The New Jersey Supreme Court on Aug. 12 unanimously ruled that New Jersey may borrow up to $9.9 billion to meet pandemic-related expenses.
The ruling will allow Gov. Phil Murphy to balance the state budget by borrowing billions, provided the borrowing requests are approved by a committee of four lawmakers. It will impact the governor’s Aug. 25 budget message and state aid to schools for the fiscal year beginning Oct. 1. It allows Murphy to avoid huge budget cuts and layoffs.
Written by Chief Justice Stuart Rabner, the decision finds that COVID-19 meets the level of “disaster” required by the state constitution to permit borrowing of billions of dollars to meet the current emergency.
“The state may not borrow more than the amount certified, and not more than $9.9 billion in total. In other words, if, at the time the State seeks to borrow money or issue bonds, the governor or the treasurer certifies that the shortfall resulting from the pandemic is estimated to be $7 billion, the state cannot borrow more than that amount,” Rabner wrote.
State Republicans had filed the challenge to the “New Jersey COVID-19 Emergency Bond Act” which Murphy signed into law last month. The court ruling rejected the argument that, under the state constitution, New Jersey cannot borrow to fund routine government operations.
Murphy has estimated revenue losses under the pandemic to be nearly $10 billion. Republicans said that the only constitutional way to fill the deficit would be to raise taxes or cut spending.
In general, the state constitution prohibits borrowing to balance the budget. But the constitution does allow an “emergency exception,” in the event of a disaster. The court ruled that the coronavirus pandemic qualified as an emergency exception.
Under the ruling, debt can be incurred to provide for masks, respirators, and field hospitals, and for direct aid to individuals and families afflicted by the disease.
The state may borrow to provide for public services like education, police, fire, first aid, child welfare, and prisons — to secure the continued functioning of government. Because the collapse in revenue brought on by the pandemic affects the state’s ability to provide for direct education aid and other government services, the “emergency exception” permits the state to borrow in order to pay those expenses, the court ruled.