On certification to the Superior Court, Law Division, Mercer County.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
As part of the budget for Fiscal Year 2004-2005, the legislative and executive branches adopted the Cigarette Tax Securitization Act of 2004 and the Motor Vehicle Surcharges Securitization Act of 2004. The Acts make available bond proceeds in excess of $1.9 billion to be appropriated by the Legislature"for any lawful purpose," including the operating expenditures of State government. Under the Acts, the New Jersey Economic Development Authority (EDA) is authorized to issue bonds and deposit the proceeds from their sale into separate funds from which the proceeds will be transferred into the General Fund at the request of the State Treasurer.
In the case of the Motor Vehicle Surcharges Act, the EDA and the State Treasurer are authorized to enter into a contract to repay the proposed bond obligations from a fund containing unsafe driving surcharges, subject to appropriation by the Legislature. Similarly, the Cigarette Tax Act authorizes the EDA, consistent with a contract with the State Treasurer and subject to legislative appropriation, to repay the proposed bond obligations from a fund generated by dedicated cigarette tax revenues.
Each statute denominates the bond proceeds as"revenue" of the State when transferred to the General Fund. Consistent with that denomination, the Governor has certified the expected bond proceeds as"anticipated revenue" for purposes of the Appropriations Act. Absent recognition of the bond proceeds as"revenue," the Appropriations Act would show a deficit of approximately $1.5 billion.
Leonard Lance, Alex DeCroce, Joseph M Kyrillos, Jr., Steven M. Lonegan, Bret Schundler, and Robert Lindmark brought suit against Governor James E. McGreevey, State Treasurer John E. McCormac, and the EDA seeking a declaration that the proceeds of the intended bond sale would not be"revenue" as that term is used in the Appropriations Clause of the State Constitution. They also argued that absent voter approval, the contract or appropriations debt expected to be generated by the two statutes is unconstitutional under the Debt Limitation Clause of the constitution.
Superior Court Judge Linda Feinberg ruled against plaintiffs on both issues. The Court granted plaintiffs' motion for direct certification of their appeal and accelerated oral argument. In dismissing plaintiffs' related motion for a stay as moot, the Court relied on the State's representation that the bonds would not be issued prior to the Court's disposition of the appeal.
Contract bond proceeds used to fund general expenses in the State budget do not constitute"revenue" for purposes of the Appropriations Clause of the New Jersey Constitution and cannot be used to balance the annual budget. The Court's decision is prospective and will apply only to the 2005-2006 fiscal year budget and thereafter. As a result, the State may proceed with the bond sales as authorized, and no aspect of the Court's decision shall affect either the currently proposed bond sales or any prior bond authorizations.
1. In view of the Court's disposition on the Appropriations Clause issue and because it has previously addressed whether contract or appropriations debt violates the Debt Limitation Clause of the New Jersey Constitution (Lonegan v. State II), the Court declines to revisit that issue. (p. 3)
2. The State acknowledges that the Court has never decided what constitutes"revenue" under the Appropriations Clause. (For convenience, the Court is referring to all of the defendants collectively as the"State.") It argues that the Court should decline to address the question because it falls exclusively within the province of the executive branch. The Court rejects that argument on the ground that resolving the current dispute comes within the scope of its constitutional role and judicial obligations. (p. 6)
3. The constitutional requirement that the State enact a balanced budget each fiscal year cannot in any sense be regarded as merely providing governmental housekeeping details. The Appropriations Clause must be given full and complete effect in accord with its clear and obvious intent. (pp. 6-7)
4. In considering whether the framers of the constitution would have considered the 2004-2005 Appropriations Act, relying as it does on $1.9 billion in borrowed monies to fund general expenses, to be consistent with a"balanced budget," the answer has to be"no." The purpose of the Clause is to bar the State from adopting an annual budget in which expenditures exceed revenues. Plaintiffs argue that the State's actions belie the common-sense notion of a balanced budget. The State argues that in the absence of an explicit definition of"revenue" in the Clause, the authority to define that term rests with the Governor under his authority to"certify" the amount of revenue available for each fiscal year. The Court agrees with Plaintiffs. (pp. 7-9)
5. In defining"revenue," the Court is not persuaded by the State's dictionary definition, noting that its otherwise broad statement of"revenue" is qualified by an introductory phrase that limits the definition"to the income of a government." Income does not include borrowed funds. In addition, the Governor's proposed budget for Fiscal Year 2004-2005 defines revenues as:"Funds received from taxes, fees or other sources that are treated as income to the state and are used to finance expenditures." (pp.9-10)
6. The Court recognizes that after"revenues" are defined, disputes can then arise over the meaning of"income" as that concept appears in the various definitions that have been reviewed. Precedent supports the straightforward notion 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. (pp.10-11)
7. The Court also declines to accept the argument of the State that a once-considered -- but not adoptedconstitutional provision (the so-called Single Fund paragraph) requires a contrary conclusion. (pp. 11-12).
8. The interesting questions raised by the Court's dissenting Justice need not be answered to resolve the present dispute. Courts should address only those constitutional provisions that are necessary to dispose of a matter on appeal. By way of example, questions relating to the applicability of the single object language of the Debt Limitation Clause have not been raised by the parties. (p. 12)
9. Barring the bond sales before the Court would require significant revisions to, if not a complete overhaul of, the current budget. The resulting disruption to the State government could be great. Further, the Court is satisfied that the legislative and executive branches acted in good faith, relying on an honest, albeit erroneous, belief that the budget was balanced properly under existing constitutional standards. The Court has concluded, therefore, that its ruling should be given prospective effect only. As a result, the State may proceed with the bond sales authorized by the two Acts. Moreover, this decision shall not affect either those sales or any prior bond authorizations or sales.
The judgment of the Superior Court, Law Division, is REVERSED except to the extent that the Court's holding is to be applied on a prospective basis.
JUSTICE LaVECCHIA, concurring in part and dissenting in part, agrees with the determination that the State should be allowed to proceed with the bond sales authorized by the Cigarette Tax Act and the Motor Vehicles Surcharges Act. She disagrees with the majority's determination on this record that certain contract bond proceeds do not constitute"revenue" under the Appropriations Clause. She is of the view that prior to taking action on the appeal, there should be further briefing and oral argument in respect of a number of important issues, including whether any debt proceeds -- voter-approved debt ("General Obligation" debt) or contract debt -- should be allowed to be used for operational expenses other than those ...