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.

 

Newspaper column: Courts should put a stop to governor’s corporate welfare program

The attorney for the legal arm of a libertarian-leaning Nevada think tank this past week asked the state district court in Carson City to issue a summary judgment that would essentially put the Governor’s Office of Economic Development (GOED) out of business.

The GOED was created as a way to dispense public tax money from a $10 million Catalyst Fund to companies in hopes of creating new jobs and jumpstarting the recession-retarded economy.

The request for summary judgment grows out of a lawsuit filed earlier this year by the Nevada Policy Research Institute’s Center for Justice and Constitutional Litigation (CJCL) on behalf of Michael Little, a Nevada alternative-energy entrepreneur and a taxpayer, because the GOED planned to give $1.2 million to one of his competitors, SolarCity, a company owned by a billionaire that installs solar panels.

Little owns Landfill Alternative, a company that converts recycled landscape trimmings into biomass.

Michael Little at his biomass business.

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.

In a deposition given in the court case, GOED’s Executive Director Steven Hill admitted that the state giving money directly to a company would violate the Constitution, so instead the money is funneled through the various county governments.

Sounds like the very definition of a money laundering scheme — a third-party is used to obscure the transfer of illicit funds from the source to its destination.

In the recent court filing, Joseph Becker, chief legal officer and director of the CJCL, points out the state has three times asked the voters of Nevada to amend the Constitution to allow handing out public funds to private companies and each time the amendments soundly defeated.

“This scheme … runs afoul of the plain language of the Nevada State Constitution, the will of the people of Nevada as evidenced by three consecutive four-year elections,” writes Becker, “and, if not held unconstitutional, sets a very dangerous precedent whereby the State, when constitutionally prohibited from acting in certain ways, firsts creates a political subdivision and then subcontracts with that political subdivision to act as an intermediary to do the very thing the Nevada Constitution explicitly prohibits. What next?! Hiring private security companies to conduct warrantless searches in instances where the state would otherwise be constitutionally prohibited?!”

Becker asserts that the case presents no genuine issue of material fact and his client is entitled to judgment as a matter of law because the state “is not entitled to build a case on the gossamer threads of whimsy, speculation, and conjecture” — a reference to case law.

The CJCL motion also quotes at length from an opinion by the Nebraska Supreme Court discussing the constitutional and practical ramifications of that state’s almost identical Gift Clause. The opinion concedes that just about any new factory or retail store might be deemed to benefit a community’s progress and prosperity, but under state law public money cannot be appropriated for private purposes and doing so is self-destructive as well.

“It does not matter what such undertakings may be called or how worthwhile they may appear to be at the passing moment,” the court opines. “The financing of private enterprise by means of public funds is entirely foreign to a proper concept of our constitutional system. Experience has shown that such encroachments will lead inevitably to the ultimate destruction of the private enterprise system.”

In fact, Gift Clauses were enacted in many state constitutions precisely because of the experiences of a number of states during the mid-19th century that loaned public money to private firms for the construction of railroads, canals and other infrastructure only to see the companies go broke and leave the taxpayers holding the debt with no assets to show for it.

“It is an illusion — one that seems to have the persistence of original sin — that prosperity can be attained by taking money from taxpayers and handing it to favored businesses. …” the motion for summary judgment concludes. “The idea of government intervention to influence the composition of a country’s output has long been derided by economists for breeding inefficiency, reducing competition, encouraging lobbying and saddling countries with factories producing products nobody wants.”

As Adam Smith wrote in 1776: “It is the highest impertinence and presumption, therefore, in kings and ministers to pretend to watch over the economy of private people … They are themselves always, and without any exception, the greatest spendthrifts in the society.”

The state should not take from some taxpayers and give to others no matter its motives or methods.

This column ran this week in The Ely Times, the Mesquite Local News and the Elko Daily Free Press.