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Posted on: August 14, 2020

NJ Supreme Court Rules COVID-19 Emergency Bond Act Constitutional

The New Jersey Supreme Court ruled Wednesday that the State’s plan to bond for up to $9.9 billion to deal with revenue shortfalls brought on by the COVID-19 pandemic is constitutional, provided certain restrictions are followed.

The case was brought to the Supreme Court shortly after the law was signed when the New Jersey Republican State Committee and others challenged that the borrowing plan was unconstitutional because it ran afoul of the State Constitution’s Debt Limitation Clause. The Debt Limitation Clause generally requires voter approval for the State to incur certain debts but includes an exception for debts “to meet an emergency caused by a disaster.”

The Court determined that the COVID-19 pandemic was certainly an emergency within the meaning of the exception within the Debt Limitation Clause. The Court continued to examine the Bond Act and whether the limitations set on the borrowing and spending within the Act were in line with the exception that debts be used “to meet an emergency.” In this regard, the Court found that the ambiguity within the Act required court-imposed limitations be set to avoid borrowing in excess of what the law allows, and to be faithful to the Emergency Exception, with the ultimate effect of these limitations to prevent the State from issuing bonds or borrowing funds beyond the actual fiscal exigency caused by the pandemic.

To achieve this, the Court is requiring the Governor or the Treasurer to certify publicly, the State’s projected revenue and consequent shortfall as a result of the COVID-19 pandemic before each tranche of borrowing. According to the opinion, “[w]hat this means in practice is that, even though the Bond Act allows for borrowing of up to $9.9 billion, if the Governor of the Treasurer 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 that time.”

Because of the way the Court ruled, it is not anticipated that the legislature will need to take additional action before borrowing can occur.

Contact: Frank Marshall, Esq., Associate General Counsel, fmarshall@njlm.org, 609-695-3481 x137.

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