NJ GOP Sues Gov. To Block $9.9B In Bonds Over COVID-19

By Bill Wichert
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Law360 (July 16, 2020, 10:35 PM EDT) -- New Jersey Republicans launched a state lawsuit Thursday to stop Democratic Gov. Phil Murphy from borrowing up to $9.9 billion without voter approval as a means of tackling the Garden State's fiscal crisis stemming from the COVID-19 pandemic, saying the move would violate the state constitution.

Over a series of hours in the fast-moving political battle, the Democrat-controlled state Legislature passed a bill that authorizes the borrowing, Murphy signed it into law, and the New Jersey Republican State Committee, two GOP lawmakers and two taxpayers sued the governor over the measure.

Justin R. White of Testa Heck Testa & White PA, representing the plaintiffs, told Law360 over email that their request to the court would be that "the Governor be enjoined from acting upon the new law (borrowing) pending the hopefully swift declaration that the new law is unconstitutional."

The governor's office and the state attorney general's office declined to comment Thursday about the lawsuit.

"The passage of this legislation is an important step in New Jersey's recovery from the economic ravages of the COVID-19 pandemic," Murphy said in a statement about the bill signing. "While this is by no means a silver bullet, the ability to responsibly borrow is essential to meeting our fiscal needs in the coming year."

By respective votes of 22-15 and 46-26, the state Senate and the state Assembly approved A.B. 4175, known as the New Jersey COVID-19 Emergency Bond Act. The legislation would authorize the issuance of $2.7 billion in general obligation bonds for the current fiscal year that ends Sept. 30 and another $7.2 billion for the next fiscal year.

The legislation states that such borrowing is permitted under an exception within the debt limitation clause of the state constitution, which says voter approval and related restrictions of that provision do not apply to "the creation of any debts or liabilities for purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God."

But state Republicans asserted in the lawsuit that the measure runs afoul of the appropriations clause of the state constitution and the New Jersey Supreme Court's 2004 decision in Lance v. McGreevey .

That opinion held that "'borrowed monies, which themselves are a form of expenditure when repaid, are not income (i.e., revenues) and cannot be used for the purpose of funding or balancing any portion of the budget pertaining to general costs without violating the Appropriations Clause,'" according to the lawsuit.

"The holding in Lance v. McGreevey set forth the important principle that borrowed money cannot be considered revenue," the lawsuit states. "As a result, general obligation bonds issued under the exception to the debt limitation clause cannot be considered revenue for the purpose of balancing a future budget."

During the Assembly voting session on Thursday, lawmakers — who also are attorneys — cited those constitutional clauses as they clashed over the constitutionality of the proposed borrowing.

Assemblyman Jay Webber, R-Morris, told his colleagues that they took oaths to uphold the state constitution and said that document "does not allow you to do what you're trying to do."

"It doesn't allow you to borrow to pay for operating expenses," said Webber, a partner at Webber McGill LLC. "The text of the constitution is clear and the interpretation of the Supreme Court is clear ... This is not an issue of what we should or shouldn't do. It's what we can or can't do. We can't pass this bill."

In questioning Assemblywoman Eliana Pintor Marin, D-Essex, one of the bill's sponsors, Webber argued that the bill says the bond proceeds "'shall constitute state revenues'" and challenged that provision in light of the Lance v. McGreevey decision.

Webber asked how Marin squares "the very explicit holding of the state Supreme Court with the stated intent in the bill to count the borrowed proceeds as revenue."

Marin countered that the attorney general "has made his opinion clear to us and we do believe that it will stand the constitutional challenge."

A few moments later, her fellow bill sponsor, Assemblyman John McKeon, D-Essex, argued that the borrowing was permissible under the exception in the debt limitation clause.

"Do you think we have a reasoned argument to the point that we could look ourselves in the mirror about our oaths?" said McKeon, a partner with Hardin Kundla McKeon & Poletto.

The opinion in Lance v. McGreevey dealt with contract bonds, not general obligation bonds, and involved their issuance by a state agency, not the state itself, McKeon noted.

That matter is "wholly distinguishable from the circumstances we face now based upon the language specific in our constitution, placed there for just such emergencies in 1947," McKeon added.

Beyond the constitutional questions and other objections to such borrowing, state legislators on Thursday took aim at the process by which the $9.9 billion worth of bonds would be issued.

Under the legislation, each borrowing request is subject to the approval of a newly created Select Commission on Emergency COVID-19 Borrowing, which would be composed of two senators and two members of the Assembly.

During the voting sessions, lawmakers from both political parties challenged the purported make-up of that committee — including the fact that all four members would be Democrats.

"What are you afraid of?" Sen. Robert W. Singer, R-Ocean, said on the Senate floor. "Are you afraid that having six members — two minorities and four from the majority — on a committee would offend anyone? Are you that afraid that maybe those members would say something you don't want to hear?"

"Is that not what we're all about here?" Singer added. "Isn't democracy about listening to all angles and all sides ... of an issue?"

The plaintiffs are represented by Michael L. Testa Sr., Michael L. Testa Jr. and Justin R. White of Testa Heck Testa & White PA.

Counsel information for Murphy was not immediately available.

The case is New Jersey Republican State Committee et al v. Philip D. Murphy, case number L-1263-20, in the Superior Court of New Jersey, County of Mercer.

--Editing by Steven Edelstone.

For a reprint of this article, please contact reprints@law360.com.

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