A-4175, which was passed by the Assembly on June 4, would permit the issuance of $5 billion of state debt without voter approval to address the massive fiscal and economic dislocations caused by the COVID-19 pandemic. Among the purposes to which the proceeds of these bonds could be put is funding general state operations through the annual appropriations acts for fiscal years 2020 and 2021. The bill requires that all proceeds from bonds be paid into the state Treasury.

This attempt to reduce what would otherwise be an unprecedented shortfall in state revenue raises at least two serious issues under our state constitution. Article VIII section II paragraph 2, the "balanced budget" provision of the Appropriations Clause, mandates that the total appropriations in a fiscal year may not "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."

Article VIII section II paragraph 3 also independently requires that the creation of new state debt above a minimum amount be submitted to the voters for approval. However, subsection (e) has an exclusion to the requirement of voter approval: "Nor shall anything in this paragraph contained apply to the creation of any debts or liabilities for purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God."

The voter approval of state debt requirement is the older of the two provisions, and was originally contained in Article IV (Legislative) of the 1844 Constitution. The force majeure exclusion was originally limited to debts created "for purposes of war, or to repel invasion, or to suppress insurrection."

The balanced budget requirement was added over 100 years later as part of the 1947 Constitution, contained in a new standalone Article VIII on Taxation and Finance, to which the voter approval of debt provision was also moved. At the same time, the additional clause "or to meet an emergency caused by disaster or act of God"—the language most relevant to pandemics—was added, although with little substantive explanation.

The thorny interpretive issues presented include determining the meaning of the words "revenue", "disaster" and the term "meet an emergency." To that list we add another improbable word whose meaning may bear upon this issue: "paragraph."

We have heard no serious argument that the COVID-19 pandemic does not constitute a "disaster," and thus an "emergency" within the exclusion from the voter approval requirement. Whether creation of state debt can be said to "meet" the emergency is a judgment to which we think the judiciary would give substantial, albeit not fawning, deference to the Legislature. If the issue were simply whether the exclusion to the requirement of voter approval for creation of state debt applies pursuant to article VIII section II paragraph 3(e), we think A-4175 is on relatively safe ground.

A much more problematic issue arises as to whether the proceeds of the bonds generated by creation of state debt constitutes "revenue" for purposes of the balanced budget requirement under article VIII section II, paragraph 2. As noted in the opinion letter of the non-partisan Office of Legislative Services requested by the Republican Assembly leadership in early May, in 2004 the Supreme Court held in Lance v. McGreevey that "borrowed monies, which themselves are a form of expenditure when repaid, are not income (i.e., revenues) and cannot be used for the purpose of funding or balancing any portion of the budget pertaining to general costs without violating the Appropriations Clause."

The court was speaking in the context of so-called "contract bonds," i.e. appropriations-backed debt that is not supported by the full faith and credit of the state, and we suspect that its short per curiam opinion was trying to counterbalance its often criticized opinion in Lonegan v. State, which exempted those controversial contract bonds from the voter approval requirement. Nevertheless, McGreevey's holding was not textually limited to contract bonds, and read broadly, would seem to indicate no proceeds from state bonds—whether voter approved or not, whether issued to meet an emergency or not, and whether backed by the full faith and credit of the state or not—constitute "revenue" that can be used to meet the balanced budget requirement of the Appropriations Clause.

Lance v. McGreevey's literal interpretation, however, leads to a logical disconnect among the various constitutional provisions that approaches an absurdity, especially with regard to the clause designed to meet emergencies caused by disaster. Unless somehow immediately funneled away from the state Treasury to some autonomous agency (a dubious practice, as recent experience has shown), the proceeds of bonds issued under A-4175 would be deposited in the state Treasury and fund expenditures through an appropriation pursuant to article VIII, section II, paragraph 2, and thus count on the "expense" side of the ledger. But if the proceeds of the bonds are not also counted as "revenue," then substitute income would be required to offset those appropriations and thereby satisfy the balanced budget requirement. If such substitute income were readily available, of course, there would have been no need to issue a bond in the first place.

The manifest purpose of the force majeure exemption is to dispense with normal fiscal constraints during times of war, invasion, insurrection, disaster or acts of God, and to allow government to act swiftly and decisively during times of maximum danger. But due to what may have been, for all we know, a formatting oversight during the drafting of the 1947 Constitution, that exemption exists textually for the Debt Limitation Clause, but not for the Appropriation Clause's balanced budget provision. Before 1947, when the Debt Limitation Clause stood alone as the principal constitutional constraint on fiscal practice, the term "Nor shall anything in this paragraph …" created a comprehensive force majeure exemption. But when the new and more complex Article on Taxation and Finance was created, the balanced budget provision was added as a separate paragraph from, albeit in the same section as, the Debt Limitation Clause, and thus the scope of the exemption was, perhaps unintentionally, limited to the latter.

Read with unforgiving semantic precision, we would have to agree with OLS that the bare text of the Constitution leads to the conclusion that proceeds from the bonds contemplated by A-4175 would run afoul of the balanced budget requirement, even though falling under the force majeure exemption of the Debt Limitation Clause. That construction does not comport with logic, and perhaps the court's well-known skills at judicial surgery could do some major reconstructive work, explain and distinguish Lance v. McGreevey, and reach a more sensible result.

But regardless of the eventual outcome, New Jersey cannot afford to wait long for an answer. FY2020 has been extended three months to Sept. 30 and FY2021 shortened by three months (raising yet another possible constitutional challenge pursuant to the "one and the same fiscal year" requirement of the Appropriations Clause, an issue we will leave to another day). Although the formal act that would trigger conflict with Lance v. McGreevey would be inclusion of the bond proceeds in the certification of "revenue," which might not happen until September, we hope that New Jersey's less rigid justiciability doctrines would allow the Supreme Court to consider an expedited declaratory judgment action as soon as possible if and after A-4175 is passed.

If that is not possible, or even if it is, we recommend that the Legislature also consider putting it to the voters this November. On a one-time basis, but with all the procedural requirements of a constitutional amendment, ask the voters to adopt a resolution that allows appropriations funded by a $5 billion bond provision that falls within the definition of "emergency" to also be exempt from the balanced budget requirement. The voters would be confronted with a stark choice. The consequences of a negative vote would be severe, with significant layoffs of public employees and dramatic curtailment of public services. The cost of an affirmative vote would also be sobering, although spread out and absorbed over a longer period of time, since tax rates would inevitably increase. There is no easy solution to the fiscal disarray that COVID-19 has wrought, but the ultimate choice might be better made through the democratic process than the judicial one.