With nearly all of them mired in fiscal crises, most states have balanced their budgets with a mixture of creative accounting, budget cuts and tax hikes. Nevada Governor Kenny Guinn took a highly unusual approach to resolving his state's fiscal shortfall. Faced with an uncooperative legislature, he proceeded to sue state lawmakers for failing to pass a budget that would increase taxes by more than $860 million.
This strategy was a rousing success for Guinn and the legislature's tax hikers. The state's high court gave his approach a stamp of approval. In a 6-1 decision handed down last Thursday [July 10], the Nevada Supreme Court held that the state legislature might disregard a constitutional provision requiring a two-thirds majority to increase taxes. The legislature subsequently enacted over $800 million in tax increases.
Now, standing back a bit, certain aspects of this turn of events seem unsurprising. It is easy to see why those seeking to raise taxes would want to suspend the supermajority limit. Supermajority tax limits have effectively blocked tax increases in many places. During fiscal 2002, the ratio of spending cuts to tax hikes in the six states with comprehensive supermajority limits was approximately 36 to 1. In the rest of the country that ratio was about 1 to 1.
Further, it should come as no great shock that the courts are favoring the interests of politicians at the expense of the electorate. Indeed, state courts have frequently been hostile to voters who have sought to restrict the power of the state. For instance:
- In the early 1980s, an Idaho court nullified a property tax limit that was almost a replica of California's Proposition 13.
- In the late 1990s, a Montana court struck down a three-fourths supermajority tax limit that was approved by state voters in 1998.
- In 2000, the Arizona Supreme Court prevented "The Taxpayer Protection Act" from appearing on the ballot. The Act would have phased out all personal and corporate income taxes in Arizona.
- In 2002, the Oregon Supreme Court ruled that term limits were unconstitutional.
What makes the Nevada Supreme Court's decision more worthy of attention than these other abuses of judicial power is that both the decision and remedy set troubling precedents. The decision itself is flawed because the court cited the need to underwrite public education as its justification for suspending the limit. However, the Nevada Constitution does not specify a particular level of support for education.
As a result, the decision may give future courts the license to suspend any and all state level fiscal limits if a majority of justices think that even one constitutionally mandated function of government is underfunded. This clearly undermines the constitutionally mandated separation of powers. It effectively gives the judiciary the power to make appropriations decisions that were previously the responsibility of the legislature.
And there's the upsetting remedy decreed by the Nevada jurists. There have been occasions in the past where state courts have found inequities in educational funding to be unconstitutional. However, instead of rewriting the constitution, courts have typically instructed legislatures to remedy matters. For instance, during the early 1990s, the New Hampshire Supreme Court found that inequities in education funding were too great. As a result, the state was forced to increase taxes to equalize financial support for schools.
However, the Nevada court simply suspended the two-thirds supermajority limit. Even if the level of education funding in Nevada was somehow unconstitutional, the court's remedy is inappropriate because it allows the legislature to raise taxes to pay for programs other than education.
Furthermore, it is not clear why the court focused on the supermajority requirement. Alternatively, it could have also suspended Nevada's balanced budget amendment and allowed the state to underwrite education through either deficit spending or tax hikes. The fact that only the supermajority was suspended clearly demonstrates the arbitrary and capricious nature of the court.
Even worse, other states are already taking notice. For instance, California has a two-thirds supermajority requirement that was passed 25 years ago as part of Proposition 13. Currently it is the only obstacle to a massive tax increase in the Golden State. A spokesperson for Gray Davis recently said that a similar lawsuit is "something that we could possibly look at in the future."
Now after a marathon session that lasted through the weekend, the Nevada legislature approved a tax hike that attracted a two-thirds majority in both chambers of the legislature. However, the court's decision clearly paved the way for this tax increase. Indeed, a few legislators admitted that they thought the tax hike was poor policy, but supported it because they did not want to risk a constitutional showdown.
As a result, to get their way, Nevada voters may need to remove Governor Guinn and the tax-hiking legislators from office. Because Nevada's Supreme Court Justices are elected, upcoming judicial elections may be more heated than usual.
There might be attempts to impeach judges who demonstrate such callous disregard for the clear language of their state's constitution. However, removing a Supreme Court judge from office in Nevada requires a two-thirds supermajority of both chambers of the state legislature. Unfortunately, this is one supermajority requirement the Nevada Supreme Court would probably uphold.