Is borrowed money revenue? And is a pandemic that has wreaked havoc on the state's finances considered an "Act of God"?

The issues are expected to take center stage on Aug. 5 at the state's highest court when counsel for the New Jersey State Republican Committee and Gov. Phil Murphy square off over the governor's $9.9 billion borrowing plan.

The New Jersey COVID-19 Emergency Bond Act is intended to dig the state out of the giant hole created by the pandemic-induced lockdown that cut off most tax revenue streams, contends Murphy and Democrats in the Legislature.

No, the act will push the state head first into a fiscal abyss and leave New Jersey taxpayers on the hook for decades to come to repay it, argue Republicans. And not only that, it's unconstitutional since voters never approved it.

On July 17 the state Supreme Court swiftly agreed to take up the matter.

A trio of attorneys from some leading firms and the Rutgers professor who wrote a book on the New Jersey Constitution recently weighed in on the upcoming legal battle.

Scott Piekarsky, a partner at Phillips Nizer in Hackensack and a member of the firm's COVID-19 practice group, is leaning toward Team Murphy prevailing in court.

"The Supreme Court is likely to uphold the action of the Legislature and governor," Piekarsky said. "In the cited case of Lance v. McGreevey, the state was not dealing with an unprecedented emergency situation. Here, the state is able to cite the 'act of god' clause and its emergency bonding powers.

"The court is likely to believe that Lance is inapposite and the state constitution does permit this action by the governor," Piekarsky said. "In addition, as in Lance, the court could decide the case prospectively and allow this action now but not in the future."

Bob Williams, a professor of law emeritus at Rutgers University School of Law in Camden who authored "The New Jersey State Constitution" in 2012, said it could all come down to a drafting mistake.

Williams said in 1844 the state constitution adopted a limitation on borrowing without a vote of the people to spread the debt out for future generations. It contained an important exception to the vote of the people for war, invasion or insurrection.

Fast-forward 103 years later to the current 1947 constitution, which imposed the balanced budget requirement. Williams said this required state government expenditures in a budget not to exceed revenues that are expected to come in through taxes. But the 1947 constitution also added another clause—the exception to voter approval "if it's to meet an emergency caused by a disaster or Act of God."

The balanced budget clause was tested in 2004 in Lance when former Gov. James McGreevey wanted to borrow money through the sale of bonds to balance the budget and the Supreme Court said, "You cannot do that since borrowed money does not constitute revenue," in the technical sense, Williams said.

Williams said it becomes confusing because the exemption to voter approval only applies to the vote of the people paragraph and not to the balanced budget paragraph in the state constitution.

"If the exemption doesn't apply, it would be pretty pointless to borrow the money," said Williams. "It looks like a drafting mistake in 1947. The court is going to decide whether the exemption of the vote of the people also includes the exemption on the limitation of what is revenue under the Lance decision."

The New Jersey COVID-19 Emergency Bond Act authorizes bond borrowing of up to $2.7 billion for the remainder of the extended fiscal year 2020, which ends Sept. 30, and up to $7.2 billion for FY2021, which begins Oct. 1 and runs through June 30, 2021, for a combined amount of up to $9.9 billion to be issued over the two periods.

As a check, a four-member Select Commission on Emergency COVID-19 Borrowing would need to approve each request to borrow with a majority vote.

Charles Gormally at Brach Eichler in Roseland, who does a number of public-sector cases involving municipal exercise of government power, thinks the Republican complaint comes across as a hatchet job on the Democratic governor.

"It's the right move because of the importance of the issues," Gormally said of the state's highest court taking it up. "But the complaint—verified by [Republican State Committee Chairman and General Counsel Doug] Steinhardt—uses phraseology that's really partisan and inflammatory. It stresses the economic consequences of the pandemic as if they were caused by Gov. Murphy."

Freshman State Sen. Michael Testa, R-Cape May, a partner at Testa Heck Testa & White in Vineland is representing the Republican State Committee and the other plaintiffs named in the 30-page complaint filed on July 16. The complaint implores the court to "enjoin the defendant from enacting and enforcing Assembly Bill 4175/Senate Bill 2697 in violation of the Debt Limitation Clause of the Constitution of the State of New Jersey."

The state Attorney General's Office is arguing the cause for the state and the governor. Each had no comment for this report, citing they don't comment on pending litigation.

"The constitutional provisions that are the centerpiece of the lawsuit contain an exception that permits normal budget rules to be exceeded," said Gormally, a former registered Republican and former mayor of Mountain Lakes from 2010 to 2013. "This is an extremely large crisis with great fiscal impact on the budget and normal revenues. The Supreme Court will be asked to consider whether we're in the kind of emergency that will allow the governor to deal with the budget realities by issuing new bonding. I think it's a moon shot of a case by the Republican Party."

But not to Ronald Berutti, a member of the Weiner Law Group in Parsippany who focuses on complex litigation. Far from it.

"What the GOP is saying is, 'This bond measure is supposed to be approved by voters in a general election.' The issue is whether the Supreme Court will find some kind of exceptional circumstances that finds this particular legislation does not fall within the clauses of the state Constitution which prohibit bond financing of the budget," Berutti said.

"The problem is that the constitution limits government power. So to get around those limits related to bond financing of the budget and voter approval of bond issues, the Supreme Court would almost have to create an exception that does not appear to exist in the constitution," added Berutti.

"Usually hurricanes and floods are considered acts of God. I don't see this [pandemic] as an act of God. This is government shutting businesses, thereby creating a revenue shortfall, thereby creating a hole in the budget, and now it wants to issue bonds to close that shortfall, and the constitution seems to indicate that is not permissible unless in very narrow circumstances that don't seem to apply here.

"I think they've [Republicans] tried to take politics out of the argument to make it a straight, constitutional argument, and they make an interesting case," said Berutti. "I don't think it's a frivolous argument at all."

Williams, the constitutional historian, is on the legal fence.

"It could go either way," Williams said. "The Supreme Court can say that borrowed money can constitute revenue under these emergency circumstances. Or the Court could say, 'You can borrow the money under the "Act of God" exception but only use it for specific costs of the pandemic and not for ordinary government spending.'

"The case requires the court to evaluate the changes that took place in these two provisions of our constitution since 1844," said Williams. "It represents a legitimate question about the scope of the state constitution and limitations on government borrowing."

Oral arguments begin at 10 a.m. on Aug. 5.