Newspaper column: Lawsuit challenges practice of state gifts to private companies

Earlier this month the Nevada Supreme Court heard arguments on procedural matters in a case that seeks to have declared unconstitutional the state’s practice of handing out gifts to businesses that agree to operate in Nevada and create jobs.

The plaintiff in the case is Michael Little, owner of a company that converts recycled landscape trimmings into biomass, a renewable energy source. The suit grew out of the fact the Governor’s Office of Economic Development (GOED) gave $1.2 million to one of his competitors, SolarCity, a company that installs solar panels. That was part of a $10 million Catalyst Fund.

Plaintiff Michael Little

The suit claims the gift to SolarCity violates the Gift Clause of the state Constitution, which prohibits the state donating or loaning money to any company. Little is represented by Center for Justice and Constitutional Litigation (CJCL), a division of the Nevada Policy Research Institute.

Joseph Becker, chief legal officer and director of the CJCL, said he is pleased the state Supreme Court agreed to hear arguments on whether Little has “standing” as a taxpayer to pursue the lawsuit.

“It seemed to me the court was very sympathetic to our plight, and that is that absent taxpayer standing it’s very difficult to keep a state government within its constitutional constraints,” Becker said in a recent interview. “Forty-six states have at least some form of taxpayer standing, three explicitly have rejected taxpayer standing, and one state, up until now, has no taxpayer standing jurisprudence whatsoever, according to legal scholars, and that state, of course, is the very one in which we find ourselves. Given the nature of the questions, I’m optimistic that they see this as problem and they’re willing to address it.”

A ruling giving Little standing as a taxpayer would send the case back to district court to be heard on its merits.

Becker explained that CJCL is in the business of trying to set precedent that serves the public interest, and having the Supreme Court say a taxpayer has standing to challenge unconstitutional tax expenditures is very important.

The Supreme Court hearing gave Becker the chance to point out to the court the fact that the voters have on three occasions rejected attempts to amend the state Constitution and remove the Gift Clause — in 1992, 1996 and again in 2000 by wide majorities.

Gift clauses started appearing in state constitutions in the mid-1800s after state governments in the East invested heavily in private companies building infrastructure such as canals and railroads that went bust. The states of Indiana, Illinois and Michigan were bankrupted as a result.

The Nevada Constitution specifically states: “The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.”

“We needed a vote of the people to change the Constitution, which never happened, but now suddenly its OK for the state to do something that up until now, even they insisted, would take a constitutional amendment,” Becker said bemusedly. “I tried to make that point and I think did,” noting the justices asked for citations about the balloting.

Becker also noted the very timeliness of the case in light of the fact SolarCity, after drawing $400,000 of its allocated $1.2 million, announced just before Christmas that it is ceasing new operations in Nevada and laying off 550 employees after the state Public Utilities Commission drastically increased the connection fees for solar panel owners and slashed the amount paid for solar power uploaded to the grid.

Becker noted his organization has been arguing all along that the reason these Gift Clause provisions were put in Western constitutions is because of the experience of those bankrupted Eastern states, where taxpayers found themselves having to bail out government spending boondoggles that benefited some private party that was somehow friendly with the people in office.

“I pointed out to the court that this is exactly the kind of problem that this provision was intended to prevent and the voters didn’t want that changed,” the attorney said. “It is the court’s job to protect against the tyranny of the majority, but here we’re protecting against the power elite.”

Pure cronyism.

A version of this column appears this week in the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel, the Lincoln County Record and the Sparks Tribune — and the Elko Daily Free Press.


16 comments on “Newspaper column: Lawsuit challenges practice of state gifts to private companies

  1. Connie Foust says:

    Cronyism taken to court, this is a good thing.

  2. Rincon says:

    Nevada’s mistake was to award a cash gift. If they had given Solar City the same money as tax deductions, the Conservatives would have been quite happy with it and no one could have argued that it was a violation of the state constitution.

  3. Steve says:

    “cash gift” = Subsidy.

    Tax deduction ≠ Subsidy

    See? Your own words prove it.

  4. Thomas Mitchell says:

    Tax breaks violate constitutional uniform taxation Claude.

  5. nyp says:

    I agree with Mr. Mitchell that the idea that a special tax credit or tax deduction granted by the government to some set of individuals or entities in order to advance some desirable policy is exactly the same thing as a direct subsidy. There is no practical distinction between the two.

    On the other hand, if all tax breaks are unconstitutional, I wonder where that leaves the Nevada educational savings accounts?

  6. Thomas Mitchell says:

    An education expenditure.

  7. nyp says:

    In other words, a subsidy provided to one special class of citizens or entities.

    Of course, as I have said in the past, I have some attraction to the Nevada ESAs, as they would permit parents to spend taxpayer funds on madrassa schools or social-justice oriented kindergardens. Still …

  8. Steve says:

    The less a company earns the lower the returns from tax deduction(s).

    The less a company earns the more they rely on the stable money provided by subsidies, because subsidies are not effected by earnings, subsidies are cash gifts. (just like the dictionary explains)

  9. Rincon says:

    Saying that a tax break is not, for practical purposes, almost the same as a subsidy is a bit like claiming that selling a home to a politician at a price drastically lower than market value isn’t a bribe.

    The distinction regarding profits depends on the nature of the subsidy, deduction. A reduction in property taxes is certainly not dependent on profits for example. Of course, if we refer only to taxes on profits, remember that the amount of profit a company earns is only loosely related to employment provided or money being spent within the state. In both cases, the business receiving the gift gains an advantage while other businesses in the state receive nothing. Not a very capitalistic concept.

  10. Steve says:

    “almost the same”

    “for practical purposes”

    SPIN Baby! Spin!

    Followed by a false equivalency.

    Followed by yet another, false equivalency.

    Then a conclusion based on those false equivalencies with an added false qualifier.

    None of this changes reality.

    Tax deductions are not subsidies.

  11. Rincon says:

    Avoiding the thrust of the discussion to play word games about minutia. Concession noted.

  12. Steve says:

    “Avoiding the thrust of the discussion to play word games about minutia.”

    You made the play. I just joined.

    Thanks for the points.

    And you still called your own words irrelevant.

  13. […] for Justice and Constitutional Litigation, a division of the Nevada Policy Research Institute, has sued the state, saying such handouts violate the Gift Clause in the state […]

  14. […] The suit was brought by Michael Little, owner of a company that converts recycled landscape trimmings into biomass, a renewable energy source. It claimed a $1.2 million handout to competitor SolarCity, which at the time installed solar panels on rooftop, violated the Gift Clause of the state Constitution, which prohibits the state donating or loaning money to any company. SolarCity has since pulled out of the state due to an adverse ruling by the Public Utilities Commission making that business unprofitable. […]

  15. […] This turn of events supports our oft-stated contention that spending taxpayer money to invite companies to come to Nevada to compete with those taxpayers is a bad idea and unconstitutional to boot. […]

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