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New Jersey Republicans File Suit Over COVID-19 Borrowing Bill

Dated July 22, 2020

Citations: New Jersey Republican State Comm. v. Murphy; MER-L-001263-20

SUMMARY BY TAX ANALYSTS

The New Jersey Republican State Committee filed a lawsuit with the state superior court against the governor challenging that the recently enacted bill that allows the state to borrow $9.9 billion to address revenue shortfalls caused by COVID-19 violates the debt limitation clause of the state constitution because the bonds are not considered revenue for the purpose of balancing budgets.

NEW JERSEY REPUBLICAN STATE COMMITTEE a/k/a the NJGOP; DECLAN O'SCANLON; HAL WIRTHS; LISA NATALE-CONTESSA; and ILEANA SCHIRMER
Plaintiffs,
v.
PHILIP D. MURPHY, in his Official Capacity as Governor of New Jersey;
Defendant.

SUPERIOR COURT OF NEW JERSEY LAW DIVISION
MERCER COUNTY

CIVIL ACTION

VERIFIED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

TESTA HECK TESTA & WHITE, P.A.

By: Michael L. Testa, Jr. (Atty. ID # 032092001)
mtestajr@testalawyers.com
Michael L. Testa, Sr. (Atty. ID # 020251975)
mtesta@testalawyers.com
Justin R. White (Atty. ID # 041792005)
jwhite@testalawyers.com

424 Landis Avenue
Vineland, NJ 08360
Telephone: (856) 691-2300
Facsimile: (856) 691-5655

Attorneys for Plaintiffs, New Jersey Republican State Committee a/k/a the NJGOP; Declan
O'Scanlon; Hal Wirths; Lisa Natale-Contessa; and Ileana Schirmer

Plaintiffs, New Jersey Republican State Committee a/k/a the NJGOP; Declan O'Scanlon; Hal Wirths; Lisa Natale-Contessa and Ileana Schirmer (collectively, “Plaintiffs”) by way of Verified Complaint against Defendant, Philip D. Murphy, in his Official Capacity as Governor of New Jersey; hereby state:

NATURE OF ACTION

1. This action brought by Plaintiffs seeks injunctive relief against Defendant in the form of restraining Defendant from enacting Assembly Bill 4175 / Senate Bill 2697 in violation of the Debt Limitation Clause of the Constitution of the State of New Jersey.

THE PARTIES

2. Plaintiff, New Jersey Republican State Committee (the “NJGOP”) is an unincorporated association with an address of 150 W. State Street, Trenton, New Jersey 08608.

3. Plaintiff, Declan O'Scanlon, is an individual and a citizen and taxpayer of the State of New Jersey with an address of 21 Northvale Avenue, Little Silver, New Jersey, 07739.

4. Plaintiff, Hal Wirths, is an individual and a citizen and taxpayer of the State of New Jersey with an address of 12 Corwnall Court, Hamburg (Hardyston Twp.), New Jersey, 07419.

5. Plaintiff, Lisa Natale-Contessa, is an individual and a citizen and taxpayer of the State of New Jersey with an address of 829 Portobello Road, Toms River, New Jersey, 08753.

6. Plaintiff, Ileana Schirmer, is an individual and a citizen and taxpayer of the State of New Jersey with an address of 350 S. Lehigh Avenue, Hamilton Township, New Jersey 08619.

7. Defendant, Philip D. Murphy (“Defendant Murphy”), at all relevant times, is the Governor of the State of New Jersey, and is named as a defendant in his Official Capacity as such. As Governor of the State of New Jersey, Defendant Murphy is sworn to among other duties, diligently, faithfully and to the best of his knowledge, maintain and enforce the laws of the State of New Jersey. Governor Murphy's official address is 225 W. State Street, Trenton, New Jersey 08625.

JURISDICTION AND VENUE

8. Venue is appropriate in the Superior Court of Mercer County pursuant to Court Rule 4:3-2(2), as Defendant's official address is in Mercer County, and Defendant is an elected New Jersey public official whose actions affect real property in the county.

FACTUAL ALLEGATIONS RELEVANT TO ALL COUNTS

9. All facts alleged herein are matters of public record and/or subject to judicial notice pursuant to N.J.R.E. 201.

10. On March 11, 2020, the World Health Organization declared the novel coronavirus (hereinafter “COVID-19”) outbreak a pandemic, and on March 13, 2020, the President of the United States proclaimed that the COVID-19 outbreak constituted a national emergency.

11. On March 21, 2020, Defendant Murphy issued Executive Order No. 107, whereby it was ordered that for the most part all State residents remain home or at their place of residence except for certain very limited exceptions. Through this act all non-essential retail businesses were to be closed to the public.

12. Defendant Murphy renewed his stay at home orders, as well as ordered all non-essential retail business remain closed, with Executive Order 119 on April 7, 2020, Executive Order 138 on May 6, 2020, Executive Order 151 on June 4, 2020, and Executive Order 162 on July 2, 2020.

13. As a result of Defendant Murphy's actions, the State of New Jersey's economy has been severely impacted, and as a direct result, the State of New Jersey will experience a budget shortfall entering fiscal year 2020.

14. As a response to the anticipated shortfall, and in an attempt to restart the State economy and recover from the financial problems resulting from the COVID-19 Pandemic, on May 28, 2020 the New Jersey State Assembly introduced Assembly Bill 4175, entitled the “New Jersey COVID-19 Emergency Bond Act” (hereinafter the “Bill”).

15. On July 16, 2020, the New Jersey State Senate passed their chamber's version of the Bill, S-2697.

16. Having passed both chambers of the New Jersey legislature, the Bill is expected to be signed into law by Defendant Murphy, imminently.

17. The Bill authorizes the issuance of up to 9.9 billion dollars ($9,900,000,000.00) in State general obligation bonds to be used for the purpose of responding to the fiscal exigencies caused by the COVID-19 Pandemic.

18. In addition, section 4(d) of the Bill authorizes bonds to be issued in the form of short-term notes to provide effective cash flow management for revenues and expenditures of the General Fund and the Property Tax Relief Fund in the implementation of the annual appropriations acts for Fiscal Year 2020 and Fiscal Year 2021.

19. This debt would be issued for the purpose of budget-financing in fiscal years 2020 and 2021, and the Bill permits refinancing that debt, including with long-term bonds maturing decades from now.

20. Article VIII, Section II, paragraph 2 of the Constitution of the State of New Jersey, the “Appropriations Clause”, holds that “[n]o general appropriation law or other law appropriating money for any State purpose shall be enacted if the appropriation contained therein, together with all prior appropriations made for the same fiscal period, shall exceed the total amount of revenue on hand and anticipated which will be available to meet such appropriations during such fiscal period.”

21. Further, Article VIII, Section II, paragraph 3(b) of the Constitution of the State of New Jersey, the “Debt Limitation Clause”, holds that “[t]he Legislature shall not, in any manner, create in any fiscal year a debt or debts, liability or liabilities of the State, 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”.

22. However, paragraph 3(e) holds that “[t]his paragraph shall not be construed to refer to any money that has been or may be deposited with this State by the government of the United States. 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.”

23. The Supreme Court has defined the term “revenue” as it is use in the appropriations clause to exclude bond proceeds because, according to the Court, bond proceeds are not considered revenue for budgetary purposes. Lance v. McGreevey 180 N.J. 590, 596 (2004).

24. The holding in Lance v. McGreevey set forth the important principle that borrowed money cannot be considered revenue.

25. As a result, general obligation bonds issued under the exception to the debt limitation clause cannot be considered revenue for the purpose of balancing a future budget.

26. On May 7, 2020, the Office of Legislative Services (“OLS”) issued an opinion wherein they determined that while revenue shortfalls related to the COVID-19 disaster may persist for some or all of the fiscal year, there will not be a precipitous and unforeseen shortfall, but rather an anticipated decline in revenue. A true and correct copy of the OLS opinion is attached as Exhibit “A”.

27. While the Supreme Court's ruling in Lance v. McGreevey only sets forth the purpose of the appropriations clause generally, the Court held that “borrowed monies, which themselves are a form of expenditure when repaid, are not income 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.” Lance, supra, 180 N.J. at 598.

28. Section 4(d) of the Bill directly contradicts the limitations set forth in Article VIII, Section 2, paragraphs 2 of the Constitution of the State of New Jersey, as well as the Supreme

29. As such, Defendant must be enjoined from enacting and enforcing Assembly Bill 4175 / Senate Bill 2697 as doing so would be a violation of the Debt Limitation Clause of the Constitution of the State of New Jersey.

COUNT ONE
(DECLARATORY AND INJUNCTIVE RELIEF)

30. Plaintiffs repeat and reassert each and every allegation contained in the foregoing paragraphs as is set forth at length herein.

31. Defendant's enactment of Assembly Bill 4175 / Senate Bill 2697 would be in direct violation of the Debt Limitation Clause of the Constitution of the State of New Jersey and the Supreme Court's holding in Lance v. McGreevey.

WHEREFORE, Plaintiffs seek a declaration that the challenged Bill violates the Constitution of the State of New Jersey, as well as a permanent injunction against further infringement of their rights under these clauses, enjoining Defendant from enacting into law and/or enforcing the Bill and from passing any further order or rules similar to the invalid ones described in this action, along with any and all relief the Court deems equitable and just.

JURY DEMAND

DEMAND is hereby made for a trial by jury on all issues triable herein.

DESIGNATION OF TRIAL COUNSEL

Pursuant to the provisions of Rule 4:25-4, the Court is hereby advised that MICHAEL L. TESTA, SR., ESQ. has been designated Trial Counsel in the matter.

RULE 1:38-7(b) CERTIFICATION

I certify that Confidential Personal Identifiers have been redacted from documents now submitted to the Court and will be redacted from all documents submitted in the future in accordance with Rule 1:38-7(b).

TESTA HECK TESTA & WHITE, P.A.
Attorneys for Plaintiffs

Dated: July 16, 2020

By: MICHAEL L. TESTA, JR.
MICHAEL L. TESTA, SR
JUSTIN R. WHITE 

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