New Jersey will be able to borrow money to cover the revenue shortfall caused by COVID-19, the New Jersey State Supreme Court ruled today.
In a unanimous opinion written by Chief Justice Stuart Rabner, the court upheld the controversial law authorizing the state to borrow up to $9.9 billion without first getting voter approval. The ruling states that the borrowing is permitted by New Jersey’s constitution under the “Emergency Exception” clause. In other words, as long as the money is being spent on the budget issues created by COVID-19, the state can borrow the full $9.9 billion.
The decision does limit the borrowing amount that can be used to make up for lost revenue. Because the amount of the shortfall continues to fluctuate, the Supreme Court requires the Governor or Treasurer to certify the actual shortfall so that borrowing cannot exceed that threshold.
“What this means in practice is that, even though the Bond Act allows for borrowing of up to $9.9 billion, if the governor or the treasurer were to certify that the fiscal shortfall due to COVID-19 was $7 billion, then the state could borrow only up to that amount at the time,” the opinion stated. “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.”
NJBIA understands that some borrowing may be necessary to get New Jersey through the pandemic but was concerned that the bill that eventually became law was premature and authorized too much debt over too long a period. The court’s imposed limit addresses some of this concern, but it does not go nearly far enough to ensure the bonds are not excessive and ensure they are part of a comprehensive multi-year fiscal plan that includes spending reductions. NJBIA Vice President for Government Affairs Chris Emigholz, a former New Jersey Senate budget director, estimates that debt service on the full $9.9 billion could amount to $500-$700 million per year, and there is no plan to address those new costs.