On this date in 2002, the Supreme Court of New Jersey decided Lonegan v. State, 174 N.J. 435 (2002). There, plaintiffs mounted a challenge to numerous types of state “contract debt” (that is, “bonds issued by an independent state authority on a contract between the State Treasurer and the authority stating that payment on the bonds by the State is subject to legislative appropriations,” in contrast to “general obligation bonds,” which are “enforceable state debts backed by the full faith and credit of the State”). Plaintiffs claimed that all contract debt violated Article VIII, section II, paragraph 8 of the New Jersey Constitution, known as the “Debt Limitation Clause.” That provision forbids the incurring of debt that future Legislatures must stand behind, unless there is prior approval of that debt by the public in a referendum. Plaintiffs contended that, in essence, future discretionary appropriations to support contract debt are, in reality, not discretionary, since there could be catastrophic financial repercussions if the state did not stand behind that debt. A long line of cases, however, had approved contract debt in a variety of circumstances.
By a 5-1 vote, the Court upheld the Education Facilities Construction and Financing Act (“EFCFA”), a statute as to which plaintiffs’ argument was “put forward with particularity.” The Court so ruled because of “reliance by the State on our prior case law …. and for the separate and distinct reason that EFCFA was enacted by the Legislature in furtherance of the mandate found in Article VIII, Section IV, paragraph 1 (the Education Provision) of the New Jersey Constitution.” As to the rest of plaintiffs’ challenges, the majority directed that the case be listed for reargument. Chief Justice Poritz wrote the majority opinion, joined by Justices Coleman, Long, Verniero, and Lavecchia.
Justice Stein filed a separate opinion concurring in part and dissenting in part. He agreed that the bonds issued by EFCFA were valid. On the larger issue, however, Justice Stein would have held “that the issuance of debt without voter approval by an independent state authority, unsupported by adequate independent revenue source and to be amortized primarily or exclusively by annual legislative appropriations, violates the Debt Limitation Clause notwithstanding that the State has no legal liability for repayment of the debt.”
That was not the end of the story, of course. The case was reargued, and the Court then voted 4-3 to reject plaintiffs’ position on the overall Debt Limitation Clause issue. Lonegan v. State, 176 N.J. 2 (2003). The majority found that the Court’s own precedents, comparable decisions in other states under the constitutions of those states, and practical considerations regarding the effect on financial markets of a decision to void contract debt, all justified the Court’s decision. Chief Justice Poritz again wrote the majority opinion, in which Justices Coleman, Lavecchia and Albin joined. By that time, Justice Stein had left the Court. Justices Long, Verniero and Zazzali authored a joint dissenting opinion. Though the decision in Lonegan II later became a political football, in part because the named plaintiff ran unsuccessfuly for Governor, both the majority and dissenting coalitions consisted of Justices of different political affiliations.