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Tuesday, September 13, 2011

Nevada Supreme Court Holds that Transfer of Clean Water Coalition Monies to General Revenue Budget Violates Nevada Constitution


By Professor Sylvia Lazos

In Clean Water Coalition v. The M Resort, 255 P.3d 247 (Nev. 2011), the Clean Water Coalition (CWC), an intergovernmental group made up of four political subdivisions based in Clark County, as well as private parties, challenged a 2010 legislative bill that transferred to general revenues $62 million that the CWC had raised from assessments and sewer connection fees to home owners and businesses based in Clark County. The Nevada Supreme Court held that the 2010 transfer of CWC monies for general budgetary purposes violated Art. 4, Sections 20 and 21 of the Nevada Constitution.

First, Section 20 prohibits the Legislature from passing local or special laws "[f]or the assessment and collection of taxes for state, county, and township purposes." In general, the Court noted that a special law or special legislation "imposes peculiar disabilities, or burdensome conditions in the exercise of a common right; upon a class of persons arbitrarily selected, from the general body of those who stand in precisely the same relation to the subject of the law." The policy behind this provision is to ensure that matters that affects all residents and geographical sectors of the state be equally affected by legislative actions that attempt to solve a problem of general concern. The Court found that the 2010 legislative transfer budgetary bill was a special law because it selected a particular group of Nevadans – CWC customers who had been assessed sewer connection assessment and other fees in order for CWC to fund capital improvement projects and waste water treatment projects – and a particular geographic class – governmental units located in Clark County. Moreover, this special law was a tax. The 2010 legislative act transferred CWC fees designated for a specific purpose – capital improvements to Clark County waste water treatment facilities – to the State's general fund. This conversion of fee-based monies for general revenue purposes re-characterized the monies as a tax. By definition, "[r]venue-raising acts are ... taxes." Thus, the 2010 budget bill that mandated that CWC fees be used for general revenue was a special law enacted for the purposes of collecting taxes, and violated Section 20 of the Nevada Constitution.

Second, the 2010 legislative transfer bill also failed under Section 21 of the Nevada Constitution, which requires that the Legislature not pass special laws when it is possible to pass a law of general applicability. The Court noted that it was within the power of the Legislature to solve the budgetary crisis by passing a law of general applicability (that is burdening all Nevadans equally) instead of passing a provision that was a special law, which disproportionately burdened home owners and businesses in Clark County. The state argued that budgetary exigencies justified the Legislature's enactment of special laws to balance the state budget; however, the Nevada Supreme Court rejected this argument. While a budgetary crisis is an exigency, it is not a reason for electing to solve a crisis through special laws rather than laws that generally apply to all Nevadans equally. The Court explained that the "State's budget crisis is, by its very nature, a subject of interest to all people of the state... [f]or that reason, it cannot be addressed by a local or special law that applies to burden only one entity of the state that operates in one locality of the state."

CWC v. The M Resort is a good government decision that impacted the 2011 legislative session and will continue to shape how the Executive and Legislature deal with shortfalls in state budgets. This decision was issued during the last two weeks of the 2011 session, as the Legislature and Executive struggled to balance the large budget shortfall faced by the state in 2011-12. Governor Sandoval acknowledged that CWC impacted his initial budgetary plan that would have transferred monies raised by local jurisdictions through assessment, fees and bonds to general revenues. Although this decision was issued very late in the 2011 legislative session, its clear statement of Nevada constitutional proscriptions forced the Legislature and the Executive to renegotiate the state budget so that revenue-raising measures would affect all Nevadans equally. Thus CWC v. The M Resort is a good governance decision that mandates that the Executive and Legislature to address budget shortfalls through policies that do not select any particular group for disparate treatment. It will also encourage good planning by local jurisdictions. In the future, political local subdivisions will have the confidence that if they raise monies, either through local taxes, fees or bonds, for long term governmental uses, they can dispose of these monies for that purpose, without fear that the State will subsequently sweep such funds into general revenue pool. Thus good planning will be properly rewarded. CWC v. The M Resort has made clear that the Executive and Legislature must deal with budget shortfalls without recourse to accounting line transfers that disproportionately impact one group of Nevadans.