# Lonegan v. State

> Supreme Court of New Jersey · August 21, 2002 · 174 N.J. 435

URL: https://www.frixlaw.com/law-library/cases/1547341

## Case

- **Full name:** Steven M. Lonegan; Stop the debt.com, LLC, Plaintiffs-Appellants, v. State of New Jersey; Roland M. MacHold, Treasurer of the State of New Jersey; New Jersey Sports and Exposition Authority; New Jersey Educational Facilities Authority; New Jersey Economic Development Authority; New Jersey Transportation Trust Fund Authority, Defendants-Respondents
- **Court:** Supreme Court of New Jersey
- **Decided:** August 21, 2002
- **Citations:** 174 N.J. 435; 809 A.2d 91; 2002 N.J. LEXIS 1261
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Poritz
- **Cited by:** 16 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1547341

## How later opinions describe it (automated extraction)

- reaffirming that Debt Limitation Clause applies whenever State is legally obligated to have Legislature make payments of certain magnitude over successive fiscal years
- discussing scope of Court’s holding in Enourato, supra, 90 N.J. at 410, 448 A.2d 449, and suggesting that bona fide leases might not come within strictures of Clause
- explaining the origins of New Jersey’s Debt Limitation Clause from the Panic of 1837 and the economic crisis’s impact on states
- discussing the State’s obligations under N.J. Const, art. VIII, § 4, ¶ 1 (the Education Provision)

## Opinion text

809 A.2d 91 (2002)
174 N.J. 435
Steven M. LONEGAN; Stop the Debt.Com, LLC, Plaintiffs-Appellants,
v.
STATE of New Jersey; Roland M. Machold, Treasurer of the State of New Jersey; New Jersey Sports and Exposition Authority; New Jersey Educational Facilities Authority; New Jersey Economic Development Authority; New Jersey Transportation Trust Fund Authority, Defendants-Respondents.
Supreme Court of New Jersey.
Argued January 2, 2002.
Decided August 21, 2002.
*92 Andrew T. Fede, Hackensack, argued the cause for appellants (Contant, Atkins, Rogers, Fede & Hille, attorneys).
Allison E. Accurso, Assistant Attorney General, argued the cause for respondents State of New Jersey, Roland M. Machold, Treasurer of the State of New Jersey, New Jersey Educational Facilities Authority, New Jersey Economic Development Authority and New Jersey Transportation Trust Fund Authority (John J. Farmer, Jr., Attorney General of New Jersey, attorney; Patrick DeAlmeida, Deputy Attorney General, on the briefs).
Matthew C. Johnston, Hackettstown, on behalf of respondent New Jersey Sports and Exposition Authority, relied upon the brief submitted on behalf of State of New Jersey, et al. (Courter, Kobert, Laufer & Cohen, attorneys).
David G. Sciarra, Executive Director, Educational Law Center submitted a brief on behalf of amicus curiae Abbott Plaintiffs (Mr. Sciarra, attorney; Mr. Sciarra and Paul J. Dillon, Hoboken, on the brief).
Andrea L. Kahn, Newark, submitted a brief on behalf of amicus curiae Garden State Coalition of Schools (McManimon & Scotland, attorneys).
Douglas S. Eakeley, Roseland, submitted a brief on behalf of amicus curiae League of Women Voters of New Jersey (Lowenstein Sandler, attorneys; Cecelia E. Haney and Maria N. Maccone, on the brief).
Melissa R. Vance, Counsel, Trenton, submitted a letter in lieu of brief on behalf of amicus curiae New Jersey Association of School Administrators.
Richard A. Friedman, Newark, submitted a letter in lieu of brief on behalf of amicus curiae New Jersey Education Association (Zazzali, Fagella, Nowak, Kleinbaum & Friedman, attorneys; Mr. Friedman and Kimberly A. Scurti, on the brief).
Michael F. Kaelber, Senior Associate Counsel, submitted a letter in lieu of brief on behalf of amicus curiae New Jersey School Boards Association (Cynthia J. Jahn, General Counsel, attorney).
John L. Kraft, Florham Park, submitted a letter brief on behalf of amicus curiae United Taxpayers of New Jersey.
The opinion of the Court was delivered by PORITZ, C.J.
In this case the Court is asked to consider once again the contours of Article VIII, Section II, paragraph 3 (the Debt Limitation Clause or Clause) of the New Jersey Constitution. The scope and meaning of the restrictions imposed on the legislative branch by the Clause have been discussed at length in an extensive body of case law spanning more than fifty years and covering a variety of bonding mechanisms adopted by the Legislature to meet the capital funding needs of the State. See, e.g., Enourato v. N.J. Bldg. Auth., 90 N.J. 396 , 448 A. 2d 449 (1982); N.J. Sports & Exposition Auth. v. McCrane, 61 N.J. 1 , 292 A. 2d 545 , appeal dismissed sub nom., Borough of E. Rutherford v. N.J. Sports & Exposition Auth., 409 U.S. 943 , 93 S.Ct. 270 , 34 L.Ed. 2d 215 (1972); Holster v. Bd. of Trs. of Passaic County College, 59 N.J. 60 , 279 A. 2d 798 (1971); Clayton v. Kervick, 52 N.J. 138 , 244 A. 2d 281 (1968); N.J. Tpk. Auth. v. Parsons, 3 N.J. 235 , 69 A. 2d 875 (1949). In those cases the Court has almost universally sustained statutes authorizing the issuance of debt that is not backed by the full faith and credit of the State, generally when the debt is undertaken by an independent authority, most often when that authority has a revenue source available to service the principal and interest on the debt. The Court has reasoned that the Debt Limitation Clause is not implicated when the State is not legally obligated on debt issued subject to future annual appropriations.
Plaintiffs challenge the State's use of contract debt [1] without voter approval because in their view it is "inconceivable... that the State Legislature will fail to make the necessary appropriations to prevent a default." Despite the "subject to annual appropriation" language in the contracts, plaintiffs claim that the potential negative impact of a default on the State's credit rating ensures that the Legislature will appropriate the amounts necessary to cover debt service obligations on contract bonds. They urge the Court to reevaluate its prior holdings, curtail sharply the State's use of such capital financing, and rule impermissible without voter approval the creation by the Legislature of contract debt or debt subject to appropriations.
Plaintiffs raise important and difficult issues. This Court, in a virtually unbroken line of precedent, has applied the Debt Limitation Clause literally, holding that when the full faith and credit of the State is not pledged the debt is not the debt of the State. That clear, bright line has appeared to serve well the financial needs of the State while, at the same time, remaining true to the meaning of the Clause. But, more recently, there have been substantial changes in the State's debt arrangements and whether the Clause, as interpreted, retains its fundamental purpose and vitality is today a troubling question. A literal interpretation of the Debt Limitation Clause that eviscerates the strictures the Clause expressly contains cannot serve the constitutional mandate.
That said, we are not in a position to rule on those issues without additional argument. Plaintiffs' broad challenge lists statutes containing a variety of financing strategies structured as contract debt that have been reviewed by this Court and *94 thereafter sustained, see, e.g., N.J.S.A. 52:18A:78.1 to -78.32 (New Jersey Building Authority Act) [2] , as well as "all other statutes that offend the Debt Limitation Clause." Those strategies must be viewed in context to be understood. Simply put, plaintiffs' sweeping claim that all contract debt is invalid must be anchored in a discussion of the financing mechanisms authorized in specific legislative enactments. Therefore, except for the Education Facilities Construction and Financing Act (EFCFA or the Act), which we sustain, we direct the Clerk of the Court to schedule this matter for additional briefing and reargument as soon as practicable in the fall of 2002.
In respect of EFCFA, plaintiffs' argument focuses on that statute "and the contract bond ... authorized." Lonegan v. State, 341 N.J.Super. 465, 481 , 775 A. 2d 586 (App.Div.2001). We consider EFCFA herein because the argument in respect of the Act is put forward with particularity; we uphold the Act because of reliance by the State on our prior case law, including Abbott v. Burke, 153 N.J. 480 , 710 A. 2d 450 (1998) ( Abbott V ), 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.
I
On December 28, 2000, plaintiffs filed a Verified Complaint in Lieu of Prerogative Writs in the Superior Court, Law Division, seeking injunctive relief and a declaratory judgment that EFCFA and other statutes authorizing contract bond financing are unconstitutional. Plaintiffs named the State of New Jersey, Roland Machold (then Treasurer of the State of New Jersey), the New Jersey Educational Facilities Authority, the New Jersey Economic Development Authority (EDA), the New Jersey Sports and Exposition Authority, and the New Jersey Transportation Trust Fund Authority as defendants. [3] Shortly thereafter the trial court determined that plaintiffs could not demonstrate a reasonable likelihood of success on the merits warranting an injunction. In then granting summary judgment to defendants on all claims, the court observed that this Court has repeatedly rejected challenges to contract bonds issued by independent authorities when the payment on the bonds is made subject to future legislative appropriations.
A majority of the Appellate Division panel affirmed the trial court on June 27, 2001. [4] Lonegan, supra, 341 N.J.Super. at 481-82 , 775 A. 2d 586 . After discussing the mechanics of contract bond financing, the *95 majority observed that unlike general obligation bonds, which are backed by the full faith and credit of the State, contract bonds do not create a "legal right to compel" the State to make payment on the bonds. Id. at 472 , 775 A. 2d 586 . The majority also considered our precedents in respect of the Debt Limitation Clause, concluding that the relevant case law "reveal[s] a consistently narrow construction of the ... Clause by the Court, so that as long as future Legislatures are not legally bound to make future appropriations to pay the indebtedness the [C]lause is satisfied." Id. at 478 , 775 A. 2d 586 . Although the majority could find no case addressing contract debt as such, the "rationale" of our prior cases suggested that the Debt Limitation Clause is satisfied even when an independent authority issuer has no separate source of income and is dependent on annual legislative appropriations to pay the amount due on the bonds. Ibid. In the view of the majority, because the purpose of the Clause is to prevent a default by the State, the "strictures of the... Clause [are] met if the State is not obligated on the bonds and cannot default." Ibid. Based on that reasoning, the majority sustained EFCFA.
Notably, the two judges speaking for the court expressed approval of their dissenting colleague's approach, stating: "Were we not barred by that precedent we might join in our colleague's thoughtful dissenting opinion." Id. at 481 n. 9, 775 A. 2d 586 . The dissenting member of the panel would have held that contract bonds violate the Debt Limitation Clause. Lonegan, supra, 341 N.J.Super. at 482 , 775 A. 2d 586 (Wells, J.A.D., dissenting). In his view, there is little if any difference between debt that the State is legally obligated to pay and debt that the State is morally obligated to pay. He observed that Moody's [5] considers "`appropriation debt [to be] no different than `true' debt.'" Id. at 484 , 775 A. 2d 586 (citation omitted). In respect of EFCFA, the dissent concluded that the EDA is simply a conduit for the sale of school construction bonds whose cost ultimately will be borne by the taxpayers because no other revenue source is available for that purpose. Id. at 483 , 775 A. 2d 586 .
II
EFCFA follows a long line of statutes authorizing debt that has not been subject to the restrictions of the Debt Limitation Clause. The genesis of the Clause and the extensive case law interpreting it provide a framework for analysis and consideration of the Act, and for an understanding of the various questions posed by plaintiffs' challenge.
A
As in most states, New Jersey's Debt Limitation Clause had its origins in the depression years that followed the economic boom of the 1830s. See Margaret G. Myers, A Financial History of the United States 143 (1970). In the late 1830s, only a handful of states had refrained from issuing *96 long-term debt in connection with a variety of projects, including such "public improvements" as the expansion and development of canals, roadways and railroads. Ibid.; see Clayton, supra, 52 N.J. at 146-47 , 244 A. 2d 281 ; McCutcheon v. State Bldg. Auth., 13 N.J. 46, 67 , 97 A. 2d 663 (1953) (Jacobs, J. dissenting), overruled by Enourato, supra, 90 N.J. at 410 , 448 A. 2d 449 ; V Proceedings of the Constitutional Convention of 1947: Committee on Taxation and Finance 590 (1953); Amos Tilton, Constitutional Limitations on the Creation of State Debt, in II Constitutional Convention of 1947 1708 (1951); Susan Oxford, Voters' Right to Approve State Debt—How Much Choice is Allowed? New Jersey Association on Correction v. Lan, 33 Rutgers L.Rev. 198, 202 (1980). During the years of prosperity, the states easily sold their bonds and many states engaged in heavy borrowing to support those and other projects. Clayton, supra, 52 N.J. at 146 , 244 A. 2d 281 ; McCutcheon, supra, 13 N.J. at 67-68 , 97 A. 2d 663 (Jacobs, J., dissenting). The boom was followed, however, by the failure of American crops in 1835 and 1837, leading to the panic of 1837 and the banking collapse of 1839. Davis Rich Dewey, Financial History of the United States 243-44 (1903); Tilton, supra, at 1709. The states most affected had speculated in western lands, become involved in the cotton trade or state banking schemes, or had invested in the Erie Canal. Dewey, supra, at 224-27. By 1842 nine states had defaulted on their obligations. Tilton, supra, at 1709.
Although New Jersey was not a defaulting state, it nonetheless sought to protect against the type of financial debacle experienced elsewhere by adopting, in 1844, one of the first debt limitation clauses in the country. N.J. Const. of 1844, art. IV, § 6, ¶ 4; Proceedings of the Constitutional Convention of 1844 311 (1942); Tilton, supra, at 1709; Oxford, supra, 33 Rutgers L.Rev. at 202. At that time, the framers expressed their concern about "opening a door for burthening the State with a debt which would encumber it from generation to generation." Proceedings of the Constitutional Convention of 1844 519 (1942). Later, the Court, echoing the framers' concern, explained that the Clause "prohibits `one Legislature from incurring debts [that] subsequent Legislatures would be obliged to pay, without prior approval by public referendum.'" City of Camden v. Byrne, 82 N.J. 133, 152 , 411 A. 2d 462 (1980) (quoting N.J. Sports & Exposition Auth., supra, 61 N.J. at 13-14 , 292 A. 2d 545 ).
The predecessor clause remained essentially unchanged in the Constitution of 1947 except that the amount of permissible unrestrained debt in a given year was altered from a predetermined amount ($100,000) to one-percent of the amount appropriated by the Legislature in the general appropriation act for that fiscal year. N.J. Const. art. VIII, § 2, ¶ 3; see McCutcheon, supra, 13 N.J. at 67 , 97 A. 2d 663 (Jacobs, J., dissenting). With that exception, today, as in 1844, the Debt Limitation Clause states, in relevant part:
The Legislature shall not, ... create in any fiscal year a debt or debts, ... 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.... [S]uch 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 *97 are fully paid and discharged. 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.
[art. VIII, § 2, ¶ 3.]
B
In In re Loans of the New Jersey Property Liability Insurance Guarantee Association, 124 N.J. 69, 75-76 , 590 A. 2d 210 (1991), we explained that the cases
in which this Court has construed the debt limitation clause fall into two categories. One group of decisions holds that the constitutional provision does not apply to the creation of debt by independent public corporate entities, ... [whereas] a second line of decisions generally find[s] that legislative expressions of intent to provide future funding do not create present debts of the State subject to the debt limitation clause....
That formulation provides a convenient way to examine our case law, although there are other interpretive strands woven throughout various of the Court's opinions as well as substantial overlap between the two categories. Thus, for example, certain of the cases suggest that when the Legislature has established an independent revenue source for debt repayment, e.g., turnpike tolls, or when payment from general appropriations would in any event be a necessary expenditure, e.g., lease installments for government offices, the Debt Limitation Clause is not violated. See, e.g., Enourato, supra, 90 N.J. at 409-10 , 448 A. 2d 449 (discussing funding source for payment of bond principal and interest in lease case); N.J. Sports & Exposition Auth., supra, 61 N.J. at 25 , 292 A. 2d 545 (explaining that "[f]unds to meet interest and principal of the bonds are derived solely from revenues generated by the agency's operation, which remain a special fund for that purpose until the bonds are fully paid"); Clayton, supra, 52 N.J. at 154-55 , 244 A. 2d 281 (discussing independent revenue source and lease payments). Those sub-themes are important in respect of the issues raised by plaintiffs' challenge and we will return to them. See infra at 447, 450-53, 462-63, 809 A. 2d at 98, 99-101, 107-08 . An overview of our cases suggests, however, that whatever way they are grouped and whatever the focus in a particular case, our prior holdings generally consist of variants on a single theme: the Debt Limitation Clause applies only when the State is legally obligated to make payments on the debt authorized by the Legislature.
The cases involving independent authorities are exemplars of that theme. We have, with rare exception, held that independent state authorities issuing bonds or other debt obligations that are not backed by the State's full faith and credit are not debts of the State for purposes of the Debt Limitation Clause. See, e.g., In re Loans, supra, 124 N.J. at 75 , 590 A. 2d 210 (citing cases that hold Debt Limitation Clause does not apply to debt created by independent public corporate entities); Enourato, supra, 90 N.J. at 410 , 448 A. 2d 449 (noting that "[a]lthough the [Building Authority] Act not only contemplates that the State will make the necessary appropriations but also seeks to ensure this result, the State is under no legal obligation to do so") (internal citation omitted). But see McCutcheon, supra, 13 N.J. at 66 , 97 A. 2d 663 , overruled by Enourato, supra, 90 N.J. at 410 , 448 A. 2d 449 (declaring void Building Authority's leases, contracts, and proceedings because "it is fundamental in the Constitution that, ... one Legislature cannot charge succeeding Legislatures with the duty of making appropriations"). More than fifty years ago, in New Jersey Turnpike Authority, supra, the Court reviewed *98 a statute authorizing the Turnpike Authority to construct and maintain "modern express highways" through the issuance of bonds "payable solely from tolls and revenues." 3 N.J. at 238 , 69 A. 2d 875 (citations omitted). Despite the "explicit and unambiguous language of the statute [that] entirely negatives any possibility of the proposed bonds being [i]n any manner debts or liabilities of the State ... `or a pledge of the faith and credit of the State,'" id. at 242 , 69 A. 2d 875 , it was argued that the debts of the Turnpike Authority, a creature of the State, were the responsibility of the State. Id. at 243 , 69 A. 2d 875 .
Writing for the Court, Chief Justice Vanderbilt rejected that argument. Relying on a substantial body of law that defines public corporations such as the Turnpike Authority as "independent entities," he determined that "the State is not responsible for their debts and liabilities." Ibid. Because an independent authority stood between the bondholder and the State, because the authority, not the State was legally obligated on the debt, the Debt Limitation Clause was not violated. The Court found it unnecessary in that case to reach the question whether bonds supported by a revenue source independent of the taxing power, i.e., the Special Fund Rule, "would have been valid even if the Legislature had not set up the ... Authority,... and even if the bonds were in fact direct obligations of the State." Id. at 246 , 69 A. 2d 875 .
Four years later, the Court invalidated debt supported by lease-purchase agreements between the State and an independent authority. McCutcheon, supra, 13 N.J. at 65-66 , 97 A. 2d 663 . McCutcheon involved a challenge to a statute that created a State Building Authority with the power to issue debt in order to acquire, construct, furnish, and operate office buildings for use by State entities, and to lease those facilities to the State at amounts "sufficient ... to liquidate ... bonds" issued by the authority. Id. at 59 , 97 A. 2d 663 . Because the State was to acquire the Authority's facilities at the end of the lease period, the Court viewed the leases as "installment purchase contracts under the guise of leases" and invalidated the entire scheme. Id. at 66 , 97 A. 2d 663 . Justice Jacobs, with Justice Brennan, dissented. The dissent looked to "generally accepted accounting practice ... [wherein] future rentals [were not considered to be] debts or liabilities," id. at 70 , 97 A. 2d 663 , and to the statute, which expressly stated that bonds of the Authority were not debts of the State. For those reasons, the dissent would have followed New Jersey Turnpike Authority and sustained the Building Authority Act. Id. at 73-74 , 97 A. 2d 663 .
Subsequently, in an opinion written by Justice Jacobs, the Court upheld a statute authorizing the Educational Facilities Authority to issue bonds for the construction of buildings to be leased to New Jersey colleges. Clayton, supra, 52 N.J. at 157 , 244 A. 2d 281 . Although it adverted to the dissent in McCutcheon , and to a myriad of out-of-state cases upholding the use of an independent authority for that purpose, Clayton, supra, 52 N.J. at 149-55 , 244 A. 2d 281 , the Court specifically relied on the Special Fund Rule, reasoning that the annual rentals on the Authority's leases "were intended to come mainly from sources unrelated to legislative appropriations." Id. at 154 , 244 A. 2d 281 .
Similarly, in New Jersey Sports & Exposition Authority, supra, the Sports Authority issued bonds to fund the construction of a sports complex in the Hackensack Meadowlands. 61 N.J. at 9-10 , 292 A. 2d 545 . The State promised the bondholders that it would not prejudice or limit the right of the Authority to construct and *99 operate the sports complex in any manner that would jeopardize the bondholders' interests until the bond obligations were paid, reserving revenues raised from the Authority's operations for that purpose. Id. at 12 , 292 A. 2d 545 . The Court held that the pledge of revenues without prior voter approval did not violate the Debt Limitation Clause because the revenues were "generated by the agency's operation... [and would] remain a special fund for that purpose until the bonds are fully paid." Id. at 25 , 292 A. 2d 545 .
Ten years later, in Enourato, supra, 90 N.J. at 402 , 448 A. 2d 449 , the Court considered an act authorizing the Building Authority to issue up to $250,000,000 in bonds for state office building construction and operation, much like the statute challenged in McCutcheon . The bonds contained language explaining that the State neither was obligated to pay the debt service, nor was pledging its full faith and credit toward payment. Ibid. The Authority depended on rental receipts from lease contracts with the State that were calculated to satisfy the Authority's obligations on the bonds. Ibid. As a result, the bondholders depended on the Legislature to appropriate "sufficient money each year to pay the rental fees that are used to repay them." Ibid.
The Court determined that the Authority did not have an enforceable promise from the State that it would appropriate monies to cover the lease payments when due. Id. at 410, 448 A. 2d 449 . Yet, the Court acknowledged that the Building Authority Act "not only contemplates that the State will make the necessary appropriations but also seeks to ensure this result." Ibid. (internal citation omitted). Otherwise, the Legislature's failure "to appropriate the necessary money would not only bankrupt the Authority and force it to default on its obligations, but would also cripple the State's ability subsequently to borrow money for any purpose." Id. at 402-03 , 448 A. 2d 449 . The Court nonetheless held that the bonds were not debts subject to the Debt Limitation Clause because the bond documents clearly stated that the State was under no legal obligation to make payment on the bonds. Id. at 410 , 448 A. 2d 449 . In so holding, the Court "expressly overruled" McCutcheon and reaffirmed the principle enunciated by Chief Justice Vanderbilt in New Jersey Turnpike Authority that only debt the State is legally obligated to pay is subject to the requirements of the Debt Limitation Clause. Ibid.
Those cases stand for the proposition that the debts of an independent authority are not debts of the State under the Debt Limitation Clause. They rely on the legal autonomy of the issuing authority and on specific language disclaiming any enforceable obligation on the part of the State. To the extent that they rely also on the availability of revenue sources for debt payments, or even recognize that revenue sources are available, the cases directly or indirectly invoke the Special Fund Rule,
the theory of which is that the purpose of a debt limitation in a constitution is to protect the people of the state from the exercise of the taxing power to pay obligations of the state, and therefore such a constitutional provision is not impinged upon by bonds that are payable solely from the revenues of the project to be built with the proceeds of the bonds.
[ N.J. Tpk. Auth., supra, 3 N.J. at 246 , 69 A. 2d 875 .]
The second line of cases described by the Court in In re Loans, supra, 124 N.J. at 76 , 590 A. 2d 210 , holds generally that the Legislature's expression of intent to provide future funding does not create debt subject to the Debt Limitation *100 Clause. In those cases, the Court has validated bond financing even when the expectation is that subsequent Legislatures will appropriate money to meet the debt service on the bonds. Thus, in Holster, supra, the Court upheld the County College Bond Act, which authorized the State and the counties to share equally in the capital costs of building community colleges using a mechanism whereby the counties would issue bonds and the State would appropriate monies to pay the principal and interest. 59 N.J. at 64-65 , 279 A. 2d 798 . The statute explicitly provided that the bonds would not be a debt or liability of the State despite the State's expressed intention to make payments on the bonds through future appropriations. Id. at 65 , 279 A.2d 798 . The Court determined that the Debt Limitation Clause was not violated:
Although there is doubtless a strong likelihood that payment of the bonds will in fact be met by legislative appropriations, we find nothing in the statute compelling the State to make such payments as a matter of law. Hence, both issuing counties and purchasing bondholders are on notice that the faith and credit of the State will not be pledged in respect of bonds issued pursuant to this enactment, but that payment on the part of the State will be dependent upon appropriations provided from time to time. Lacking such appropriations, recourse can be had only against the county which will have no recourse over against the State.
[ Id. at 66-67 , 279 A. 2d 798 .]
It is a basic tenet of Holster that "a projected or anticipated future legislative appropriation is not a present debt or liability... [because a] future legislature is not bound to make the appropriation." Id. at 71 , 279 A. 2d 798 .
In In re Loans, supra , the Court relied on that principle. 124 N.J. at 77 , 590 A. 2d 210 . There, the Court held that acceptance of statutorily-imposed loans from the Property Liability Insurance Guaranty Association (PLIGA) to the Automobile Insurance Guaranty Fund (Automobile Fund) did not violate the Debt Limitation Clause because "[t]he provisions ... for repayment of the PLIGA loans clearly fall within the types of assurances of future payments that this Court has traditionally found not to be `debts.'" Ibid. In that case, the Automobile Fund was to repay the loans "`out of whatever monies are available ... subject to ... appropriation by the Legislature'" and after various other conditions were met. Id. at 72 , 590 A. 2d 210 (internal citation omitted).
The Court examined earlier cases holding that State promises to make future annual payments did not create a present debt, including Bulman v. McCrane, 64 N.J. 105 , 312 A. 2d 857 (1973) and City of Passaic v. Consolidated Police & Firemen's Pension Fund Commission, 18 N.J. 137 , 113 A. 2d 22 (1955). In Bulman, supra, the Court held that a twenty-five year lease arrangement under which the State would assume ownership of a building at the end of the lease did not create a present debt subject to the Debt Limitation Clause even though future rent installments would be paid out of current revenues annually appropriated. 64 N.J. at 117-18 , 312 A. 2d 857 . Similarly, in City of Passaic, supra, a statute requiring the State to contribute annually to the Police and Firemen's Pension Fund was held not violative of the Clause because no present debt was created. 18 N.J. at 147 , 113 A. 2d 22 ; see also State v. Lanza, 27 N.J. 516, 525 , 143 A. 2d 571 (1958) (holding statute requiring State to pay certain municipalities amounts equal to property taxes lost after condemnation for reservoir did not violate Clause because "[t]here is no bargain *101 or professed contractual, conventional or legal undertaking to recompense the given loss of tax revenue, but rather a truly `voluntary appropriation' for a `lawful object'"), appeal dismissed, 358 U.S. 333 , 79 S.Ct. 351 , 3 L.Ed. 2d 350 (1959).
Based on that case law, In re Loans held that the State's promise of future payments subject to appropriations does not constitute debt within the meaning of the Debt Limitation Clause. 124 N.J. at 77 , 590 A. 2d 210 . Notably, the author of In re Loans later pointed out that the loan "arrangement ... was an integral part of the regulation of the insurance industry... [and, further, that] under the arrangement, the contributions of insurers were a separate source of revenue directed to meet the claims of threatened policy holders." Spadoro v. Whitman, 150 N.J. 2, 11-12 , 695 A. 2d 654 (1997) (Handler, J., dissenting in part).
C
Many states have employed a variety of creative and sophisticated financing devices much like those used in New Jersey to fund large capital projects. Some states also have established independent authorities charged with such duties as securing or coordinating project funding, implementing sale-leaseback agreements, and issuing bonds backed by specific revenue sources. As in New Jersey, the state courts that have reviewed those financing mechanisms in the context of debt limitation clause restrictions generally have held that they are constitutionally permissible. See, e.g., State ex rel. Fatzer v. Armory Bd., 174 Kan. 369 , 256 P. 2d 143 (1953) (evaluating and sustaining Kansas statute that empowered Kansas Armory Board to build, establish, and maintain armories funded by revenue bonds backed solely by State rental payments); In re Okla. Capitol Improvement Auth., 958 P. 2d 759 (1988) (reviewing and sustaining Oklahoma statute authorizing Oklahoma Capital Improvement Authority to issue highway bonds secured by pre-paid user fees, direct taxes, and State Transportation Rainy Day Funds); Baliles v. Mazur, 224 Va. 462 , 297 S.E. 2d 695 (1982) (analyzing and sustaining Virginia statute under which Virginia Public Building Authority was charged with construction, maintenance, and operation of public buildings funded by Authority-issued notes and bonds and secured by State rental payments).
Various other state courts have approved the issuance of bonds that are debt-serviced through future discretionary legislative appropriations. Again as in New Jersey, those courts have focused primarily on the discretionary nature of the state's duty to make the appropriation, and clear language in the bonds informing purchasers that the State has no legal obligation to service the bond debt through future appropriations or otherwise. See, e.g., In re Interrogatories by the Colo. State Senate, 193 Colo. 298 , 566 P. 2d 350, 355 (1977) (holding that in order for there to be state debt in the constitutional sense, "one legislature, in effect, must obligate a future legislature to appropriate funds to discharge the debt created by the first legislature"); Wilson v. Ky. Transp. Cabinet, 884 S.W. 2d 641, 644 (Ky.1994) (upholding road revenue bonds because disclaimer language clearly places risk of loss on bondholders); Dep't of Ecology v. State Fin. Comm., 116 Wash. 2d 246 , 804 P. 2d 1241, 1245-46 (1991) (stating that lease and trust agreements do not violate debt limitation clause because future legislatures are not legally obligated to appropriate funds for lease payments).
State courts that have held to the contrary have criticized what they view as legislative decisions to circumvent debt limitation restrictions through the use of *102 future discretionary appropriations that in practice are not discretionary at all. Those courts are unwilling to accept at face value declarations that the bonds issued do not constitute state debt, and instead closely examine the nature of the State's obligation. See, e.g., Montano v. Gabaldon, 108 N.M. 94 , 766 P. 2d 1328, 1330 (1989) (refusing to apply literal interpretation of debt limitation clause in holding unconstitutional county jail lease with option to purchase); State ex rel. Ohio Funds Mgt. Bd. v. Walker, 55 Ohio St. 3d 1 , 561 N.E. 2d 927, 932 (finding revenue anticipation note statute "inconsistent" with debt limitation clause based on statute's practical effect, that is "not only for what it purports to be, but what it actually is"), reh'g denied, 55 Ohio St. 3d 722 , 564 N.E. 2d 502 (1990).
Cases from West Virginia and Wyoming are instructive as to the considerations that have informed decisions in those states. In Winkler v. School Building Authority, 189 W.Va. 748 , 434 S.E. 2d 420, 436 (1993), the West Virginia Supreme Court found that bonds issued by the State of West Virginia School Building Authority violated that state's debt limitation clause. Payment on the bonds was secured only by a legislative pledge of future appropriations. Id. at 425. Further, the proposed bond language expressly informed purchasers that the funds provided "`are subject to annual appropriation by the State Legislature[, which] is not legally obligated to make appropriations in amounts sufficient to pay debt service on the bonds.'" Ibid. (internal citation omitted).
Despite those disclaimers, the court was unwilling to "abandon ... logic and common sense" regarding the true nature of the State's obligation. Id. at 435. Instead, the court held that "where the only source of funds for revenue bonds is general appropriations, it defies logic to say that the Legislature has no obligation to fund such bonds." Id. at 433. The court distinguished the funding mechanism before it with others it had approved in the past, e.g., lease-financing arrangements and special fund revenue bonds, stating as to lease financing "that state agencies have recurring needs for services, such as rental space and utility services," id. at 428, and, as to special fund bonds, that such bonds "are liquidated out of ... a tax or a fee generated from the facility itself, such as tolls for the use of a bridge or road, or parking-garage fees." Id. at 429.
In Witzenburger v. Wyoming, 575 P. 2d 1100 , 1120 (Wyo.1978), the Wyoming Supreme Court determined that statutorily authorized bonds issued by the Wyoming Community Development Authority violated that state's debt limitation clause. In reaching that conclusion, the court looked beyond what it described as "the legislative self-serving declaration that the bonds [were] not debts of the state," id. at 1117, and instead scrutinized "the substance, not the form" of the transaction. Ibid. The court concluded:
The notice on the bonds does not preclude a finding that as a matter of fact and as a matter of legislative fiat, future tax money is offered as security for and payment of revenue bonds, though reached in a round-about way.... The legislature cannot do indirectly what it cannot do directly.
[ Ibid. (internal citations and footnote omitted).]
Those cases suggest other approaches to the Debt Limitation Clause analysis that rely, not on a legal construct, but rather on practical considerations relating to the source of debt payments or the category of expenses funded by the debt.
*103 D
Two recent cases of our Court require separate and individual consideration. In one, relied on by plaintiffs, the Court issued an order with a dissent, see Spadoro, supra, 150 N.J. at 2 , 695 A. 2d 654 , and in the other, relied on by the State, there is a discussion of a pre-EFCFA financing proposal for the construction of school facilities in the Abbott Districts. See Abbott V, supra, 153 N.J. at 523-24 , 710 A. 2d 450 .
Spadoro involved a challenge to the Pension Bond Financing Act of 1997, N.J.S.A. 34:1B-7.45 to -21, in which the plaintiffs alleged that by establishing a mechanism for the creation of state debt without voter approval, the Act violated various provisions of the State Constitution, including the Debt Limitation Clause. Spadoro, supra, 150 N.J. at 2 , 695 A. 2d 654 . Under the Pension Bond Financing Act, the EDA is authorized to issue approximately $2.7 billion in state contract bonds "to pay the State's obligations for the unfunded accrued liability of several state pension systems." Ibid. (Handler, J., dissenting in part). Payment on the bonds is to come from the State, "subject to future legislative appropriations." Ibid. A majority of the Court found that the matter was moot and entered an order dismissing the plaintiff's appeal and petition for certification. [6] Ibid. Justice Handler filed an opinion, joined by Justice Stein, concurring in part and dissenting in part. He believed the Court should adjudicate the case "because of the importance of the underlying issue and the possibility of its recurrence." Id. at 3 , 695 A. 2d 654 .
As in In re Loans, supra , Justice Handler reviewed our prior case law, but, on reevaluation of the State's bonding practices, he suggested a three part test that would consider whether the bonds "are created by an independent authority," are "dependent on a `special fund' or separate revenue source for ... repayment," and are dependent on a "pledge on the part of the state to repay the debt." Id. at 8-9, 695 A. 2d 654 . Using that formulation, the dissent concluded that the EDA was not an independent authority because it "serve[d] no governmental function other than to issue the bonds for the State itself, becoming, in effect, a shield to insulate the State from being labeled a debtor." Id. at 10, 695 A. 2d 654 . Moreover, under the second prong of the test, the EDA had "no separate source of income ... [that would] enable [it] to repay the bonds." Ibid.
Finally, the dissent expressed particular concern that the proceeds were to be used to offset "the ordinary expenses entailed in the regular operation of government." Ibid. Justice Handler observed that prior bond acts validated by the Court "involved government purposes, such as major capital improvements, capital construction and the provision of special services," and not the day-to-day costs of operating State government. Ibid. He did not discuss the third prong of his test—whether the State had pledged repayment on the debt—but, rather, relied principally on the lack of both a "separate source of income ... to repay the bonds," and a fully functioning authority as support for his view that the Pension Bond Financing Act violated the Debt Limitation Clause. Id. at 11, 12, 695 A. 2d 654 . In the instant case, plaintiffs rely on Justice Handler's dissent as "persuasive authority" and urge the Court to adopt his reasoning.
In Abbott V, supra, the Court approved the State's proposal to use contract bonds *104 to finance the construction and repair of school facilities. 153 N.J. at 524 , 710 A. 2d 450 . During the remand proceedings ordered in Abbott v. Burke, 149 N.J. 145, 223-26 , 693 A. 2d 417 (1997) ( Abbott IV ), the State had proposed that the Abbott districts issue bonds through a "private placement" with a state agency, the Educational Facilities Authority (EFA), "which would, in turn sell [the bonds] to the public." Abbott V, supra, 153 N.J. at 523 , 710 A. 2d 450 . More specifically, concerned that property-poor districts with low bond ratings faced difficulties securing school construction financing, the Department of Education "recommended that the Legislature amend N.J.S.A. 18A:72A-1 to -58 to empower the ... EFA ... to finance the construction and renovation of elementary and secondary schools in the Abbott districts." Abbott V, supra, 153 N.J. at 523 , 710 A. 2d 450 . As the remand court observed, "[b]ecause they are property-poor, Abbott districts have great difficulty issuing bonds in the open market; even if they could go to the bond market, the bonds would carry a substandard rating and high interest rate." Id. at 631, 710 A. 2d 450 (App. I) (Report and Decision of Remand Court). In contrast, it was anticipated that the proposed EFA bonds would receive an AAA rating, and that the districts would obtain other benefits from the arrangement because, as "construction manager" the EFA "would prepare specifications for construction, solicit bids for all work and materials required, enter into project contracts, invest any monies not required for immediate disbursement, and review all completed work before dispensing requisitioned funds." Id. at 523-24 , 710 A. 2d 450 .
The Court found that the State's proposal "would ensure efficient and satisfactory construction" and "would effectively address the need for adequate facilities and capital improvements" in the Abbott districts. Id. at 524 , 710 A. 2d 450 . As the Abbott plaintiffs, amici in this case, correctly point out, in Abbott V the Court "accepted the State's preliminary proposal to fully finance needed construction through the issuance of contract bonds by EFA."
III
Plaintiffs center their more general argument on EFCFA as illustrative of the class of statutes that authorize unconstitutional debt. The more focused discussion of EFCFA by the parties and by various amici, as well as the Act's unique underpinning in the Education Provision of our Constitution, permit disposition of the EFCFA claim.
A
EFCFA establishes the largest, most comprehensive school construction program in the nation. See N.J.S.A. 18A:7G-1 to -30; id. at -57 to -71; New Jersey Department of Education, Summary of the Educational Facilities Construction & Financing Act, at http://www.state.nj.us/njded/facilities/act_summ.htm. Consonant with the constitutional mandate of the Education Provision, the Act was passed "to provide for the maintenance and support of a thorough and efficient system of free public schools," including educating children in "physical facilities that are safe, healthy, and conducive to learning." N.J.S.A. 18A:7G-2a. In furtherance of that responsibility, EFCFA addresses "[i]nadequacies in the quality, utility, and safety of educational facilities [that] have arisen among local school districts of this State," id. at -2b, most particularly, in the Abbott Districts:
Educational infrastructure inadequacies are greatest in the Abbott districts where maintenance has been deferred *105 and new construction has not been initiated due to concerns about cost. To remedy the facilities inadequacies of the Abbott districts, the State must promptly engage in a facilities needs assessment and fund the entire cost of repairing, renovating, and constructing the new school facilities determined by the Commissioner of Education to be required to meet the school facilities efficiency standards in the Abbott districts. In other districts, the State must also identify need in view of anticipated growth in school population, and must contribute to the cost of the renovation and construction of new facilities to ensure the provision of a thorough and efficient education in those districts.
[ Id. at -2c.]
To effectuate its goals, the Act states that the EDA, established pursuant to N.J.S.A. 34:1B-1 to -21.15, "shall be responsible for the financing, planning, design, construction management, acquisition, construction, and completion of school facilities projects." N.J.S.A. 18A:7G-13a. EFCFA authorizes the EDA "to issue bonds and refunding bonds, incur indebtedness and borrow money" to fund those projects and to provide for the administrative and operating costs of the Authority in connection with its school construction activities. Id. at -14a.
The financing scheme for the payment of the debt service on the bonds involves the use of contract bonds. Id. at -17 and -18. The Act permits the EDA and the State Treasurer to enter into a contract wherein the Treasurer agrees to pay from the General Fund to the EDA "an amount equal to the debt service amount due to be paid in the State fiscal year on the bonds or refunding bonds" issued by the Authority. Id. at -17; see id. at 14c. Those bonds, however, are issued subject to a proviso in the authorizing legislation, and in the bonds, that payment is contingent on annual appropriations by the Legislature and that the bonds are not the debt of the State. See id. at 14f, -17, and -18.
Pursuant to N.J.S.A. 18A:7G-14a, the Authority is permitted to issue no more than $8.6 billion in bonds for the purpose of funding new schools and repairing existing facilities. Of that $8.6 billion, $6 billion is allocated to the Abbott districts to fully fund school facilities projects, and $2.5 billion to non-Abbott school projects. [7] Ibid. As of May 2001, one-half billion dollars in bonds had been sold. Lonegan, supra, 341 N.J.Super. at 483 , 775 A. 2d 586 (Wells, J.A.D., dissenting). The question whether EFCFA bonds should be issued has not been and will not be put to the voters.
B
The contract debt authorized by EFCFA is sui generis. We are unaware of any other authorized state bonds dedicated to the provision of constitutionally required facilities. Indeed, in the purpose provisions of EFCFA the Legislature specifically acknowledges its constitutional obligation under the Education Provision to provide safe and adequate school buildings in every school district in the State. See N.J.S.A. 18A:7G-2a to -2c. In Abbott V, supra, we recognized
that the school buildings in Abbott districts are crumbling and obsolescent and that this grave state of disrepair not only prevents children from receiving a thorough and efficient education, but also threatens their health and safety. Windows, cracked and off their runners, do not open; broken lighting fixtures dangle precipitously from the ceilings; *106 fire alarms and fire detection systems fail to meet even minimum safety code standards; rooms are heated by boilers that have exceeded their critical life expectancies and are fueled by leaking pumps; electrical connections are frayed; floors are buckled and dotted with falling plaster; sinks are inoperable; toilet partitions are broken and teetering; and water leaks through patchwork roofs into rooms with deteriorating electrical insulation.
[ 153 N.J. at 519 , 710 A. 2d 450 .]
Because "[t]hese deplorable conditions have a direct and deleterious impact on the education available to ... at-risk children," we held that "[t]he State's constitutional educational obligation includes the provision of adequate school facilities." Ibid.
That mandate is reinforced in our Constitution by Article VIII, Section IV, paragraph 2 (the School Fund Provision), wherein a perpetual "fund for the support of free public schools" is established. That provision states, in relevant part:
The bonds of any school district of this State, issued according to law, shall be proper and secure investments for the said fund and, in addition, said fund, including the income therefrom and any other moneys duly appropriated to the support of free public schools may be used in such manner as the Legislature may provide by law to secure the payment of the principal of or interest on bonds or notes issued for school purposes by counties, municipalities or school districts or for the payment or purchases of any such bonds or notes or any claims for interest thereon.
[art. VIII, § IV, ¶ 2.]
By its express terms, the provision permits the State to use the school fund and "income therefrom and any other moneys duly appropriated to the support of free public schools, as the Legislature so chooses, to guarantee the school bonds of counties, municipalities or school districts." Ibid. (emphasis added). Approved in 1958 by the voters, the School Fund Provision separately authorizes state-backed school bonds without reference to the Debt Limitation Clause. Although there is little extant legislative history on the provision, a May 1958 Statement of the State Federation of District Boards of Education of New Jersey before the Education Committee of the Assembly outlines the simple purpose behind its enactment—to enable the State to support school bonds.
By allowing the State to guarantee local debt, the School Fund Provision advances the constitutional guarantee of a thorough and efficient education. In practical effect, as noted in Abbott V, supra, state support allows school districts to obtain more favorable interest rates for their bonds thereby lowering the costs of school construction. 153 N.J. at 523 , 710 A. 2d 450 . Indeed, the bond strategy approved in Abbott V appears to follow closely the structure permitted by the School Fund Provision. As originally proposed in the Abbott IV remand hearings, Abbott V, supra, 153 N.J. at 630-32 , 710 A. 2d 450 (App. I), and as approved by the Court in Abbott V, a State authority would have purchased local debt and then sold that debt to the public. Id. at 524 , 710 A. 2d 450 . We can see little difference between the tiered financing approach originally proposed and the simpler design found in EFCFA. Certainly, debt issued by the EDA effectuates the core purpose of the School Fund Provision by providing state support for constitutionally required school construction bonds. [8]
*107 It is not surprising, then, that the State relied on our approval in Abbott V when enacting EFCFA. Moreover, both the executive and legislative branches had good reason to believe that, under the precedents of this Court, EFCFA would withstand a Debt Limitation Clause challenge. EFCFA bonds are a classic example of non-binding debt. The bonds themselves contain explicit language to the effect that they are not backed by the State's full faith and credit. Also, the bonds, the contract between the State Treasurer and the EDA, and documents accompanying the bonds and the contract, all clearly indicate that the bonds are the "limited obligations of the EDA" and "shall not be a debt or liability of the State." N.J.S.A. 18A:7G-14f; see N.J.S.A. 18A:7G-14c, -17, and -18. In this respect the bonds are similar to the debt approved by the Court in its earlier cases.
Finally, in its details, EFCFA tracks those mechanisms that have been previously endorsed by this Court. In conformance with our case law, substantial power is placed in the hands of an independent authority to carry out a wide range of activities related to the construction and improvement of school buildings. N.J.S.A. 18A:7G-13. That authority—the EDA— has broad powers to oversee the financing and construction of facilities adequate to meet the mandate of a thorough and efficient education for the school children of this State. Id. at -5; see Abbott V, supra, 153 N.J. at 519-20 , 710 A. 2d 450 .
In its broad outline, EFCFA was approved by this Court in Abbott V. In reliance on that approval and on our long line of precedents validating similar debt issued by an independent authority, the State sought to fulfill its constitutional obligation to the school children of New Jersey. For that reason, and because EFCFA is based in the Education Provision and supported by the School Fund Provision of our Constitution, we hold that the Act does not violate the Debt Limitation Clause of the New Jersey Constitution.
IV
Over five decades of case law in New Jersey have established the constitutionality of contract debt in a variety of forms and settings. Distilled to its essence, our cases have held that when the bonds authorized do not impose a legal obligation on the State they are not a debt of the State. See N.J. Tpk. Auth., supra, 3 N.J. at 242 , 69 A. 2d 875 ("To bring the proposed bond issue under the ban of the Constitution it must first appear that the bonds will `create ... a debt or debts, liability or liabilities of the State.'"). Yet, in this case, plaintiffs question the continued viability of that concept.
In his Spadoro dissent, Justice Handler concluded from his review of the Pension Bond Financing Act that "[i]f the State is permitted to incur debt in order to meet current operating expenses, payable only from the State's general revenues, it is hard to imagine any debt issuance by a state agency that would run afoul of the Debt Limitation Clause." 150 N.J. at 12 , 695 A. 2d 654 . Concerned about the various devices now used to avoid "the restrictions of the ... Clause," ibid., he adjured the Court to revisit its "fundamental" meaning:
In evaluating the validity of the bond issue under the Debt Limitation Clause, we are enjoined to accord that provision the status that it deserves, namely, that of an important structural provision in *108 our Constitution. Its essential purpose is central to the constitutional structure of government. Its broad and fundamentally important purpose of not binding future majorities to the financial policies of current majorities must be construed with that overriding constitutional theme in mind. Under no circumstance should it be deflated or read out of the Constitution as a mere nuisance provision that serves no purpose except to define an administrative procedure for selling debt.
[ Id. at 12-13, 695 A. 2d 654 .]
When, in 1953, Justices Jacobs and Brennan dissented in McCutcheon , Justice Jacobs wrote:
In authorizing and executing the actual leases in controversy before us the Legislative and Executive Branches have simply applied sound and economical current business practices without incurring any new state bonded indebtedness or imposing any new taxes, without endangering the State's credit and without violating any restrictive constitutional policies expressed by the delegates.
[ 13 N.J. at 78 , 97 A. 2d 663 .]
Justice Jacob's caveat is a telling reminder of the concerns that brought about the Debt Limitation Clause in the 1800s. Today, it appears likely that the "State's credit" would be "endanger[ed]" if the Legislature declined to appropriate monies sufficient to cover payments on the contract debt it has authorized.
The Debt Limitation Clause became a part of our State Constitution because New Jersey wished to avoid speculation through debt financing by limiting its use. The economic conditions that led to the Clause, particularly the amount of debt accumulated by many of the states, brought about "the financial collapse of several ... [s]tate governments." Dewey, supra, at 243. One historian describes those conditions as follows:
Encouraged by the expansion of industry and commercial enterprise which was witnessed in this country during the first half of the century, many States, particularly in the North, borrowed money to invest in internal improvements, such as railroads and canals, which would aid in developing their resources; in the South, and in a less degree the West, States borrowed largely in order to engage in State banking schemes, and in the West States borrowed for commercial enterprises. These undertakings in many cases proved either unremunerative or too expensive for the State to carry; and in some of the newer commonwealths particularly there was not an honest determination, even where there was the ability, to meet the maturing obligations of interest and principal.
[ Id. at 243-44.]
The framers believed that future generations of taxpayers should not have to pay for their generation's mistakes.
Perhaps because of that history, other state courts have taken a more expansive view of debt limitation clauses like ours. See supra at 453-55, 809 A. 2d at 99-101 . We, also, have considered other means to evaluate whether a statute authorizing the issuance of contract debt violates the Debt Limitation Clause, including whether payment on the bonds is derived from an independent revenue source such that future appropriations from general tax revenues will not be required, or whether the authorized lease/debt payments are for necessary state office space rather than some speculative venture.
Those different approaches provide a useful framework for analysis. We therefore direct the Clerk of the Court to establish a schedule for additional briefing *109 and reargument in the fall. Plaintiffs should center their discussion on the financing mechanisms authorized by the statutes they find objectionable and on those different categories of contract debt reviewed in the case law of this and other states. We ask the parties to assume in their presentations that the Court intends to reconsider its precedents sustaining contract debt (or debt subject to future appropriations), and to present argument related to those other approaches.
Thus, for example, the parties should discuss whether the purposes of the Debt Limitation Clause are served when the debt authorized is backed by a revenue stream. Is it sufficient, for purposes of the analysis, that the revenue is realistically "anticipated" at the time the enabling statute is enacted or should that revenue be considered at the time of debt issuance? And, must that revenue be derived from the project financed (self-liquidating), e.g., turnpike tolls, college tuition, or can it be from another source (the Special Fund Doctrine, see supra at 446-47, 809 A.2d at 96-98 )? Are lease payments structured to cover the debt service on bonds issued to construct state office buildings a violation of the Debt Limitation Clause? Must the payments reflect fair market value rentals? Would it affect the analysis if the lease is a typical lease containing terms and conditions generally found in commercial leases? Although such payments resemble the "ordinary expenses of government" that concerned the Spadoro dissent, can they/should they be differentiated from pension contributions? We invite the parties to present other relevant considerations based on our dissenting colleague's view of those matters, or based on the parties' understanding of the financial markets and state bonding practices.
Finally, although we do not here dispose of any of these matters, or suggest any particular result, we ask the parties to discuss whether, as suggested by the dissent, the Court's decision should be given a future effective date if any of the State's bonding practices are invalidated under the Debt Limitation Clause.
V
The judgment of the Appellate Division upholding EFCFA is affirmed. Plaintiffs' general challenge to contract debt is set down for reargument.
STEIN, J., concurring in part and dissenting in part.
The critical issue in this appeal is whether the issuance of so-called "contract" or "appropriations" debt without voter approval by independent state authorities, unsupported by an adequate independent revenue source and to be amortized by annual legislative appropriations, violates the Constitution's Debt Limitations Clause, N.J. Const. Art. VIII, § 2, ¶ 3, [9] *110 notwithstanding that the State has no legal liability for repayment of that debt.
The State's increased reliance on appropriations debt in recent years is undisputed. That debt now amounts to approximately $10.8 billion, or roughly seventy-five percent of the State's total bonded debt. Also undisputed is that the State never has defaulted and, as a practical matter, cannot default on its appropriations debt, and that the credit markets and bond rating agencies regard appropriations debt as substantially equivalent to general obligation debt because "a failure to appropriate will result in a significant credit deterioration for all types of debt issued by the defaulting government." Standard & Poors, Revised Lease and Appropriation Backed Debt Rating Criteria (June 13, 2001) (S & P Rating Criteria).
The State does not dispute that the classic description of the purpose of the Debt Limitation Clause is that it prohibits "`one Legislature from incurring debts [that] subsequent Legislatures would be obligated to pay, without prior approval by public referendum.'" City of Camden v. Byrne, 82 N.J. 133, 152 , 411 A. 2d 462 (1980) (quoting New Jersey Sports & Exposition Auth. v. McCrane, 61 N.J. 1, 13-14 , 292 A. 2d 545 (1972)).
The State contends that, even though as a practical matter the Legislature annually must appropriate amounts necessary for debt service on appropriations bonds, the Debt Limitations Clause is not implicated because "the bond holders may not compel the State to make principal and interest payments on the independent authorities' bonds." In my view, the State's analysis effectively would write the Debt Limitations Clause out of the Constitution and render it a nullity. That analysis implies that the State can ignore the voter approval requirement of the Debt Limitation Clause and borrow money at almost the same interest rate available for general obligation bonds by the simple expedient of substituting an independent state authority as the borrower in place of the State, even though annual state appropriations are the primary or exclusive source of funds to amortize the debt.
The Court's opinion upholds the validity of bonds to finance school construction and renovation authorized by the Education Facilities Construction and Financing Act (EFCFA or the Act), N.J.S.A. 18A:7G-1 to -44, a determination in which I concur. The Court elects, however, to reargue rather than decide the critical issue of the validity of contract or appropriations debt, an issue that in my view should be decided now and not deferred. The public interest clearly requires this Court to resolve the question of the constitutionality of appropriations debt. Reargument will delay— but not illuminate—that determination.
I would hold that the issuance of debt without voter approval by an independent state authority, unsupported by an 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. No one disagrees that the State, as a practical matter, must repay its appropriations debt in order to maintain the stability of its credit in the bond market. As a result, appropriations debt effectively commits future legislatures to authorize appropriations for debt repayment without voter approval— notwithstanding that the State has no legal liability for such debt—in contravention of the purpose and intent of the Debt Limitation Clause.
*111 In assuming that appropriations debt issued without voter approval and unsupported by an independent revenue source did not offend the Constitution, the legislative and executive branches obviously have relied heavily on past decisions of this Court. Whether or not the extent of that reliance was wholly justified may be debatable, but the reliance itself is incontestable. The Attorney General's brief states that
over a period of more than fifty years, this Court has repeatedly recognized that bonds issued by independent authorities, without the State's full faith and credit, and backed only by a promise from the State Treasurer to make payments if future Legislatures decide to make appropriations for such payments, do not constitute State debt for constitutional purposes.
That brief also asserts that the Legislature enacted EFCFA in part as a response to this Court's decision in Abbott v. Burke, 153 N.J. 480 , 710 A. 2d 450 (1998) ( Abbott V ), and various amici point to portions of that opinion that fairly could be read as endorsing essentially the same bond financing mechanism for school construction that was incorporated in the Act. Id. at 525-26 , 710 A. 2d 450 . Moreover, in excess of fifty school districts have put school construction bond issues on the ballot in reliance on the Act, with a success rate of over eighty percent.
Moreover, as I explain, infra at 498-500, 809 A. 2d at 131-32 , I also am concerned that the Debt Limitation Clause may no longer be the most relevant contemporary standard for determining whether the issuance of additional State debt is economically sound. I note that the bond rating agencies consider the ratio of debt service to annual revenues to be a more accurate gauge of a State's capacity to carry additional debt. Accordingly, I consider it to be likely that a decision invalidating appropriations debt would prompt the Legislature to give serious and expeditious consideration to the feasibility of a constitutional amendment relating to the issuance of appropriations debt.
As I later demonstrate in more detail, infra at 501-06, 809 A. 2d at 133-36 , in determining whether the remedy for a judicial invalidation of a state statute on constitutional grounds should apply retroactively or prospectively, "`reliance interests weigh heavily in the shaping of an appropriate equitable remedy.'" Salorio v. Glaser, 93 N.J. 447, 464 , 461 A. 2d 1100 (1983) (quoting Lemon v. Kurtzman (Lemon II), 411 U.S. 192, 203 , 93 S.Ct. 1463, 1471 , 36 L.Ed. 2d 151, 163 (1973)). Because of the longstanding and widespread reliance by the legislative and executive branches of State government on this Court's prior decisions on this issue over the past fifty years, specifically including Abbott V, I am persuaded that a holding that the issuance of appropriations debt without voter approval by an independent state authority, unsupported by an adequate independent revenue source and to be amortized by annual legislative appropriations, violates the Debt Limitation Clause, should apply only prospectively, effective January 1, 2004, in order to afford the Legislature time to take appropriate steps, including possible approval of a constitutional amendment for submission to the voters, to preserve the State's access to financial markets.
I
Plaintiffs challenge the constitutionality of contract bond financing in a complaint seeking injunctive relief and a declaratory judgment that the EFCFA, and various other statutes that authorize contract bond financing, violate the Debt Limitation Clause. In addition to the State and its Treasurer, the defendants include the New *112 Jersey Educational Facilities Authority (EFA), the Economic Development Authority (EDA), the New Jersey Transportation Trust Fund Authority (TFA), and the New Jersey Sports and Exposition Authority (Sports Authority), all of which are independent Authorities with the statutory power to issue contract debt. The Law Division granted summary judgment in favor of all defendants, concluding that the EFCFA and other statutes authorizing contract bond financing did not violate the Constitution. A divided panel of the Appellate Division affirmed. Lonegan v. State, 341 N.J.Super. 465 , 775 A. 2d 586 (2001). The dissenting member concluded that contract bond financing was unconstitutional, noting that it "ignores the spirit of the entire [Debt Limitation] Clause," and "ignores the letter of the first line of the Clause [that prohibits] creating debt `in any manner' in violation of the Clause." Id. at 488 , 775 A. 2d 586 (Wells, J., dissenting). Judge Wells would have remanded the matter to the trial court to grant injunctive relief. Ibid.
Although plaintiffs' appeal implicates its challenge to the constitutionality of numerous statutes that authorize contract bond financing, the challenge to the contract bond financing provisions of the EFCFA is central to this appeal and perhaps best illustrates the rationale for prospective application of my determination that contract bond financing unsupported by an independent revenue source and amortized by annual legislative appropriations violates the Debt Limitation Clause.
The EFCFA was enacted "to provide for the maintenance and support of a thorough and efficient system of free public schools[, including educating children] in physical facilities that are safe, healthy, and conducive to learning." N.J.S.A. 18A:7G-2a. In furtherance of that responsibility, EFCFA addresses "[i]nadequacies in the quality, utility, and safety of educational facilities [that] have arisen among local school districts of this State," id. at -2b, most particularly, in the Abbott Districts.
The Act provides that the EDA, established pursuant to N.J.S.A. 34:1B-1 to -21.15, "shall be responsible for the financing, planning, design, construction management, acquisition, construction and completion of school facilities projects." N.J.S.A. 18A:7G-13a. EFCFA authorizes the EDA "to issue bonds and refunding bonds, incur indebtedness, and borrow money" to fund those projects and to provide for the administrative and operating costs of the Authority in connection with its school construction activities. N.J.S.A. 18A:7G-14a.
The financing scheme for the payment of the debt service on the bonds involves the use of contract or appropriation bonds. N.J.S.A. 18A:7G-17 and -18. The Act authorizes the EDA and the State Treasurer to enter into an agreement pursuant to which the Treasurer agrees to pay from the General Fund to the EDA "an amount equal to the debt service amount due to be paid in the State fiscal year on the bonds or refunding bonds" issued by the Authority. N.J.S.A. 18A:7G-17. See N.J.S.A. 18A:7G-14c. Those bonds are "special and limited obligations of the authority," not the State, and must "contain a statement to that effect on their face." N.J.S.A. 18A:7G-14f. Accordingly, any contractual commitment made by the Treasurer regarding payments from the general fund to meet the debt service on the bonds is "subject to and dependent upon" annual appropriations by the Legislature. N.J.S.A. 18A:7G-17, -18.
A distinguishing feature of school facilities construction to be financed by the appropriations debt authorized by EFCFA is that the need for those school facilities in the so-called Abbott districts has been *113 determined by this Court to be a matter of constitutional mandate. In Abbott v. Burke, 149 N.J. 145 , 693 A. 2d 417 (1997) ( Abbott IV ), this Court held that the Comprehensive Educational Improvement and Financing Act (CEIFA), N.J.S.A. 18A:7F-1 to -36, was unconstitutional as applied to the Abbott districts in several respects including its failure "to address one of the most significant problems facing the [Special Needs Districts (SND's)] dilapidated, unsafe, and overcrowded facilities." Id. at 186, 693 A. 2d 417 .
We observed:
The statute neglects to consider the dire need for facilities improvement. Amicus points out that that omission contributes to the inadequacy of the statute as a remedial measure and renders it unconstitutional. Contrary to the argument of the State, the condition of school facilities always has been of constitutional import. Deteriorating physical facilities relate to the State's educational obligation, and we continually have noted that adequate physical facilities are an essential component of that constitutional mandate. See Abbott II, supra, 119 N.J. at 362, 575 A. 2d 359 ("A thorough and efficient education also requires adequate physical facilities."); Robinson I, supra, 62 N.J. at 520, 303 A. 2d 273 ("We have discussed the existing scene in terms of current operating expenses. The State's obligation includes as well the capital expenditures without which the required educational opportunity could not be provided."); see also N.J.S.A. 18A:7A-5(f) (repealed) (stating that one part of a thorough and efficient education requires "[a]dequately equipped, sanitary and secure facilities").
Many school buildings in the special needs districts are in dramatic disrepair .... The accounts of crumbling and obsolescent schools inundate the record. Forty-nine public-school buildings in the State are one-hundred years of age or older. Seventy-three percent of those century-old buildings are located in SNDs. Furthermore, forty-one percent of the total number of school buildings statewide are over fifty years old. In the SNDs, sixty-four percent of the buildings are over fifty years old.
....
In 1994, the Governor's Education Funding Review Commission (the Commission) found that "[f]acilities improvement is a critical issue which must be addressed if educational improvement is to be achieved within the special needs districts." Education Funding Review Commission, Financing New Jersey's Public Schools 16 (July 1994). The Commission recommended that the DOE conduct a study to determine the most appropriate financing method to "address the unmet physical facilities needs of school districts." It does not appear that any such study has been conducted, and CEIFA fails to address the estimated "$6 billion facilities needs for New Jersey's public schools." Such a failure is of constitutional significance—we cannot expect disadvantaged children to achieve when they are relegated to buildings that are unsafe and often incapable of housing the very programs needed to educate them.
The State must, as part of its obligation under the education clause, provide facilities for children in the special needs districts that will be sufficient to enable those students to achieve the substantive standards that now define a thorough and efficient education.
*114 [ Id. at 186-88, 693 A. 2d 417 (footnotes omitted) (citations omitted).]
To remedy those deficiencies, the Court, as part of its Abbott IV order remanding the matter to the Law Division, mandated that the Commissioner of Education assess the facilities needs of the Abbott districts and make recommendations for addressing those needs, id. at 225 , 693 A. 2d 417 , observing that the adequacy of facilities in Abbott districts could not "depend on the districts' willingness or ability to raise taxes or to incur debt[.]" Id. at 188 , 693 A. 2d 417 .
In response to the Court's order, the Department of Education (DOE) completed an engineering study that addressed not only deficiencies in existing school facilities in all Abbott districts but in addition the need for new construction. The DOE's long-term facilities plan contemplated preparation by each Abbott district of a Facilities Management Plan to be submitted to and approved by DOE.
The DOE submitted a proposal to the remand court to finance renovations and new facilities construction in the Abbott districts through bonds issued by the New Jersey Educational Facilities Authority (EFA) and to be repaid by annual State appropriations. The DOE's specific funding proposal contemplated that each Abbott district privately would issue bonds payable to the EFA in an amount equal to the cost of implementing that district's approved facilities plan. The EFA would then sell its bonds in a public offering, without voter approval, in an amount equal to the aggregate cost of facilities construction for all Abbott districts, with repayment to be financed by annual State appropriations. The remand court noted that "EFA bonds are rated slightly lower than State general obligation bonds, resulting in a higher interest rate of only .1 or .2%." Abbott V, supra, 153 N.J. at 631-32 , 710 A. 2d 450 (App. 1). After reviewing the DOE's proposal to finance renovation and construction of facilities in the Abbott districts, this Court expressed its approval of the funding plan:
In the past, property-poor districts that had a poor bond rating were unable to finance needed construction. Recognizing this, the DOE has recommended that the Legislature amend N.J.S.A. 18A:72A-1 to -58 to empower the Educational Facility Authority (EFA or Authority) to finance the construction and renovation of elementary and secondary schools in the Abbott districts. Under the proposed plan, a district would issue bonds in an amount consistent with its facilities needs as expressed in its Plan. The district would then sell these bonds privately to the Authority, which would, in turn, sell them to the public. The Authority's bonds would receive a triple "A" rating, and the debt would be serviced using annual appropriations from the State. Because EFA-issued bonds are viewed in the market as one notch less than a general obligation of the State, there would be significant repercussions to the State and its credit rating were the Legislature not to make an annual appropriation.
Besides allowing districts with poor credit to finance their construction through indirect market participation, this arrangement has other benefits. The EFA would serve as construction manager for all projects. The Authority would prepare specifications for construction, solicit bids for all work and materials required, enter into project contracts, invest any monies not required for immediate disbursement, and review all completed work before dispensing requisitioned funds. In short, the EFA would ensure efficient and satisfactory construction. We determine *115 that the State's proposal to provide and administer the funding for capital improvements would effectively address the need for adequate facilities and capital improvements.
[ 153 N.J. at 523-24 , 710 A. 2d 450 (citation omitted)(emphasis added).]
We also emphasized the constitutional underpinning for our mandate that the State fully fund all costs of remediating facility and capacity deficiencies in the Abbott districts:
We conclude that any funding formula that does not fund the complete cost of remediating the infrastructure and life cycle deficiencies that have been identified in the Abbott districts or that does not fully fund the construction of any new classrooms needed to correct capacity deficiencies will not comport with the State's constitutional mandate to provide facilities adequate to ensure a thorough and efficient education.
[ 153 N.J. at 524 , 710 A. 2d 450 .]
The recognition in both Abbott IV and Abbott V that the constitutional mandate of a thorough and efficient education also encompassed the need for adequate educational facilities echoed earlier decisions by this Court to the same effect. In In re Upper Freehold Regional School District, 86 N.J. 265 , 430 A. 2d 905 (1981), we upheld an order by the Commissioner of Education mandating that a school district issue bonds to finance essential structural repairs to the roof of a regional high school building despite prior rejection of the project on two occasions by voters in the school district. In concluding that the absence of voter approval did not preclude the Commissioner from ordering the district to issue bonds to finance the critically needed repairs, we stated:
We recognize that the traditional and preferred method for obtaining necessary approval of bonds for a capital project in a Type II district is to obtain voter approval. In this case, however, in spite of the critical situation faced by the local board, the voters twice rejected referenda seeking approval of the issuance of the bonds. Although the Legislature has provided that voters of a school district may authorize the issuance of bonds, the Legislature has not specified that voter approval is the only acceptable method. The lack of any such restriction should be assessed in light of the constitutional mandate and statutory provisions for a thorough and efficient education. We conclude that, after voter rejection, the Commissioner may authorize the issuance of bonds for a capital project for a public school.
[ 86 N.J. at 279 , 430 A. 2d 905 .]
See also Bd. of Educ. of Elizabeth v. City Council of Elizabeth, 55 N.J. 501, 506 , 262 A. 2d 881 (1970) ("Thus it is the duty of the Commissioner to see to it that every district provides a thorough and efficient school system. This necessarily includes adequate physical facilities and educational materials, proper curriculum and staff and sufficient funds.").
In addition to the Legislature's obvious reliance on this Court's apparent approval in Abbott V of the essential elements of the capital funding mechanism adopted by the Act, the record informs us that over fifty school districts throughout the State have relied on the Act by seeking voter approval for capital financing of construction projects eligible for financing under the EFCFA, with a success rate of over eighty percent. Moreover, all of the Abbott districts have submitted and received approval of their Long Range Facilities Plans as required by the Act. The conclusion is inescapable that both the Legislature and the affected school districts have relied on the constitutional mandate for adequate school facilities and this Court's Abbott *116 decisions in the enactment of EFCFA and in the planning and approval process for the proposed renovation and construction of school facilities.
II
In addition to its reliance on our decisions in Abbott IV and Abbott V in adopting the financing mechanism contained in the EFCFA, the Legislature and the Attorney General apparently have relied on a series of prior decisions by this Court to support their assumption that the issuance of any debt by a state authority without voter approval, that the State is not legally obligated to repay, does not violate the Debt Limitation Clause. A careful analysis of those decisions suggests that that reliance may reflect an overreading of our precedents. A brief chronological review of our decisions concerning the Debt Limitation Clause will illuminate the issue.
The earliest case, and one of only two cases holding that the Debt Limitation Clause was violated, is the Court of Errors and Appeals decision in Wilson v. State Water Supply Commission, 84 N.J.Eq. 150, 93 A. 732 (1915). At issue in Wilson was the validity of a contract entered into by the State Water Supply Commission to acquire for state purposes a tract of land for a purchase price of one million dollars, secured by a mortgage to be amortized by funds annually appropriated by the Legislature. The Attorney General sought to enjoin the transaction on the ground that it authorized State debt in violation of the Debt Limitation Clause. The chancery court denied the injunction, reasoning that the debt had been incurred by the Water Commission and not by the State. Reversing, the Court of Errors and Appeals observed that "there are very practical reasons why the word `debt' in the Constitution should be construed to include those payable by legislative appropriation[.]" 84 N.J.Eq. at 159, 93 A. 732. The court added:
In dealing with all of these attempts to pare down this provision of the Constitution, it must be constantly borne in mind that it is the only one in that entire instrument in which the right to pass upon a law after it has been enacted by the Legislature is expressly reserved to the people. Such a provision should be construed so as to effectuate, not to frustrate, its object, which latter result is surely accomplished if the propriety of a purchase of this magnitude can, by a general law, be turned over bodily to four or five citizens.... It cannot be that the Legislature by a wholesale abdication of its constitutional functions can defeat this unique provision of the organic law.
[84 N.J.Eq. at 159, 93 A. 732.]
New Jersey Turnpike Authority v. Parsons, 3 N.J. 235 , 69 A. 2d 875 (1949), is the first Debt Limitation Clause decision by this Court, and concerned the constitutionality of provisions of the New Jersey Turnpike Authority Act, L.1948, c. 454, L.1949, cc. 40 and 41, that authorized the Authority to issue revenue bonds to finance construction of the New Jersey Turnpike. The enabling legislation provided that the bonds shall be "payable solely from [turnpike] tolls and revenues" and that such bonds "shall not be deemed to constitute a debt or liability of the State ... or a pledge of the faith and credit of the State." The Court held that the Turnpike Authority Act did not violate the Debt Limitation Clause, noting that the Turnpike Authority, although created by the State, was an independent entity for whose debts the State had no liability. Id. at 243 , 69 A. 2d 875 . The Court emphasized the statutory language explicitly stating that the Authority's bonds "shall not be deemed to constitute a debt or liability of the *117 State," as well as the language stating that the bonds were to be repaid only from tolls or revenues of the turnpike project. Id. at 242 , 69 A. 2d 875 . In view of those explicit statutory provisions, the Court declined to decide whether the availability of a dedicated revenue source, in and of itself, was sufficient to sustain the Act's constitutionality. Id. at 246 , 69 A. 2d 875 .
Behnke v. New Jersey Highway Authority, 13 N.J. 14 , 97 A. 2d 647 (1953), implicated the Debt Limitation Clause only indirectly. At issue was the constitutionality of the so-called Guaranty Act, L. 1952, c. 17, that authorized the State to guarantee payment of the principal and interest on bonds not exceeding $285,000,000 issued by the New Jersey Highway Authority to finance construction of the Garden State Parkway. Consistent with the Debt Limitation Clause of the Constitution, the Act authorizing the State's guaranty of the Highway Authority's bonds was submitted to the voters at the 1952 general election and was approved. Nevertheless, the Guaranty Act was challenged as violating Article VIII, Section II, paragraph 1 of the Constitution that provided: "The credit of the State shall not be directly or indirectly loaned in any case." Rejecting that contention, the Court observed that if by compliance with the Debt Limitation Clause the State could incur the debt itself, it necessarily followed that the State could "provide in the service of the public interest the financial support necessary for an economical and efficient performance of the undertaking, in the form of an unconditional guaranty of the payment of the bonds issued by the Authority to that end." Id. at 27-28 , 97 A. 2d 647 . Accordingly, the Court sustained the validity of the Guaranty Act.
McCutcheon v. State Building Authority, 13 N.J. 46 , 97 A. 2d 663 (1953), overruled by Enourato v. New Jersey Building Authority, 90 N.J. 396, 410 , 448 A. 2d 449 (1982), is the only other case to invalidate a statute because it authorized the issuance of debt in violation of the Debt Limitation Clause. The statute in McCutcheon established the State Building Authority as an independent state agency authorized to acquire buildings for lease only to the State and to finance their acquisitions by the issuance of bonds, without voter approval, to be amortized solely by rentals paid by the State to the Authority. The statute mandated that the Authority's bonds did not constitute a debt or liability of the State and that the bonds be so endorsed. The rentals paid by the State were required to be in an amount sufficient to amortize the Authority's debt. The suit challenged the constitutionality of the enabling legislation, and also challenged four specific leases between the Authority and the State on the ground that the State's aggregate rental obligation under those leases also violated the Debt Limitation Clause.
By a 5-2 vote, the Court invalidated the statute as violative of the Debt Limitation Clause. The Court noted that although denominated as rentals the State's payments to the Authority "are in substance and effect the purchase price of the property, for they are to be sufficient in amount to defray the Authority's operating expenses and in the end to liquidate the principal of the bonds and the interest accruing thereon," id. at 59 , 97 A. 2d 663 , and observed that the Authority was "non-revenue producing ... [and] wholly dependent upon state moneys raised by taxation," id. at 62 , 97 A. 2d 663 . The Court stated:
While in form a way of providing the State with leasehold interests in building facilities for public use, in reality the design of the act is to enable the State by contracts of purchase to acquire *118 for state use buildings possessed and constructed by the Authority by means of bond issues sustained by the State's promise to supply in the guise of rentals sufficient money to liquidate the bonds, available only through the medium of annual appropriations. And this in disregard of the constitutional debt limitation and the restraints laid by the organic law upon the appropriation process.... The label is unimportant; it is not the form but the essence that controls. It is an obvious truism that constitutional limitations may not be set at naught by indirection.
[ Id. at 57 , 97 A. 2d 663 .]
Dissenting, Justices Jacobs and Brennan were satisfied that the Debt Limitation Clause was not offended because the State assumed no liability for the Authority's bonds, and also asserted that the State's use of the Authority to acquire buildings that the State previously occupied and would continue to occupy constituted a sound business decision. Id. at 73-75 , 97 A. 2d 663 (Jacobs and Brennan, Jr., JJ., dissenting). Their observations about the likelihood that the State would occupy the buildings whether or not owned by the Authority could be understood to suggest that, to the extent of the buildings' fair rental value, the Authority's debt issuance did not increase State appropriations.
Debt Limitation Clause challenges were rejected on similar grounds in both City of Passaic v. Consolidated Police and Firemen's Pension Fund Commission, 18 N.J. 137 , 113 A. 2d 22 (1955) and State v. Lanza, 27 N.J. 516 , 143 A. 2d 571 (1958). In City of Passaic , at issue was a 1952 amendment, L. 1952, c. 358, to the statutes concerning pensions for police and firefighters that, in part, obligated the State over the ensuing thirty years to contribute annually to the pension fund such amounts as would be required to restore the fund to solvency. Unanimously rejecting the constitutional challenge, the Court observed that "[n]o debt has been created here, but rather present legislation merely provides that the State shall annually contribute to the fund." 18 N.J. at 147 , 113 A. 2d 22 . Similarly, in Lanza , the challenged statute authorized the then Commissioner of Conservation and Economic Development to acquire land in Hunterdon County to establish a water supply system, and also obligated the State to reimburse the affected municipalities in gradually decreasing amounts for property taxes lost by reason of the State's acquisition of the property, the State to be reimbursed out of proceeds received from the sale of water. The Court rejected the contention that the obligation to the municipalities statutorily imposed on the State violated the Debt Limitation Clause. The Court observed that "[t]here is no bargain or professed contractual, conventional or legal undertaking to recompense the given loss of tax revenue, but rather a truly `voluntary appropriation' for a `lawful object.' "(citations omitted). 27 N.J. at 525 , 143 A. 2d 571 .
Clayton v. Kervick, 52 N.J. 138 , 244 A. 2d 281 (1968), was a declaratory judgment action filed against the State Treasurer by the Acting Commissioner of Education to test the validity of a statute establishing the New Jersey Educational Facilities Authority, L. 1966, c. 106. The Authority was an independent agency empowered to construct projects for participating educational institutions to be financed by bonds issued by the Authority that were not to be deemed a liability of the State nor to implicate a pledge of the State's credit. The projects undertaken by the Authority generally were to involve revenue-producing facilities such as dormitories. Id. at 142 , 244 A. 2d 281 . The facilities constructed were to be leased to the participating colleges in return for *119 rentals sufficient to cover amortization of the related bonds, and the colleges were expected to pay the rentals "`by deriving revenues from such projects,'" and also by using annual appropriations received from the Legislature. Id. at 144 , 244 A. 2d 281 . The matter was tried on a stipulation of facts that acknowledged that the Authority's anticipated bond issuance would exceed the amount that triggered the requirement for voter approval under the Debt Limitation Clause. Id. at 143-44 , 244 A. 2d 281 .
The Court upheld the constitutionality of the legislation and rejected the contention that the proposed bond issuance violated the Debt Limitation Clause, relying essentially on the fact that the colleges primarily would use revenues generated from the projects as the source of rental payments to the Authority. The Court analogized the funding mechanism to the self-liquidating financing methodology sustained in New Jersey Turnpike Authority, supra, 3 N.J. 235 , 69 A. 2d 875 .
Although these decisions, along with the dissent in McCutcheon , appear to us to be clearly the more persuasive, the Educational Facilities Authority stands on even firmer ground. The Building Authority in McCutcheon was created to aid the State government and, under the explicit terms of the statute, it could lease its buildings only to designated State departments whose rental payments would come entirely from legislative appropriations. On the other hand, the Educational Facilities Authority was created to benefit the public through the expansion of college and university facilities within the State, and the annual rentals on its leases with the participating public and private educational institutions were intended to come mainly from sources unrelated to legislative appropriations. With that in mind, its operations may be compared favorably to the many self-liquidating projects which have been sustained in our State and elsewhere.
....
In the light of all of the foregoing, we have no hesitancy in expressing our agreement with the trial court's holding that the legislative plan embodied in the Educational Facilities Authority law did not in anywise violate the debt limitation clause of the Constitution (art. VIII, § II, par. 3).
[ Clayton, supra, 52 N.J. at 154-55 , 244 A. 2d 281 (emphasis added) (citations omitted).]
Justice Hall, concurring in part and dissenting in part, agreed that the independent revenue source was sufficient to distinguish the case from McCutcheon , decided fifteen years earlier, but expressed concern that the majority had "whittled [ McCutcheon ] down so that substantially nothing is left." He added:
The interposition of a so-called autonomous agency between the Legislature and the state agency or department benefited in such a situation is to me, realistically, only doing indirectly by means of a conduit what may not validly be done directly, absent referendum approval.
If it is felt we can no longer live with the debt limitation and public aid project provisions of the 1947 Constitution, they ought to be amended by the prescribed method rather than through legislative nullification or evasion and judicial sanction thereof.
[ Id. at 159 , 97 A. 2d 663 (Hall, J., concurring in part and dissenting in part).]
Holster v. Board of Trustees of Passaic County College, 59 N.J. 60 , 279 A. 2d 798 (1971), was the first case in which a challenge to a bond issue allegedly subject to the Debt Limitation Clause and to be *120 amortized solely by legislative appropriations was rejected by the Court, notwithstanding the absence of an independent revenue source. The issue in Holster concerned the constitutionality of the County College Bond Act, L. 1971, C. 12, a statute intended to implement the provisions of the original County College enabling legislation, L. 1966 C. 302 , that authorized County colleges to apply for and receive State support for up to one-half of the cost of capital projects. See N.J.S.A. 18A: 64A-22. The County College Bond Act contemplated that the County in which the County College was located would issue bonds, and the proceeds would be applied to pay the State's fifty percent share of the capital project, the interest payments and the principal of the bonds at maturity to be paid solely by legislatively authorized appropriations. The statute also specified that bonds issued pursuant to the Act "shall not be deemed to constitute a debt or liability of the State or a pledge of the faith and credit of the State...." N.J.S.A. 18A:64A-22.8.
Unanimously sustaining the statute against a challenge based on the Debt Limitation Clause, the Court relied on the "accepted principle of statutory interpretation that, if possible, legislation will be so read as to sustain its constitutionality." Id. at 66, 279 A. 2d 798 . The Court also focused on the fact that the issuer was a County rather than the State, and emphasized the analogy to its earlier decisions in Passaic, supra, 18 N.J. 137 , 113 A. 2d 22 and Lanza, supra, 27 N.J. 516 , 143 A. 2d 571 , cases in which statutes imposing State obligations to make payments out of annual appropriations were sustained against Debt Limitation Clause challenges:
Of the cases discussed above, Passaic v. Consolidated Police, etc., Pension Fund Commission and State by McLean v. Lanza are closest in point to the matter before us. In each of those cases, as is true here, the statute under review purported to provide for, or clearly anticipated, the future repayment or funding of a proposed expenditure or commitment by later legislative appropriation, and in each case this was held not to create a present debt or liability on the part of the State. Despite the language of the County College Bond Act, which might seem on its face to require the State to pay the bonds, we do not so interpret the statute. Rather, noting as we must the explicit declaration in the act itself that the bonds shall not be debts or obligations of the State, bearing in mind the trend of our own decisional law and mindful of our obligation to sustain as constitutional any legislative enactment if that can reasonably be done, we repeat that the bonds are not the obligations of the State but only of the counties that decide to issue them. Furthermore a county may not turn to the State for exoneration or reimbursement.
[ Holster, supra, 59 N.J. at 73 , 279 A. 2d 798 .]
Approximately one year after the Court's Holster decision, a sharply divided Court (4-3) sustained the constitutionality of the New Jersey Sports & Exposition Authority Law, L. 1971, c. 137, against a Debt Limitation Clause challenge. New Jersey Sports & Exposition Auth. v. McCrane, supra, 61 N.J. 1 , 292 A. 2d 545 . That statute was enacted to facilitate the construction of a sports complex in the Hackensack meadowlands to include a racetrack for horse racing and other facilities, and to that end established as an independent authority the New Jersey Sports & Exposition Authority. That Authority was empowered to issue bonds to finance the cost of construction of the overall project, and the funds to amortize those bonds were to be derived solely from *121 fees, revenues and other charges for use of the Authority's facilities. A major source of the Authority's revenues was to be derived from a horse race track with pari-mutual wagering, of which one-half of one percent would be paid annually to the State, and the balance during the life of the Authority's bonds, was to be allocated to the Authority for use in making amortization payments on the bonds.
The constitutional issue that divided the Court arose because the 1939 Amendment to the 1844 Constitution authorized horse racing with pari-mutual wagering "from which the State shall derive a reasonable revenue for the support of government." Id. at 13, 292 A. 2d 545 . That 1939 Amendment was incorporated in the 1947 Constitution by art. IV, § 7, ¶ 2, that referred to gambling "`heretofore submitted to, and authorized by a majority of the votes cast by the people at a special election.'" Id. at 43, 292 A. 2d 545 (Weintraub, J., concurring in part and dissenting in part). In the dissenter's view, the 1939 Amendment to the 1844 Constitution, that was incorporated in the 1947 Constitution, committed all revenues from pari-mutual betting to the State, and the provision in the Sports & Exposition Authority Act appropriating those revenues (except for one-half of one percent) to the Authority constituted a State debt in violation of the Debt Limitation Clause. Id. at 48 , 292 A. 2d 545 (Weintraub, J., concurring in part and dissenting in part).
The majority disagreed, observing that for purposes of the 1939 Amendment the Sports Authority must be regarded as an agency of the State and that its receipt of pari-mutual revenues satisfied the Amendment's requirement that the State "shall derive a reasonable revenue for the support of government." Id. at 23 , 292 A. 2d 545 . The Court also noted that the one-half of one percent of pari-mutual wagering retained by the State could generate approximately $1,700,000 annually, and that any remaining revenues not required by the Authority were to be paid to the State. Id. at 24 , 292 A. 2d 545 . The Court therefore concluded that the statute did not violate the Debt Limitation Clause by reason of the 1939 Amendment to the 1844 Constitution. Ibid. Moreover, the Court also rejected the contention that the financing scheme amounted to a pledge of the State's revenues to repay the Authority's bonds, noting that the bonds expressly stipulated that the State was not liable therefor. Id. at 25 , 292 A. 2d 545 . The Court also observed:
The modern science of government has found a method of avoiding [the debt] clause, and the courts have approved it. It is to create an autonomous public corporate entity to undertake the task and to borrow money for the purpose on its own bonds.... Funds to meet interest and principal of the bonds are derived solely from revenues generated by the agency's operation, which remain a special fund for that purpose until the bonds are fully paid.
[ Ibid. (footnote omitted).]
Justice Hall, who with Justice Proctor joined Chief Justice Weintraub's separate opinion, filed his own opinion in which he concluded that the Court effectively had nullified the Debt Limitations Clause. He wrote:
Whether statutory enactments of this type fall within the four corners of the debt provision is certainly a question for judicial determination. That question has nothing to do with the wisdom of the statute nor does it validly bring into play rubrics about judicial deference to legislative action, presumptions of constitutionality and the like. The majority's stress thereon is inappropriate and misses the point. And I think it quite *122 wrong for a court to aid evasion of a constitutional provision, last adopted only 25 years ago, because it believes that provision outmoded. The function of the judiciary is to enforce all constitutional provisions upon all branches of government and not to act as an Ad hoc constitutional convention to summarily render nugatory provisions with which it may disagree.
[ Id. at 62 , 292 A. 2d 545 (Hall, J. concurring in part and dissenting in part).]
Bulman v. McCrane, 64 N.J. 105 , 312 A. 2d 857 (1973), did not involve the issuance of any bonds. There, a taxpayer sued to enjoin the State from entering into a twenty-five year lease on a building to be erected by a private developer on state-owned land for use as a record storage center and printing facility. Under the proposed lease, the State would have the option of purchasing the building during the tenth, fifteenth and twentieth years of the lease and, if it did not exercise its option, title to the building would revert to the State at the end of the lease term. The plaintiff contended that the purported lease transaction was, in reality, an installment purchase agreement and that the aggregate amount of lease payments constituted State indebtedness incurred in violation of the debt Limitation Clause.
Reversing the Chancery Division decision enjoining the transaction, Bulman v. McCrane, 123 N.J.Super. 213, 240 , 302 A. 2d 163 (1973), the Court observed that "the lease terms generally are harmonious with the theory of a lease as opposed to a sale." 64 N.J. at 114 , 312 A. 2d 857 . We noted that the lessor was required to pay property taxes and make exterior repairs, and that the rent would be suspended if damage to the building rendered it unusable. Moreover, the lessor's failure to complete repairs within six months constituted a basis for the State's termination of the lease. Ibid. Primarily, the Court stressed the fact that the building was to be erected on state-owned property and therefore would have minimal value to the developer at the end of the lease, a circumstance that justified a rental sufficient to permit the builder to recoup his entire capital investment during the lease term. Id. at 116-17 , 312 A. 2d 857 . Based on those factors, the Court determined that the transaction was a lease rather than a purchase, that it involved no issuance of debt, and that the State's only obligation was "for future installments of rent." Id. at 117-18 , 312 A. 2d 857 .
Of all the Court's opinions construing the Debt Limitation Clause, Enourato, supra, 90 N.J. 396 , 448 A. 2d 449 , is perhaps the most difficult to reconcile with the Court's prior precedents. Enourato involved a challenge to the constitutionality of the New Jersey Building Authority Act, L. 1981, c. 120, that established the New Jersey Building Authority for the purpose of acquiring land and buildings and operating office facilities for state agencies. The Act authorized the Authority to issue bonds in amounts not exceeding $250,000,000 to finance land acquisition, building construction and related costs, such bonds to constitute the debt of only the Authority and not of the State. Buildings constructed by the Authority would be leased to the State at rental rates sufficient to provide the Authority with funds to pay the amortization costs of its bonds, all rental payments to be subject to legislative appropriations. The sample lease included in the record revealed that during the term of the lease the State would pay all expenses related to the buildings, including insurance, and that at the expiration of the lease title to the buildings would be conveyed to the State. During the term of the lease the State *123 could acquire a specific building by discharging the Authority's obligation on the related bonds. Enourato v. N.J. Building Authority, 182 N.J.Super. 58, 69-70 , 440 A. 2d 42 (App.Div.1981).
The Enourato Court rejected plaintiff's contention that the Act's financing mechanism violated the Debt Limitation Clause, and in the process, 90 N.J. at 410 , 448 A. 2d 449 , overruled McCutcheon, supra, 13 N.J. 46 , 97 A. 2d 663 . The Court relied expressly on its prior decisions in Clayton, supra, 52 N.J. 138 , 244 A. 2d 281 , Holster, supra, 59 N.J. 60 , 279 A. 2d 798 , and Bulman, supra, 64 N.J. 105 , 312 A. 2d 857 , to support its conclusion. In doing so, it did not acknowledge that in Clayton a fact critical to the Court's decision was that annual rentals paid by the colleges to support bond amortization payments by the Educational Facilities Authority "were intended to come mainly from sources unrelated to legislative appropriations," Clayton, supra, 52 N.J. at 154 , 244 A. 2d 281 ; that in Holster the Court relied on the fact "that the bonds are not the obligations of the State but only of the counties that decide to issue them," Holster, supra, 59 N.J. at 73 , 279 A. 2d 798 ; and that the issue in Bulman involved no debt issuance but rather whether a twenty-five-year lease between the State and a private developer was more akin to an installment purchase transaction than a lease. The Court's analysis was summarized in a few succinct paragraphs:
No relevant distinction exists between the financing schemes upheld in those cases [ Clayton and Holster ] and that in the New Jersey Building Authority Act. The Authority's bonds and notes are not a debt or liability of the State. They state on their face that the State does not pledge its faith and credit to their payment. Although the Act not only contemplates that the State will make the necessary appropriations but also seeks to ensure this result, the State is under no legal obligation to do so. The Authority's creditors have notice that their only remedy lies against the Authority.
Nor does the liability of the State on its lease agreements with the Authority create any debt of the State. Both the statute and the lease make clear that all rent payments from the State are subject to legislative appropriations. Moreover, the State may incur liability for future rentals without violating the debt limitations clause. Plaintiff does not contend otherwise.
Since the Building Authority Act does not authorize the creation of any debts by the State, the debt limitations clause, N.J. Const. (1947), art. VIII § 2, ¶3, does not apply to the Authority's debts or any obligations of the State on its lease agreements with the Authority. We have already disapproved the contrary result reached by a sharply divided Court in McCutcheon v. State Building Authority, 13 N.J. 46 , 97 A. 2d 663 (1953), and now expressly overrule that case.
[ Enourato, supra, 90 N.J. at 410 , 448 A. 2d 449 (citations omitted).]
In re Loans of New Jersey Property Liability Insurance Guaranty Association, 124 N.J. 69 , 590 A. 2d 210 (1991), although implicating Debt Limitation Clause issues, was decided on the basis that the State's contingent repayment mechanism to the Property Liability Insurance Guaranty Association (PLIGA) was too uncertain to constitute State debt. At issue was the validity of a Department of Insurance Order, promulgated pursuant to the Fair Automobile Insurance Reform Act of 1990, L. 1990, c. 8, requiring PLIGA to collect annual assessments of approximately $160 million from property-casualty insurers to be paid, as a loan, into the New *124 Jersey Automobile Insurance Guaranty Fund (Auto Fund).
The Act did not expressly provide for repayment of the loan except to authorize for that purpose the use of proceeds from Division of Motor Vehicle surcharges for certain motor vehicle violations and drunk-driving convictions, after termination of the Joint Underwriting Association (JUA) and on certification by the Commissioner of Insurance that such surcharges no longer were needed to fund the JUA debt. Id. at 74 , 590 A. 2d 210 . Relying on City of Passaic, supra, 18 N.J. 137 , 113 A. 2d 22 , Lanza, supra, 27 N.J. 516 , 143 A. 2d 571 , and City of Camden v. Byrne, supra, 82 N.J. 133 , 411 A. 2d 462 , the Court determined that "[t]he provisions made under the Reform Act and [the] Order [] for repayment of the PLIGA loans clearly fall within the types of assurances of future payments that this Court has traditionally found not to be `debts.'" Id. at 77, 590 A. 2d 210 . The Court continued:
The repayment of the PLIGA loans depends upon a number of contingencies—that there will be funds remaining from motor-vehicle violations surcharges after discharge of the JUA debt; that the Commissioner of Insurance will approve application of such funds to the repayment; that the Legislature will vote the necessary appropriation; and that the Treasurer will approve release of the funds. Thus, we conclude that the State's acceptance of the loans from PLIGA does not create a debt of the State and therefore does not violate article VIII, section II, paragraph 3 of the New Jersey Constitution.
[ Ibid. ]
Because the PLIGA case implicated the Debt Limitation Clause only tangentially, the minority opinion in Spadoro v. Whitman, supra, 150 N.J. 2 , 695 A. 2d 654 , essentially constitutes the most extensive judicial discussion of the Debt Limitation Clause by members of this Court since the Enourato decision in 1982. The appeal in Spadoro challenged the constitutionality of the Pension Bond Financing Act of 1997 (Bond Act), L. 1997, c. 114, as violative of the Debt Limitation Clause. Because the bonds authorized by the Bond Act "apparently were sold before the Court had an opportunity to decide whether to hear the appeal on the merits," id. at 14 , 695 A. 2d 654 , the Court dismissed the appeal as moot. Justice Handler's separate opinion, concurring in part and dissenting in part, asserted that the issue of the validity of the Bond Act should be adjudicated because of its importance and likely recurrence, id. at 3, 695 A. 2d 654 , even if it were too late to grant the injunctive relief sought by plaintiff.
The Bond Act authorized the New Jersey Economic Development Authority (EDA) to issue approximately $2.7 billion in bonds in order to fund the pension systems' aggregate unfunded liability that was estimated at $3.2 billion. As noted, the State annually appropriates funds to defray the State's obligations to its pension funds, including annual contributions to fund pension benefits earned in prior years and to fund cost-of-living adjustment benefits payable by the various pension funds. The accrued unfunded liability of approximately $3.2 billion primarily related to unfunded cost-of-living benefits. Id. at 5, 695 A. 2d 654 .
Because a contemporaneously enacted statute, L. 1997, c. 115, authorized a revaluation of the pension systems' assets to reflect market appreciation and the proceeds of the bond issuance, and because amortization of the bonds was anticipated to occur over a shorter period than the State's prior schedule for amortization of its unfunded liability, the Bond Act anticipated that the bond proceeds would be *125 sufficient to eliminate the State's unfunded liability and also result in significant annual savings to the State as well. Id. at 4-8, 695 A. 2d 654 .
The statute also provided that the bonds were special and limited obligations of the EDA and "shall not be a liability of the State or any agency or instrumentality thereof." The Bond Act authorized the State Treasurer to enter into contracts with the EDA to fund its amortization obligations under the bond issue, but the State's obligation under any such contract would be subject to and dependent on annual appropriations by the Legislature for that purpose. Id. at 6-7, 695 A. 2d 654 .
The minority opinion concluded that without prior voter approval the EDA bond issue violated the Debt Limitation Clause. Referring to prior Debt Limitation Clause cases, Justice Handler noted that in those cases "the independent authorities were clearly separate governmental entities that served special and discrete governmental purposes.... Here, the EDA is functioning solely as a conduit to sell bonds. It is, in this context, a mere shell that serves no governmental function other than to issue the bonds for the State itself, becoming, in effect, a shield to insulate the State from being labeled a debtor." Id. at 9-10, 695 A. 2d 654 .
Justice Handler also observed that the EDA had no independent funding source for amortization of its bonds.
Furthermore, in other cases a separate source of income had been created by the independent authorities as a basis for funding their separate operations and fulfilling their specific public purposes. See Clayton, supra, 52 N.J. at 154 , 244 A. 2d 281 (rental payments to be made by various public and private colleges constituted separate source of income); New Jersey Turnpike Auth., supra, 3 N.J. at 238 , 69 A. 2d 875 (tolls and other revenues constituted separate source of income). Under the Bond Act, the EDA has no governmental function or purpose that requires funding as such, and no separate source of income is created to enable the EDA to repay the bonds.
[ Id. at 10, 695 A. 2d 654 .]
In addition, Justice Handler distinguished the purpose of the Bond Act from prior cases, noting that
unlike any other previous bond issue [ ] its purpose and its proceeds are directed only to defray the ordinary expenses entailed in the regular operation of government. In the past, debts incurred by the State in compliance with the Debt Limitation Clause have been debts that relate generally to governmental purposes distinct from the regularly recurring operations of the State. Previous bond issues have involved government purposes, such as major capital improvements, capital construction and the provision of special services. See Enourato, supra, 90 N.J. 396 , 448 A. 2d 449 (State created Building Authority, which issued bonds to build and operate facilities for state agencies); Bulman v. McCrane, 64 N.J. 105 , 312 A. 2d 857 (1973) (State contracted to have building constructed in return for its agreement to lease the building for twenty-five year term for use as a records storage center and printing facility); Holster v. Board of Trustees of Passaic Cty. College, 59 N.J. 60 , 279 A. 2d 798 (1971) (County College Bond Act enabled counties to issue bonds, the proceeds of which were to be devoted to capital outlays); Clayton, supra, 52 N.J. 138 , 244 A. 2d 281 (State created the New Jersey Educational Facilities Authority, which issued bonds to construct projects for participating educational institutions); New Jersey Turnpike Auth., supra, 3 N.J. 235 , 69 A. 2d *126 875 (State legislature created the New Jersey Turnpike Authority which issued bonds to construct toll roads).
The Bond Act provides for the issuance of approximately $2.7 billion in bonds to generate moneys to pay for the accrued unfunded liability of various pension systems. The debt is created in order to meet current and future pension contributions. The provision of pensions for public employees is simply a part of the State's obligation to compensate its employees, and is clearly a regular function of government and an ordinary government operating expense.
[ Id. at 10-11, 695 A. 2d 654 .]
The minority opinion concluded by observing that if the Bond Act were constitutional the Debt Limitation Clause would be rendered a nullity:
The apparent assumption underlying the Bond Act is that the restrictions of the Debt Limitation Clause may be avoided merely by the device of substituting an independent authority, rather than the State, as the issuer of the debt, even though the authority has no genuine independence or separate source of revenue and marketability of the bonds rests entirely and exclusively on the State's commitment to make the amortization payments as they come due. Moreover, the availability of insurance, at a substantial premium cost, compensates substantially for the credit worthiness that a direct pledge of the State's credit would have achieved. If the combination of an independent authority as issuer, together with bond insurance, permits the State to avoid the Debt Limitation Clause and market bonds as readily as if they were General Obligation Bonds, why would any future Legislature or Governor be inclined to comply with the constitutional limitation on debt?
Our precedents do not and should not permit the Debt Limitation Clause to be so easily sidestepped. I believe that none of our previous cases support the conclusion that the Bond Act has not, in fact and in the constitutional sense, create

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1547341. Public record. Not legal advice.