Editorial: Give state revenue windfall back to those who created it

State workers demand higher pay raises. (R-J pix)

Riddle: What is the difference between the Nevada Legislature and a drunken sailor?

Answer: Eventually the drunken sailor sobers up.

The Economic Forum, which is tasked with estimating state general fund revenues so lawmakers can dodge blame for overestimating, has found a few million more coins in between the couch cushions — $96 million more in the coming biennium and a $44 million surplus from the current year for a total of $140 million. So immediately the governor and lawmakers on both sides of the aisle started calculating just how they could spend it. The added funds hike the general fund budget to $8.2 billion over the next two years.

Not one person suggested letting the taxpayers keep some of that windfall to blow on groceries and new shoes for their children.

Gov. Brian Sandoval wants to spend the windfall on education. “I introduced the weighted student funding formula last session, and this additional money provides a unique opportunity to invest directly in students who are economically disadvantaged, English learners, gifted and talented and in special education,” he was quoted by the press as saying.

For all the good that has done over the years. Over the past four decades, according to a Cato Institute analysis, Nevada has increased K-12 public school funding by 80 percent per pupil, adjusted for inflation. During those four decades student test scores have actually fallen slightly.

Democratic Assembly Speaker Jason Frierson and Democratic Senate Majority Leader Aaron Ford said in a joint statement, “While these newly projected revenues will not be enough to fully meet our needs in public education, mental health, job training, and other vital services, we are committed to putting our tax dollars to work for the hardworking Nevadans who still feel left behind.”

How about some concern for the hardworking taxpayers who keep paying more and getting no recognizable return on their investment?

A few days later several dozen state government workers rallied near the legislative building demanding that the $140 million windfall be used to give them higher pay raises. Though the governor has included 2 percent raises in each of the next two years, the workers were demanding 5 percent each year, complaining that wages are so low many state government employees are on public assistance programs. They complained about how workers’ pay was reduced by furloughs during the recession, failing to note that they were paid the same rate of pay for the time they did work.

They also did not talk about how their pay compares to those in the private sector. According to census data maintained by the Department of Employment, Training and Rehabilitation, the weekly wage of a Nevada state government worker in the third quarter of 2016 was $1,093 a week, compared to $922 for a private sector worker in Nevada. Also, the state worker’s pay has increased 21.7 precent since 2012, compared to an increase of 13.1 percent for the private sector.

To add insult to injury, we note that the windfall-inflated $8.2 billion general fund budget is a 12.3 percent increase over the previous biennium’s $7.3 billion spending, while inflation in the past two years amounted to 2.5 percent. And the general fund is only about a third of the total state spending.

Since 2011 the state general fund budget has grown by 32.3 percent, while inflation amounted to 7.9 percent. Since 2001 that budget has grown by 122 percent, compared to 37.5 percent growth in the cost of living.

Meanwhile, the Economic Forum forecasts that the commerce tax passed in 2015 at the urging of Gov. Sandoval will raise less than $200 million in each of the coming years — less the millions the state is spending to create what is basically a Nevada version of the Internal Revenue Service.

The commerce tax is a tax on gross receipts on all businesses grossing more than $4 million a year. It has different tax tables for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation — and there are 67 different tax brackets.

It is costing businesses in the state untold millions to comply with all the paperwork needed to enforce and collect the tax.

Take that $140 million windfall, add a few nips and tucks in the budget, then repeal the commerce tax. That’s the sober thing to do.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

 

Attorney offers a glimpse of the future of the commerce tax

Craig Mueller, the attorney for a group seeking to repeal the 2015 commerce tax calling themselves RIP Commerce Tax, argued before the state Supreme Court today that the group should be allowed to collect signatures and have the repeal placed before the voters in November.

Nevada Controller Ron Knecht is heading up the repeal effort.

Though it is hardly a legal argument, as one justice told him, Mueller spelled out a strong political argument against the commerce tax:

When the federal government first proposed an income tax in 19 aught 6 or so, I don’t remember the exact year, it was supposed to be on millionaires, on the edge of the Golden Age. A hundred years later, everyone pays income tax.

Now, the two things I’ve noticed about government, it never gets any smaller, taxes never go down.

Now I hate to be cynical about these things, but those are a simply statement of facts. My clients are very concerned about that trend and very concerned they don’t have their say on this tax.

Just moving the dial forward another 10 or 12 years, this tax goes down 4 million dollars to 3 million to 2 million and it starts to looking an awful lot like a state income tax.

Mueller also noted that the voters turned down a gross receipts tax — identical to the commerce tax in principle if not in specifics — in November 2014 by a margin of 4-to-1. The Legislature passed the commerce tax with the required two-thirds majority and the governor signed it.

Nevada Assistant State Controller Geoffrey Lawrence, left, and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

The Coalition for Nevada’s Future argued the petition should not be allowed to go forward because its language is confusing and its form does not conform strictly with legal requirements. They also argue repeal would unbalance the state budget. The state Constitution requires a balanced budget.

Mueller noted the tax is expected to raise only $60 million a year as currently written and the interim finance committee has handed much bigger shortfalls in the past due to economic slumps.

The commerce tax would impose a gross receipts tax on all businesses grossing more than $4 million a year. It has different tax tables for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. And there is nothing to prevent future legislatures from ratcheting up those rates or lowering the threshold.

One of the complications of the ballot measure is that if the voters allow the tax to stand as written, some argue the Legislature would not be able to alter it in any way without a vote of the people. If the people repeal, lawmakers could not impose a similar tax without a vote of the people.

Carson City Judge James Wilson earlier ruled, “The court concludes even if the Legislature enacts a statute, the people do not lose their constitutional right to submit the statute to a vote of the people.”

The justices should rule fairly soon because the group has a deadline of June 21 to collect enough signatures.

Editorial: Courts should let the voters decide on commerce tax — again

In 2014 the voters of Nevada rejected by a 4-to-1 margin a tax on company revenues being pushed by the state teachers’ union.

Instead, the 2015 Legislature adopted a smaller version of the same job killing business margin tax — this time dubbed a commerce tax — despite the myriad arguments against it.

Whether the voters will get a chance again this November to reject this business tax now lies in the hands of the Nevada Supreme Court.

A group headed by Nevada Controller Ron Knecht plans to circulate a petition to place a referendum before the voters to repeal the commerce tax, which is estimated to raise $60 million a year as part of Gov. Brian Sandoval’s $1.5 billion package of new and higher taxes for the biennium.

Nevada Assistant State Controller Geoffrey Lawrence and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

In November District Judge James Wilson of Carson City rejected a constitutional challenge to the petition by a group calling itself the Coalition for Nevada’s Future, but this past week the group filed an appeal with the state’s high court. Nevada Assistant State Controller Geoffrey Lawrence and Controller Ron Knecht present an alternative to Gov. Brian Sandoval‘s tax plan in May. (R-J photo)

Judge Wilson had ruled, “The court concludes even if the Legislature enacts a statute, the people do not lose their constitutional right to submit the statute to a vote of the people.”

A separate effort to repeal the entire $1.5 billion tax hike was rejected by another judge but appeals continue and refiling of the petition is possible.

Backers of the commerce tax repeal must gather 55,000 signatures by June 21 to qualify for the November ballot.

While the commerce tax does not currently tax businesses nearly as aggressively as the teachers’ union version, it has the potential to grow over time and promises to be costly for businesses to be able to comply. As written, it has different tax rates for 27 different industries — ranging from a low of 0.056 percent for mining to a high of 0.362 percent for rail transportation in 67 different levels of revenue. And there is nothing to prevent future legislatures from ratcheting up those rates.

The tax rates on gross receipts vary because the profit margins in different industries vary greatly, but the law’s tax tables ignore the fact that profit can vary within an industry, too.

Gov. Sandoval has promised to fight the repeal efforts, calling such petitions “a wrongheaded attack on the children and families of Nevada. Supported by more than seventy percent of legislators, the revenue the petition seeks to eliminate will go directly to the classroom and give teachers the resources to deliver a quality education.”

Do 70 percent of lawmakers trump 80 percent of voters? We think not. The arguments against the so-called margin tax still apply to the commerce tax and are compelling.

The margin tax got on the 2014 ballot through the referendum process. The referendum process should be allowed to give voters a chance to repeal this tax that was already rejected once.

The Nevada Supreme Court should expedite this commerce tax case to give petitioners time to gather the necessary signatures by the mid-summer deadline.

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

Newspaper column: Tax hike battle should prove to be a bruiser

This should get interesting.

A group of people calling themselves the We Decide Coalition has filed an initiative petition with the Nevada Secretary of State that would give voters a chance to repeal the $1.4 billion in tax hikes passed by the 2015 Legislature at the behest of Gov. Brian Sandoval — Senate Bill 483.

The political and legal wrangling promise to get down in the mud.

Politically, the filing struck a raw nerve with our Republican governor, who unleashed a withering diatribe, calling the petition “a wrongheaded attack on the children and families of Nevada. Supported by more than seventy percent of legislators, the revenue the petition seeks to eliminate will go directly to the classroom and give teachers the resources to deliver a quality education. Most Nevadans understand that more investment in our schools, with proper accountability and reform, will improve graduation rates and student performance. It is also clear that if our schools don’t improve, businesses won’t come here. The time is now to build the workforce of the future.”

Brian Sandoval

Never mind that the state has increased education spending 80 percent per pupil, adjusted for inflation, during the past 40 years with no detectible effect on test scores.

Unfazed by the historic record of failure for his proposed education spending, Sandoval attacked the petitioners by demanding: “Those responsible for promoting this petition must answer a simple question to the parents of Nevada: What will you cut?”

Among possible cuts, Sandoval helpfully listed class-size reduction, which has a 25-year track record of failure to produce. He mentioned anti-bullying programs, which have little to do with actual education. He singled out all-day kindergarten, which even the U.S. Department of Education admits has not improved outcomes.

He also listed the Read by Three program, which would require that children who are not proficient in reading by the end of the third grade would not be promoted to the fourth grade. How much does that cost? Besides it is not scheduled to go into effect until the 2019-20 school year, after Sandoval leaves office.

“I strongly oppose the petition,” Sandoval concluded. “Its passage will destroy a generational opportunity to finally modernize and improve an under-performing education system.”

Where and when have we heard that before?

For their part the petitioners point out that SB483 is the largest tax hike in Nevada history and includes a gross receipts tax — under the rubric of a commerce tax — that is similar to the teachers union tax that 80 percent of Nevada voters rejected at the ballot box just this past November. At that same election the voters also rejected a mining tax hike.

Doesn’t appear the voters have much of an appetite for tax increases, even if their elected lawmakers do.

But the real fight over this initiative petition is likely to take place in the courts. In fact, the petitioners themselves do not seem overly anxious to begin the arduous task of gathering the 55,000 signatures by June 2016 to qualify the referendum for the ballot. They think a court challenge is inevitable.

They say there will undoubtedly be a legal challenge and, therefore, “there isn’t much sense in potentially wasting a lot of time, effort and money actually circulating this petition until the inevitable court challenges are resolved.”

The legal hurdle is likely to be the single-subject rule, which has tripped many petitioners. This law was passed in 2005 and says any initiative petition must contain “but one subject and matters necessarily connected therewith and pertaining thereto.”

Chuck Muth

SB483 contains a half dozen taxes, which arguably violates the state constitution, which reads: “Each law enacted by the Legislature shall embrace but one subject …”

Petition proponents argue SB483 passed the Legislature and was signed by the governor as one subject; therefore, repeal would be one subject.

“In the past, courts have defined the meaning of ‘single subject’ very broadly for legislation but very narrowly for citizen ballot initiatives,” writes Chuck Muth, president of Citizen Outreach and one the petition instigators. “The only way for the courts to reject this particular word-for-word referendum as a violation of the single subject rule is to tell the people of Nevada that they are held to a completely different, thoroughly discriminatory definition of ‘single subject’ than the people we the people elect.”

Let the battle begin and when the dust clears, we’ll see if the taxpayers come out the winners or losers.

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.

Update: AP reports that Sen. Harry Reid says he is willing to do everything he can to help Sandoval’s tax package survive a ballot initiative seeking its repeal, though he is not actively involved now.

“Sandoval and I don’t agree on stuff, but we agree on a lot, and I think what he was able to do with that Legislature was masterful,” Reid said. “I think it would be a real disservice to our state if the crazies were able to prevail.”