On August 12, 2020 the Supreme Court of New Jersey held up the constitutionality of the controversial "New Jersey COVID-19 Emergency Bond Act” ("COVID Bond Act"), which authorizes the State of New Jersey ("State") to borrow up to $9.9 billion to address the fiscal crisis that has resulted from the continuation of the COVID-19 pandemic.

Under the COVID Bond Act, subject to the approval of a State oversight committee led by the State Legislature, the State has the authority to issue bonds totaling $2.7 billion for the remainder of the extended State Fiscal Year 2020, which runs through September 30, 2020, and up to an additional $7.2 billion for the nine-month State Fiscal Year 2021 that runs from October 1, 2020 through June 30, 2021, for a combined amount of up to $9.9 billion to be issued over the two periods.

The State is authorized to borrow either through the issuance of general obligation bonds that can be sold to investors or through the federal government's "Municipal Liquidity Facility," which was established by the CARES Act to help states and local governments respond to the economic effects of COVID-19.  Bonds issued pursuant to the COVID Bond Act will be repaid through the State's General Fund.

State republicans (led by the New Jersey Republican State Committee, two republican lawmakers and two State taxpayers) argued that the COVID Bond Act violated the appropriations clause of the State Constitution by unlawfully allowing the State to use debt to cover its general expenses.

The State Supreme Court rejected the plaintiff's arguments and ruled that the COVID Bond Act was constitutional stating that the State Constitution specifically contained exceptions for exigent circumstances, including the COVID-19 pandemic.

Despite the ruling on constitutionality, the State Supreme Court also placed certain limitations for borrowing pursuant to the COVID Bond Act including (i) that State may not issue bonds or borrow funds beyond the actual fiscal emergency caused by the pandemic, and (ii) that the Governor or the State Treasurer must certify publicly the State's projected revenue and consequent shortfall as a result of the pandemic prior to each tranche of borrowing (for example, if the State only needs to borrow $7 billion to address the impact of the pandemic, it cannot borrow the full $9.9 billion).

For any questions regarding the ruling of the Supreme Court or the operation of the COVID Bond Act, please contact the attorneys of Parker McCay's public finance team: