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New Jersey Supreme Court Chief Justice Stuart Rabner. (Photo: Kevin Sanders for the New Jersey Globe)

Supreme Court will announce ruling on Murphy borrowing plan Wednesday

By David Wildstein and Nikita Biryukov, August 11 2020 5:41 pm

The New Jersey Supreme Court will release their opinion in a challenge to Gov. Phil Murphy’s $10 billion borrowing plan mounted by Republicans at noon tomorrow, a spokesperson for the top court says.

The court heard oral arguments on August after the New Jersey Republican State Committee filed a lawsuit challenging Murphy’s constitutional authority borrow up to $10 billion to plug budget holes caused by the coronavirus pandemic.

State Sen. Michael Testa (R-Vineland) argued the case for the GOP.

The appropriations and debt limitation clauses of the state’s constitution require New Jersey to enact a balanced budget and require voter approval for borrowing worth more than 1% of the appropriations in a given budget, though exceptions exist for emergencies caused by disasters of acts of god.

Testa and attorney Mark Sheridan, who was representing Republican gubernatorial candidate Jack Ciattarelli, argued those exceptions would not allow the state to borrow to plug budget holes because the framers of the 1947 constitution did not explicitly set out parameters for a fiscal emergency.

Assemblyman Jay Webber (R-Morris Plains), a  former New Jersey Supreme Court law clerk who was part of a 2004 lawsuit to challenge the constitutionality of state borrowing, prepared an amicus brief.

Deputy Attorney General Jean Reilly, who argued the case for the state, saw it another way.

“I would respectfully disagree. I think the framers explicitly … said that, during times of emergency, the ability to use bonds to create debt to make up for revenue deficiencies would be unlimited because that was the historical experience,” she said.

Reilly pointed to borrowing during the Great Depression and Civil War that greatly exceeded the 1% limit in the current constitution.

In 1939, Reilly said, the state put $21 million of bond proceeds into its $39 million budget.

In some sense, the precedent is on Republicans’ side.

In 2004, Former Rep. Leonard Lance (R-Clinton Township), then a state senator, sued the state in an attempt to block then-Gov. James E. McGreevey from using bond proceeds to balance the budget.

The court sided with Lance but ultimately allowed that borrowing to go through but ruled that borrowed money did not qualify as revenue because the borrowing created debt.

“I just can’t fathom that $9.9 billion of debt can ever constitute revenue under any budgetary gymnastics someone would want to engage in,” Testa said, citing Lance v. McGreevey.

The Republicans further argued that the state could not use the borrowed monies to pay off general obligations in the budget even if the state could bond without voter approval.

“Those are not expenditures necessary to meet an emergency,” Sheridan said. “Expenditures necessary to meet an emergency are those that were unanticipated at the time the budget was put in place.”

A three-month stopgap budget signed into law last month included roughly $2 billion in deferred spending contingent on the bond proceeds.

Republicans argued that the borrowing to shore up those appropriations and others would saddle young New Jerseyans with a burden that would be repaid over years or decades. In response, the state said the alternative was worse.

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