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From the Archives: “Fears of Californication”

For years, we’ve been tracking Nevada’s ongoing cycle of “boom and bust economic cycles”, ugly budget crunches, and habitual kicking of budgetary and tax cans down the road to nowhere. Today, we’re taking a trip down Memory Lane as a reminder of how anything-but-new this problem is.

This article was originally published on February 28, 2012. As always, I made minor fixes to clean up some language and fix broken links.
COVID-19, Nevada Legislature, primary, caucus
Photo by Andrew Davey

Yesterday prominent Nevada GOP power player, lobbying-industrial-complex titan, and confirmed gubernatorial inner circle member Pete Ernaut complained about the new push to bring tax initiatives to the ballot so Nevada voters can finally do what the Nevada Legislature apparently has no interest doing. Please let me know if you notice something familiar here.

During an interview with Nevada Newsmakers, Ernaut proclaimed, “It should be warning to everybody because this is something that could very rapidly turn into the next iteration of the California ballot, where we have 10, 12, 13 ballot measures on a number of issues and you wake up one day and really you’ve taken the power away from the Legislature or the governor to make any decisions.” 

He then warned, “If we’re not careful, that’s the way that it will go.” Before I explain why I suspect Ernaut said this, I actually want to give him some props for pointing out what I’ve been saying here for several months. California, here we come!

What the hell happened in California in 2012, and why should we in Nevada care about it now?
Photo by Andrew Davey

As we’ve previously discussed, California currently has three tax initiatives competing for voters’ attention and support this year: one from civil rights attorney Molly Munger that seeks to raise income taxes on nearly everyone, one from Governor Jerry Brown (D) that mostly raises income taxes on the wealthy but also keeps in place a sales tax hike affecting everyone, and one by Courage Campaign and the California Federation of Teachers that only raises taxes on the ultra-wealthy earning more than $1,000,000 a year. All three promise to restore investment in public education that’s been slashed to death, but all three also face challenges in the duration of the new revenue stream, as well as how much each of them can really pull in.

Of course, we can’t forget how California got into this mess in the first place. Starting with the Proposition (or Prop) 13 tax restructuring of 1978, followed by the education spending mandates in Prop 98 in 1988, followed by a whole series of special tax policies and spending formulae approved by the voters all through the 1990s and 2000s, California’s budget has become an unmanageable fiscal hot mess. And especially because we as people like to “have it all” without ever paying for any of it, California faces chronic budget woes. (It turns out that passing spending mandates without finding the appropriate revenue to fund them causes huge budgetary problems. Surprise?)

However, not all of California’s or Nevada’s problems can be blamed on “we the people”. The reason why Jerry Brown, Courage Campaign, and Molly Munger want to take their respective tax initiatives to the voters is because an intransigent and obstructive far-right minority in their Legislature refuses to consider any kind of sensible tax reform. And now that sensible Republicans like the late Bill Raggio and Kenny Guinn are distant memories for Republican leadership in our Legislature today, we’re now facing the same problems. While I understand, and even empathize with, Pete Ernaut’s concern about “direct democracy run amok”, what else are “we the people” supposed to do when our Legislature can’t do its job and pass a workable budget?

Why are they so afraid of tax reform, and why are they so reluctant to let the people decide policies they don’t want to handle?
Photo by Andrew Davey

This brings me to the reason I suspect Pete Ernaut truly worries about the proposed tax initiatives: They’re aimed at his clients. Ernaut seems to worry about the Legislature losing its authority on the budget now, but he didn’t seem to mind Republican legislators rubber-stamping Governor Brian Sandoval‘s (R) originally proposed slashing of the state’s public education budget before the Nevada Supreme Court gave him the perfect excuse to extend the 2009 tax deal. But now that Monte Miller, the Nevada AFL-CIO, and Kermitt Waters are all aiming at Ernaut’s top R&R Partners clients, he all of a sudden wants the Legislature to set tax policy. Is that just because he thinks we the people will do what the Legislature hasn’t done?

Republican pollster Glen Bolger, who does polling for the Retail Association of Nevada, revealed in his newest survey that Nevadans want the mining industry to pay its fair share. This explains why the mining industry is suing to block Monte Miller’s mining tax initiative. Ernaut has probably seen similar private polls showing similar results. The more Nevadans learn about how multinational mining corporations have abused our tax code to pay pennies on the dollar for profiting off our natural resources, the angrier they get. Mining industry lobbyists fear that if the decision on how much to tax them moves from the Legislature to “we the people”, the mining industry may have to kiss their sweetheart deal goodbye.

Photo by Andrew Davey

This probably also explains why “big bid’ness” power brokers fear the AFL-CIO’s proposed margin tax on big business. In addition to the mining industry, other big multinational corporations like to set up “on-shore tax shelters” here in Nevada to avoid paying taxes. What do we get out of it? After seeing them profit while Nevada families suffer from decaying schools and inadequate transportation infrastructure, Nevada voters may also be ready to finally make the big guys pay their fair share.

In the end, Pete Ernaut may have a valid point in stating the problems with “ballot box budgeting” and establishing the habit of deciding tax policies through electoral campaigns. However when the Legislature won’t tackle this, someone has to. Since Nevada is in real need of real reform that finally moves our tax code into the 21st century, we can’t blame citizen activists for wanting to take matters into their own hands. And since Ernaut’s own friend in the Governor’s Mansion encouraged obstruction on tax reform in Carson City last year, he should have realized that he helped bring “Californication” of Nevada policy making here.

Postscript #1: Surprise (but not really), “Californication” is nowhere near as scary as far-right fear-mongers make it out to be.
Photo by Andrew Davey

While Molly Munger’s Prop 38 lost in a brutal landslide in California in 2012, then Governor Jerry Brown’s proposal ultimately fared far better. He eventually struck a deal with Courage Campaign and the teachers’ union on what would become Prop 30, and this combination of tax increases on the wealthiest Californians and a 0.25% sales tax bump succeeded by a healthy 55%-45% spread in the 2012 general election. And in case that wasn’t enough winning for Brown and progressive tax reform, 2016’s Prop 55 to extend Prop 30’s income tax increases to 2030 passed in a 63%-37% landslide. 

Fast forward to 2021: After a harrowing journey through COVID-19 and the recession, California is not only back on track, but the state’s budget had already burst into a surplus before President Joe Biden signed the American Rescue Plan into law. Just yesterday, Governor Gavin Newsom (D) announced a $75.7 billion budget surplus that’s nearly double the original forecast of $38 billion. 

Funny enough, that Prop 30/Prop 55 income surtax on the wealthiest Californians came in very handy, as California’s current income tax structure was able to capture some of these richest Californians’ Wall Street windfalls and use this to counteract the lower tax revenue from poorer Californians and small businesses that were hit hard by the recession. While California still has a host of serious issues to deal with, this is just further proof that the far-right fear-mongering over “Taxifornia” has never really been based on actual facts or sound economics. 

As we discussed last week regarding Califorrnia’s improving COVID-19 outlook, Republicans may have succeeded in qualifying a special recall election this fall, but they will probably have a harder time convincing more voters to actually remove Newsom from office as the state government reverses budget cuts, COVID-19 gradually comes under better control, and more businesses can safely reopen. (As I’m writing this, the Los Angeles Times and UC Berkley just released a new poll showing support for recalling Newsom out of office stuck at 36%, which is generally in line with other recent California Recall polling.)

Postscript #2: “Groundhog Day at the Nevada Legislature, Part I-Lost-Count-Some-Time-in-2017”
Nevada Legislature
Photo by Andrew Davey

As we await the biennial tradition of “Rush to Sine Die” at the Nevada Legislature, we’re seeing a gradual “return to normalcy” (or is it “back to baseline”?) in Carson City. Following a slow start to this legislative session amidst questions of whether we could get our own handle on COVID-19 and whether Biden and Congress would ultimately ride to our rescue, the passage of the American Rescue Plan and the state’s pending acceptance of just over $2.7 billion in fiscal relief funds have put an end to the state’s budget drama… for now.

When it comes to the Nevada Legislature potentially taking some kind of proactive measure to renovate our state’s retrograde tax structure, we’re still waiting. All three of the mining tax initiatives from last year’s 32nd Special Session (AJR 1, AJR 2, and SJR 1) were granted exemption from legislative deadlines earlier this session, yet all three remain stuck in committee with no official word on when any of them might advance to a full floor vote. When asked about when we’ll finally see some movement on mining tax reform, Sisolak’s office has remained mum as Democratic legislative leaders have suggested they’re “having conversations” with a small clique of “moderate” Republicans about ditching all three of the mining tax initiatives in favor of… something else that maybe they can all agree upon.

Steve Sisolak, Nevada Legislature, budget
Photo provided by the State of Nevada

Governor Steve Sisolak (D) and legislative leaders have already signaled they will eventually reverse last year’s 31st Special Session budget cuts, even if the “money committees” (Assembly Ways & Means, and Senate Finance) that develop the final budget bills are still advancing further budget cuts in areas like higher education that were initially drafted before the Nevada Economic Forum announced a $586 million boost in 2021-23 forecasted tax revenue and the $2.7 billion infusion of federal Rescue Plan funds into Nevada’s state budget accounts. Yet when it comes to ways to stabilize Nevada’s fiscal outlook once Rescue Plan funds and authorization expire in 2024, we seem to be stuck in the same status quo of having conversations about “having conversations”.

Back in February, I tried my best to responsibly set realistically low expectations for what the Legislature might do on tax reform. Somehow, some way, the Legislature might find a way to even fall short of my initial low expectations. While none of the mining tax initiatives currently being considered can single-handedly fix all of Nevada’s structural tax problems, they at least hold some potential (especially AJR 1, as this specifically directs some gross proceeds tax revenue into public education and health care budgets). By merely kicking the tax can down the road yet again, Sisolak and the Legislature risk leaving behind a massive pile of cans that Nevadans will eventually have to confront and clean up.

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