By Bill Wichert

Law360 (August 12, 2020, 6:53 PM EDT) -- The New Jersey Supreme Court on Wednesday unanimously declared the constitutionality of a state law permitting up to $9.9 billion in borrowing without voter approval to address fiscal woes related to the COVID-19 pandemic, rejecting state Republicans' attempt to block Democratic Gov. Phil Murphy from taking on the debt.

Ruling on a GOP lawsuit against Murphy, the state's highest court said borrowing under the New Jersey COVID-19 Emergency Bond Act was allowed under an exception within the debt limitation clause of the state constitution, which says voter approval and related restrictions don't apply to debt created "to meet an emergency caused by disaster."

"Whatever else the emergency exception may encompass, it includes a rare, once-in-a-century, infectious disease of the magnitude of COVID-19," Chief Justice Stuart Rabner wrote in the opinion.

The New Jersey Republican State Committee, which filed the suit along with two GOP lawmakers and two taxpayers, said the act violates the appropriations clause of the state constitution, which requires a balanced state budget via an annual appropriations law. The act unlawfully allows the state to use debt to cover its general expenses, the plaintiffs said.

The state Supreme Court, however, reasoned that the appropriations clause does not prohibit borrowing for valid purposes under the emergency exception in the debt limitation clause. Reading the clauses otherwise "would lead to a situation in which the state could borrow funds to meet an emergency but not be able to spend them," the justices noted.

"The framers did not intend for the appropriations clause to bar what the debt limitation clause allows; their purpose was to enable the government to act to 'meet an emergency caused by disaster,'" the court said.

"Read in tandem, and in light of the framers' intent, the fiscal clauses allow the state to borrow and spend for that particular purpose and do not pose a bar to the bond act," the court said.

But the justices cautioned that borrowing under the bond act must be related to the pandemic, noting that the law's stated purpose is "'to respond to the fiscal exigencies caused by the COVID-19 pandemic and to maintain and preserve the fiscal integrity of the state.'"

The money may be spent on "masks, respirators, and field hospitals" and "direct aid to individuals and families afflicted by the disease," as well as "public services like education, police, fire, first aid, child welfare, and prisons, among other services — to secure the continued functioning of government," the court said.

Using part of the funds for a hypothetical new sports arena — a scenario Justice Rabner probed during oral arguments — would be impermissible under the act, the court said.

"Borrowing for programs unrelated to the emergency would not satisfy the language of the exception or the act. For example, using $1 billion in borrowed funds to subsidize a new sports arena could hardly be said 'to respond to the fiscal exigencies caused by the COVID-19 pandemic' or 'preserve' the state's 'fiscal integrity,'" the justices said. "To incur debt for such a project would require additional legislation that might well need voter approval."

In a matter of hours on July 16, the Democrat-controlled Legislature approved the bond act, Murphy signed it into law and the Republicans filed their initial suit in Mercer County Superior Court. The next day, the New Jersey Supreme Court took control of the litigation.

The law 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 Supreme Court held Wednesday that Murphy or the state treasurer must "certify publicly the state's projected revenue and consequent shortfall 'as a result of the COVID-19 pandemic' before each tranche of borrowing."

Although the act permits borrowing up to $9.9 billion, if one of them "were to certify that the fiscal shortfall due to COVID-19 was $7 billion, then the state could borrow only up to that amount at the time," the court said.

"To avoid borrowing in excess of what the law allows, and to be faithful to the emergency exception, the state cannot issue bonds or borrow funds beyond the actual fiscal exigency caused by the pandemic," the court said.

During his coronavirus press briefing Wednesday, Murphy said he was "grateful" for the high court ruling, saying he and legislative leaders were right "in our decision to take this step" and "the alternative would have been something that no one up here or anywhere would have wanted to experience."

The decision means that, when he presents his proposed budget for the upcoming fiscal year, "our schools can be funded, our residents and communities can be protected and our state can move forward," the governor said.

"We are going to continue our work to strengthen New Jersey's fiscal foundation and build on the progress of our first two years," Murphy added. "However, I must be clear that even with this decision, we are not declaring victory. We have a long road still to travel."

Doug Steinhardt, the state Republican State Committee chairman, said Wednesday in a statement that the Supreme Court decision "confirms that all three branches of the New Jersey state government are firmly in the grasp of the Democrat Party."

"The only way to put an end to out of control spending is to send more Republicans to Trenton," Steinhardt said. "While the state's Democratic Supreme Court today took a partisan swipe at a common-sense spending issue, the New Jersey Republican Party was compelled to file it and isn't dissuaded by the result. It was expected."

"Instead, it motivates us, as it should every New Jersey Republican, to get to work digging out Democrats who supported this $10 billion borrowing boondoggle," Steinhardt added.

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

Murphy is represented by Assistant Attorney General Jean P. Reilly and Deputy Attorneys General Jamie M. Zug, Eric L. Apar, Eileen W. Siegeltuch, Victoria G. Nilsson and Susan J. Wilkerson.

Amicus curiae Jack Ciattarelli and James K. Webber Jr. are represented by Mark D. Sheridan and Jason F. King of Squire Patton Boggs LLP and James K. Webber Jr. of Webber McGill LLC.

Amici curiae Liberty and Prosperity 1776 Inc. and Michael E. Smith are represented by Seth Grossman.

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 Abbie Sarfo.

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