Lonegan v. State

• Decision Date: 21 August 2002
• Citation: 174 N.J. 435,809 A.2d 91
• Parties: Steven M. LONEGAN; Stop the Debt.Com, LLC, Plaintiffs-Appellants, v. STATE of New Jersey; Roland M. Machold, Treasurer of the State of New Jersey; New Jersey Sports and Exposition Authority; New Jersey Educational Facilities Authority; New Jersey Economic Development Authority; New Jersey Transportation Trust Fund Authority, Defendants-Respondents.
• Court: New Jersey Supreme Court

809 A.2d 91

174 N.J. 435

Steven M. LONEGAN; Stop the Debt.Com, LLC, Plaintiffs-Appellants, v. STATE of New Jersey; Roland M. Machold, Treasurer of the State of New Jersey; New Jersey Sports and Exposition Authority; New Jersey Educational Facilities Authority; New Jersey Economic Development Authority; New Jersey Transportation Trust Fund Authority, Defendants-Respondents.

Supreme Court of New Jersey.

Argued January 2, 2002.

Decided August 21, 2002.

Andrew T. Fede, Hackensack, argued the cause for appellants (Contant, Atkins, Rogers, Fede & Hille, attorneys).

Allison E. Accurso, Assistant Attorney General, argued the cause for respondents State of New Jersey, Roland M. Machold, Treasurer of the State of New Jersey, New Jersey Educational Facilities Authority, New Jersey Economic Development Authority and New Jersey Transportation Trust Fund Authority (John J. Farmer, Jr., Attorney General of New Jersey, attorney; Patrick DeAlmeida, Deputy Attorney General, on the briefs).

Matthew C. Johnston, Hackettstown, on behalf of respondent New Jersey Sports and Exposition Authority, relied upon the brief submitted on behalf of State of New Jersey, et al. (Courter, Kobert, Laufer & Cohen, attorneys).

David G. Sciarra, Executive Director, Educational Law Center submitted a brief on behalf of amicus curiae Abbott Plaintiffs (Mr. Sciarra, attorney; Mr. Sciarra and Paul J. Dillon, Hoboken, on the brief).

Andrea L. Kahn, Newark, submitted a brief on behalf of amicus curiae Garden State Coalition of Schools (McManimon & Scotland, attorneys).

Douglas S. Eakeley, Roseland, submitted a brief on behalf of amicus curiae League of Women Voters of New Jersey (Lowenstein Sandler, attorneys; Cecelia E. Haney and Maria N. Maccone, on the brief).

Melissa R. Vance, Counsel, Trenton, submitted a letter in lieu of brief on behalf of amicus curiae New Jersey Association of School Administrators.

Richard A. Friedman, Newark, submitted a letter in lieu of brief on behalf of amicus curiae New Jersey Education Association (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Mr. Friedman and Kimberly A. Scurti, on the brief).

Michael F. Kaelber, Senior Associate Counsel, submitted a letter in lieu of brief on behalf of amicus curiae New Jersey School Boards Association (Cynthia J. Jahn, General Counsel, attorney).

John L. Kraft, Florham Park, submitted a letter brief on behalf of amicus curiae United Taxpayers of New Jersey.

The opinion of the Court was delivered by PORITZ, C.J.

In this case the Court is asked to consider once again the contours of Article VIII, Section II, paragraph 3 (the Debt Limitation Clause or Clause) of the New Jersey Constitution. The scope and meaning of the restrictions imposed on the legislative branch by the Clause have been discussed at length in an extensive body of case law spanning more than fifty years and covering a variety of bonding mechanisms adopted by the Legislature to meet the capital funding needs of the State. See, e.g., Enourato v. N.J. Bldg. Auth., 90 N.J. 396, 448 A.2d 449 (1982)

; N.J. Sports & Exposition Auth. v. McCrane, 61 N.J. 1, 292 A.2d 545,

appeal dismissed sub nom., Borough of E. Rutherford v. N.J. Sports & Exposition Auth., 409 U.S. 943, 93 S.Ct. 270, 34 L.Ed.2d 215 (1972); Holster v. Bd. of Trs. of Passaic County College, 59 N.J. 60, 279 A.2d 798 (1971); Clayton v. Kervick, 52 N.J. 138, 244 A.2d 281 (1968); N.J. Tpk. Auth. v. Parsons, 3 N.J. 235, 69 A.2d 875 (1949). In those cases the Court has almost universally sustained statutes authorizing the issuance of debt that is not backed by the full faith and credit of the State, generally when the debt is undertaken by an independent authority, most often when that authority has a revenue source available to service the principal and interest on the debt. The Court has reasoned that the Debt Limitation Clause is not implicated when the State is not legally obligated on debt issued subject to future annual appropriations.

Plaintiffs challenge the State's use of contract debt¹ without voter approval because in their view it is "inconceivable... that the State Legislature will fail to make the necessary appropriations to prevent a default." Despite the "subject to annual appropriation" language in the contracts, plaintiffs claim that the potential negative impact of a default on the State's credit rating ensures that the Legislature will appropriate the amounts necessary to cover debt service obligations on contract bonds. They urge the Court to reevaluate its prior holdings, curtail sharply the State's use of such capital financing, and rule impermissible without voter approval the creation by the Legislature of contract debt or debt subject to appropriations.

Plaintiffs raise important and difficult issues. This Court, in a virtually unbroken line of precedent, has applied the Debt Limitation Clause literally, holding that when the full faith and credit of the State is not pledged the debt is not the debt of the State. That clear, bright line has appeared to serve well the financial needs of the State while, at the same time, remaining true to the meaning of the Clause. But, more recently, there have been substantial changes in the State's debt arrangements and whether the Clause, as interpreted, retains its fundamental purpose and vitality is today a troubling question. A literal interpretation of the Debt Limitation Clause that eviscerates the strictures the Clause expressly contains cannot serve the constitutional mandate.

That said, we are not in a position to rule on those issues without additional argument. Plaintiffs' broad challenge lists statutes containing a variety of financing strategies structured as contract debt that have been reviewed by this Court and thereafter sustained, see, e.g., N.J.S.A. 52:18A:78.1 to -78.32 (New Jersey Building Authority Act)², as well as "all other statutes that offend the Debt Limitation Clause." Those strategies must be viewed in context to be understood. Simply put, plaintiffs' sweeping claim that all contract debt is invalid must be anchored in a discussion of the financing mechanisms authorized in specific legislative enactments. Therefore, except for the Education Facilities Construction and Financing Act (EFCFA or the Act), which we sustain, we direct the Clerk of the Court to schedule this matter for additional briefing and reargument as soon as practicable in the fall of 2002.

In respect of EFCFA, plaintiffs' argument focuses on that statute "and the contract bond ... authorized." Lonegan v. State, 341 N.J.Super. 465, 481, 775 A.2d 586 (App.Div.2001). We consider EFCFA herein because the argument in respect of the Act is put forward with particularity; we uphold the Act because of reliance by the State on our prior case law, including Abbott v. Burke, 153 N.J. 480, 710 A.2d 450 (1998) (Abbott V), and for the separate and distinct reason that EFCFA was enacted by the Legislature in furtherance of the mandate found in Article VIII, Section IV, paragraph 1 (the Education Provision) of the New Jersey Constitution.

I

On December 28, 2000, plaintiffs filed a Verified Complaint in Lieu of Prerogative Writs in the Superior Court, Law Division, seeking injunctive relief and a declaratory judgment that EFCFA and other statutes authorizing contract bond financing are unconstitutional. Plaintiffs named the State of New Jersey, Roland Machold (then Treasurer of the State of New Jersey), the New Jersey Educational Facilities Authority, the New Jersey Economic Development Authority (EDA), the New Jersey Sports and Exposition Authority, and the New Jersey Transportation Trust Fund Authority as defendants.³ Shortly thereafter the trial court determined that plaintiffs could not demonstrate a reasonable likelihood of success on the merits warranting an injunction. In then granting summary judgment to defendants on all claims, the court observed that this Court has repeatedly rejected challenges to contract bonds issued by independent authorities when the payment on the bonds is made subject to future legislative appropriations.

A majority of the Appellate Division panel affirmed the trial court on June 27, 2001.⁴Lonegan, supra, 341 N.J.Super. at 481-82,775 A.2d 586. After discussing the mechanics of contract bond financing, the majority observed that unlike general obligation bonds, which are backed by the full faith and credit of the State, contract bonds do not create a "legal right to compel" the State to make payment on the bonds. Id. at 472, 775 A.2d 586. The majority also considered our precedents in respect of the Debt Limitation Clause, concluding that the relevant case law "reveal[s] a consistently narrow construction of the ... Clause by the Court, so that as long as future Legislatures are not legally bound to make future appropriations to pay the indebtedness the [C]lause is satisfied." Id. at 478, 775 A.2d 586. Although the majority could find no case addressing contract debt as such, the "rationale" of our prior cases suggested that the Debt Limitation Clause is satisfied even when an independent authority issuer has no separate source of income and is dependent on annual legislative appropriations to pay the amount due on the bonds. Ibid. In the view of the majority, because the purpose of the Clause is to prevent a default by the State, the "strictures of the... Clause [are] met if the State is not obligated on the bonds and cannot default." Ibid. Based on that reasoning, the majority sustained EFCFA.

Notably, the two judges speaking for the court expressed approval of their dissenting colleague's approach, stating: "Were we not barred by that precedent we might join in our colleague's thoughtful dissenting opinion." Id. at 481 n. 9, 775 A.2d 586. The dissenting member of the panel would have held that contract bonds violate the Debt Limitation Clause. Lonegan, supra, 341 N.J.Super. at 482, 775 A.2d 586 (Wells, J.A.D., dissenting). In his view, there is little if...