High court ruling removed roadblock to budget

CARSON CITY -- On the morning of May 26, Nevada Supreme Court Chief Justice Michael Douglas sent his staff on a critical errand.

They were to hand-deliver copies of a 32-page court decision to lawmakers who had just 12 days left to approve a state budget.

An assistant to Assembly Ways and Means Chairwoman Debbie Smith handed her the thick envelope just as she pounded her gavel to end a hearing at which the committee had narrowly approved a controversial tax measure. The measure extended taxes that were set to expire, or sunset, on June 30, expected to generate $600 million for state government over two years.

Assembly Bill 561 was headed for certain defeat, since no Republicans were expected to vote for it. Tax measures need a two-thirds margin to pass the Legislature in Nevada.

"It was kind of karma that I got it just after that vote," said Smith, D-Sparks. "It was absolutely a game changer."

The decision in her hand declared unconstitutional the state's use of a $62 million Clark County water fund to balance its budget. By implication, it also called into question other local money grabs that made up 10 percent of Gov. Brian Sandoval's proposed $6.2 billion general fund budget.

The governor's budget director, Andrew Clinger, recalled his reaction when he was told of the decision.

"I think my response back was, 'Are you kidding me?' " Clinger said.

It was no joke.

The unprecedented decision prompted Sandoval not only to revamp his budget, but also to agree to extend most of the expiring taxes so he could fill a $657 million hole he believed the high court decision had created.

The sudden switch by Sandoval, who had campaigned in 2010 on a pledge not to raise or extend taxes, was the major turning point of the 76th Nevada Legislature and of the new Republican governor's term.

The state high court paved the way for the budget deal Sandoval crafted in the course of five days with Democratic and Republican legislative leaders. And it was the defining moment of the 120-day session, which finished work on time, one minute ahead of a 1 a.m. Tuesday deadline.

COURT DECISION

After Sandoval got the court decision, he called his staff together.

A federal judge and former state attorney general, Sandoval could see the wider impact on his budget, yet he wanted to be sure before he acted.

He and his advisers talked to legislative leaders, and Sandoval took the decision to the Governor's Mansion to review it on his own.

"He came back and said, 'This is sweeping and a game changer,' " said Dale Erquiaga, the governor's top adviser.

At 2:46 p.m. that same day, Sandoval's office put out a statement.

"The Supreme Court decision in Clean Water Coalition v. The M Resort v. State of Nevada has far-reaching implications for how Nevada governors and legislatures will do business from this date forward," Sandoval said. "As a former federal judge, I am cognizant of the legal issues. As governor, I am forced to deal with their ramifications."

Sandoval and his staff went into "meeting mode," as Erquiaga described it, adding up the damage. The adviser held a rare 11 p.m. news conference to announce the budget hit could be $656.7 million.

"The problem is much worse than we originally thought," Erquiaga said.

Word had quickly leaked that Sandoval would extend some or all of the expiring 2009 taxes to fill the budget gap. His staff worked around the clock, the first of several all-nighters where napping, not sleeping, became the norm. Pizza, sandwiches, coffee and water kept the staff going.

"I slept a few hours every night," Clinger said. "I've never experienced anything like that, nothing where one decision changes everything."

Democratic leaders of the Legislature, too, knew the water fund case could affect the budget, possibly giving them more leverage to gain GOP support for extending taxes beyond a June 30 expiration date.

Assembly Speaker John Oceguera confirmed he had asked the Legislative Counsel Bureau to seek a quick resolution, and the state Supreme Court made it a priority.

"We knew it might impact the budget," said Oceguera, D-Las Vegas.

The high court complied as it has in other cases of great import.

"The justices set aside other work to resolve the legal issues in a timely fashion, knowing the potential impact on the legislative process," said state Supreme Court spokesman Bill Gang. "The justices also understood there was the potential for a costly special session should the decision be delayed until after the Legislature adjourned."

Sandoval, despite his own legal opinion of the impact of the decision, asked Attorney General Catherine Cortez Masto to petition the state Supreme Court to rehear the matter or explain its decision further. The attorney general, a Democrat, said she could find no grounds to take such an unusual step.

Upset, the governor publicly declared he had "lost confidence" in Cortez Masto. She responded by saying she was disappointed "the governor has chosen to politicize the legal advice" from her office.

Sandoval's rare fit of pique last weekend appeared to be the only moment he lost his cool before settling down to negotiate a budget deal in earnest.

Cortez Masto said the governor never asked her office for a legal opinion about how widespread the budget impact of the May 26 decision might be.

"It's not unreasonable to have a broader interpretation," Cortez Masto said. "At the end of the day, I think it worked out."

BUDGET TALKS

It took five days to work out a budget deal.

Talks began on May 27, a Friday and a day after the court decision.

The governor and the two Democratic and two Republican leaders of the Legislature met two or three times a day, said Erquiaga, sometimes in Sandoval's office and sometimes in the Legislative Building.

In between the two locations lies the Nevada Supreme Court, the building the negotiators had to walk by each day as they crossed the Capitol courtyard.

Sandoval played the role of mediator, much like a judge, using a white board to work out portions of the deal. At times, he took the white board home, even after working into the night or early morning.

"He told me sometimes, 'I've only seen my daughter asleep this week,' " because he would get home past his 6-year-old's bedtime, according to Erquiaga. "The talks were hard on everybody."

The hang-ups centered mostly on how many reforms Sandoval and the Republicans could gain in exchange for extending the tax package. Education was a top priority, including winning changes in teacher tenure and making seniority only one thing, and not the sole criterion, to consider when laying off teachers.

A small group of Republicans in the Assembly were pushing for legal reforms in construction defect lawsuits. Now, the GOP critics argued, trial lawyers get paid in almost all cases, win, lose or draw.

Minority Leader Pete Goicoechea, R-Eureka, called it his "hill to die for," but he gave up the battle.

"There was a little bit of yelling," said Goicoechea, smiling.

Oceguera agreed the talks were sometimes tense.

"There were voices raised and periods of time where we just stared at each other for 10 minutes and didn't say anything," Oceguera said.

Erquiaga, who was in the talks at various points, said there were no "blowups." He and others described the negotiations as largely cordial.

"They laughed and had some good conversations about the nonserious parts of what they were doing, and then went back to work," he said.

As the talks grew most intense, nearing agreement, Goicoechea's mother died and he had to slip away for her funeral in Elko.

Sandoval and the two sides met Monday night for several hours before breaking up at 1 a.m. Tuesday.

Goicoechea left at 4 a.m. for Elko. He returned that night to take up talks again at 9 p.m. They wrapped up about 1 a.m. Wednesday, and negotiators went home to catch a few hours sleep.

"That's when the deal was done," Goicoechea said, holding a mug of strong black coffee, which became a fixture in his hand during the final days of the session. "We did it that night."

DONE DEAL

Back at the Legislature on Wednesday morning, the Democratic and Republicans caucuses met separately, starting around 7:30 a.m. The leaders laid out the budget deal, which some lawmakers still objected to. Goicoechea, state Senate Minority Leader Mike McGinness, R-Fallon, Oceguera and state Senate Majority Leader Steven Horsford, D-Las Vegas, then went back to Sandoval's office to give him the good news: They had an agreement.

At noon, Sandoval stood with the four legislative leaders and announced the budget accord. They held a joint news conference at 2 p.m. to reveal details.

"This is a proud day for Nevada, and I'm proud of our state," Sandoval said, thanking lawmakers for reaching accord, forced or not. "It overcomes the hole created by the unprecedented Nevada Supreme Court decision last week and still ensures those taxes that were necessary to balance the budget sunset two years from now."

It was June 1, with five days left to OK the sunset and spending bills.

A dozen Republicans -- six in the Assembly and six in the state Senate -- voted against the measures that passed 36-6 and 15-6. There were no speeches on the Assembly side, and only a few senators stood to politely support or oppose the tax sunsets and budget in the Senate.

Fiery rhetoric that marked the session for more than 100 days was gone.

"I hate to say it, but a lot of the work that was done before the court decision was almost meaningless," said Billy Vassiliadis, a longtime lobbyist for the gaming industry. "It caused and compelled the governor to talk to the Democratic leadership to make a deal."

On Tuesday, 12 hours after the session had adjourned, Oceguera was packing up his leadership office, never to return as speaker. Because of term limits of 12 years he cannot run for re-election.

Like other legislators, Oceguera is considering running for Congress. Things are murky, however, since lawmakers failed to draw new maps, so the House district outlines have yet to be set.

"The budget deal happened pretty quickly, but I think it's what the public wanted," Oceguera said after sealing the compromise compact that felt like victory all around. "They don't like polarizing politics."

Contact reporter Laura Myers at lmyers@reviewjournal.com or 702-387-2919.