Gov. Sandoval changes course, will support extension of taxes

CARSON CITY -- Despite his repeated promise of no new taxes, Gov. Brian Sandoval will announce today his support for reauthorizing $626 million in taxes set to expire June 30.

The abrupt change follows Thursday's Nevada Supreme Court decision that probably would stop him from using county and school district funds to cover shortfalls, as the governor had proposed in his 2011-13 budget. State Budget Director Andrew Clinger estimated the ruling affects about $657 million.

"The problem is much worse than we thought," said Sandoval senior policy adviser Dale Erquiaga. "Future governors and lawmakers will have to deal with that."

Sandoval and his staff planned to work through the night to revise the budget, Erquiaga said late Thursday.

The state Supreme Court ruling, which said the state grabbing money from a local entity violated a provision of the constitution that says "all laws should be general and operate uniformly throughout the state," has implications for budgeting decisions well beyond the clean water money, according to Sandoval administration attorney Lucas Foletta.

"I don't see how there is any way we could take a narrow view of the court's decision," Foletta said.

In response Sandoval wiped from his budget the $62 million in clean water coalition money, $247 million in school construction bond reserve money that had been shifted to school operations, $225 million in a voter-approved diversion of room taxes and about $83 million in property tax diversions.

Erquiaga said the governor, a former federal judge, is taking a broad interpretation of the decision because he "will not gamble with the state's future" and "will not gamble with the budget" with budgeting decisions that could run afoul of the court.

Assembly Minority Leader Pete Goicoechea, R-Eureka, said it will be up to Sandoval what legislative Republicans do next.

But a GOP official predicted enough Republicans will switch from their own anti-tax pledges and pass the new budget that Sandoval will release today.

The governor is expected to announce his changes during a news conference. In a tweet, he said he had spoken with Assembly Speaker John Oceguera, D-Las Vegas, and state Senate Majority Leader Steven Horsford, D-Las Vegas, and would update them today about the budget.

What effect the governor's turn to taxes will have on spending on public schools, higher education and mental health and senior citizens programs was not immediately known.

Oceguera said there still will be "painful cuts." But according to his information, the number of layoffs in the Clark County School District, originally estimated at 1,800, would drop to 800.

Daniel Klaich, chancellor of the Nevada System of Higher Education, wouldn't speculate on the impact until he sees Sandoval's new plan. But Klaich said the governor's change could mean a "significant," positive improvement for colleges and universities.

Clark County School District Chief Financial Officer Jeff Weiler agreed.

"It does sound like some things are working in our favor," Weiler said. "We'll stay tuned."

DEMOCRATS HAPPY

Oceguera said he has been meeting with Sandoval in recent weeks to persuade the governor to change his position on the expiring taxes, but that "there was a little intervening source from above" that accomplished his mission.

"It will be great to work this out together. That's what Nevadans want. They want us standing on the steps together announcing an agreement," the speaker said.

Horsford said the governor and all four legislative caucuses would work together to hammer out a revised budget, despite having been at odds for 109 days of the 120-day legislative session.

"I think we are going to be much closer than we have been all session," he said.

Sandoval does not believe it is acceptable to cut state spending any more, administration officials said, and as a result of the court decision, he will support extending the full amount of the "sunsets," or more than $600 million in business, sales and other taxes that other­wise would have ended.

"As a former federal judge, I am cognizant of the legal issues," Sandoval said in a statement. "As governor, I am forced to deal with their ramifications and I am responding by reworking the state budget."

The court unanimously ruled that a bill allowing the state to take $62 million from the Southern Nevada Clean Water Coalition was unconstitutional.

Assembly Bill 6 was approved last year by Gov. Jim Gibbons and the Legislature. The coalition raised the money through user fees to construct a wastewater pipeline to Lake Mead. The project had been placed on hold because of the lack of growth in Clark County.

The court ruled that Gibbons and legislators violated the state constitution by voting to take the money from the Clean Water Coalition to fill a hole in statewide revenues. Taking the money was a "local and special tax" that applied to only one organization, and wasn't uniform across the state, according to the decision.

Legislators are trying to finalize a budget this week that they can pass before the scheduled June 6 adjournment.

MOVE COULD BE WIN-WIN

Sandoval's move to extend the expiring taxes could allow Republicans and Democrats to agree on a budget deal and go home on time.

Both sides can declare small victories or at least not major losses, according to Eric Herzik, a political science professor at the University of Nevada, Reno.

Democrats who sought more funding for education and social services will have lost their bid to impose new taxes on businesses and services, yet they can say they forced the governor to extend taxes to avoid devastating cuts that were largely included in his original budget.

Sandoval and the Republicans who backed his pledge not to raise taxes or lift the sunsets could argue that the high court forced their hand in the end, but they had managed to stave off the Democratic effort to tax Nevadans even more, he said.

"The easy gloating approach is to say the governor blinked and broke his promise," Herzik said. "But I think the governor had built a budget on thin ice, and he saw that budget fall through the ice with the Supreme Court decision. Yeah, it's a win-win and a lose-lose. The governor now has to go back on his promise, but the Democrats aren't getting a massive infusion of money either. It's a win for both sides, though, because they could say we did what was best for the state."

The Nevada Policy Research Institute, a Las Vegas-based conservative think tank, condemned Sandoval for extending the expiring taxes.

"It is quite disappointing to see that after more than 100 days of Governor Sandoval consistently advocating for the interests of Nevada taxpayers, he reportedly is ready to precipitously abandon his promise not to raise taxes," said Steven Miller, the institute's vice president for policy.

Miller said Sandoval already has found $440 million in additional funds since he proposed his budget in January.

"It would be bizarre if the governor were no longer comfortable with the very amount of spending he was advocating as recently as a month ago," Miller said.

'GIMMICKS' THREATENED

In his budget plan, Sandoval proposed to take money from a few counties, not all 17, to cover spending shortfalls. That apparently would violate the high court's Thursday decision, forcing the governor to change his no-tax position, a source in the administration said.

For example, the governor proposed grabbing Clark County and Washoe County property tax revenue to cover part of the cost of higher education in those counties.

Democratic legislators during hearings questioned why other counties were not included in this taking, especially Elko County which is home to Great Basin College, or Eureka County, the wealthiest county in Nevada. They eventually rejected taking the money from any county.

Sandoval also proposed taking $425 million in surplus school construction bond revenues from Clark, Washoe and a handful of other counties. Those funds would be shifted to the school districts to pay for the ongoing operating costs of their schools.

Eventually the administration lowered the taking to about $250 million, but Democrats rejected the move to take any of that money.

Once again Sandoval's plan would take funds only from a small number of school districts, not all 17 school districts.

Instead of using what Democrats labeled "gimmicks" to balance the budget, Democrats in recent days have conducted hearing after hearing to drum up support for reauthorizing business, sales and other taxes that are scheduled to expire at the end of June.

Review-Journal reporter Laura Myers contributed to this report. Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861. Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.