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New state economic plan eyed as unconstitutional
by Jill Lufrano
Feb 11, 2012 | 1106 views | 0 0 comments | 2 2 recommendations | email to a friend | print
Tribune Photo/Jill Lufrano
Steve Hill, director of the Governor's Office of Economic Development, speaks about Nevada's new economic development plan Tuesday at the University of Nevada, Reno, as Gov. Brian Sandoval watches.
Tribune Photo/Jill Lufrano Steve Hill, director of the Governor's Office of Economic Development, speaks about Nevada's new economic development plan Tuesday at the University of Nevada, Reno, as Gov. Brian Sandoval watches.

CARSON CITY ­— A southern Nevada think tank policy group has called Gov. Brian Sandoval’s new economic recovery plan unconstitutional and believes it is a “roadmap for crony capitalism” following its release this week.

The Nevada Policy Research Institute (NPRI) released a statement following Sandoval’s public delivery of his three-year economic plan Tuesday at the University of Nevada, Reno.

“At least President Obama only wants to run the nation’s health care system; Governor Sandoval proposes that the government direct Nevada’s entire economy,” said NRPI’s Deputy Policy Director Geoffrey Lawrence, in a press release Tuesday.

A spokesman for the governor’s Office of Economic Development did not return requests for comment Friday.

The plan, titled “Moving Nevada Forward: A Plan for Excellence in Economic Development 2012-2014”, is an initiative for the state to create regional redevelopment districts that Sandoval expects will stimulate business and job growth throughout the state.

The governor also called for the creation of 50,000 jobs by 2014.

One component of the economic plan relies on a Catalyst Fund, proposed by Sandoval. The $10 million legislative appropriation is intended to accelerate job creation. According to the study, the Nevada Commission on Economic Development will “promulgate the necessary regulations to allow the governor’s Office of Economic Development to allocate funds during the next 18 months.”

Lawrence said the use of these funds — which he said will be drawn from the state’s unclaimed property coffers — goes against state law.

“We believe it’s unconstitutional,” Lawrence said. “Nevada constitution has a clear ban on the state lending or donating money or credit to private enterprise.”

Lawrence said the research institute’s main concern is with the governor’s idea to tax the entire state, then use that money for a narrow sector of the economy. In other states, when this type of program has been created, the practice can create a situation where funds will go to favored corporations, campaign donors and friends of those in power, Lawrence said.

“It is a plan to substitute the government for private businesses and politically connected bureaucrats for entrepreneurs,” NPRI wrote in its release. “It is a roadmap for crony capitalism and would lead to less productivity and less growth.”

The plan would squash free-market capitalism, the institute charges.

“The incentive for genuine entrepreneurship is profit from serving the public. Unfortunately, what this plan would encourage is corporatist rent-seeking. The investment decisions made by these planners would necessarily be politicized since the entire operation would be financed at public expense and not on the strict basis of what can be supported by consumer demand,” Lawrence said.

Article 8, section 9 of the Nevada Constitution states that: “Gifts or loans of public money to certain corporations prohibited. The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock or any company, association, or corporation, except corporations formed for educational or charitable purposes.”

Sandoval’s plan has a key tactic that states: “In the form of allocations, grants, loans, or loan guarantees, Catalyst Funds will be utilized for projects that align with the State Plan and its focus on targeted opportunities and high-value job creation. State law requires that Catalyst Funds be used to provide such resources to businesses seeking to create or expand in Nevada or relocate to Nevada.”

Lawrence said the Nevada Constitional requirement to not engage public funds in business ventures was instituted because at the time the government did not want to be on the hook for investing in companies that were going bust.

It is unlikely if the state economic plan will face any legal challenges in the near future. The first challenges would likely come when companies lose out on state funding against a competitor, Lawrence said.

NPRI does have a constitution litigation division, he said. However, the institute is going to wait to see if they will pursue legal action against the plan in the future.

“It’s something worth thinking about,” Lawrence said.

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