Sunsets rise as budget gap grows

CARSON CITY — For the first time since Gov. Brian Sandoval quit the federal bench to get into the race for governor, he’s said to be considering taxes.

The move was occasioned by that Nevada Supreme Court ruling released Thursday that said taking $62 million from the Clean Water Coalition was unconstitutional. But Sandoval’s lawyers, interpreting the ruling broadly, said several other revenue grabs used to build the executive budget may also be ruled unconstitutional if challenged.

That ruling — a key Sandoval aide called it a “game changer” — has forced Sandoval to consider extending the so-called “sunset” taxes, those on car registration, sales, business payroll and business license fees. The estimated $700 million in revenue should cover a new $656 million hole (see how the governor arrived at that number in this spreadsheet: ImpactofDecision_Spreadsheet).

Briefings are still taking place, but for now, here’s some of the coverage on the issue. First, my Review-Journal column today addresses the reasons Sandoval may give for backing off his no-tax pledge. The Review-Journal story, by Ed Vogel and Ben Spillman, discusses Sandoval’s forced change of heart. The Las Vegas Sun‘s Anjeanette Damon wrote-up a late-night news conference held by Deputy Chief of Staff Dale Erquiaga. And the Nevada Appeal‘s Geoff Dornan has plenty of budget details.

But not everybody is on board. The conservative Nevada Policy Research Institute still opposes lifting the sunsets, regardless of the court ruling. Vice President for Policy Steven Miller said they’re not necessary:

It is quite disappointing to see that after more than 100 days of Gov. Sandoval consistently advocating for the interests of Nevada taxpayers during this legislative session, he reportedly is ready to precipitously abandon his promise not to raise taxes.

Today’s Supreme Court ruling was an entirely appropriate rejection of an unconstitutional money grab perpetrated by state legislators in 2010. But while that ruling endangered some similar gimmicks in the Sandoval budget, it was still quite possible to pass a budget near the level the governor had originally proposed.

On May 2, the Economic Forum projected that Nevada would have $330 million more to spend in the next biennium than it had projected in December 2010, when Gov. Sandoval built his original spending plan. Combined with revised Medicaid projections and other monies, Sandoval has already added back $440 million to his original budget proposal.

It would be bizarre if the governor were no longer comfortable with the very amount of spending he was advocating as recently as a month ago.

An extended higher sales tax component will necessarily result in lowered consumer demand and, hence, fewer revenues for private business. This will lower the demand for labor and result in both more unemployment and suppressed wages. The payroll tax is a direct tax on labor — making it more costly to hire additional workers. These are not the solutions that Nevada needs during this period of economic turmoil.

Then again, Sandoval has identified a recovery that is under way despite the sunset taxes being in effect. Unless conservatives are prepared to argue that businesses and consumers are boosting economic activity in anticipation of being loosed from the shackles of taxation at the end of June, which would be silly, then even they must admit that the sunset taxes are not hindering the recovery.

Chuck Muth, president of Citizen Outreach, put out an urgent e-mail alert Thursday, urging readers to call Sandoval’s offices and tell him they want him to keep his promise, regardless of the court’s ruling. Muth argues that even losing the so-called “gimmick” money imperiled by the court ruling won’t hurt the budget too badly, given new money added back into the budget by the Economic Forum. Here’s a snippet of that email alert:

Will this make it a little harder for the governor to keep his promise? Sure.

But make a promise; keep a promise.

All the reasons the governor has articulated for not raising taxes over the last four months since he released his original budget are still valid.

And like former Gov. Jim Gibbons – after he broke his own word by proposing that $292 million room tax hike in 2009 – once you lose the trust of the people who put their full faith in you…who stuck their necks way out for you…who believed in you….you can never get it back.

Make a promise; keep a promise.

Yes, if former Gov. Gibbons were here, it’s very likely he’d ignore changing circumstances and forge ahead based only on his ideology and not on reality. Let’s all hope that — despite similar rhetoric — Sandoval is no Jim Gibbons.

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