Attorney general’s opinion on Catalyst Fund seems to conflict with state constitution

CARSON CITY — An attorney general’s opinion issued in 2012 gives the state economic development office the authority to award $10 million in Catalyst Fund grants to private companies although the state constitution seems to directly contradict the opinion.

The Nevada Policy Research Institute filed a lawsuit Feb. 19 in District Court in Carson City that argues a section in the state constitution makes the Catalyst Fund unconstitutional. The constitution states explicitly that state government may not give or loan any state money to private companies unless they are charities or formed for education purposes.

But the Legislature during the 2011 session overwhelmingly approved Assembly Bill 449, which sets up economic development office and the Catalyst Fund sought by Gov. Brian Sandoval to induce companies to locate or expand in Nevada.

The NPRI sued on behalf of Michael Little, the son of former Assemblyman Pat Little, D-North Las Vegas. He wants to start an energy company but contended he has been placed at a competitive disadvantage because economic development office awarded $1.2 million to another energy company.

The opinion, released by Legislative Counsel Bureau Director Rick Combs, shows that Economic Development Director Steve Hill received an attorney general’s opinion on Feb. 21, 2012, that allows him to make grants to private companies. The catch is the money first must be advanced to a local government, which then makes the actual distribution of the money. Catalyst Funds were not appropriated until the 2013 legislative session.

In the opinion Deputy Attorney General Cassandra Joseph wrote that the Nevada Constitution states that the state “shall not donate or loan money” to a private companies, but “it does not prohibit a local government from doing so.”

She said that AB449 requires economic development office to enter into agreements with local government regional development authorities to disburse the money to them and for them to give funds to the winning companies. Therefore, she said the law does not violate the constitution.

The bill was passed unanimously in the state Senate and by all but nine Republicans in the Assembly.

Joseph went even further in the opinion and said the state could award money directly to private companies. She noted her office in an earlier opinion ruled the money prohibition “should not be construed to hinder the government from carrying out its essential function to secure the health and welfare of its citizens.” And she pointed to a 1973 state Supreme Court decision that found private companies could receive funds if the purpose was “to encourage industry to either locate or remain in the state and thereby, aid in relieving unemployment and maintaining a stable economy.” This decision, however, was in a county case.

In a news conference Feb. 19, NPRI lawyer Joseph Becker said the Legislature sought to get around the constitution by approving the pass-through to local governments. But he said if something is unconstitutional, then it would be unconstitutional to pass it on to local governments to do the state’s work.

No date has been set for the hearing on the lawsuit in District Court, but the attorney general’s opinion is sure to be part economic development office’s defense.

As a former attorney general and federal judge, Sandoval also must have been confident that passage of the Catalyst Fund was constitutional.

Most legislators agreed at the time the enabling bill was passed, but Assemblyman Ira Hansen, R-Sparks, remains pleased he voted no.

“I don’t think we should be subsidizing any private project,” Hansen said last week. “How do you keep the politics out of it when you decide to subsidize one company and not another? There has got to be favoritism.”

Rather than giving money to private companies, Hansen said the companies should follow the free market. If they have good products, then he said they can secure bank loans, rather than going to the state for help.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901. Follow him on Twitter @edisonvogel.