Mining tax plan fails in Senate

CARSON CITY — An attempt by Democrats to raise taxes on the state’s long-dominant mining industry by cutting out billions of dollars in business deductions fell one vote short of passing in the state Senate early Friday morning.

The outcome was largely foreseen, given the partisan disagreement over spending that marred the end of the 2019 session and has not abated during the special session called by Gov. Steve Sisolak to repair a $1.2 billion budget hole caused by the coronavirus pandemic.

The result, however, gave rise to questions over Democratic strategy in pushing a bill that required a two-thirds vote in both houses, when the party lacks that supermajority in the Senate.

The proposal, which was introduced at 7 p.m. Thursday in the Assembly, would have put a 60 percent cap on deductions afforded to mining companies. The Assembly took testimony, pushed through an amendment and passed the amended bill on a party-line vote about 10:45 p.m. The vote was 29-13. The Senate vote later was 13-8.

The original bill would have generated about $54.7 million, legislative fiscal analyst Russell Guindon told lawmakers during the evening hearing. As first written, the bill would also have repealed parts of Senate Bill 3, which lawmakers passed a day before, that would have made mining companies prepay their taxes a year in advance. That would generate roughly $54.5 million for the current fiscal year, leaving a $200,000 difference between the two measures.

But combined with the prepayment requirement, the amended bill would add “close to $100 million” to the budget in this fiscal year, Guindon said.

“We have been exploring different ways to fill some gaps and we have remained open for nine days for suggestions,” Speaker Jason Frierson said at an 11:30 p.m. press briefing. “Before we started we were talking and trying to come up with ways to fit our communities’ needs, and so this is where we landed. … We have to act on behalf of our constituency and we decided to just go forward.”

Political hurdles

Because it would increase state revenue, the measure required a two-thirds majority to pass in both houses. The Assembly was able to muster more than a two-thirds vote, but the 13-8 party-line outcome in the Senate fell one vote short of the same.

“I think the point is that we are all in a pretty dire situation in terms of the state and our economy and I think it’s about time that we have everybody step up,” Senate Majority Leader Nicole Cannizzaro, D-Las Vegas, told reporters Thursday night.

“When there are times where we know that folks can pay some and we can restore services and we can talk about things like investing in education,” she added.

Senate Minority Leader James Settelmeyer, R-Minden, criticized Democrats for rolling it out in the evening hours on what could be the final day of the special session.

Settelmeyer said, “$1.2 billion budget shortfall and they’re going for $60 million? Last day of session? Seems like a political stunt to bring something like this on Day 9.”

As the Assembly Democrats’ bill became public late Thursday afternoon, Senate Republicans unveiled their own proposal for closing the state’s budget gap using existing money in the state budget.

The plan draws a total of $162 million in various reserves and additional federal funding from Medicaid to restore $115 million to health and human services programs and $43 million to the K-12 schools budget.

Their proposal promises to restore threatened optional Medicaid services as well most of the proposed rate cuts to Medicaid providers, along with mental health and programs for developmentally disabled people. The biggest impact in the K-12 budget would restore the Read by 3 program.

Settelmeyer said in a statement the proposal “is an effort to minimize that damage and protect both education and our social safety net.”

Sisolak open to taxes

Gov. Steve Sisolak said last week he would sign on to a new tax to help the state out of the revenue hole caused by the COVID-19 pandemic, but he left it up to the Legislature to propose a plan. If passed by the Legislature and signed by Sisolak, new tax revenue would help the state stave off potentially hundreds of millions of dollars in cuts to education and health care programs.

The tax measure was introduced on the ninth day of the special session, as lawmakers also took up bills to create furloughs for state workers and cut some $536 million from state agencies.

The rules on mining taxes date to 1872 and are part of the state Constitution. They set a cap on how much mining companies can pay in taxes, limiting it to a range of 2 to 5 percent of their gross proceeds, minus deductions. The deductions, unlike the tax cap itself, are subject to revision by the Legislature. (Voters very narrowly rejected an effort to repeal the mining cap that appeared on the 2014 ballot. That measure failed by just 3,209 votes statewide.)

To calculate the tax, mining companies report the market value of the minerals they mine and deduct their extraction costs. Those deductions include allowances for transportation, refining, equipment, insurance, depreciation and other expenses.

In 2019, total gross proceeds for the Nevada industry were $7.6 billion and net proceeds were $2.3 billion. The net amount was taxed at a rate of 4.9 percent, generating $122.7 million in revenue, half of which went to the state and the other half to counties. That amount paid to the state represents 1.5 percent of the state’s general fund revenue, though mining companies say their total tax contribution is around 7 percent of general fund revenue when sales and other taxes are included.

Old idea, recycled

This is not the first time that mining tax deductions have come into the Democrats’ crosshairs as a fix for the state’s funding woes. During the Great Recession, the Legislature took up a similar bill in 2011 proposed by then-Assemblywoman Peggy Pierce, a Democrat.

Pierce at the time compared the structure of Nevada’s mining tax system to “barbarism” because it doesn’t generate enough money to adequately pay for schools and social services. Lawmakers never took a full vote on Pierce’s bill.

At the time, Pierce’s bill would have generated an additional $80 million in tax revenue.

Lawmakers and progressive activists who called in to the legislative hearings to support the bill invoked Pierce, an unabashedly liberal lawmaker who often noted the small size of Nevada’s government compared to other states.

The price of gold has spiked 16 percent in the last six months amid the global coronavirus pandemic and related economic shutdowns, hitting a nine-year high last week and hovering around $1,800 an ounce. In 2019, gold and silver mining comprised 90 percent of gross mining proceeds in Nevada. Of the amount of taxes paid to the state, 96 percent came from mining those two metals.

Contact Capital Bureau Chief Colton Lochhead at clochhead@reviewjournal.com. Follow @ColtonLochhead on Twitter. Contact Bill Dentzer at Bdentzer@reviewjournal.com. Follow @DentzerNews on Twitter.