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In a reversal, Sandoval to consider extending 2009 tax increases

Gov. Brian Sandoval

Justin M. Bowen

Gov. Brian Sandoval addresses the Las Vegas Chamber of Commerce at a luncheon at the Four Seasons Hotel in Las Vegas on Wednesday, Jan. 26, 2011.

Updated Thursday, May 26, 2011 | 4:15 p.m.

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Gov. Brian Sandoval will include taxes set to expire next month in a revised budget he will unveil Friday, according to a source. The move, which would run counter to his pledge not to raise taxes, comes thanks to a Supreme Court ruling Thursday that prohibits the Legislature from taking local tax dollars to fund the state.

In a statement this afternoon, Sandoval said he would present a revised spending plan on Friday that takes into account the lost funds. "The ruling raises questions about certain assumptions in the proposed executive budget," the statement said. "As governor, I am forced to deal with their ramifications and I am responding by reworking the state budget."

The source close to the administration said "that ruling puts the sunsets in the state budget back in." Sandoval, who has vowed since his candidacy not to raise taxes, has said he would consider extending those taxes to constitute a tax increase.

Passing the sunsets would raise $712 million, though some of it would have to be used to close holes now opened by the Supreme Court ruling.

It was not immediately clear, however, whether Sandoval would back the entire $712 million infusion, or simply allow a portion of the 2009 tax increases to continue in order to address his funding concerns.

The immediate issue ruled on by the Supreme Court involved $62 million held by the Clark County Clean Water Coalition for a now-canceled water project, which the Legislature raided for the state's general fund. But the ruling has wider implications, as Sandoval noted in his statement.

According to sources other funds lost under the Supreme Court decision include:

• $247 million in debt reserve money Sandoval had proposed using from Clark and Washoe county school districts.

• $121 million in property tax money from Clark and Washoe counties.

The ruling could cost the state more money. For example, Clark and Washoe counties could seek to recover the $151 million in property tax taken in 2009, plus the $221 million in room tax money raised from Clark and Washoe counties.

Since the beginning of the session, Democrats have opposed a number of Sandoval's financing mechanisms that now are at risk under the Nevada Supreme Court decision.

As they've closed budgets, they've eliminated Sandoval's proposal to take debt reserve funding from the school districts and rejected the proposal to redirect property tax funds to UNR and UNLV.

The ruling, however, also hurts Democrats' proposed budget, opening up an estimated $120 million hole in the alternative they've been crafting. One source said that hole could easily be addressed by extending the line of credit from the Local Government Investment Pool and eliminating enough mining deductions to net the state between $60 million and $80 million.

Democrats’ budget alternative relies on the entire $712 million from the sunsetting taxes. If Sandoval allows the state to continue collecting only a portion of that revenue, Democrats would be forced to make further cuts to their spending plan.

Republican lawmakers had supported Sandoval's budget. The governor's changing position could provide a political opening for some Republicans lawmakers to support tax increases.

"We've got a big problem. I'm sure the governor is putting pencil to paper and figuring that out," said state Sen. Joe Hardy, R-Boulder City. "The governor's budget is at this point unfunded. I've said I support the governor's budget, but he's got to figure out how we get there."

In today's ruling, the court found the Legislature had violated the Nevada Constitution by taking money from the Clean Water Coalition during a 2010 special session.

The coalition had collected money from Clark County residents to design and build an $850-million system to carry treated sewage deep into Lake Mead. Local governments had collected money from the residents on their sewer bills and turned it over to the coalition. However, the project was suspended in December 2009 due to the recession and slacking growth in Southern Nevada.

In a unanimous opinion written by Justice James Hardesty, the court said the Legislature has "considerable lawmaking authority" under the Nevada Constitution but there are restrictions on this power.

The Legislature is prohibited from enacting local and special laws for the assessment and collection of taxes for the state, rather the constitution requires laws to be general and uniform throughout the state. The court said the Legislature violated this requirement when it singled out the Clean Water Coalition and took money that was collected in Clark County.

The ruling reverses the decision of District Judge David Barker, who ruled in favor of the Legislature.

The governor was briefed on the unanimous Supreme Court decision by the Attorney General's Office and then met with his budget office to evaluate whether additional reductions could be made in his proposed budget.

Sandoval said the ruling has "far-reaching implications for how Nevada governors and Legislatures will do business from this date forward."

Sun reporter Cy Ryan contributed to this report.

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