## Facts

- Plaintiffs Steven M. Lonegan and Stop the Debt.Com, LLC challenged New Jersey’s use of “appropriations-backed” (also called “contract”) bond financing.
- Under the challenged financing structures, independent state authorities issued bonds pursuant to contracts with the State Treasurer.
- The State did not pledge its full faith and credit; any state payments were expressly contingent on future legislative appropriations.
- Plaintiffs brought a broad constitutional attack on fourteen statutes authorizing such authority-issued, appropriations-contingent borrowing for multiple public purposes.
- The trial court granted summary judgment to the State and the authorities; the Appellate Division affirmed in a split decision.
- In an earlier decision in the same litigation, the court upheld one education-financing statute and directed additional briefing on the remaining statutes; this decision resolved the remaining challenges.

## Issues

1. Whether appropriations-backed obligations issued by independent state authorities, payable only if future legislatures appropriate funds and lacking a full-faith-and-credit pledge, constitute “state debt” under the New Jersey Constitution’s Debt Limitation Clause.
2. If such obligations are “state debt,” whether the Debt Limitation Clause requires voter approval before the State may implement the challenged financing statutes.

## Decision

- The Supreme Court of New Jersey affirmed summary judgment for defendants.
- The court held the Debt Limitation Clause does not apply to obligations subject to future legislative appropriations because they are not legally enforceable against the State.
- The court upheld the validity of the fourteen statutes authorizing appropriations-backed, authority-issued debt without voter referendum.

## Legal Principles

- The Debt Limitation Clause reaches legally enforceable state debt; it does not reach obligations for which bondholders cannot compel state payment absent legislative appropriation.
- General obligation bonds backed by the State’s full faith and credit are enforceable state debts; appropriations-backed “contract” bonds issued by independent authorities are not.
- Longstanding precedent permits authority-issued financing where the State’s payment promise is nonbinding and contingent on annual appropriations, placing such obligations outside the constitutional debt limit.
- Policy choices about redefining the constitutional debt limitation or restricting appropriations-backed borrowing are for the political branches, including by constitutional amendment if desired.

## Conclusion

The court sustained New Jersey’s longstanding practice of using authority-issued, appropriations-backed bonds, ruling that because the State makes no legally enforceable, full-faith-and-credit commitment and payments depend on future appropriations, the obligations are not “state debt” requiring voter approval under the Debt Limitation Clause.


Lonegan v. State, 176 N.J. 2, 819 A.2d 395 (2003)