Tuesday, July 15, 2003
Copyright © Las Vegas Review-Journal

REPUBLICAN APPEAL: Judge blocks tax decision

Restraining order issued until Wednesday hearing

Sen. Bob Coffin, D-Las Vegas, foreground, and Senate Majority Leader Bill Raggio, R-Reno, hear details Monday of how a Senate-passed tax bill was changed in the Assembly. Photo by K.M. Cannon. Senate Majority Leader Bill Raggio, R-Reno, holds his gavel Monday during negotiations on record tax increases. Raggio, R-Reno, said nothing in Monday's court order prohibited lawmakers from passing a tax agreement that has two-thirds support. Photo by K.M. Cannon. Assemblyman Lynn Hettrick, R-Gardnerville, in his Carson City office, talks about Monday's U.S. District Court decision to hold a hearing on a challenge of the Assembly's simple-majority passage of a tax increase package. Photo by K.M. Cannon.

CARSON CITY -- A federal judge on Monday put a temporary halt to the Legislature's move to raise taxes by nearly $800 million with a simple majority vote.

Chief U.S. District Judge Philip Pro issued a restraining order to halt passage of taxes by less than a two-thirds supermajority, a state constitution requirement that temporarily was set aside by a Nevada Supreme Court ruling.

Pro ordered a 9 a.m. Wednesday hearing before all of Nevada's U.S. District Court judges.

The order, sought earlier Monday by some Assembly and Senate Republicans, prompted a new flurry of negotiations among lawmakers to try to achieve two-thirds support so the prolonged special legislative session could come to an end without further court involvement.

Pro said in his two-page order that there is justification to "preserve the status quo" until all district judges, in an en banc hearing, can rule on the complaint. The request for a restraining order resulted from the state Supreme Court's rejection of a two-thirds requirement to raise taxes in the current special session.

Monday's lawsuit, filed in U.S. District Court in Reno, was not an appeal of Thursday's stunning 6-1 state Supreme Court ruling.

The Supreme Court ruled that the state's constitutional requirement to fund education outweighs the constitution's procedural requirement that at least two-thirds of lawmakers support new taxes.

Instead, it was an entirely new complaint raising some of the same issues.

The "complaint for a violation of civil and constitutional rights" names the Assembly, the Senate and Gov. Kenny Guinn as defendants. The Nevada Supreme Court is not named.

The request for the restraining order was based on the Assembly's passage of $789 million in tax increases Sunday by a vote of 26-16, two votes fewer than the two-thirds supermajority required in the Nevada Constitution.

The simple majority vote Sunday on Senate Bill 6 had been allowed by the Supreme Court ruling, but was challenged by some Republicans, individual citizens and business groups.

"If adopted in violation of the Nevada Constitution, the tax increase proposed by SB6 on a certain segment of Nevada business would amount to a taking of property without due process of law, in violation of the 14th Amendment of the U.S. Constitution," the complaint says.

Assembly Minority Leader Lynn Hettrick, R-Gardnerville, one of 15 Assembly Republicans joining in the lawsuit, was pleased by the court's response.

"We obviously at least feel satisfied that the court saw that the complaint carried enough weight to justify the hearing," he said. "I'm not going to read any more into it.

"This is for the citizens of the state of Nevada, because they voted to have the two-thirds requirement," Hettrick said. "The constitution needs to be upheld for their benefit, and for all of us for that matter."

Any ruling is likely to be appealed, but an en banc ruling is likely to be tougher to overcome, he said.

Guinn spokesman Greg Bortolin offered only a brief comment: "The governor's only hope is that this is resolved quickly."

Such hope has been dashed time and again this summer.

Lawmakers failed to pass a balanced budget for 2003-05 during the regular session that ended June 2. The $1.65 billion public schools spending plan was the final piece of the budget before lawmakers, but they needed to pass more than $860 million in tax increases to support it. Unable to pass the schools budget without first passing the tax increases, a minority of Assembly Republicans, led by Hettrick, held out for cuts to already approved spending, hoping to reduce the record boost in state levies.

Their shield was the required two-thirds supermajority. The resulting stalemate persisted through two special legislative sessions and into the start of the new fiscal year on July 1.

Guinn subsequently asked the state Supreme Court to intervene, saying the Legislature had violated its constitutional duty to pass a balanced budget by the start of the fiscal year.

Now the federal courts are involved.

Assembly Majority Leader Barbara Buckley, D-Las Vegas, said she was disappointed because the ruling further prolongs torturous legislative negotiations. Leaders hoped a bill coming out of a Senate-Assembly conference committee could have produced a two-thirds vote in both houses, she said.

With the restraining order, lawmakers cannot make any progress on a compromise, Buckley said.

"What I'm most disappointed about is it is stopping our action. The schools are in crisis. Now we're going to be held up," she said. "I think it is so disappointing that some lawmakers are resorting to lawsuits instead of sitting at the table and getting this resolved."

Hettrick noted that he offered a continuing resolution with quick approval of some taxes to help the schools continue to operate, but the idea was rejected by Assembly Democrats on Sunday.

Buckley said a continuing resolution would not help because the money to fund the $1.65 billion schools budget would not materialize without the tax vote.

Bortolin said Guinn has no plans to change his special session proclamation, which limits legislative business, to include a continuing resolution for education.

The Senate, meeting as a committee Monday to review the Assembly version of SB6, voted not to concur with the changes. The vote was not formalized by the Senate, however, because of the order from Pro. The vote to reject the changes was unanimous, with one lawmaker abstaining.

Buckley said the rejection was expected. It normally would have led to a conference committee, where differences could be worked out.

Both Senate Majority Leader Bill Raggio, R-Reno, and Minority Leader Dina Titus, D-Las Vegas, said lawmakers should continue to work toward a compromise.

Speaking from the floor of the Senate before adjournment, Raggio said nothing in the order prohibited lawmakers from passing an agreement that has two-thirds support.

"I'm going to continue to suggest to the members of this Legislature that we continue to meet," he said.

Titus made a similar comment.

"We can't go home and wait until Wednesday. We have to keep working to try to find some compromise," she said.

Titus said she was surprised that the federal court decided to intervene.

"I can't believe that they consider this to be a federal question," she said.

Sen. Joe Neal, D-North Las Vegas, told the lawmakers who filed the lawsuit to enjoy their brief victory.

"Enjoy your 15 minutes of fame, because I don't think this is going to last very long," he said.

The Legislature and Guinn have until noon today to respond to the complaint.

In a separate and unrelated action, Las Vegas attorney Robert Hall filed a complaint in U.S. District Court in Las Vegas against the six justices who signed the Thursday majority opinion. Hall wants the opinion reversed as a violation of the constitutional will of voters, who approved the two-thirds requirement for tax increases in 1996.

Meanwhile, the Republican-controlled Senate took up the Assembly-amended version of SB6, meeting as a committee to hear details of how the bill was changed in the Democrat-controlled lower house.

As passed by the Senate on June 26, the tax bill's centerpiece was a 1 percent payroll tax. It included a 3 percent net profits tax on banks starting in 2005 and would have raised $873 million over the two-year biennium.

The Assembly version, when secretary of state fee increases from a separate bill are included, would total $834.5 million.

The size of the tax increase is lower than what was proposed last month because the Assembly agreed not to raise $30 million in new revenue to fund the state's now-depleted rainy day fund.

The Assembly plan focuses primarily on a 0.1 percent tax on companies' gross receipts and a 0.5 percent tax on their payrolls. It includes the $1.65 billion public schools budget.

The gross receipts tax proposed by the Assembly is a stumbling block for some members of the Senate, but it is lower than what Guinn recommended in his tax and spending plan in January. Guinn sought a 0.25 percent tax on gross receipts.

Meanwhile, the legislative message center reopened for business Monday and received 600 calls, a very high number, said Lorne Malkiewich, director of the Legislative Counsel Bureau. At least 90 percent of the messages voiced opposition to a "mini-IRS," which some Republican lawmakers say would be created with a gross receipts tax. The Department of Taxation would have to add new employees to collect the tax.