NJ Justices Take On GOP Challenge To COVID-19 Bond Law

By Bill Wichert
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Law360 (July 17, 2020, 9:39 PM EDT) -- The New Jersey Supreme Court on Friday grabbed the reins of a high-stakes lawsuit by state Republicans aiming to block Democratic Gov. Phil Murphy on constitutional grounds from borrowing up to $9.9 billion without voter approval to address the state's fiscal woes amid the COVID-19 pandemic.

The justices took control of the litigation challenging the New Jersey COVID-19 Emergency Bond Act, which authorizes the borrowing. In a matter of hours on Thursday, Murphy signed the bill into law, and the New Jersey Republican State Committee, two GOP lawmakers and two taxpayers filed their initial suit in Mercer County Superior Court.

The state Supreme Court ordered the matter "certified pursuant to [state court] Rule 2:12-1 for review by the Supreme Court." Under that rule, "the Supreme Court may on its own motion certify any action or class of actions for appeal."

The court set a briefing schedule for the parties and entities who might want to participate as amicus curiae, and scheduled oral argument for Aug. 5.

"I'm very pleased that the Supreme Court understands the gravity of the lawsuit and that they are fast-tracking this," the plaintiffs' attorney Michael L. Testa Jr. of Testa Heck Testa & White PA told Law360 on Friday, adding that "this amount of borrowing is not only unprecedented, but is unconstitutional."

The state attorney general's office declined to comment on Friday.

In wading into the constitutional showdown, the Supreme Court will have to revisit its 2004 opinion in Lance v. McGreevey , which the Republicans are largely relying on in seeking to halt the proposed borrowing. The GOP has claimed the borrowing would violate the state constitution, because such funds would be used to cover operating expenses.

The law, which cleared the Democrat-controlled state Legislature on Thursday, permits 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 the borrowing is permitted under an exception within the debt limitation clause of the state constitution, which says voter approval and related restrictions 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 the Republicans asserted in an amended complaint on Friday that the measure runs afoul of the appropriations clause of the state constitution and the Lance decision.

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 complaint.

"The holding in Lance v. McGreevey set forth the important principle that borrowed money cannot be considered revenue," the complaint said. "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."

Testa echoed those points on Friday, saying "it's very clear that the appropriations clause would prevent any amount of borrowing to use for operating expenses."

"I think the first step we have to always look at in any legal case is ... is this constitutional? Is this proposed action constitutional?" Testa added. "And I think that the answer, as it was in Lance v. McGreevey ... is very simple. It's 'no.' So the analysis really should end there."

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 084731, in the New Jersey Supreme Court.

--Editing by Nicole Bleier.

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

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