SCR39

A Concurrent Resolution proposing to amend Article VIII, Section II, paragraph 3 of the Constitution of the State of New Jersey.

Be It Resolved by the Senate of the State of New Jersey (the General Assembly concurring):

1. The following proposed amendment to the Constitution of the State of New Jersey is agreed to:

PROPOSED AMENDMENT

Amend Article VIII, Section II, paragraph 3 to read as follows:

3. a. The Legislature shall not, in any manner, create in any fiscal year a debt or debts, liability or liabilities of the State, which together with any previous debts or liabilities shall exceed at any time one per centum of the total amount appropriated by the general appropriation law for that fiscal year, unless the same shall be authorized by a law for some single object or work distinctly specified therein. Regardless of any limitation relating to taxation in this Constitution, such law shall provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be repealed until such debt or liability and the interest thereon are fully paid and discharged. Except as hereinafter provided, no such law shall take effect until it shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon.

b. On and after the date on which this subparagraph b. becomes part of the Constitution, the Legislature shall not enact any law that, in any manner, creates or authorizes the creation of a debt or liability of an autonomous public corporate entity, established either as an instrumentality of the State or otherwise exercising public and essential governmental functions, which debt or liability has a pledge of an annual appropriation as the ways and means to pay the interest of such debt or liability as it falls due and pay and discharge the principal of such debt, unless a law authorizing the creation of that debt for some single object or work distinctly specified therein shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon. Voter approval shall not be required for any such law providing that the ways and means to pay the interest of and to pay and discharge the principal of such debt or liability shall be subject to appropriations of an independent non-State source of revenue paid by third persons for the use of the single object or work thereof, or from a source of State revenue otherwise required to be appropriated pursuant to another provision of this Constitution.

c. No voter approval shall be required for any such law under subparagraphs a. or b. of this paragraph authorizing the creation of a debt or debts in a specified amount or an amount to be determined in accordance with such law for the refinancing of all or a portion of any outstanding debts or liabilities of the State, or of an autonomous public corporate entity, established either as an instrumentality of the State or otherwise exercising public and essential governmental functions, heretofore or hereafter created, so long as such law shall require that the refinancing provide a debt service savings determined in a manner to be provided in such law and that the proceeds of such debt or debts and any investment income therefrom shall be applied to the payment of the principal of, any redemption premium on, and interest due and to become due on such debts or liabilities being refinanced on or prior to the redemption date or maturity date thereof, together with the costs associated with such refinancing.

d. All money to be raised by the authority of such law shall be applied only to the specific object stated therein, and to the payment of the debt thereby created.

e. This paragraph shall not be construed to refer to any money that has been or may be deposited with this State by the government of the United States. Nor shall anything in this paragraph contained apply to the creation of any debts or liabilities for purposes of war, or to repel invasion, or to suppress insurrection or to meet an emergency caused by disaster or act of God.

(cf: Article VIII, Section II, paragraph 3 effective Dec. 8, 1983)

2. When this proposed amendment to the Constitution is finally agreed to pursuant to Article IX, paragraph 1 of the Constitution, it shall be submitted to the people at the next general election occurring more than three months after the final agreement and shall be published at least once in at least one newspaper of each county designated by the President of the Senate, the Speaker of the General Assembly and the Attorney General, not less than three months prior to the general election.

3. This proposed amendment to the Constitution shall be submitted to the people at that election in the following manner and form:

There shall be printed on each official ballot to be used at the general election, the following:

a. In every municipality in which voting machines are not used, a legend which shall immediately precede the question, as follows:

If you favor the proposition printed below make a cross (X), plus (+), or check (T) in the square opposite the word "Yes." If you are opposed thereto make a cross (X), plus (+) or check (T) in the square opposite the word "No."

b. In every municipality the following question

VOTERS TO APPROVE STATE AUTHORITY BONDS PAYABLE FROM STATE APPROPRIATIONS

YES

Do you approve the proposed amendment to the State Constitution which provides that, after this amendment becomes part of the Constitution, a law enacted thereafter that authorizes State debt created through the sale of bonds by any autonomous public corporate entity, established either as an instrumentality of the State or otherwise exercising public and essential governmental functions, such as an independent State authority, which debt or liability has a pledge of an annual appropriation as the ways and means to pay the interest of such debt or liability as it falls due and pay and discharge the principal of such debt, will be subject to voter approval, unless the payment of the debt is made subject to appropriations of an independent non-State source of revenue paid by third persons for the use of the object or work bonded for, or are from a source of State revenue otherwise required to be appropriated pursuant to another provision of the Constitution?

INTERPRETIVE STATEMENT

This amendment to the State Constitution will require voter approval of new laws that allow the State to borrow money by issuing bonds through any State agency or independent authority backed by a pledge of an annual appropriation to pay the principal and interest on the bonds. New laws to allow the issuance of these State authority bonds for State government purposes will be subject to voter approval. State courts have ruled that the State constitutional requirement that the Legislature and Governor must seek voter approval for bonded debt does not apply to such borrowing. That requirement is followed only for proposed State bonds that contain a binding, non-repealable pledge to pay off the bonds directly with State taxes. Most State authority bonds can be issued without voter approval because the payment of the bonds is backed only by a promise of the Legislature and the Governor that they will enact appropriations in the future to meet the bond payments. The courts have said this is a legal means of avoiding submitting the issuance of debt for voter approval. Laws to permit such debt that are enacted after December 4, 2003 will have to authorize voter referenda for approval of such debts. Exceptions to voter approval for authority bonds will be permitted if the bonds are to paid off from 1) a source of revenue dedicated by the State Constitution, which only the voters can establish, or 2) an independent non-State government source of payments for use of projects built or obtained with the borrowed money, such as highway tolls or user fees.

STATEMENT

This concurrent resolution proposes to amend the State Constitution so that voter approval will be required when the State borrows money by issuing certain types of State independent authority bonds backed by annual appropriations.

The Debt Limitation Clause of the New Jersey Constitution requires voter approval before the State can borrow money. However, State court decisions over the last 30 years have allowed the Governor and the Legislature to forgo seeking voter approval by using State public authorities as a conduit for State debt. These court decisions provide that if a public authority issues debt backed by a State promise to make annual appropriations in the future to repay (as opposed to a State issue of debt backed by a direct and irrevocable guarantee of the State's taxing power as a repayment source), then no voter approval is required. Thus, independent authorities have been used to incur State debt without voter approval to finance projects such as the construction and rehabilitation of State office buildings and higher education facilities and the purchase of equipment. Because the courts have construed the annual appropriations to pay the bonds as lease payments that are not binding on future legislative majorities, no voter approval has been necessary. More recently, independent authority debt has been used to cover regular State government operating obligations such as funding the payment of the unfunded accrued liability of the State's pension systems and the court-ordered obligation to fund capital improvements in the public schools in "Abbott districts."

This concurrent resolution to amend the constitution will require voter approval of new laws that allow the State to borrow money by issuing bonds through any State agency or independent authority backed by a pledge of an annual appropriation to pay the principal and interest on the bonds. New laws to allow the issuance of these State authority bonds for State government purposes will be subject to voter approval. Only in circumstances where the debt of an independent authority is supported by a constitutional dedication of State revenue or from an independent non-State source of revenue paid by third persons for the use of the financed project would the requirement for voter approval not apply. Laws to permit bond debt that are enacted after December 4, 2003 that are not exempt under the provisions of the amendment will have to authorize voter referenda for approval of such debts.