[164 NJSuper Page 249] By cross-motions for summary judgment the parties to this declaratory judgment action seek to have determined whether L. 1973, c. 370 (N.J.S.A. 27:12B-4), prohibiting the issuance of bonds or adjusting of tolls without the prior written consent of the Governor and one other designated official and providing that the Governor shall have veto power over the minutes of the meetings of the New Jersey Highway Authority, is unconstitutional in respect to the holders of bonds issued before the effective date of such
statute. It is contended that this statute violates Art. I, § 10 of the Constitution of the United States of America prohibiting any state from passing any law which impairs the obligations of a contract, and Art. IV, § 7, par. 3, of the Constitution of New Jersey prohibiting the Legislature from passing any law impairing the obligation of any contract. It is further argued that the statute violates the provisions of the Constitutions of the United States of America and New Jersey, respectively prohibiting the taking of property without due process of law in that said law is arbitrary, capricious, unreasonable, invidiously discriminatory and oppressive if applied to the holders of the aforesaid bonds. Plaintiff's urge the affirmative. Defendants urge the negative.
Pending the decision in United States Trust Co. v. New Jersey , 431 U.S. 1, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977), this action was stayed at the request of all parties. Subsequent thereto they updated certain data, then made the motions for summary judgment with a stipulation that any damage claims would be submitted after the resolution of the questions now before the court.
Plaintiffs are three banks appointed trustees (trustees) under resolutions authorizing the issuance of bonds for the construction or improvement of the Garden State Parkway by the New Jersey Highway Authority (Authority). Defendants are the Authority and the Attorney General of the State of New Jersey (Attorney General). Listed below are the dates the resolutions appointing trustees and setting forth the conditions for issuance of, and security for, the bonds were adopted, and the amount of bonds outstanding as of December 31, 1977:
1. July 8, 1953 resolution appointed Fidelity Union Trust Co. as trustee.
(As to asterisks see footnote 1.)*fn1
2. July 7, 1962 resolution appointed Midlantic National Bank as trustee. Junior Bond Resolution.
3. July 27, 1971 resolution appointed First National State Bank as trustee. Improvement Bonds.
Series Issue Date Amount 12/31/77
Authority was established as a body corporate and politic by L. 1952, c. 16. See N.J.S.A. 27:12B-1 et seq. Said law empowered Authority to issue negotiable bonds and notes and to provide covenants for security to the purchasers of bonds. The sections relevant to provisions for security are found in N.J.S.A. 27:12B-5, 8, 9, 11, 14 and 18. In summary form they provide:
(a) N.J.S.A. 27:12B-5(i) of the act provides that the Authority shall have the power "To fix and revise from time to time and charge and collect tolls or other charges for transit over or use of any project acquired or constructed by it."
(b) N.J.S.A. 27:12B-5(j) of the act provides that the Authority shall have the power "To establish and enforce rules and regulations for the use of any project."
(c) N.J.S.A. 27:12B-8(b) of the act provides that "[e]xcept as may be otherwise expressly provided by the Authority, every issue of bonds or notes shall be general obligations payable out of any moneys or revenues of the Authority, subject only to any agreements with the holders of particular bonds or notes pledging any particular moneys or revenues."
(d) N.J.S.A. 27:12B-9 of the act sets forth provisions which the Authority may include in any resolution authorizing bonds or notes. It provides that the resolution authorizing the issuance of bonds or notes "shall constitute a contract with the holders thereof." (parentheses deleted). The provisions which may be included in any such resolution are:
(1) "to pledge all or any part of the Authority's tolls or revenues" (§ 9(a)(i));
(2) "to covenant as to the rates of toll and other charges to be established and charged, the amount to be raised each year or other period of time by tolls or other revenues, and as to the use and disposition to be made thereof" (§ 9(a)(viii)), and
(3) "[to covenant] to do or refrain from doing such acts and things as may be necessary or convenient or desirable in order to better secure the bonds or notes or which, in the absolute discretion of the Authority, will tend to make the bonds or notes more marketable" (§ 9(a)(xiv)).
(e) N.J.S.A. 27:12B-9(c) further provides that bonds or notes of the Authority may be issued "without obtaining the consent of any department, division, commission, board, bureau or agency of the State, and without any other proceeding or the happening of any other conditions or things than those proceedings, conditions or things which are specifically required by this act."
(f) N.J.S.A. 27:12B-14 of the act provides:
"The Authority is hereby authorized to fix, revise, charge and collect tolls and charges for the use of each project and the different parts or sections thereof, * * *. Such tolls and charges shall be so fixed and adjusted as to effectuate the purposes of this act and in any event to carry out and perform the terms and provisions of any contract with or for the benefit of holders of bonds or notes. Such tolls and charges shall not be subject to supervision or regulation by any other commission, board, bureau or agency of the State. The use and disposition of tolls, charges and revenues shall be subject to the provisions of any resolution authorizing the issuance of such bonds or notes." (Emphasis supplied).
(g) N.J.S.A. 27:12B-18(a) of the act specifies that "[no] vehicle shall be permitted to make use of any project except upon the payment of such tolls as may from time to time be prescribed by the Authority.
In N.J.S.A. 27:12B-11 the State in 1952 gave its solemn pledge to bondholders that it would not infringe, in the future, on the powers vested in the Authority:
The State of New Jersey does pledge to and agree with the holders of the bonds or notes issued pursuant to authority contained in this
act, that the State will not limit or restrict the rights hereby vested in the Authority to maintain, acquire, construct, reconstruct and operate any project as defined in this act or to establish and collect such tolls or other charges as may be convenient or necessary to produce sufficient revenues to meet the expenses of maintenance and operation thereof and to fulfill the terms of any agreements made with the holders of such bonds or notes authorized by this Act or in any way impair the rights or remedies of the holders of such bonds or notes until the bonds or notes, together with interest thereon, are fully paid and discharged.
Pursuant to N.J.S.A. 27:12B-9(c), in connection with each bond resolution, Authority has included provisions for distributing revenues received into various funds to provide for the operation and maintenance of the Parkway, adjusting tolls to assure adequate revenues to meet expenses of operation and maintenance of the Parkway as well as costs of current and projected debt service.
In summary, the mechanics of the receipt and disbursements of Authority revenues with respect to the bonds is as follows:
1. The first fund established by the bond resolution is the revenue fund in which all revenues are placed. Operating expenses are paid from this fund. The remainder is poured over into other funds.
2. The first fund into which the revenue fund pours over is the bond service fund which is used to meet the Authority's annual bond service requirements.
3. The next fund supplied is the bond reserve fund. This fund must contain a reserve sufficient to pay 18 months of bond service.
4. Revenues are then poured over into the general fund which may be used for future needs of bond service and bond reserve funds and to finance construction projects.
5. Finally, there is the bond redemption fund. This fund (20% of general fund after payments to the bond service and reserve funds) is used to retire some outstanding bonds.
Throughout its entire history the Authority has consistently met all its obligations under the bond resolution.
Section 711 of each of the bond resolutions set forth the conditions under which the tolls must be adjusted. Authority refers to § 711 as the 1.2 provision because it alleges that § 711 requires toll revenue less expenses and working capital to exceed 120% of debt service. In the event Authority fails to adjust tolls when the conditions for raising them arise, the language of the remedy the respective trustees may pursue differs.
Section 711 of Parkway revenue bond resolution adopted July 27, 1971 provides:
711. Tolls and Charges. 1. The Authority shall at all times fix, charge and collect such tolls and other charges for transit over or use of the Parkway System as shall be required in order that in each year Net Revenues, shall at least equal 1.20 times the sum of the Aggregate Debt Service and the Prior Lien Bond Service for such calendar year computed as of the beginning of such calendar year, and as shall be required in any event to pay or discharge all charges and liens whatsoever payable out of Revenues.
2. On or before October 1 in each year the Authority shall complete a review of its financial condition for the purpose of estimating whether Net Revenues will be sufficient to meet the requirement therefor specified in subsection 1 of this Section and shall by resolution make a determination with respect thereto. A copy of such resolution, certified by an Authorized Officer of the Authority, together with a certificate of such Authorized Officer setting forth a reasonably detailed statement of the actual and estimated Revenues, Operating Expenses, Prior Lien Bond Service, if any, Aggregate Debt Service, and other pertinent information for such year upon which such determination was made, shall be filed with the Trustee on or before October 20. If the Authority determines that Net Revenues may not be sufficient to meet the requirement therefor specified in subsection 1 of this Section, it shall forthwith cause the Traffic Consultants to make a study for the purpose of recommending a schedule of tolls for the Parkway System which in the opinion of the Traffic Consultants, will cause sufficient Revenues to be collected in the following calendar year to provide the Net Revenues to meet the requirement therefor specified in subsection 1 of this Section for such following year and will cause Revenues to be collected in such following and later calendar years sufficient to restore the amount of such deficiency in Net Revenues at the earliest practicable time. If, in any calendar year, the Revenues collected shall not have been sufficient to provide the Net Revenues to meet the requirement specified in said subsection 1, the Authority shall (a)
unless it has already obtained a traffic study and recommendation in compliance with the immediately preceding sentence, forthwith cause the Traffic Consultants to make a study for the purpose stated in such sentence, and (b) as promptly as practicable and in any case no later than the next April 1, establish and place in effect a schedule of tolls as recommended by the Traffic Consultants. In connection with any traffic study by the Traffic Consultants pursuant to this subsection there shall be prepared, filed with the Trustee and furnished to the Traffic Consultants a certificate of an Authorized Officer of the Authority setting forth the amount of Revenues required to provide the amount of Net Revenues necessary in order to meet the requirement therefor specified in subsection 1 of this Section (including any deficiency from the prior year). Such certificate shall include, for the year with respect to which such study is to be made, estimates of (i) the amount of Operating Expenses (including provision for working capital and reserves therefor) based on a certificate to this effect by the Consulting Engineers which shall accompany such statement, (ii) 1.20 times the sum of the Aggregate Debt Service and the Prior Lien Bond Service with respect to such year, and (iii) such other pertinent information for such year as shall be deemed necessary to make such traffic study.
3. The Authority shall not reduce any rate of toll for transit over or use of the Parkway System, unless, after giving effect to such toll reduction, estimated Net Revenues for the current and each future calendar year shall be not less than 1.30 times the sum of Maximum Annual Debt Service with respect to all Series of Bonds and the Maximum Annual Prior Lien Bond Service. Such determination shall be based on certificates conforming, to the extent applicable, to the requirements of paragraphs (3), (4) and (6) of subsection 2 of Section 204 which shall be filed with the Trustee.
4. The Authority shall forthwith upon the adoption of any schedule of tolls or revision thereof file certified copies thereof with the Trustee.
5. The failure in any calendar year to comply with the covenant in subsection 1 of this Section shall not constitute an Event of Default under the Resolution, if the Authority shall comply with subsection 2 of this Section; provided that if the Traffic Consultants (relying upon the certificate of the Authorized Officer of the Authority required by subsection 2 of this Section) shall be of the opinion, as shown by their certificate filed with the Trustee, that a schedule of tolls for the Parkway System which would provide Net Revenues to meet the requirements specified in subsection 1 of this Section is impracticable at that time, and the Authority therefore cannot comply with subsection 2 of this Section, then the Authority shall fix and establish such schedule of tolls as is recommended by the Traffic Consultants to comply as nearly as practicable with the covenant in subsection 1 of this Section, as evidenced in a certificate
filed with the Trustee, and in such event the failure of the Authority to comply with subsection 1 and subsection 2 of this Section shall not constitute an Event of Default under the provisions of the Resolution. The Trustee may and, upon the request of the Holders of not less than 10% in principal amount of the Bonds Outstanding and upon being indemnified to its satisfaction, shall institute and prosecute in a court of competent jurisdiction an appropriate action to compel the Authority to revise the schedule of tolls and fix, charge and collect tolls in accordance with the Act and with any one or more of the covenants contained in this Section.
The court selected the latest resolution because it necessarily had to provide for debt service on the earlier bonds and expressly treated the problem of what the trustee might do if the Authority failed to act under § 711 within the text of § 711. In the 1953 and 1962 resolutions the trustee's remedy upon the failure of the Authority to adjust tolls under the comparable § 711 provisions is dealt with under Article X, "Remedies."
Under § 1002 of the 1953 and 1962 resolutions, as well as of the 1971 resolution, the respective trustees, upon stated conditions and upon ...