiting corporations, unions and non-profits from using their internal funds to engage in campaign advocacy.  Although laws prohibiting corporate, union and non-profit contributions to candidates remain in effect (as do disclosure requirements), these entities are now free to expend unlimited funds to advocate for or against federal candidates. 

In Nevada, where United States Senate Majority Leader Harry Reid is headed for a tough reelection bid, this ruling opens the door to extensive privately-funded advertising both for and against his reelection.  Expect to see a lot of money spent on advertising in Nevada in the coming months as the fate of the Senate Majority Leader hangs in the balance.

The Citizens United case applies equally to state laws limiting the amounts corporations, unions and non-profits can spend on express advocacy.  However, because Nevada law already allows such expenditures, and because even contributions to candidates can be bundled and are therefore not limited, the case will likely not have much of an impact on what is spent on state and local races.  But the cost of advertising in state and local races will likely become much more expensive as advertising time is bought up in high profile federal races.  And of course, candidates for state and local offices that utilize privately-funded advertising, and the private entities providing that advertising, will still need to be careful to comply with the appropriate disclosure requirements.