Lance v. McGreevey

Decision Date26 July 2004
Citation180 N.J. 590,853 A.2d 856
PartiesHonorable Leonard LANCE, as a citizen of New Jersey and a taxpayer; Honorable Alex DeCroce, as a citizen of New Jersey and a taxpayer; Honorable Joseph M. Kyrillos, Jr., as a citizen of New Jersey and a taxpayer; Honorable Steven M. Lonegan, as a citizen of New Jersey and a taxpayer; Honorable Bret Schundler, as a citizen of New Jersey and a taxpayer; and Robert Lindmark, as a citizen of New Jersey and a taxpayer, Plaintiffs-Appellants, v. Honorable James E. McGREEVEY, Governor of the State of New Jersey; Honorable John E. McCormac, Treasurer of the State of New Jersey; and The New Jersey Economic Development Authority, Defendants-Respondents, and Honorable Richard J. Codey, President of the New Jersey Senate; and Honorable Albio Sires, Speaker of the Assembly, Intervenors-Defendants-Respondents.
CourtNew Jersey Supreme Court

Mark D. Sheridan, Florham Park, Andrew T. Fede, Hackensack, and Thaddeus R. Maciag, Somerville, argued the cause for appellants (Drinker Biddle & Reath, attorneys for Honorable Leonard Lance, Honorable Alex DeCroce, Honorable Joseph M. Kyrillos and Robert Lindmark; Contant Atkins & Fede, attorneys for Honorable Steven M. Lonegan; and Maciag & Associates and Howes & Howes, attorneys for Honorable Bret Schundler; Mr. Sheridan, Mr Fede, Mr. Maciag, Mark D. Villanueva, James K. Webber, Jr., Peter J. Gallagher, Lauren D. Godfrey, W. Timothy Howes and Andrew C. White, on the joint briefs).

Nancy Kaplen, Assistant Attorney General, argued the cause for respondents Honorable James E. McGreevey and Honorable John E. McCormac (Peter C. Harvey, Attorney General of New Jersey, attorney; Patrick DeAlmeida, Deputy Attorney General, on the brief).

Howard Graff, New York City, a member of the New York bar, argued the cause for respondent New Jersey Economic Development Authority (Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein, attorneys; Mr. Graff, Charles C. Carella and James E. Cecchi, on the brief).

Leon J. Sokol, Hackensack, argued the cause for intervenors-respondents (Sokol, Behot & Fiorenzo, attorneys; Mr. Sokol and Steven Siegel, on the brief).

PER CURIAM.

This litigation requires us to determine whether the State properly can rely on borrowed funds to balance its annual budget and fund general expenses, an issue of first impression. It also seeks to revisit a legal debate over the constitutionality of certain bonding mechanisms enacted by the legislative and executive branches without voter approval. See generally Lonegan v. State, 174 N.J. 435, 809 A.2d 91 (2002) (Lonegan I)

(outlining history of similar challenges). In respect of the first issue, we hold that contract bond proceeds used to fund general expenses in the State budget do not constitute "revenue" for purposes of Article VIII, Section 2, paragraph 2 of the New Jersey Constitution (the Appropriations Clause), and cannot be used to balance the annual budget.

However, because no decision of this Court clearly has set forth the rule of law announced today, and for other reasons expressed below, we apply our holding on a prospective basis. Our decision, therefore, will apply only in connection with next fiscal year's budget and thereafter. As a result, the State properly may proceed with the bond sales as authorized, and no aspect of this decision shall affect either the currently proposed sale or any prior bond authorizations. In view of our disposition, and because we already have addressed whether contract or appropriations debt violates Article VIII, Section 2, paragraph 3 (the Debt Limitation Clause), we need not revisit that issue here. See Lonegan v. State, 176 N.J. 2, 819 A.2d 395 (2003) (Lonegan II)

("[O]nly debt that is legally enforceable against the State is subject to the Debt Limitation Clause.").

I.

We briefly summarize the facts and procedural history, derived largely from the Law Division's decision. The legislative and executive branches adopted an annual budget in the form of an appropriations act, L. 2004, c. 71 (the Appropriations Act) and related legislation for Fiscal Year 2005, which began on July 1, 2004, and ends on June 30, 2005. Two of the related measures are the Cigarette Tax Securitization Act of 2004, L. 2004, c. 68 (the Cigarette Tax Act), and the Motor Vehicle Surcharges Securitization Act of 2004, L. 2004, c. 70 (the Surcharges Act). Those acts make available bond proceeds in excess of $1.9 billion to be appropriated by the Legislature "for any lawful purpose," including the operating expenditures of State government.

Under both statutes, the New Jersey Economic Development Authority (Authority or EDA) is the agency authorized to issue the bonds and deposit the proceeds from their sale into separate funds from which the proceeds will then be transferred to the General Fund at the State Treasurer's request. In the case of the Surcharges Act, the statute authorizes the EDA and the Treasurer to enter into a contract to repay the proposed bond obligations from a fund containing unsafe driving surcharges, subject to appropriation by the Legislature. Similarly, the Cigarette Tax Act authorizes the EDA, consistent with a contract with the Treasurer and subject to legislative appropriation, to repay the proposed bond obligations from a fund generated by dedicated cigarette tax revenues.

More specifically, to secure payment of the bonds, the acts authorize the EDA to pledge the contracts between the Authority and the Treasurer. The statutes explicitly provide, however, that the State is obligated to make payments on the bonds only if the Legislature appropriates monies for that purpose. Each statute denominates the bond proceeds as revenue of the State when transferred to the General Fund. Consistent with that denomination, the Governor has certified the expected bond proceeds as anticipated revenue for purposes of the Appropriations Act. Absent recognition of the bond proceeds as revenue, the Appropriations Act would show a deficit of approximately $1.5 billion.

Plaintiffs filed suit seeking a declaration that the proceeds of the intended bond sale are not revenue as that term is used in the Appropriations Clause. They further claim that, absent voter approval, the contract or appropriations debt expected to be generated by the Surcharges Act and the Cigarette Tax Act is unconstitutional under the Debt Limitation Clause. The Law Division ruled against plaintiffs on both issues. This Court granted plaintiffs' motion for direct certification, and dismissed as moot plaintiffs' related motion to stay the issuance of any bonds based on the State's representation that it would issue no bonds prior to the date of our anticipated decision.

II.

As a preliminary matter, the State acknowledges that this Court has never decided the question concerning what constitutes revenue under the Appropriations Clause. (For convenience, we refer to defendants collectively as the State.) At the same time, however, the State argues that the judiciary should decline to address the question because it falls exclusively within the province of the executive branch. The Law Division rejected that argument, as do we. Resolving the present dispute not only is consistent with our constitutional role, but also "is a matter of judicial obligation." White v. Township of N. Bergen, 77 N.J. 538, 555, 391 A.2d 911 (1978).

Turning to the merits of the revenue question, the Appropriations Clause provides:

No money shall be drawn from the State treasury but for appropriations made by law. All moneys for the support of the State government and for all other State purposes as far as can be ascertained or reasonably foreseen, shall be provided for in one general appropriation law covering one and the same fiscal year; except that when a change in the fiscal year is made, necessary provision may be made to effect the transition. No general appropriation law or other law appropriating money for any State purpose shall be enacted if the appropriation contained therein, together with all prior appropriations made for the same fiscal period, shall exceed the total amount of revenue on hand and anticipated which will be available to meet such appropriations during such fiscal period, as certified by the Governor.
[N.J. Const. art. VIII, § 2, ¶ 2.]

We previously have observed that the Clause reflects a "constitutional command that the State's finances be conducted on the basis of a single fiscal year covered by a single balanced budget." City of Camden v. Byrne, 82 N.J. 133, 151, 411 A.2d 462 (1980). The requirement that the State enact a balanced budget each fiscal year "cannot in any sense be regarded as merely providing governmental housekeeping details, necessary and important but not truly vital." Id. at 146, 411 A.2d 462 (internal quotation marks and citation omitted). Rather, the Clause "must ... be given full and complete effect in accordance with [its] clear and obvious intent." Ibid.

Viewed in that context, the question is whether the constitutional framers would have considered the Appropriations Act, relying as it does on $1.9 billion in borrowed monies to fund general expenses, to be consistent with a "balanced budget." (For purposes of our analysis, general expenses include the ordinary, operating, and day-to-day costs of government.) The short answer is no. We cannot reasonably find that the current Appropriations Act constitutes a balanced budget without defeating the very purpose behind the Appropriations Clause. See State v. Trump Hotels & Casino Resorts, Inc., 160 N.J. 505, 527, 734 A.2d 1160 (1999)

(instructing that, although legislation challenged on constitutional grounds is entitled to presumption of validity, underlying constitutional provision "must be interpreted and applied in a manner that serves to effectuate fully and fairly its overriding purpose") (internal quotation marks and citation omitted).

That purpose is to bar the...

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3 cases
  • N.J. Republican State Comm. v. Murphy
    • United States
    • United States State Supreme Court (New Jersey)
    • 12 Agosto 2020
    ...the same fiscal year" be adopted. N.J. Const. art. VIII, § 2, ¶ 2. The Clause also calls for a balanced budget each year. Ibid. Under Lance v. McGreevey, proceeds from contract bonds cannot be counted as revenue in balancing the budget. 180 N.J. 590, 593, 853 A.2d 856 (2004).The Debt Limita......
  • Wisniewski v. Murphy, DOCKET NOS. A–4689–16T2
    • United States
    • New Jersey Superior Court – Appellate Division
    • 10 Mayo 2018
    ...61 N.J. 1, 14, 292 A.2d 545 (1972).In 2008, the DLC was amended as a result of the Supreme Court's decision in Lance v. McGreevey, 180 N.J. 590, 853 A.2d 856 (2004). The 2008 amendment provided that, prospectively, the Legislature could not enact a law that authorizes creation of a debt tha......
  • State v. Clarity, DOCKET NO. A–4831–16T2
    • United States
    • New Jersey Superior Court – Appellate Division
    • 26 Abril 2018
    ...148 F.2d 737, 739 (2d Cir.) (L. Hand, J.), aff'd, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945) ; see also Lance v. McGreevey, 180 N.J. 590, 598, 853 A.2d 856 (2004), the context and the statute's underlying purpose strongly suggest that the Legislature did not intend that an individual o......

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