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September 2, 2015

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state budget:

One man’s campaign to upend Nevada’s tax structure

Lawsuit to be initial step in attorney’s effort to wrest control of Nevada’s revenue allocation from lawmakers

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Steve Marcus

Eminent domain lawyer Kermitt Waters fights government efforts to take private land and strongly promotes the process of citizen ballot initiatives to “protect the people.”

A Las Vegas attorney will launch a legal and political effort this week aimed at establishing and funding a parallel state budget, beyond the reach of the Legislature and governor.

Kermitt Waters seeks to place on the November ballot a proposed constitutional amendment calling for a sweeping overhaul of Nevada’s tax system — abolishing property taxes on single-family homes among other things while identifying and allocating new tax revenue.

Waters said last week his proposal is borne of frustration with the status quo in Carson City. The state’s 63 lawmakers represent the powerful interests who fund their campaigns, he said, not the voters who elect them.

“The people of Nevada don’t have a Legislature. Mining and gaming have a Legislature,” Waters said. “If the Legislature could get their hands on this money, none of this would ever happen.”

Waters will begin his effort in the courts, where he says he will file suit this week targeting the law that limits citizen initiatives to a single subject. That restriction would prevent his sweeping tax proposal from reaching the ballot. He will ask that the so-called single-subject law be eased or overturned.

Should he succeed in court and then gather enough signatures for his proposal to win a place on the ballot, voters would consider an initiative that would remove property taxes on single-family homes, and institute a 20 percent levy on mining and a gross-receipts tax on businesses with revenue of over $1 million a month. Gaming companies and nonprofits would be exempt, as well as food for home consumption.

Revenue raised from the new tax structure would first reimburse cities and counties for lost property tax. The remainder of the money would be held in an account separate from the state’s general fund and allocated to:

• Establish an appeals court to ease the Nevada Supreme Court’s massive case load and fund the state judicial system;

• Provide raises of up to $10,000 for elementary, math, science and computer teachers and raises of up to $5,000 for other public school teachers;

• Fund road improvements;

• Provide no-interest loans for homeowners to purchase solar panels or windmills, and fund large-scale renewable energy and water projects, including desalination plants outside Nevada to facilitate water swaps;

• Replenish the Millennium Scholarship fund;

• Fund improvements to the initiative process, including systems to allow signature-gathering via the Internet; and

• Provide health care for poor children.

• • •

Few in Nevada are better situated to propose a long-shot ballot initiative to upend the establishment.

Waters helmed the last successful initiative petition in Nevada — 2006’s People’s Initiative to Stop the Taking of Our Land, or PISTOL, which placed eminent domain rules in the state constitution, protecting property owners when government takes land for public use.

“This will keep the rich from robbing the poor,” he told the Sun at the time. (The measure, with some revisions, passed a second time in 2008.)

As an eminent domain attorney, Waters is accustomed to fighting city hall — sometimes literally — and has gotten good enough at it to make himself wealthy. That money, however, appears to have left intact a working-class worldview and outrage at the state’s establishment, which he says “runs the state like a plantation.”

At the same time, Waters, a registered Democrat, has been in and around government and politics long enough, and had enough success, that he can’t be dismissed as a gadfly or blind ideologue. Bob Fulkerson, director of the liberal Progressive Leadership Alliance of Nevada, once described Waters as “a classic Nevadan who holds libertarian and progressive values in the same hand.”

Waters’ experience with PISTOL and observing numerous ballot-initiative failures since then has convinced him that citizens will never have access to the lawmaking process until the single-subject restriction is overturned or loosened.

Waters’ lawsuit goes straight at it, seeking to overturn the 2005 law, Senate Bill 224, which contains the single-subject requirement. The suit also targets a law passed by the 2011 Legislature, Assembly Bill 81, which also deals with initiatives. Those measures, the suit states, “increase the time and costs associated with circulating initiative petitions and, therefore, serve only to restrict direct democracy and protect special interest.”

According to the lawsuit, the laws themselves violate a single-subject requirement in the state constitution (Article 4, Section 17), which applies to bills in the Legislature. The 2011 law, for example, deals with more than 30 subjects and amends more than 50 statutes, according to the lawsuit.

Waters is hedging that the courts will be forced to either rule that citizen petitions should be judged by the looser standard applied to state lawmakers or toss out the laws in question, taking off the books the single-subject requirement.

Because the single-subject standard has been so “arbitrarily and narrowly interpreted” in court, in effect preventing all initiatives from reaching the ballot since 2005, “the same standard of limitations, expressed in the state constitution, must likewise encumber the Legislature.”

“They treat this single-subject law as a legal question, but it’s really a political question,” Waters said. “If the judges like a petition it gets on the ballot, if they don’t it doesn’t.”

The defendant named in the lawsuit is Secretary of State Ross Miller, the state’s top election official.

To place his initiative on the ballot, Waters must collect 72,400 signatures, including 18,000 from each of the state’s four congressional districts, by June 19. Waters said he will argue for an extension because the drawn-out redistricting fight caused an undue delay in knowing where those signatures should be gathered.

For his tax plan to be written into the state constitution, voters would have to approve it twice.

• • •

Although the legal strategy is somewhat opaque, Waters’ political strategy is clear: give homeowners financial relief while going after mining, the state’s only prosperous industry in the recession and one that pays relatively little in taxes for the minerals it extracts from Nevada soil.

Public opinion polling shows most Nevadans think mining’s constitutionally set tax rate of 5 percent is too low. The industry’s effective tax rate is lower once deductions are included.

“Their greed is so obvious to anyone who’s aware of what they’re doing,” Waters said of the industry. “Most of the money is going to Canada and Europe, and we’re getting none of it.”

In justifying a 20 percent mining tax, Waters cites Australia’s 30 percent levy on multinational mining companies.

Untouched in Waters’ proposal is gaming, which has been harder hit in the recession. That, too, is a political calculation, not a sympathetic gesture.

“I’m exempting gaming because I can’t fight them both,” Waters said, referring to gaming and mining.

However, Waters’ effort will be seen as a broad swipe at Nevada’s political establishment, which is accustomed to having its way in the Legislature.

Giant retailers will line up to oppose the gross receipts tax as they have when similar measures have been floated in the Legislature. Provisions to make solar panels and wind power more accessible to homeowners and fund renewable energy projects will likely be opposed by the state’s powerful electricity monopoly, NV Energy, and the easing of the ballot initiative process could be unnerving to any number of industries, including gaming.

But Waters may find an ally in the courts. His proposal to create an appeals court and provide an independent funding source for all state courts will likely be well received by the judiciary, which now goes to lawmakers to plead for funding. It’s an arrangement many see as a violation of the separation of powers.

• • •

Waters said he knows he’ll face heavy opposition from the establishment. Some will question whether the effects of such a sweeping overhaul of state government can be anticipated. Others will argue any such undertaking should be done in the Legislature, where there can be more deliberation and open study.

(Waters said he has vetted his proposal with three economists, whose names he won’t divulge.)

He acknowledged there would be unintended consequences. The proposal allows for adjustments to be made 10 years after it’s adopted, or sooner through the courts.

Waters said one effect of his plan would be a sort of economic stimulus. Funding for renewable energy projects would create jobs. The money for teachers and scholarships would improve the state’s education system, which is often cited as an economic Achilles heel.

“This will raise a lot of money, and there will be unintended consequences, but they won’t amount to a hill of beans,” he said. “This is what everybody’s been talking about, a broad-based tax.”

Waters learned last week that Democratic and Republican operatives are planning less-ambitious ballot initiatives to alter the state’s tax system. Labor leader Danny Thompson has promised a business margins tax initiative, and conservative businessman Monte L. Miller is reportedly working on one petition to raise the gaming tax and another to raise the mining tax.

Waters said those efforts won’t confuse voters. In fact, he said, they confirm the need for the kind of overhaul he proposes.

“Those proposals reflect on the absolute failure of the Legislature to do their job,” he said. “With several of us doing it, it proves there’s truly a need to get this fixed, but the Legislature has been totally captured by the power brokers.”

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