(Sean Whaley/Nevada News Bureau) – A bill authorizing the state Treasurer to use up to $50 million in education funds to support economic diversification efforts and generate more money for public schools passed the Senate [yesterday] despite questions about the constitutionality of the measure.
Senate Bill 75, amended twice before the vote, passed 12-9 with 10 Democrats and two Republicans in support. It will now be considered by the Assembly.
The bill is being sought by state Treasurer Kate Marshall.
It would create a first-for-the-state private equity fund to allow for investment in both existing Nevada companies and companies seeking to locate to the state that are in such industries as cyber security, alternative energy and health care.
The intent is to assist in diversifying Nevada’s economy while generating a better return on the invested monies from the state’s Permanent School Fund.
A big hurdle for the measure is the state constitutional prohibition on loaning state money to any company except a corporation formed for educational or charitable purposes. Supporters of the bill have a judicial determination that the proposed investments would be constitutional. Some Republican lawmakers say the determination is insufficient to satisfy their concerns.
The bill also has some political overtones. Marshall is a Democrat who has announced her intention to run for the open Congressional District 2 seat in the September special election. State Sen. Greg Brower, who voted against the measure today, is a Republican who has also announced his intention to seek the seat.
The constitutional question proved troubling for some lawmakers during a debate before today’s vote.
Sen. Michael Roberson, R-Las Vegas, said he wanted to see either an attorney general’s opinion or one from the legal counsel of the Legislature answering the constitutional question before he could support the measure.
“It’s one thing to ask a judge to sign an order,” said Roberson, an attorney. “It’s another thing to have the imprimatur of the attorney general’s office saying yes, we believe as a matter of law, this is our opinion, that it is constitutional.”
Brower, R-Reno, also an attorney, had similar concerns.
“I sat on the committee that heard this bill and was impressed by some of the ideas brought forward that were behind this bill, and considered it with great interest in terms of it being, as you might call it, an outside-the-box approach to this issue,” he said.
But, Brower said: “We haven’t been able to get a good, clean bill of health on this bill in terms of its constitutionality.”
Until the issue is clarified, the Legislature should not pass a bill that may not be constitutional, he said.
Sen. Ben Kieckhefer, R-Reno, said waiting for the Nevada Supreme Court to rule on whether each bill passed by the Legislature is constitutional would unduly hamper the legislative process. He said he would rely on the district court determination.
Sen. Joe Hardy, R-Boulder City, said the bill has the potential to help create desperately needed jobs in Nevada. There is time while the bill is being considered in the Assembly to resolve the constitutional question, he said.
The bill had already been amended by Sen. Barbara Cegavske, R-Las Vegas, who successfully put the authority of the investment process in the hands of the Commission on Economic Development. Even so, Cegavske said her concerns with the overall bill, including the constitutionality question, caused her to vote against the measure.
Kieckhefer and Hardy voted for the bill. Sen. John Lee, D-North Las Vegas, was the only Democrat opposing the measure.
The bill as originally introduced would create a nonprofit public entity, the Nevada Capital Investment Corporation, to be headed by a board that includes members appointed by the governor and legislative leadership based on their investment expertise. The state treasurer, whose duties include the investment of state money, would also be a member.
The NCIC would hire professional private equity fund managers that would seek to partner with capital investment firms to invest in select companies and innovative start-up businesses that would assist in the state’s efforts to grow and diversify its economic base, leading to increased employment.
Steve George, chief of staff to Marshall, said the office remains supportive of the intent of the bill. But he suggested the Cegavske amendment, by changing the focus of the bill from improving the investment return for public school funds to one solely looking at economic development, could actually make it unconstitutional.
The primary focus originally was to get a better rate of return on the Permanent School Fund, a trust fund made up of federal funds provided to the state for decades from such sources as the sale of federal lands and court fees, George said. It is a trust fund that can’t be spent, only invested.
Eleven other states, excluding Nevada and Colorado, can invest their funds in more diverse ways, George said. Nevada has earned 4 percent on its investments over the past five years with the current limitation, while three other states have earned in excess of 5 percent, according to information provided by the Treasurer’s Office to Gov. Brian Sandoval. Oklahoma has earned 6.22 percent over the past five years.
“With no focus on return, we don’t think it will pass the constitutional requirement,” George said.