Supreme Court Upholds Plan to Borrow Billions for NJ Budget
Gov. Phil Murphy’s administration can borrow billions of dollars to pay for current costs in the state’s 2020 and 2021 budgets, after the state Supreme Court on Wednesday ruled that is constitutional in turning back a challenge from Republicans.
The amount borrowed could be less than the $9.9 billion allowed under a new law Murphy signed in July, however. The court said the cap would be tied to the revenue shortfall eventually certified by the state treasurer or governor, who already has the authority to make that certification independent of the Legislature.
In its decision, a unanimous Supreme Court said the “emergency exception” in the portion of the state constitution that limits annual debt, unless it has been approved by voters, also applies to a separate, nearby clause that requires a balanced budget and has been interpreted to exclude borrowed funds from revenues.
“We read the Emergency Exception in light of the purpose of the fiscal clauses of the Constitution, considered as a whole, and the Framers’ intent. By doing so, we avoid absurd outcomes that would, for example, allow the State to borrow funds to meet an emergency but not be able to spend them,” the court said. “We also give meaning to the underlying purpose of the relevant clauses: to impose discipline on the State’s fiscal practices and provide flexibility to respond to emergencies caused by disaster.”
The court said “not every act of borrowing would ‘meet’ the emergency caused by the pandemic” but that the Legislature will largely determine which programs would best respond to the pandemic.
The decision said the passage in the constitution hadn’t been considered by the courts in the 73 years since it was approved by voters.
“The record of the 1947 Constitutional Convention reveals how the nation’s recent experience with the Great Depression influenced the Convention -- and, in particular, the Framers’ decision to amend the Constitution to allow for greater flexibility to respond to emergencies,” the court said.
Murphy said he is grateful for the decision. He has until Aug. 25 to provide a 2021 budget plan to lawmakers.
“We were right collectively in our decision to take this step but also because the alternative would have been something that no one up here or anywhere would have wanted to experience,” Murphy said.
“Our schools can be funded. Our residents and communities can be protected. And our state can move forward,” said Murphy, who reiterated his call for billions in federal aid as an alternative to borrowing “and preventing this recession from falling into a depression.”
Republicans said they weren’t surprised that they lost in court.
“The decision confirms that all three branches of New Jersey state government are firmly in the grasps of the Democratic Party,” said Republican State Committee Chairman Doug Steinhardt. “It also confirms that state government is now a credit card for Gov. Murphy to max out.”
Assembly Minority Leader Jon Bramnick, R-Union, said that if the state borrows nearly $10 billion, it could cost $30 billion for that to be repaid over as long as 35 years.
“Now we have a real emergency, and it’s a taxpayer emergency,” Bramnick said.
The bill allows for borrowing $2.7 billion during the July-to-October quarter and $7.2 billion for the abbreviated 2021 budget year, which goes from October through June 2021.
By the end of July, in a certification filed with the state Supreme Court, state Treasurer Elizabeth Maher Muoio said those revenue estimates had improved by around $700 million, to a $2.3 billion shortfall in fiscal 2020 and $6.9 billion in fiscal 2021.
“I think we’re going to have more legal battles concerning projected borrowing and/or bonding to so-called ‘meet the COVID-19 pandemic,” said state Sen. Michael Testa, R-Cumberland. “And I think we’re going to be back there because as we are a one-party ruled state, I think that they are going to play fast and loose with that term, ‘as a result of COVID-19 pandemic.’”
New Jersey is eligible to borrow up to $9.2 billion from the Federal Reserve in a new program created for states and larger local governments. The law allows the state to borrow through that program or by selling bonds.