Leverage on taxes shifts dramatically

By Anjeanette Damon

Sunday, May 29, 2011 | 2 a.m.

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.”