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Clayton v. Kervick

Decided: June 28, 1968.


On appeal from the Superior Court, Law Division, Mercer County.

For affirmance -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Schettino and Haneman. For affirmance in part and reversal in part -- Justice Hall. The opinion of the court was delivered by Jacobs, J. Hall, J. (concurring in part and dissenting in part).


The defendant John A. Kervick, State Treasurer of New Jersey, appealed to the Appellate Division from a partial summary judgment entered in the Law Division. We certified the matter before argument in the Appellate Division.

In June 1963 Governor Hughes announced the appointment of a committee to review New Jersey's higher education facilities with a view towards overall policy recommendations. In due course, the committee submitted a report which noted that New Jersey's higher education program was "gravely inadequate to meet the needs of its citizens and satisfy the demands of a rapidly growing industrial state." Though the State's educational system was supplemented by what was described as "many fine private colleges," the total picture in higher education was said to remain "woefully deficient when measured against the needs." The committee made many significant recommendations including one which suggested that New Jersey study the possibility of creating an independent Authority, comparable to the New York State Dormitory Authority (N.Y. Public Authorities Law § 1675 et seq. (McKinney's Consol. Laws, c. 43- A, 1957)),

with sufficient power to effectuate expansion projects for both public and private colleges and universities. See Gen. Stat. Conn. Sec. 10-335 et seq. (1965).

In response to the foregoing, the Legislature enacted the statute which established the New Jersey Educational Facilities Authority. L. 1966, c. 106; N.J.S. 18 A:72 A -1 et seq. See also L. 1966, c.c. 107-110. The Authority, which consists of seven members including the Chancellor of the Department of Higher Education and the State Treasurer, ex officio, was declared to be a "public body corporate and politic" and an instrumentality exercising "public and essential governmental functions." N.J.S. 18 A:72 A -4. It was empowered to borrow money and issue bonds which, however, were not to be deemed "a debt or liability of the state or of any political subdivision thereof or a pledge of the faith and credit of the state or of any such political subdivision." N.J.S. 18 A:72 A -10. The bonds were to set forth on their face that neither the State of New Jersey nor the Authority shall be obligated to pay them or interest thereon "except from revenues or other moneys of the authority and that neither the faith and credit nor the taxing power of the state of New Jersey or of any political subdivision thereof is pledged to the payment of or the interest on such bonds." N.J.S. 18 A:72 A -10. It was further provided that the issuance of the bonds "shall not directly or indirectly or contingently obligate the state or any political subdivision thereof to levy or to pledge any form or taxation whatever therefor." N.J.S. 18 A:72 A -10.

The Authority was empowered, inter alia, to construct projects for participating educational institutions and to enter into leasing and subleasing arrangements with self-liquidating goals. Thus section 11 (N.J.S. 18 A:72 A -11) empowered the Authority to fix rates, rents, fees and charges sufficient with other revenues, if any, to pay the cost of maintaining the project, to pay the principal and interest on bonds issued in connection with the project, and to create and maintain

the reserves required in any resolution authorizing the issuance of the bonds for the project. Insofar as the public colleges were concerned, the Legislature apparently contemplated that projects undertaken by the Authority for them would be in connection with "revenue-producing facilities" such as dormitories, etc.; this is the position taken by the Attorney General and it receives some measure of support from the tenor of the provisions in N.J.S. 18 A:72 A -26, 27, 27.1. Insofar as the private colleges were concerned, the Authority was broadly empowered to construct projects "for the use and benefit of the participating college and the students, faculty and staff of such participating college." N.J.S. 18 A:72 A -30. In addition, the Authority was empowered to make loans to private colleges in accordance with N.J.S. 18 A:72 A -31 through 35.

The 1966 statute creating the Authority appropriated $250,000 to enable it to get under way, and during the following year a similar sum was appropriated by the Legislature. On March 22, 1967 the plaintiff Joseph E. Clayton, Acting Commissioner of Education, addressed a letter to the defendant John A. Kervick, State Treasurer, certifying that the sum of $100,000 was required by the Authority for the preliminary planning of needed projects and requesting that the stated amount be transferred to the Authority. On the following day the State Treasurer denied the request because of his "uncertainty as to the legal and constitutional propriety of the expenditure of public moneys in connection with the contemplated leasing of projects by the Authority to state colleges. (See McCutcheon v. State Building Authority, 13 N.J. 46 (1953); Art. VIII, § II, paras. 2 and 3, New Jersey Constitution 1947)." He also noted his uncertainty as to the legal and constitutional propriety of the expenditure of public money in connection with any project which involves "the donating of funds, or the providing of any material or services, to private colleges of both denominational and non-denominational character. (See Art. I par. 4 and Art. VIII, § III, par. 3 New Jersey Constitution,

and the First Amendment, Constitution of the United States)."

After the State Treasurer denied the request for transfer of the funds, the plaintiff Clayton, along with the Authority as an additional plaintiff, filed a complaint seeking a declaratory judgment (N.J.S. 2 A:16-50 et seq.) that the New Jersey Educational Facilities Authority law is valid and constitutional in all respects, and an order requiring the defendant Kervick to take all appropriate actions required of him under the law. Special counsel was appointed to represent Mr. Kervick and leave to intervene as a party-plaintiff was granted to the Association of Independent Colleges and Universities in New Jersey. Leave to intervene as parties-defendants was granted to Howard and Jacqueline Levine and Joseph and Belle Marzell who, as taxpayers, assert the unconstitutionality of the law insofar as it may authorize aid to colleges or universities "under the control or direction of a religious denomination or in which denominational tenets or doctrines are taught." The parties agreed to defer this issue because it requires further factual development, whereas the other issues raised by the defendant Kervick are now susceptible of resolution. To that end they entered into a stipulation which set forth that cross motions were being filed for partial summary judgment with respect to the constitutionality of the Authority's powers regarding "the public institutions of higher education and those private institutions of higher education which are not sectarian." For purposes of the motions alone the parties stipulated that the statute was of no effect "insofar as it authorizes the Authority to enter into programs with private, sectarian institutions of higher education."

The stipulation further set forth that, subject to a favorable judicial determination, the Authority proposed, in the first fiscal year after such determination, to create a debt or debts, liability or liabilities, the total face amount of which "if considered debts or liabilities of the State, will, together with previous debts or liabilities of the State, exceed, in that

fiscal year, one per centum of the total amount to be appropriated by the general appropriation law for that fiscal year." On the basis of the cross motions and the stipulation, the matter was presented in the Law Division to Judge King-field. He first noted that the Authority intended to accomplish its purposes through leases, subleases and loan agreements with the various participating institutions; that as each project was approved, bonds would be issued to cover the cost of the particular project with rentals being determined "on the basis of the principal and interest payments required with respect to the bonds," and that the public institutions would expect to pay the rentals "by deriving revenues from such projects" as well as by utilizing, if necessary, other revenues which may become available including any appropriations by the Legislature. He then dealt with the legal and constitutional points raised by the parties and disposed of them in the following manner:

Though he did not consider himself, as the trial judge, free to entertain the Attorney General's request that the holding of this Court in McCutcheon, supra, 13 N.J. 46, be overruled, he concluded that even within the restrictive principles enunciated there, the Authority's bonds would not constitute debts or liabilities of the State and their issuance would therefore not be in violation of the debt limitation clause of the New Jersey Constitution (Art. VIII, § II, par. 3). He considered that the Educational Facilities law had effectively created an independent body of the nature sustained in New Jersey Turnpike Authority v. Parsons, 3 N.J. 235 (1949), whose debts, particularly in the light of the unequivocally expressed disavowal in the statute and on the face of the bonds, were not debts of the State. He was not at all persuaded by the suggestion that the Governor's power to veto a project (N.J.S. 18 A:72 A -4), along with the statutory reportage and visitorial provisions (N.J.S. 18 A:72 A -23), impaired the Authority's autonomy so as to bring the debt limitation clause into play. And he stressed that, unlike the situation in McCutcheon, the facilities here

were "meant to pay their way" from revenues obtained mainly from sources other than the State Legislature. See Petition of Board of Public Buildings, 363 S.W. 2 d 598 (Mo. 1963); Application of Oklahoma Capitol Improvement Auth., 355 P. 2 d 1028 (Okl. 1960); Book v. State Office Building Commission, 238 Ind. 120, 149 N.E. 2 d 273 (1958); State ex rel Thomson v. Giessel, 271 Wis. 15, 72 N.W. 2 d 577 (1955); cf. Opinion of the Justices, Mass., 236 N.E. 2 d 523 (1968); Lacher v. Board of Trustees of State Colleges, 243 Md. 500, 221 A. 2 d 625 (1966); Button v. Day, 205 Va. 739, 139 S.E. 2 d 838 (1965); State ex rel. Board of Governors, etc. v. O'Brien, 142 W. Va. 88, 94 S.E. 2 d 446 (1956); McArthur v. Smallwood, 225 Ark. 328, 281 S.W. 2 d 428 (1955); Conder v. University of Utah, 123 Utah 182, 257 P. 2 d 367 (1953); State ex rel. Fatzer v. Board of Regents of State of Kansas, 167 Kan. 587, 207 P. 2 d 373 (1949); Jacobs v. Sharp, 211 Ark. 865, 202 S.W. 2 d 964 (1947); Geboski v. Montana Armory Board, 110 Mont. 487, 103 P. 2 d 679 (1940).

In rejecting the contention that the Authority's aid to private nonsectarian educational institutions would violate the constitutional provisions against the State's loan of its credit (Art. VIII, § II, par. 1) and the donation of land or the appropriation of money by the State to any society, association or corporation (Art. VIII, § III, par. 3), Judge Kingfield pointed out that a high public purpose was undoubtedly being served by the legislative assistance to the Authority and the educational institutions. He found adequate consideration in the fact that the institutions would be significantly expanding their facilities, thereby increasing the dimension of their services to the public, and he found adequate control in the various terms of the Educational Facilities law and in other statutory enactments ...

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