The Nevada State Supreme Court building in Carson City.
The Nevada Supreme Court opinion issued this week knocks a roughly $100 million hole in the pot of cash the governor and lawmakers have to spend.
But it won’t impact the budget for the coming biennium since the Economic Forum voted on May 4 to increase its December revenue projections by $909.7 million for the remainder of this fiscal year and the coming biennium.
Staff indicated the ruling won’t impact the 2022-23 budget. But they said it will reduce the Legislature’s ability to restore other cuts. That includes restoring the $102 million in General Fund cut from the Nevada System of Higher Education budget and reductions to programs in the K-12 budgets.
Senate Minority Leader James Settelmeyer, R-Minden, also indicated the ruling wouldn’t have a significant budget impact.
"It doesn't really create a hole," Settelmeyer said on Nevada Newsmakers earlier this week. "It just shows that they stole money from people when they didn't have the authority to do so."
Some of the summer’s K-12 reductions have already been restored by the projected increase in so-called local school funding, particularly the Local School Support Tax portion of the sales tax. Non-General Fund revenue sources that feed the education budget are projected $154 million higher than they were before the 2021 Legislature convened.
The high court ruled unanimously on Thursday that Senate Democrats vote to extend the Modified Business Tax sunset for another two years in 2019 was unconstitutional since it failed to win a two-thirds majority. The payroll tax missed that mark by one vote, passing 13-8 with all Republicans opposed. Extending the higher rate MBT was projected to raise $98.2 million over the biennium.
The same thing happened to the bill to extend the $1 DMV technology fee on all DMV transactions. That measure was projected to raise about $6.9 million a year.
Democrats pointed to a Legislative Counsel Bureau legal opinion that argued neither was actually a tax increase because they simply extended existing tax rates and, therefore, didn’t actually raise taxes in violation of the constitutional provision mandating two-thirds of each house approve before raising taxes.
The high court was not persuaded by that argument.
“Based on the plain language of the supermajority provision, we conclude that it applies to the subject bills because they create, generate or increase public revenue,” wrote Chief Justice Jim Hardesty. “Because the bills did not pass by a two-thirds majority in the Senate, those portions of the bills that would require a supermajority vote are unconstitutional.”
So saying, the court upheld the ruling by Carson District Judge Todd Russell who reached the same conclusion.
A number of longtime legislative observers and members were taken aback by the legislative legal opinion since two-thirds had always been required to extend higher tax rates in past sessions just as it is required to enact higher rates or new taxes.
Lawmakers have already used part of the added revenue projected by the forum. Earlier this week they used $300 million to restore the 6 percent cuts to Medicaid providers lawmakers and the governor made during the special session last summer.
The DMV technology fee bill, SB542, was a simple extension of a planned sunset. In the wake of the Supreme Court ruling, DMV announced Friday it will stop collecting the $1 per transaction fees as soon as programmers can remove it from the system.
They also announced that those who paid the fee between July 2020 and May 14 will get refunds as soon as officials can figure out how to do that.
The MBT issue was a bit more complicated.
Lawmakers voted in 2015 to raise the MBT rate but to sunset that increase in 2019 if the Department of Taxation confirmed that actual revenues exceeded projections by a certain amount. Taxation confirmed that MBT revenues hit and beat that mark in 2018, triggering the reduction. SB551 eliminated that sunset.
Since 1996, the Nevada Constitution has required two-thirds of lawmakers in both chambers to approve any measure that “creates, generates, or increases any public revenue in any form.”
Nevada Gov. Steve Sisolak, a Democrat, issued a statement promising to “work with legislative leadership on budget implications” of the decision. He said state officials “will analyze the decision to determine next steps.”
