The state Supreme Court unanimously upheld Gov. Phil Murphy’s plan to borrow up to $10 billion to cover a huge budget shortfall caused by the COVID-19 economic downturn.
In a 57-page opinion written by Chief Justice Stuart Rabner, the Court rejected a challenge to the law authorizing the borrowing filed by several GOP lawmakers and the state Republican party. “Subject to certain limits we impose, the Bond Act does not violate the Constitution,” Rabner concluded.
The case turned on two provisions of the state constitution — the Appropriations Clause and the Debt Limitation Clause — which together generally prohibit the government from borrowing funds to balance the budget. But the Court found that the law fell under the so-called Emergency Exception, under which money may be borrowed to deal with disasters and other extreme events.
That provision, however, does not amount to blanket authority to go into debt; instead, the state must show that such an action is closely tied to the emergency. “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 chief justice wrote.
“In order to satisfy those concerns, it will be necessary for 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.”
The justices held that borrowing could not be used to pay for expenses not related to the pandemic and “solely to maintain the state’s fiscal integrity.”
COVID-related expenses could include “masks, respirators, and field hospitals, and for direct aid to individuals and families afflicted by the disease,” in addition to “public services like education, police, fire, first aid, child welfare, and prisons — to secure the continued functioning of government.”
Murphy and Democratic legislative leaders have argued that the borrowing is vital to make up for the loss tax revenue stemming from the global pandemic, a slowdown in consumer spending, and the shutdown of thousands of businesses in a bid to halt the spread of the virus.
“This means that when I present my new budget for the 2021 fiscal year in roughly two weeks, our schools can be funded, our residents and communities can be protected, and our state can move forward,” the governor said at a briefing in Trenton.
On top of that, Murphy argued that the state needs billions of dollars more in federal relief, likely as a new iteration of a Coronavirus Aid, Relief and Economic Security Act. A recent federal audit found that New Jersey has spent little of its $2.3 billion CARES Act money, but the governor maintained that most of it had been earmarked.
GOP lawmakers and the state Republican Party had challenged the constitutionality of the scheme and on Aug. 5 the justices heard more than two hours of oral arguments in the case.
The court tossed out the argument from GOP lawmakers that the administration could not use bond money to pay for state government operating expenses, only for those which arise from a public health emergency.
But state Republicans, at a remotely held press conference immediately after the decision was published, criticized the ruling.
NJGOP Chair Douglas Steinhardt characterized the justices as a “Democratic Supreme Court” that “took a partisan swipe at common sense.”
“The decision affirms that all three branches of government are firmly in the grasp of the Democratic party,” Steinhart said. And it “confirms that state government is now a credit card for Gov. Murphy to max out.”