Lonegan v. State

• Citation: 176 N.J. 2,819 A.2d 395
• 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.
• Decision Date: 09 April 2003
• Court: United States State Supreme Court (New Jersey)

819 A.2d 395

176 N.J. 2

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 October 21, 2002.

Decided April 9, 2003.

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 Authority and New Jersey Transportation Trust Fund Authority (David Samson, Attorney General of New Jersey, attorney; Mr. Samson, Ms. Accurso and Patrick DeAlmeida, Deputy Attorney General on the brief). Sandy L. Galacio, Jr., Hackettstown, submitted a letter in lieu of brief on behalf of respondent New Jersey Sports and Exposition Authority (Courter, Kobert, Laufer & Cohen, attorneys).

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

Today we reject a broad challenge to the validity of fourteen New Jersey statutes authorizing contract or appropriations-backed debt. By our holding, we reaffirm over fifty years of precedent from this Court and align the Court, as before, with the decisions from a majority of our sister states. Our decision is based in the unambiguous and clear language of Article VIII, Section II, paragraph 3, of the New Jersey Constitution (the Debt Limitation Clause or Clause), and in the State's reliance on the Court's precedents when crafting complex financing mechanisms responsive to changing market conditions. We are well aware of the need to maintain stability in respect of the variety of financial instruments authorized by the Legislature, and of the litigation that would result if we attempt to establish classes of debt that are governed by the Clause and classes that are not. To reject, at this late date, traditional legal rules relating to debt could have unintended consequences not anticipated by the Court. We leave to the legislative and executive branches, where it properly resides, the policy decision whether to propose a constitutional amendment redefining or otherwise altering the scope of the Debt Limitation Clause, or whether to restrain the creation of appropriations-backed debt by other means should the other branches deem such measures appropriate.

I

A

The procedural posture of this case has been set forth in Lonegan v. State, 174 N.J. 435, 809 A.2d 91 (2002) (Lonegan I), and will not be repeated here except by way of a brief summary. We note only that plaintiffs filed their complaint in December 2000, when they sought a declaration "that [the Education Facilities Construction and Financing Act] and other statutes authorizing contract bond financing¹ are unconstitutional" under the Debt Limitation Clause. Lonegan I, 174 N.J. at 441, 809 A.2d 91. The trial court rejected plaintiffs' challenge by grant of summary judgment to defendants, and a majority in the Appellate Division concurred. Lonegan v. State, 341 N.J.Super. 465, 481, 775 A.2d 586 (App.Div.2001). The matter came before us as of right because of a dissent in our intermediate appellate court. N.J. Const. art. VI, § 5, ¶ 1; R. 2:2-1(a).

B

Lonegan I was decided on August 21, 2002. In its initial opinion, the Court held that the issuance of appropriations-backed debt authorized by the Educational Facilities Construction and Financing Act (EFCFA) was not violative of the Debt Limitation Clause. 174 N.J. at 441,809 A.2d 91. Our holding recognized that the Legislature had enacted EFCFA to fulfill its constitutional obligation to fund new school construction mandated by this Court in Abbott v. Burke, 153 N.J. 480, 710 A.2d 450 (1998) (Abbott V). Lonegan I, supra, 174 N.J. at 441, 457-62,809 A.2d 91 (discussing the State's obligations under N.J. Const. art. VIII, § 4, ¶ 1 (the Education Provision)). We observed that the "debt authorized by EFCFA is sui generis" because of its constitutional underpinnings in the Education Provision of our Constitution, as reinforced by Article VIII, Section IV, paragraph 2 (the School Fund Provision), which "separately authorizes state-backed school bonds without reference to the Debt Limitation Clause." Id. at 461, 809 A.2d 91. In light of the State's reliance on the Court's general approval of a similar financing scheme in Abbott V, and on "our long line of precedents validating similar debt issued by an independent authority," we sustained the state's school construction financing scheme. Id. at 462, 809 A.2d 91.

Although the EFCFA challenge was at the core of Lonegan I, the plaintiffs attempted a broad attack on all legislative programs financed through appropriations-backed debt. Id. at 439-41, 809 A.2d 91. Nonetheless, the Court chose to limit its holding to EFCFA because plaintiffs failed to provide argument sufficiently anchored in the specific financing schemes authorized by the statutes they found objectionable. Id. at 440-41, 464-65, 809 A.2d 91. Unwilling to resolve issues of constitutional import without legal and factual context, we sought a more focused discussion from the parties and "direct[ed] the Clerk of the Court to establish a schedule for additional briefing and reargument" to take place in the next court term. Id. at 464, 809 A.2d 91. More specifically, we asked

[p]laintiffs [to] center their discussion on the financing mechanisms authorized by the statutes they find objectionable and on [the] different categories of contract debt reviewed in the case law of this and other states. We [also] ask[ed] the parties to assume in their presentations that the Court intends to reconsider its precedents sustaining contract debt (or debt subject to future appropriations), and to present argument related to those other approaches.

[Id. at 464-65, 809 A.2d 91.]

We explained:

Thus, for example, the parties should discuss whether the purposes of the Debt Limitation Clause are served when the debt authorized is backed by a revenue stream. Is it sufficient, for purposes of the analysis, that the revenue is realistically "anticipated" at the time the enabling statute is enacted or should that revenue be considered at the time of debt issuance? And, must that revenue be derived from the project financed (self-liquidating), e.g., turnpike tolls, college tuition, or can it be from another source (the Special Fund Doctrine ...)? Are lease payments structured to cover the debt service on bonds issued to construct state office buildings a violation of the Debt Limitation Clause? Must the payments reflect fair market value rentals? Would it affect the analysis if the lease is a typical lease containing terms and conditions generally found in commercial leases? Although such payments resemble the "ordinary expenses of government" ... can they/should they be differentiated from pension contributions?

[Id. at 465, 809 A.2d 91.]

This opinion follows briefing and oral argument on those questions.

II

To place the Court's inquiry in context, we recount in condensed form the substantive background provided in Lonegan I. We begin, as we must, with the language of the Clause:

The Legislature shall not, in any manner, create in any fiscal year a debt or debts,

... which together with any previous debts or liabilities shall exceed at any time one per centum of the total amount appropriated by the general appropriation law for that fiscal year, unless the same shall be authorized by a law for some single object or work distinctly specified therein.... [S]uch law shall provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be repealed until such debt or liability and the interest thereon are fully paid and discharged. No such law shall take effect until it shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon.

[N.J. Const. art. VIII, § 2, ¶ 3.]

In Lonegan I we explained that "[t]he scope and meaning of the restrictions imposed on the legislative branch by the [Debt Limitation] Clause have been discussed at length in an extensive body of case law spanning more than fifty years and covering a wide variety of bonding mechanisms adopted by the Legislature to meet the capital funding needs of the State." 174 N.J. at 438-39, 809 A.2d 91 (citations omitted). We observed:

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.

[Id. at 439, 809 A.2d 91.]

Those conclusions directly followed from our review of that case law under the framework found in In re Loans of the Property Liability Insurance Guaranty Association, 124 N.J. 69, 75-76, 590 A.2d 210 (1991). There, Justice Handler analyzed the two dominant strains in the Court's Debt Limitation Clause jurisprudence: "`decisions hold[ing] that the constitutional provision does not apply to the creation of debt by independent public corporate entities, ... [and] decisions generally find[ing] that legislative expressions of intent to provide future funding do not create present debts of the State subject to the ... [C]lause.'" Lonegan...