New Jersey Supreme Court upholds COVID-19 bond law

New Jersey's Supreme Court on Wednesday upheld the constitutionality of a recently enacted law that allows the state to borrow money to offset revenue lost due to the economic impact of the coronavirus outbreak.

The 7-0 ruling upheld the law and rebuffed a challenge by the New Jersey Republican State Committee over the law that authorizes the state to borrow up to $9.9 billion.

Last month, Democratic majorities in the state Assembly and Senate approved the legislation, called the New Jersey COVID-19 Emergency Bond Act. Gov. Phil Murphy signed the law July 16, and the New Jersey Republican State Committee immediately sued.

"Subject to the limits imposed here by the Court, the Bond Act does not violate the Constitution," Chief Justice Stuart Rabner wrote.

"The law represents a policy choice made by the Legislative and Executive Branches to address the current crisis," he added. "It is not for the Judiciary to assess the wisdom of that decision. The only question here is whether the borrowing scheme violates the State Constitution."

Mr. Rabner wrote that the court wanted to make sure the Bond Act wasn't a blank check.

"To avoid borrowing in excess of what the law allows, and to be faithful to the Emergency Exception the Court requires that the Governor or the Treasurer certify the state's projected revenue figures and the shortfall resulting from the pandemic before each tranche of borrowing," he wrote. If, for example, the state only needs to borrow $7 billion to address the impact of the coronavirus, it cannot borrow the full $9.9 billion, he explained.

The emergency exception is part of the state constitution's debt limitation clause that prevents the state "from creating debt that exceeds 1% of the total amount appropriated in the general appropriations law without voter approval," he wrote.

"The clause, however, provides an exception for any debts or liabilities created 'to meet an emergency caused by disaster,'" he wrote.

This exception was the foundation for the Supreme Court's ruling on the constitutionality of the Bond Act, enabling the state to borrow money without needing voter support.

The Bond Act says the state may issue up to $2.7 billion in bonds for the three-month period that ends Sept. 30, and up to $7.2 billion for the shortened fiscal year that starts Oct. 1 and ends June 30, 2021.

The Supreme Court took the case immediately. "We acted because the issues raised are critical to both the budget process and the public at this challenging time in our state's history," Mr. Rabner wrote. "We also recognized that the matter needed to be resolved with finality before the end of the fiscal year on Sept. 30, 2020, which is fast approaching."

The New Jersey Republican State Committee attacked the law as not only violating the constitution's debt limitation clause but also violating the appropriations clause, which says debt financing isn't considered revenue and cannot be used to balance a state budget.

The committee's complaint also argued that the Supreme Court's ruling in a 2004 case supported its claim that the Bond Act is unconstitutional.

Mr. Rabner wrote that Wednesday's ruling did not overrule the 2004 case and wasn't covered by the appropriations clause. The 2004 case "did not consider the Debt Limitation Clause (and) the Emergency Exception," he wrote.

The plaintiffs' petition also said that the coronavirus pandemic "is no longer a surprise or unforeseen," and, therefore, not an emergency under the law.

"Any debate over whether the disaster and its effects are foreseen or unforeseen at this point misses the mark," Mr. Rabner wrote. "Just because one can foresee the continuation of an emergency does not make it any less of one."