State budget, marijuana tax in jeopardy after negotiations over Education Savings Accounts break down

This story originally appeared in The Nevada Independent on June 01, 2017. Read the original version here.

Legislative negotiations over a host of unresolved policy issues — chiefly the divisive Education Savings Accounts — have broken down, prompting Senate Republicans to sink key bills implementing a 10 percent excise tax on recreational marijuana and a $346 million capital improvement plan.

Absent a long-discussed compromise to restart the voucher-style program — which seemed close to fruition Thursday morning — Republicans made good on promises not to vote for a marijuana tax first proposed by fellow Republican Gov. Brian Sandoval, or the five bills needed to implement the state budget.

The pot tax, expected to bring in $64 million for public education, and one of the budget implementation bills failed to meet their constitutionally required two-thirds threshold to pass. Republicans in both houses have continually voted en bloc against all of the budget bills up for consideration on Thursday.

“If Democrats in the Legislature do not want to come to the table in good faith and negotiate, that is their prerogative,” Senate Minority Leader Michael Roberson said in a floor speech. “I will not vote for a final budget that doesn’t include ESAs.”

The tax proposal was expected to go hand-in-hand with a measure to restart the ESA program, which was approved during the 2015 session and stalled after a state Supreme Court decision last year halted its funding mechanism. Some Republican lawmakers were expected to support the tax increase in exchange for some Democrats throwing their weight behind an ESA proposal that many oppose.

Democratic senators immediately moved to fill the budget hole left by the pot tax’s failure by transferring $60 million earmarked for ESAs into the main public school funding account.

“We’ve always said that our first priority was to fund public school education. We’ve worked diligently over the past few weeks to come to a compromise if we could find one. We presented a compromise, they rejected it, it was a halfway,” Senate Majority Leader Aaron Ford said after the votes. “We’re out of time and it’s time for us to take care of our first obligation, which is public school education.”

Anatomy of the breakdown

The two parties appeared to have different interpretations about how done a deal was before the dramatic, partisan votes took place on the Senate floor.

Republican lawmakers were working Thursday morning to finalize a compromise amendment to SB506, which would have allocated $45 million toward ESAs over the two-year budget cycle ($20 million in the first year and $25 million in the second). That’s three-quarters of what Sandoval originally requested, in the form of a tax credit program and a $20 million general fund loan to get the program running ahead of the 2017-18 school year.

The tax credit structure would have been similar to the one that funds the need-based Opportunity Scholarship program — allowing businesses a payroll tax credit if they donate to the scholarship fund — but would have also allowed for credits against gaming and other taxes.

The amendment would have prioritized applications that have already been submitted, followed by students with disabilities, foster kids, military children and kids in the bottom-performing quartile of schools. The program would continue to be universally available, but the funds would be doled out on a sliding scale, with those in the highest income brackets receiving about $600 a year from the program.

While Republicans said they thought they had a deal as of Thursday morning, Ford said all that had happened in a Wednesday afternoon meeting with the governor’s office was discussions about specific policy issues Sandoval would be willing to sign in exchange for Democrats passing ESAs, and that conversations were ongoing.

It was unclear whether the governor would be willing to sign many of the bills and he was supposed to get back to Democrats after getting more information, according to Ford, who insists parties had come to an agreement on Democrats’ “give” but not their “get.”

Democrats had taken minimum wage off of the table for ESA negotiations after the governor’s office made it clear that he couldn’t support a $12 an hour minimum wage and wanted certain overtime changes worked into the bill. Ford said that they would instead move forward with SJR6, a proposed constitutional amendment to raise the minimum wage that would go up for a statewide vote.

Republican Sen. Ben Kieckhefer said that while “there were some other things here and there,” there were three points that the governor seemed open to. Democrats had asked the governor to sign a bill allowing, for a narrow subset of employees, “evergreen” clauses to preserve the terms of a local government union contract after its expiration.

They also wanted a measure — vetoed Thursday — that would reduce the amount of a local government’s “ending fund balance” that is walled off from collective bargaining from 25 percent to about 17 percent, and a project labor agreement for the Las Vegas Convention Center expansion that would allow the convention authority to require contractors use union labor.

But Sandoval still needed additional information about how many employees would be affected by the “evergreen” clause bill and was still considering some of the other bills Democrats brought forward. He vetoed a measure Thursday that, along with several other revisions to collective bargaining law made during the 2015 session, would have reinstated “evergreen” clauses.

On the other side, Democrats needed to present the conceptual amendment to implement ESAs, and the three bills Sandoval was open to signing, to their caucuses for further input.

Ford said he told the governor he would bring the offer to his caucus but didn’t promise to advocate for it. While enough members of the Democratic Assembly caucus seemed willing to bite the bullet for Frierson and vote for the measure, the Senate Democratic caucus was not on board.

Ford said he told the governor’s staff in a Thursday morning meeting that he would still be bringing the marijuana tax up for the vote. But Republican lawmakers were caught off guard, saying they were under the impression that Democrats had agreed to pass ESAs in exchange for the three points.

“It was in discussion. I don’t know if the governor had made a final commitment on it,” Kieckhefer said, “but those were the bills that were being discussed.”

Assembly Republican leadership made similar comments.

“As of several hours ago, we had come to an agreement on the future of the Education Savings Account (ESA) program and had looked forward to closing out the session in a bipartisan fashion,” they said. “Democrats have completely reneged on promises made. That is unacceptable to us, and to our caucus.”

Ford argues that that no deal had been reached, particularly because Republicans brought forward two more points they wanted added to the deal on Thursday morning. Republicans had asked that the membership of the Legislative Commission be restored to a 3-3 Democrat-Republican balance and wanted school boards to be appointed, Kieckhefer said.

Assembly Republican Leader Paul Anderson said that those two proposals were brought up as “discussion points,” and not demands, and said he was caught off guard when senators began voting on the marijuana tax without a final arrangement in place.

“They broke up with us over text,” he said.

Ford said that Republicans also wanted Democrats to pass a Roberson’s bill requiring transparency from middlemen in the drug pricing process if they wanted Democratic Sen. Yvanna Cancela’s pharmaceutical transparency legislation to be signed.

Democratic Assembly Speaker Jason Frierson said that the leaders passed a “last ditch offer” along to their caucuses but it wasn’t “something that either caucus could comfortably advance.” He said there wasn’t one particular sticking point between Democrats and Republicans but that it was a combination of things that prevented a deal.

“It wasn’t one single thing,” Frierson said. “It was the combination of things that we thought as package were going to be good for the state moving forward and they had a package of things that were different and they were significantly different enough that it prevented us from having a deal.”

It isn’t clear where the Legislature goes from here, or if there’s enough time to revive a deal that will restart the ESA program. Sandoval, who has said he’s “100 percent” committed to making ESAs a reality, could veto the Democrats’ budget and other priority bills, although Sandoval chief of staff Mike Willden said the governor hadn’t decided whether or not to do that.

Ford has the ability to resurrect the Capital Improvement Program bill that died Thursday in the Senate and bring it up for another vote. But he said if Republicans hold by their no-ESA, no-budget position, he’s willing to simply let it die and blame them for failing to authorize infrastructure projects including a UNR engineering building, a veterans nursing home in Reno and buildings at Southern Nevada colleges.

Leaders react

The governor issued a statement shortly after the vote saying he was disappointed by what was happening and defended Republicans for rejecting the marijuana tax in an effort to extract Democratic support for ESAs.

“I’m disappointed in the result and believed we had been negotiating with Democratic leadership on ESAs and their priorities in good faith,” said Sandoval. “I understand why the Republicans voted against the marijuana tax and any suggestion that their actions were anti-education is not correct.”

The measure, SB487, would have implemented a 10 percent excise tax on recreational marijuana and raised the wholesale tax on medical marijuana to 15 percent, in line with the wholesale tax on recreational marijuana. The medical marijuana tax change would replace the current structure that imposes a 2 percent tax at the cultivation, production and retail phases.

Local governments would also have been able to impose a business license fee of up to 3 percent on marijuana revenue.

In a floor speech, Ford rattled off a list of programs whose size and success hinges on new money from a recreational pot tax, including a weighted school funding formula and a scholarship program that would make community college free.

Republican Senate Minority Leader Michael Roberson said the marijuana tax revenue was an insignificant part of an $8 billion-plus budget that could be filled with extra state funds, and blamed the breakdown on “another failure in leadership” from Ford.

Democratic Sen. Tick Segerblom said in a speech that Republicans were wrong to vote down the pot tax after approving incentives that attracted Tesla, Faraday Future and the Raiders.

“Industry … is asking to pay a tax,” Segerblom said. “The fact that you would vote against this is the ultimate vote of hypocrisy given the previous votes you’ve made to give away millions of dollars.”

Democratic Sen. Kelvin Atkinson said that some of his colleagues considered the bill to be “wealthy family coupons” and said he was willing to stand his ground even if it meant going well past the Legislature’s planned June 5 adjournment.

“I’ve been here for 57 extra days before,” he said. “I’m willing to do it again.”

Anti-ESA groups praised Democrats for their tactics.

“After tough negotiations, Senate leader Aaron Ford stood strong for Nevada’s children and our K-12 education system by not wavering for a bill that hurts our most vulnerable children by diverting funds from their public schools,” said Educate Nevada Now Policy Director Sylvia Lazos. “We appreciate the commitment and resilience the Senate showed today and are ever more hopeful about the future of Nevada’s students.

The meltdown Thursday could jeopardize the budget closing process, something Republicans said they understood.

“I just think it’s disingenuous to start lecturing people about what this vote really means,” said Republican Sen. Scott Hammond, the author of the 2015 bill that created the ESA program. “I think we all know what this vote really means.”

Progress on budget bills stalled Thursday. The process of printing the amendment to the main K-12 education funding bill, coupled with the constitutional requirement to approve that budget implementation bill before any others, meant lawmakers have to wait until Friday to moving all four remaining measures.

“I said yesterday that they had lit a fuse,” Republican Sen. Pete Goicoechea said after the vote. “And I guess it was a lot shorter than I thought.”

This story has been updated and expanded from its original version.