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December 21, 2014

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Leverage on taxes shifts dramatically

Brian Sandoval

Brian Sandoval

In one fell swoop last week, Gov. Brian Sandoval appeared to rob Assembly Republicans of their only leverage against a Democratic majority who had been mostly hostile to their demands for changes to issues from collective bargaining to construction defect laws.

Since the beginning of session, Assembly Republicans made it clear that they would part ways with the governor and back an extension of the Legislature’s 2009 tax increase, which is set to expire, if Democrats would back Republicans’ policy agenda.

Then on Thursday the Nevada Supreme Court issued a ground-shifting opinion, which may have emptied Sandoval’s budget of $656 million in revenue and eliminated one of state lawmakers’ favorite budget-solving tools — grabbing funds from local governments.

The reaction was swift from the Sandoval administration. Within hours, his staff sent word that the governor was willing to reverse himself on the 2009 taxes that are about to sunset.

Democrats celebrated.

Republicans, particularly those in the state Senate who had in almost robotlike fashion backed Sandoval’s budget, were confused and demoralized.

“That was a little bit frustrating,” said Assemblyman Ira Hansen, R-Sparks, a plumbing contractor who has been pushing for changes to the state’s construction defect law. “That was our bargaining chip.”

The bargaining chip didn’t stay gone for long, however.

Beyond eliminating revenue from Sandoval’s proposed budget, the ruling pushed the governor, for the first time, into a true negotiating position.

Although Sandoval had said he would be willing to consider changes to his budget that wouldn’t increase the overall spending, he was adamant in his opposition to new taxes. And he had no plans to trade tax increases for policy reforms, even those important to him.

Now, Sandoval has $679 million to bargain with.

“The initial reaction was game over,” one Republican source said. “Then it was — wait a minute. Let’s all take a deep breath. What’s the number?”

By Friday, the administration had regrouped, calculated the “worst-case scenario” and worked to persuade the attorney general to ask the Supreme Court for a clarifying opinion.

“We have these differing numbers in play,” said Dale Erquiaga, Sandoval’s senior adviser. “Is it $62 million? Is it $656 million?”

Erquiaga then delivered two messages:

First, Sandoval won’t reinstate the entire $679 million into the budget.

Second, whatever money he gets from extending the taxes will come in exchange for reforms that will “offset any slowdown to the economy that might come as a result.”

The leverage is back.

How willing Democrats are to come to the table on Republican policy priorities could help determine how much Sandoval is willing to put back into the budget.

Some appeared to be willing. Assembly Speaker John Oceguera, D-Las Vegas, said reforms that “still makes sense” are on the table, including changes that increase government transparency and improve education.

“This building was built on leverage,” said former state Sen. Warren Hardy, in Carson City as a lobbyist for the Associated Builders and Contractors.

That doesn’t necessarily mean Republicans have complete control of the negotiations.

Sandoval runs the political risk of cutting too much from the budget, particularly after he has said definitively that the state can’t take a $656 million hit.

Democrats could call his bluff on that.

Republicans also must settle on which priorities take precedence.

Sandoval has spent most of his energy pushing for substantive changes to education, particularly ending teacher tenure and eliminating the first-in last-out layoff procedures that critics say honor seniority over skill.

Republicans in the Assembly have focused on collective bargaining rights, prevailing wage and construction defects.

Specifically, they want public employee contracts to be automatically renegotiated during economic downturns; to place the final decision on such contracts in the hands of elected leaders and to increase transparency in how they’re negotiated. And they want to make construction defect litigation friendlier to contractors and subcontractors, rather than trial attorneys.

Hansen said he was heartened by the Supreme Court ruling. Not only did it force Sandoval into a bargaining position, but it freed the Senate Republicans’ resolve not to bargain the tax sunsets for reforms.

“It freed us up a bit,” Hansen said. “Everyone had backed themselves into their own corners. Now the Senate has agreed, the governor has agreed. Now we have a united front.”

Sandoval has spent energy cultivating both Republican caucuses, which have both stood firmly with him in public votes on the budget. Some hope he’ll use that bargaining strength to get their priorities through the Democratic majority.

“It would be very disappointing if he doesn’t,” said Assemblyman Tom Grady, R-Yerington. “We’ve worked very closely with him.”

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  1. Anyone following the budget crisis in Nevada would deduct from all the information that a tax increase will surely come in some form affecting all areas of state and local revenue.

  2. I have difficulty following the logic of what is going on in the state capitol.

    Is not the Governor required to submit a balanced budget? Does the court decision not show that evidently he did not? So how can he condition a balanced budget on "reforms"?

    He's got to either propose cutting the $650m from his current spending levels, which he's already said he won't do, or propose continuing existing revenue, which he's also said he won't do without "reforms"? In that case, he's simply not doing his job.

    Moreover, what in the world do construction defect liabilities have to do with public investment in education? How can anyone make the case with a straight face that this is a necessary "public spending reform"?

    Time for the games to end. Time for governing. 8 days left to do it.

  3. $6.1 billion should still be the target budget. That would put us in a pre-housing bubble budget and on track with the last 20 years of budget growth. $6.4 should be the absolute max budget because that is what we're already spending.

  4. Gregory Brown couldn't be more correct. It's amazing more people don't marvel at the inanity of the legislative session.
    As to what the "target budget" should be. That's certainly debatable. But Patrick's numbers are typical of the flat-budget types who can never grasp that government isn't a business. It has more clients in an economic downturn. About the only business I see thriving in this recession is the soon to be $1,600-an ounce gold industry.
    The world is indeed backwards.

  5. The democrats fighting on collective bargining and wages is understandable. But, the construction bill? This means that people who buy a home from one of these bad developers have no recourse. I am in favor of the rich and powerful having their money. But, when they do a lousy, lazy, cut corners job; NO. And the lawyers need to stop doing the same. As for the wages, unions need to give and so does the rich. They did not help keep this mess from happening and probably made money because of it. Tax cuts for the rich and placing all the tax burden on the middle class and cutting seniors and childrens services will not work either. Gov. Sandavol has got to stop 'kissing' his donators(especially mining)for his future political career and start doing his job.

  6. Be very clear that Governor Sandoval is being groomed for a Republican political future running for either Vice President or eventual President. He is being battle tested.

    WHO does HE listen to? His advisors, not the people.

    The tax burden has long been placed upon the people, the good citizens of Nevada. For well over 100 years, since the Nevada State Constitution was written, MINING has enjoyed paying virtually little to a pittance in taxes. They have been able to WRITE OFF nearly EVERYTHING except breathing.

    Nevada State LAWMAKERS and the GOVERNOR(S) has systematically avoided/refused to meaningfully enact MINING TAX REFORM AND RESTRUCTURING.

    Please contact your representatives and communicate your thoughts now before this 2011 Nevada State Legislative Session ends. Thank you.