Christopher Burgos v. State of New Jersey (075736)

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the

convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the

interest of brevity, portions of any opinion may not have been summarized.)

Burgos v. State of New Jersey (A-55-14) (075736)

Argued May 6, 2015 – Decided June 9, 2015

LaVECCHIA, J., writing for a majority of the Court.

In this appeal the Court considers whether a 2011 statutory enactment that requires the State to make

certain annual contributions to public pension funds created an enforceable contract that is entitled to constitutional

protection.

The State’s public pension systems are defined-benefit plans, which guarantee participants a calculable

amount of benefits payable upon retirement based on the participant’s salary and time spent in the pension system.

The benefits are paid using revenues received from employee contributions, public employer (i.e., State)

contributions, and investment returns. Under the statutes governing the pensions systems, the Legislature has

required the State to contribute not only the present value of the actual benefits that active pension members earned

in the current year, but also the amounts necessary to amortize the systems’ unfunded liabilities over a period of

years. The combination of these amounts is known as the annually required contribution (ARC).

In 2011, with the enactment of L. 2011, c. 78 (Chapter 78), the Legislature added language explicitly

declaring that each member of the State’s pension systems “shall have a contractual right to the annual required

contribution amount” and the failure of the State to make the required contribution “shall be deemed to be an

impairment of the contractual right.” A separate statutory provision, enacted earlier, required the State to increase

its ARC beginning with fiscal year 2012 (FY12) over the course of seven years at increments of 1/7 of the ARC per

year, until the contribution covered the full ARC.

The State made the required contributions in FY12 and FY13, and the Appropriations Act signed into law

for FY14 included the required contributions of 3/7 of the ARC. In February 2014, the Governor released the FY15

proposed budget, which also included funding to satisfy the State’s required payment (i.e., 4/7 of the ARC). On

May 20, 2014, the Governor issued Executive Order 156, which reduced the State payments into the pension

systems for FY14, explaining that the reduction was due to a severe and unanticipated revenue shortfall. Instead of

paying the required 3/7 of the ARC contribution, which totaled $1.582 million, the State made a total contribution of

$696 million for FY14. The next day, citing new information that placed the State’s projected revenue at less than

previous projections, the State Treasurer announced that the proposed budget for FY15 was being revised to reduce

the amount that would be contributed to pension systems. The revised FY15 budget thus advanced would include a

total contribution of $681 million, reflecting $1.57 billion less than what was required.

In response, plaintiffs – individuals and unions acting on behalf of hundreds of thousands of New Jersey

State public employees – filed complaints alleging statutory violations, impairment of contractual rights under the

New Jersey and United States Constitutions, violations of substantive and procedural due process under both

Constitutions, a violation of plaintiffs’ Equal Protection rights, promissory estoppel, and violations of the New

Jersey Civil Rights Act. Plaintiffs sought injunctive and mandamus relief for both FY14 and FY15. The trial court

consolidated plaintiffs’ claims into one action.

With respect to the budgetary action involving the then-imminently concluding FY14, the Law Division

upheld the Governor’s determination not to make the required FY14 ARC payment, declaring the action lawfully

within the Executive’s emergency powers and reasonable and necessary under the Contracts Clauses of the New

Jersey and United States Constitutions. The court held that plaintiffs’ claims for FY15 were not ripe because the

Legislature had not yet passed a FY15 Appropriations Bill.

When the Legislature passed its FY15 Appropriations Bill, it included the full 4/7ths required ARC, or

$2.25 billion. This was financed, in part, by companion bills establishing new taxes whose projected revenue

streams were incorporated into the Legislature’s anticipated revenue for FY15. On June 30, 2014, Governor

Christie exercised his line-item veto authority deleting, among other items, $1.57 billion of the State’s required

pension payment from the Appropriations Act. In his line-item veto message, Governor Christie stated that he

opposed raising taxes to pay for the budget deficit, that he eliminated the new revenues projected for new taxes as

presented by the Legislature, and cited his constitutional responsibility to deliver a balanced budget as the reason for

reducing the State’s FY15 contribution. The Legislature did not take action to override the line-item veto.

Therefore, the 2015 Appropriations Act became law, subject to the line-item veto changes.

Plaintiffs filed amended complaints in the Law Division. The State responded by filing a motion to

dismiss, and plaintiffs, in turn, filed a motion for summary judgment. Plaintiffs argued that, in enacting Chapter 78,

the State undertook a contractual obligation to make the ARC payment to the pension system and that the State’s

failure to make the full FY15 ARC payment constituted an impairment of that contract in violation of the Contracts

Clauses of the State and Federal Constitutions. Plaintiffs requested that the court require the Legislature and the

executive branch to adopt an appropriations act consistent with the contractual obligations outlined in Chapter 78.

The State asserted that Chapter 78 could not create a valid contract right because it violated the

Appropriations and Debt Limitation Clauses and the line-item veto provision of the New Jersey Constitution. Even

assuming, but not conceding, that an enforceable contract right was created, the State maintained that it did not

substantially impair that contract right. Further, again assuming but not conceding that substantial impairment

occurred, the State submitted that its decision was reasonable and served a legitimate public purpose.

The trial court issued a detailed and comprehensive opinion on February 23, 2015, that granted summary

judgment to plaintiffs on their impairment-of-contract claims and denied defendants’ motion to dismiss. The court

accepted the argument that Chapter 78 created a contract and that the State’s failure to appropriate the full value of

ARC in the FY15 Appropriations Act substantially impaired plaintiffs’ rights under the contract. In so finding, the

court rejected arguments that Chapter 78 was unenforceable as violative of the Debt Limitation Clause, the

Appropriations Clause, and the gubernatorial line-item veto power. The court did not order a specific appropriation,

but rather determined to give the other branches an opportunity to act in accordance with the court’s decree.

The State filed a motion for leave to appeal to the Appellate Division, and shortly thereafter, moved for

direct certification to this Court. The motion was unopposed. On April 6, 2015, this Court issued an order granting

direct certification, establishing a briefing schedule, and setting the matter down for oral argument on May 6, 2015.

HELD: Chapter 78 does not create a legally enforceable contract that is entitled to constitutional protection. The Debt

Limitation Clause of the State Constitution interdicts the creation, in this manner, of a legally binding enforceable

contract compelling multi-year financial payments in the sizable amounts called for by the statute.

1. No analysis of this matter fairly can commence without initially recognizing the promises made on the State’s

part toward meeting the scheduled payments to reduce the unfunded liability of the pension systems. Plaintiffs

emphasize the many statements praising the bipartisan legislative endeavor and referring to the legislative

achievement as a contract. The Court does not question the good intentions of those participating in the enactment

of Chapter 78 or that they intended to create a contractual arrangement to address future payment into the funds to

promote the fiscal health of the retirement systems. But a strictly legal question is before the Court. That, and that

alone, is what must be resolved in this matter of great public importance to members of the public pension systems

and citizens throughout the State. (pp. 21-23)

2. Both the New Jersey and Federal Constitutions prohibit the passage of laws impairing the obligation of contracts.

Legislation unconstitutionally impairs a contract when it: (1) substantially impairs a contractual relationship; (2)

lacks a significant and legitimate public purpose; and (3) is based on unreasonable conditions and unrelated to

appropriate governmental objectives. The premise for performing a contract impairment analysis is the existence of

a valid enforceable contract under state law. When a contractual relationship is purportedly created through a

statute’s enactment, two questions must be addressed in analyzing whether a contract was successfully formed: (1)

did the Legislature speak with sufficient clarity to evince intent to create a contract right; and (2) did state law grant

the Legislature the authority to enter into the binding and enforceable contract. (pp. 23-26)

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3. Here, the Legislature and Governor clearly expressed an intent that Chapter 78 create a “contract right” to timely

and recurring ARC payments to reduce the unfunded liability of the pension funds. But, that conclusion does not

address the question of authority to do so. The essential question that must be answered is whether legislative

authority could be exercised through Chapter 78 to create a legally binding, enforceable contract compelling future

State appropriations to pay down the unfunded liability. In making such a determination, it is generally recognized

that state law governs the existence of a valid contract, even for impairment claims under the Federal Contracts

Clause. The Court therefore turns to New Jersey law that pertains to the legal enforceability of the purported

statutory contractual right to Chapter 78’s required annual pension payments. (pp. 26-30)

4. The Debt Limitation Clause of the New Jersey Constitution provides that the Legislature may not create “a debt

or debts, liability or liabilities of the State” that exceed one percent of the amount appropriated in a given fiscal year

unless “submitted to the people at a general election and approved by a majority . . . of the voters of the State voting

thereon.” N.J. Const. art. VIII, § 2, ¶ 3. The animating principle applied by the Court in its decisions regarding the

Debt Limitation Clause is that the State cannot by contract or statute create a binding and legally enforceable

financial obligation above a certain amount that applies year to year without voter approval. Such long-term

financial arrangements require voter approval to be enforced; or, such financial promises otherwise avoid the Debt

Limitation Clause’s interdiction by being regarded as expressions of intent to provide the funding, but they must be

subjected to the annual appropriation process for fulfillment in whole, in part, or not at all. (pp. 30-33)

5. In Lonegan v. State (Lonegan II), 176 N.J. 2 (2003), the Court confronted a broad challenge to the validity of

fourteen New Jersey statutes authorizing contract or appropriations-backed debt. The Court found that the statutory

financing mechanisms did not violate the Debt Limitation Clause because payments on contract or appropriations-

backed debt are necessarily left to the Legislature’s discretion to appropriate and the State is not legally bound to

make such payments. Among other things, Lonegan II recognized that the variety of financing mechanisms

employed today were unheard of when the Debt Limitation Clause was adopted, and noted the difficulty in

differentiating among acceptable and unacceptable types of twenty-first century appropriations-backed debt. In this

matter, the trial court based its Debt Limitation Clause analysis on a misperception of the flexibility that was

discussed in Lonegan II. The Lonegan II decision acknowledged the need for flexibility in modern financing, and

adjusted for the same in the performance of a Debt Limitation Clause analysis by reducing the prohibited conduct to

an easily understood principle: so long as the State’s full faith and credit is not pledged and a legally enforceable

financial obligation, above a certain amount and lasting year to year, is not created, without voter approval, no Debt

Limitation Clause violation ensues. As applied in the circumstances presented in Lonegan II, if a financial

obligation is made dependent on securing an appropriation from year to year, then parties are apprised of the

element of risk and no constitutional debt limitation violation arises. (pp. 33-37)

6. Plaintiffs assert that Chapter 78 does not implicate the Debt Limitation Clause because that Clause’s language

and intent is to prevent the State from creating new debts or liabilities, not to prevent it from paying overdue

ordinary expenses. The Debt Limitation Clause is clearly written to have wide sweep, covering “debts” or

“liabilities” created “in any manner,” thereby reaching various forms of financial arrangements. Nothing about that

language supports that traditional borrowing scenarios were the only intended prohibited transactions. The Debt

Limitation Clause’s prohibition against incurring of future debt or liability is vital and it is broad – sufficiently broad

to reach long-term financial obligations addressing so-called operating expenses. In combination, the Debt

Limitation Clause and the Appropriations Clause of the New Jersey Constitution interdict the Legislature from

creating a debt or liability, in any manner, in excess of a certain amount that binds the State to appropriate funds in

future fiscal years. (pp. 37-42)

7. Under the Appropriations Clause, the power and authority to appropriate funds is vested in the Legislature. N.J.

Const. art. VIII, § 2, ¶ 2. The Clause has three requirements: (1) all withdrawals of money from the State Treasury

must be accomplished through legislative appropriation; (2) the Legislature must provide for that appropriation in

one law covering only that fiscal year; and (3) the budget created by the appropriations law must be balanced.

Because the power and authority to appropriate funds lie solely and exclusively with the legislative branch of

government, there can be no redress in the courts to overcome either the Legislature’s action or refusal to take action

pursuant to its constitutional power over State appropriations. The Appropriations Clause firmly interdicts the

expenditure of state monies through separate statutes not otherwise related to or integrated with the general

appropriation act governing the state budget for a given fiscal year. Given the Legislature’s inherent power to

disregard prior fiscal enactments, the Court cannot compel the Legislature to appropriate in accordance with other

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statutes that are not incorporated into the general appropriation act. In circumstances where legislation sought to

bind future legislatures in a manner that implicated both the Debt Limitation and Appropriations Clauses, this Court

was careful to note that the legislation survived those Clauses because the Legislature retained its constitutionally

enshrined power to annually appropriate funds as necessary for the fiscal health of the State. No such reservation of

power can be found in Chapter 78. (pp. 42-49)

8. Applying those principles here, the Legislature and Governor were without power, acting without voter approval,

to transgress the Debt Limitation Clause and the corresponding Appropriations and other budget clauses of the State

Constitution. The Legislature and Governor, as well as the many interested parties involved in the legislative

process, may have included contractual words in Chapter 78, but those words, no matter their clarity, could not

create an enforceable contract of the type asserted. Voter approval is required to render this a legally enforceable

contractual agreement compelling appropriations of this size covering succeeding fiscal years; otherwise, this

agreement is enforceable only as an agreement that is subject to appropriation, which under the Appropriations

Clause renders it subject to the annual budgetary appropriations process. In that process, the payment may not be

compelled by the Judiciary. The Legislature’s strong expression of intent remains clear in Chapter 78, but it does

not bind future legislatures or governors in a manner that strips discretionary functions concerning appropriations

that the State Constitution leaves to the legislative and executive branches. (pp. 49-53)

9. Because of the importance of maintaining the soundness of the pension funds, the loss of public trust due to the

broken promises made through Chapter 78’s enactment is staggering. The Court recognizes that the present level of

the pension systems’ funding is of increasing concern. But this is a constitutional controversy that has been brought

to the Judiciary’s doorstep, and the Court’s obligation is to enforce the State Constitution’s limitations on legislative

power. The State Constitution simply does not permit Chapter 78’s payment provisions to have any more binding

effect than that of a contract that is subject to appropriation. To be clear, the Court emphasizes that it is not

declaring Chapter 78 unconstitutional. Chapter 78 remains in effect, as interpreted, unless the Legislature chooses to

modify it. There is therefore no need to address severability or the mutuality of obligations and the Court leaves

those considerations for the political branches. The Court also emphasizes that its analysis does not conflate the

issue of the State’s obligation to pay pension benefits with the issue whether Chapter 78 legally binds the State

annually to make the scheduled payments into the pension systems. The Court’s holding is, simply, that Chapter 78

cannot constitutionally create a legally binding, enforceable obligation on the State to annually appropriate funds as

Chapter 78 purports to require. (pp. 53-61)

10. That the State must get its financial house in order is plain. The need is compelling in respect of the State’s

ability to honor its compensation commitment to retired employees. But the Court cannot resolve that need in place

of the political branches. They will have to deal with one another to forge a solution to the tenuous financial status

of New Jersey’s pension funding in a way that comports with the strictures of our Constitution. The Debt Limitation

Clause and the Appropriations Clause envisioned no role for the Judiciary in the annual budget-making process and

prevent it from having to perform the unseemly role of deciding in that process whether a failure to fully fund a

statutory program, including one labeled a contract, was reasonable and necessary. A Contracts Clause analysis

would require annual incursions by the Judiciary into second-guessing spending priorities and perhaps even

revenue-raising considerations in recurring years. Under the Debt Limitation Clause and the Appropriations Clause,

the responsibility for the budget process remains squarely with the Legislature and Executive, the branches

accountable to the voters through the electoral process. This is not an occasion for the Judiciary to act on the other

branches’ behalf. (pp. 61-68)

The judgment of the Law Division is REVERSED.

JUSTICE ALBIN, dissenting, joined by CHIEF JUSTICE RABNER, believes that public workers have

protectable contractual rights under the United States Constitution -- as the Legislature and Governor intended in

enacting Chapter 78. He expresses the view that Chapter 78 is a binding contract on the State that cannot be

nullified without offending the Federal Constitution’s Contracts Clause.

JUSTICES PATTERSON, FERNANDEZ-VINA, and SOLOMON and JUDGE CUFF (temporarily

assigned), join in JUSTICE LaVECCHIA’s opinion. JUSTICE ALBIN filed a separate, dissenting opinion in

which CHIEF JUSTICE RABNER joins.

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SUPREME COURT OF NEW JERSEY

A-55 September Term 2014

075736

CHRISTOPHER BURGOS,

Individually and as President

of the State Troopers

Fraternal Association of New

Jersey; JAMES KIERNAN,

Individually and as President

of State Troopers Non-

Commissioned Officers

Association of New Jersey

State, Inc.; STEPHEN STERNIK,

Individually and as President

of State Troopers Superior

Association of New Jersey;

STATE TROOPERS FRATERNAL

ASSOCIATION OF NEW JERSEY, on

behalf of all its present and

retired members; STATE

TROOPERS NON-COMMISSIONED

OFFICERS ASSOCIATION OF NEW

JERSEY, INC., on behalf of

all its present and retired

members; and STATE TROOPERS

SUPERIOR OFFICERS ASSOCIATION

OF NEW JERSEY, on behalf of

all its present and retired

members,

Plaintiffs-Respondents,

v.

STATE OF NEW JERSEY;

CHRISTOPHER CHRISTIE,

Governor of the State of New

Jersey; ANDREW SIDAMON-

ERISTOFF, Treasurer of the

State of New Jersey; NEW

JERSEY STATE SENATE; and NEW

JERSEY STATE GENERAL

ASSEMBLY,

Defendants-Appellants,

1

and

COMMUNICATIONS WORKERS OF

AMERICA, AFL-CIO;

PROFESSIONAL FIREFIGHTERS

ASSOCIATION OF NEW JERSEY,

IAFF, AFL-CIO; NEW JERSEY

FRATERNAL ORDER OF POLICE;

AMERICAN FEDERATION OF STATE,

COUNTY, AND MUNICIPAL

EMPLOYEES, COUNCIL 73;

AMERICAN FEDERATION OF

TEACHERS NEW JERSEY STATE

FEDERATION, AFL-CIO;

INTERNATIONAL FEDERATION OF

PROFESSIONAL AND TECHNICAL

ENGINEERS, AFL-CIO & CLC,

LOCAL 195; HEALTH

PROFESSIONAL AND ALLIED

EMPLOYEES, AFT, AFL-CIO; NEW

JERSEY STATE AFL-CIO; SANDRA

P. COHEN; MICHAEL A.

JUSTINIANO; DOMINICK MARINO;

DONNA CHIERA; DIANE CAMERON;

and RUSSELL LEAK,

Plaintiffs-Respondents,

v.

CHRIS CHRISTIE, as Governor

of the State of New Jersey;

NEW JERSEY DEPARTMENT OF THE

TREASURY; and ANDREW P.

SIDAMON-ERISTOFF, Treasurer,

State of New Jersey,

Defendants-Appellants,

and

NEW JERSEY EDUCATION

ASSOCIATION; NEW JERSEY STATE

POLICEMEN’S BENEVOLENT

ASSOCIATION, INC.; NEW JERSEY

STATE FIREFIGHTERS’ MUTUAL

2

BENEVOLENT ASSOCIATION;

AMERICAN FEDERATION OF STATE,

COUNTY, AND MUNICIPAL

EMPLOYEES, COUNCIL 1, AFL-

CIO; CHRISTINE SAMPSON-CLARK;

HEIDI OLSON; PATRICIA

PROVNICK; KEITH DUNN; PATRICK

COLLIGAN; MARC KOVAR;

TIM DEUTSCH; KYLE HUGHES;

JOHN E. MURPHY, JR.; LANCE P.

LOPEZ, SR.; THE NEW JERSEY

PRINCIPALS AND SUPERVISORS

ASSOCIATION; JANET S. ZYMROZ;

JOHN C. ALFIERI, JR.; HOPE

GRANT; and ROSARIO CAPACCIO,

Plaintiffs-Respondents,

v.

STATE OF NEW JERSEY;

CHRISTOPHER J. CHRISTIE, as

Governor of the State of New

Jersey; NEW JERSEY DEPARTMENT

OF THE TREASURY; and ANDREW

P. SIDAMON-ERISTOFF,

Treasurer, State of New

Jersey,

Defendants-Appellants,

and

PROBATION ASSOCIATION OF NEW

JERSEY, PROFESSIONAL CASE-

RELATED UNIT; PROBATION

ASSOCIATION OF NEW JERSEY,

PROFESSIONAL SUPERVISORS

UNION; DWIGHT COVALESKIE;

GAVIN CUMMINGS; and ELLEN

CRIBBIN,

Plaintiffs-Respondents,

v.

3

STATE OF NEW JERSEY;

CHRISTOPHER J. CHRISTIE, as

Governor of the State of New

Jersey; NEW JERSEY DEPARTMENT

OF THE TREASURY; and ANDREW

P. SIDAMON-ERISTOFF,

Treasurer, State of New

Jersey,

Defendants-Appellants.

Argued May 6, 2015 – Decided June 9, 2015

On appeal from the Superior Court, Law

Division, Mercer County.

Jean P. Reilly, Assistant Attorney General,

argued the cause for appellants (John J.

Hoffman, Acting Attorney General, attorney;

Ms. Reilly, John P. Bender, Assistant

Attorney General, Gabriel I. Chacon, and

David M. Reap, Deputy Attorneys General on

the briefs).

Steven P. Weissman and Kenneth I. Nowak

argued the cause for respondents (Weissman &

Mintz, attorneys for Communications Workers

of America, AFL-CIO, American Federation of

State, County, and Municipal Employees,

Council 73, American Federation of Teachers

New Jersey State Federation, AFL-CIO, Health

Professional and Allied Employees, AFT, AFL-

CIO, New Jersey State AFL-CIO, Sandra P.

Cohen, Michael A. Justiniano, Diane Cameron,

and Donna Chiera; Zazzali, Fagella, Nowak,

Kleinbaum & Friedman, attorneys for New

Jersey Education Association, New Jersey

State Policemen’s Benevolent Association,

Inc., American Federation of State, County,

and Municipal Employees, Council 1, AFL-CIO,

Christine Sampson-Clark, Heidi Olsen,

Patricia Provnick, Keith Dunn, Patrick

Colligan, Marc Kovar, and Lance P. Lopez,

Sr.; Mets Schiro & McGovern, attorneys for

Professional Firefighters Association of New

Jersey, IAFF, AFL-CIO, American Federation

4

of Teachers New Jersey Federation, AFL-CIO,

and Dominick Marino; Markowitz and Richman,

attorneys for New Jersey Fraternal Order of

Police and Russell Leak; Oxfeld Cohen,

attorneys for International Federation of

Professional and Technical Engineers, AFL-

CIO & CLC, and Local 195; Craig S. Gumpel,

attorney for New Jersey State Firefighters’

Mutual Benevolent Association, Edwin

Donnelly, Tim Deutsch, Kyle Hughes, and John

E. Murphy, Jr.; Robert M. Schwartz, attorney

for New Jersey Principals and Supervisors

Association, Janet S. Zymroz, John C.

Alfieri, Jr., Hope Grant, and Rosario

Capaccio; and Fox & Fox, attorneys for

Probation Association of New Jersey,

Professional Case-Related Unit, Probation

Association of New Jersey, Professional

Supervisors Union, Dwight Covaleski, Gavin

Cummins, and Ellen Cribbin; Mr. Weissman,

Mr. Nowak, Ira W. Mintz, Edward M. Suarez,

Jr., Adam M. Gordon, Justin Schwam, Flavio

L. Komuves, and Annmarie Pinarski, on the

brief).

Michael A. Bukosky argued the cause for

respondents Christopher Burgos, James

Kiernan, Stephen Sternik, State Troopers

Fraternal Association of New Jersey, State

Troopers Non-Commissioned Officers

Association of New Jersey, Inc., and State

Troopers Superior Officers Association of

New Jersey (Loccke, Correia & Bukosky,

attorneys; Mr. Bukosky and Cory M. Sargeant,

on the brief).

Robert D. Klausner, a member of the Florida

bar, argued the cause for amici curiae

Boards of Trustees of the Retirement Systems

(Bennet D. Zurofsky, attorney; Mr. Klausner

and Mr. Zurofsky, on the brief).

Leon J. Sokol argued the cause for amici

curiae Senate President Stephen M. Sweeney

and General Assembly Speaker Vincent Prieto

(Sokol Behot, attorneys; Mr. Sokol and Scott

E. Rekant, on the brief).

5

James Katz submitted a brief on behalf of

amicus curiae New Jersey Citizen Action

(Spear Wilderman, attorneys).

JUSTICE LaVECCHIA delivered the opinion of the Court.

In 1997, with enactment of Chapter 113 of the Laws of New

Jersey, the Legislature granted to members of the public pension

funds a “non-forfeitable right to receive benefits,” a right

defined to mean that benefits could not be reduced once the

right to them had attached. See N.J.S.A. 43:3C-9.5(a)-(b). The

individual members of the public pension systems, by their

public service, earned this delayed part of their compensation.

See ibid. That those men and women must be paid their pension

benefits when due is not in question in this matter.

In 2011, with enactment of Chapter 78, L. 2011, c. 78, the

Legislature amended N.J.S.A. 43:3C-9.5(c). Chapter 78’s

amendment to subsection (c) introduced contractual terms in

connection with the State’s payment of its annual required

contribution to the various pension funds. The contractual

terminology creates an expectation that the State would

contribute timely, annually scheduled, required payments to the

pension funds, thereby addressing the alarming current unfunded

accrued liability and restoring the various funds to fiscally

sound levels.

6

Plaintiffs brought this action because the prior Fiscal

Year (FY) 2014 and current FY 2015 Appropriations Acts did not

provide sufficient funding to meet the amounts called for under

Chapter 78’s payment schedule. Plaintiffs argue that Chapter 78

created an enforceable contract that is entitled to

constitutional protection against impairment. Notwithstanding

the State’s willing participation in Chapter 78’s enactment, it

argues that the budgetary and debt limiting clauses of the State

Constitution conflict with any binding agreement created by

Chapter 78’s language. We granted the State’s motion for direct

certification to resolve the important questions raised by this

apparent clash of constitutional provisions.

Although plaintiffs correctly assert that a promise was

made by the legislative and executive branches when enacting

Chapter 78, and morally their argument is unassailable, we

conclude that Chapter 78 could not create the type of legally

enforceable contract that plaintiffs argue, and the trial court

found, is entitled to protection under the Contracts Clauses of

either the State or Federal Constitutions. The Debt Limitation

Clause of the State Constitution interdicts the creation, in

this manner, of a legally binding enforceable contract

compelling multi-year financial payments in the sizable amounts

called for by Chapter 78.

7

No matter how well-intentioned the government actors and no

matter how worthy the cause to be advanced by Chapter 78, the

Debt Limitation Clause speaks directly to this situation and, in

pertinent part, commands:

The Legislature shall not, in any manner,

create in any fiscal year a debt or debts,

liability or liabilities of the State, which

together with any previous debts or

liabilities shall exceed at any time one per

centum of the total amount appropriated by the

general appropriation law for that fiscal

year, unless the same shall be authorized by

a law for some single object or work

distinctly specified therein. . . . [N]o 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.

[N.J. Const. art. VIII, § 2, ¶ 3.]

The purpose to be achieved by the Debt Limitation Clause

dovetails with the Framers’ intent for a fiscally responsible

annual budget process. Efforts to dedicate monies through

legislative acts other than the annual appropriations act have

no binding effect. They are read as impliedly suspended when

contradicted by the budgetary judgment of the presently

constituted Legislature acting in concert with the Governor in

their constitutionally prescribed budget formation roles. Those

debt limitation and appropriations-related constitutional

clauses conflict with the contractual language of Chapter 78 and

thwart plaintiffs’ impairment claims.

8

We therefore hold that the Legislature and Governor were

without authority to enact an enforceable and legally binding

long-term financial agreement through this statute. Chapter

78’s contractual language creates, at best, the equivalent of

appropriations-backed debt that is accompanied by a strong

legislative expression of intent to provide future funding. The

legislative use of contractual terms in Chapter 78, when

referring to the required schedule of recurring payments of the

State’s annual required contribution to the State public pension

systems, does not create an enforceable long-term financial

contract that can co-exist with the limitations of the Debt

Limitation Clause and the related Appropriations Clause of the

State Constitution. So long as Chapter 78 exists in its present

statutory form, each year’s appropriations act will reflect the

present legislative and executive judgment as to the budgetary

priority of this pressing need for which those branches will be

answerable to the public and to the financial marketplace. It

is not the place of this Court to dictate that judgment, for the

Constitution has left such budgetary and political questions to

the other two branches.

I.

A.

The Division of Pensions and Benefits, part of the

Department of the Treasury, administers the State public pension

9

systems. They include the Police and Firemen’s Retirement

System, N.J.S.A. 43:16A-1 to -68; the Public Employees’

Retirement System, N.J.S.A. 43:15A-1 to -161; the Teachers’

Pension and Annuity Fund, N.J.S.A. 18A:66-1 to -93; the State

Police Retirement System, N.J.S.A. 53:5A-1 to -47; the

Consolidated Police and Firemen’s Pension Fund, N.J.S.A. 43:16-1

to -21; the Judicial Retirement System, N.J.S.A. 43:6A-1 to -47;

and the Prison Officers’ Pension Fund, N.J.S.A. 43:7-7 to -27.

For background purposes, those systems are defined-benefit

plans, which guarantee participants a discernible amount of

benefits to be paid upon retirement based on the particular

participant’s salary and time spent in the pension system.

The benefits are paid using revenues received from employee

contributions, public employer (i.e., State) contributions, and

investment returns. Under the amendments to the statutes

governing the State’s pension systems that lie at the heart of

this matter, the Legislature has required the State to make a

full annually required contribution (ARC) to the pension

systems. The ARC equals the sum of the statutorily required

annual normal contribution (ANC) and the annual unfunded accrued

actuarial liability contribution (UAAL).

The ANC represents the present value of the actual benefits

that active pension members earned in the current year. It is

the actuarially calculated amount necessary to fund the pension

10

benefits accrued in and for that year of service by active

participants in the State pension systems.

The UAAL represents the necessary payment required to

amortize the systems’ unfunded liability over a specified period

of years. The unfunded liability is the excess of the systems’

actuarial liability above the actuarial value of the systems’

assets on hand. The actuarial liability represents what it

would cost to pay pension benefits to active and retired

employees for the duration of their retirement. Thus, the UAAL

payments constitute planned amounts that will amortize the

actuarially calculated sum of monies that represents the gap

between the pension systems’ actuarial value of assets and the

present value of all current actuarial liabilities as to both

active and retired members.

On June 28, 2011, the New Jersey Legislature enacted

Chapter 78, section 26 of which amended N.J.S.A. 43:3C-9.5(c),

addressing the responsibility of State employers to contribute

to the above-mentioned pension systems. Prior to the amendment,

subsection (c) of the statute provided:

The State shall make an annual normal

contribution and an annual unfunded accrued

liability contribution to each system or fund

pursuant to standard actuarial practices

authorized by law, unless both of the

following conditions are met: (1) there is no

existing unfunded accrued liability

contribution due to the system or fund at the

close of the valuation period applicable to

11

the upcoming fiscal year; and (2) there are

excess valuation assets in excess of the

actuarial accrued liability of the system or

fund at the close of the valuation period

applicable to the upcoming fiscal year.

[L. 1997, c. 113, § 5.]

Chapter 78 substantially changed N.J.S.A. 43:3C-9.5(c).

The State remains required to make ANC and UAAL payments subject

to the exceptions outlined in the above pre-amendment language,

but Chapter 78 added important language that is the subject of

this matter. N.J.S.A. 43:3C-9.5(c) now reads, in relevant part:

(1) The State and all other applicable

employers shall make their annual normal

contribution to each system or fund . . . .

The State and all other applicable employers

shall also make their annual unfunded accrued

liability contribution . . . . The annual

normal contribution plus the annual unfunded

accrued liability contribution shall together

be the annual required contribution, provided,

however, that for the State, [N.J.S.A. 43:3C-

14] shall apply with regard to the State’s

annual required contribution. The amount of

the State’s annually required contributions

shall be included in all annual appropriations

acts as a dedicated line item.

(2) Each member of the [State’s pension

systems] . . . shall have a contractual right

to the annual required contribution amount

being made by the member’s employer or by any

other public entity. The contractual right to

the annual required contribution means that

the employer or other public entity shall make

the annual required contribution on a timely

basis . . . . The failure of the State or any

other public employer to make the annually

required contribution shall be deemed to be an

impairment of the contractual right of each

employee. . . .

12

[L. 2011, c. 78, § 26 (codified at N.J.S.A.

43:3C-9.5(c)) (emphasis added).]

N.J.S.A. 43:3C-14, referred to in subsection (c)(1) above,

required the State, “[c]ommencing July 1, 2011,” to make its

contribution “in full each year to each system or fund in the

manner and at the time provided by law.” That section, enacted

previously on March 22, 2010, as Chapter 1 of the Laws of 2010,

did not require the State to begin paying 100 percent of its

required ANC and UAAL contributions (i.e., the ARC) immediately

on July 1, 2011. Instead, Chapter 1 provided for an incremental

rise in the payments the State was required to make to the

pension funds:

The State with regard to its obligations

funded through the annual appropriations act

shall be in compliance with this requirement

provided the State makes a payment, to each

State-administered retirement system or fund,

of at least 1/7th of the full contribution, as

computed by the actuaries, in the State fiscal

year commencing July 1, 2011 and a payment in

each subsequent fiscal year that increases by

at least an additional 1/7th until payment of

the full contribution is made in the seventh

fiscal year and thereafter.

[N.J.S.A. 43:3C-14.]

Specifically, beginning with FY 2012, the State would be in

compliance by contributing at least 1/7th of the ARC

contribution in that fiscal year, and in ensuing years, 2/7ths

of the ARC in FY13, 3/7ths in FY14, 4/7ths in FY15, 5/7ths in

13

FY16, 6/7ths in FY17, and a full payment in FY18. See N.J.S.A.

43:3C-14. Thus, for example, although the full ARC payment for

FY15 amounted to $3.937 billion, Chapter 1 required the State

only to contribute $2.25 billion, which is 4/7ths of the full

ARC payment.

In combination, Chapter 78 and Chapter 1 require the State

to contribute the entire ARC amount owed to pension systems

every year by dedicating that amount as a line item in each

year’s appropriations act. Importantly, Chapter 78 added

language explicitly declaring the existence of a contractual

right in pension-system members and setting forth that State

employers’ failure to comply with the full-contribution

requirement is “deemed to be an impairment” of that right as to

each member that either members or the trustees of the Funds

themselves could enforce.

B.

The State made its required contributions in FY12 and FY13.

On June 30, 2013, the Governor signed into law the FY14

Appropriations Act, which included an appropriation for the

State’s full required contribution (3/7ths of its ARC) for that

fiscal year.

Thereafter, in February 2014, Governor Christie released

the FY15 proposed budget, which also included $2.25 billion to

satisfy the State’s required 4/7ths ARC payment.

14

However, on May 20, 2014, the Governor issued Executive

Order 156, which reduced State payments into the pension systems

for FY14, explaining that said action was due to a severe and

unanticipated revenue shortfall. The required 3/7ths ARC

contribution totaled $1.582 billion for FY14, which represented

the sum of a $298 million ANC and a $1.284 billion UAAL.

Instead of paying that amount, the State made a total FY14

contribution of $696 million, which is explained as representing

a 7/7ths payment of the FY14 ANC calculation and 0/7ths payment

of the required FY14 UAAL calculation.

The next day, the State Treasurer announced that the

proposed budget for FY15 was being revised to reduce the amount

that would be contributed to pension systems. The Treasurer

cited new information that placed the State’s projected revenue

for FY15 at about $1.7 billion less than previous projections.

The revised FY15 budget thus advanced would include a total ARC

contribution of $681 million, reflecting $1.57 billion less than

the State’s required ARC contribution.

In response, plaintiffs -- individuals and unions acting on

behalf of hundreds of thousands of New Jersey State public

employees1 -- filed complaints alleging statutory violations,

1 Plaintiffs consist principally of Christopher Burgos, James

Kiernan, Stephen Sternik, State Troopers Fraternal Association

of New Jersey, State Troopers Non-Commissioned Officers

Association of New Jersey, and State Troopers Superior Officers

15

impairment of contractual rights under the New Jersey and United

States Constitutions, violations of substantive and procedural

due process under both Constitutions, a violation of plaintiffs’

Equal Protection rights, promissory estoppel, and violations of

the New Jersey Civil Rights Act. Plaintiffs sought injunctive

and mandamus relief for both FY14 and FY15. The trial court

consolidated plaintiffs’ claims against defendants into one

action.

With respect to the budgetary action involving the then-

imminently concluding FY14, the Law Division upheld the

Governor’s determination not to make the required FY14 ARC

payment, declaring the action lawfully within the Executive’s

emergency powers and reasonable and necessary under the

Contracts Clauses of the New Jersey and United States

Constitutions. The court held that plaintiffs’ claims for FY15

were not ripe because the Legislature had not yet passed a FY15

Appropriations Bill, but that plaintiffs were free to challenge

the FY15 bill once the Legislature passed it.

Association of New Jersey, as well as Communications Workers of

America, New Jersey Education Association, New Jersey Fraternal

Order of Police, Professional Firefighters Association of New

Jersey, International Federation of Professional and Technical

Engineers, New Jersey State Firefighters, and Probation

Association of New Jersey.

16

When the Legislature passed its FY15 Appropriations Bill on

June 26, 2014, the bill included a $2.25 billion appropriation

(the full 4/7ths required ARC). The FY15 Appropriations Bill

that the Legislature sent to the Governor was financed in part

by companion bills establishing new taxes whose projected

revenue streams were incorporated into the Legislature’s

anticipated revenue for FY15.2

On June 30, 2014, Governor Christie exercised his line-item

veto authority in respect of the Legislature’s passed FY15

Appropriations Bill, deleting, among other budgetary items,

$1.57 billion of the State’s required pension payment from the

approved parts of the FY15 Appropriations Act. In his line-item

veto message, Governor Christie stated that he opposed raising

taxes to pay for the budget deficit, eliminated the new revenues

projected for new taxes as presented by the Legislature, and

cited his constitutional responsibility to deliver a balanced

budget as the reason for reducing the State’s FY15 contribution.

Subsequently, on July 11, 2014, the Governor issued absolute

vetoes on the separate companion bills that had established the

2 Specifically, the Legislature passed bills establishing new

taxes colloquially referred to as a “corporate business tax

surcharge” and a “millionaire’s tax.” Assemb. 3484, 216th Leg.

(June 26, 2014); Assemb. 3485, 216th Leg. (June 26, 2014).

17

new tax revenue that the Legislature had included in its FY15

Appropriations Bill.

The Legislature did not take action to override the line-

item veto. Therefore, the 2015 Appropriations Act became law,

subject to the line-item veto changes. Under the FY15

Appropriations Act, the State will make in the course of FY15 a

$681 million pension contribution, an amount that is represented

to constitute 7/7ths of the FY15 ANC and 0/7ths of the UAAL

calculation.

Plaintiffs filed amended complaints in the Law Division.

The State responded by filing a motion to dismiss, and

plaintiffs, in turn, filed a motion for summary judgment.

Plaintiffs argued that, in enacting Chapter 78, the State

undertook a contractual obligation to make the ARC payment to

the pension system and that the State’s failure to make the full

FY15 ARC payment constituted an impairment of that contract in

violation of the Contracts Clauses of the State and Federal

Constitutions. According to plaintiffs, the contractual right

contained in Chapter 78 did not implicate the Debt Limitation

Clause, did not violate the Appropriations Clause, and could not

be abrogated by the Governor’s exercise of his line-item veto

power. Plaintiffs’ prayer for relief requested that the court

require the Legislature and the executive branch to adopt an

18

appropriations act consistent with the contractual obligations

outlined in Chapter 78.

In its motion to dismiss and in opposition to plaintiffs’

motion for summary judgment, the State asserted that Chapter 78

could not create a valid contract right because it violated the

Appropriations and Debt Limitation Clauses and the line-item

veto provision of the New Jersey Constitution. Even assuming,

but not conceding, that an enforceable contract right was

created, the State maintained that it did not substantially

impair that contract right because (1) plaintiffs were not

without remedy in the form of a breach of contract action and

(2) the non-payment of the 4/7ths UAAL did not materially impact

the health of the pension systems or result in the non-payment

of benefits to retirees. Further, again assuming but not

conceding that substantial impairment occurred, the State

submitted that its decision was reasonable and served a

legitimate public purpose. The State also raised arguments

based on sovereign immunity and the non-justiciability of

political questions.

On February 23, 2015, the trial court issued a detailed and

comprehensive opinion that granted summary judgment to

plaintiffs on their impairment-of-contract claims, granted

plaintiffs’ application for declaratory judgment, and denied

defendants’ motion to dismiss plaintiffs’ claims. The trial

19

court accepted plaintiffs’ argument that Chapter 78 created a

contract and that the State’s failure to appropriate the full

value of the ARC in the FY15 Appropriations Act substantially

impaired plaintiffs’ rights under that contract. Thus, the

court concluded that plaintiffs stated cognizable claims under

both the Federal and State Contracts Clauses. In so finding,

the court rejected arguments that Chapter 78 was unenforceable

as violative of the Debt Limitation Clause, the Appropriations

Clause, and the gubernatorial line-item veto power. The court

did not order a specific appropriation. Instead, the court

determined “to give the other branches an opportunity to act in

accordance with the court’s decree.” The trial court declined

to reach the remainder of plaintiffs’ claims.

On March 13, 2015, the State filed a motion for leave to

appeal to the Appellate Division. Shortly thereafter, the State

filed a motion seeking direct certification to the Court. The

motion was unopposed. On April 6, 2015, this Court issued an

order granting direct certification, establishing a briefing

schedule, and setting the matter down for oral argument on May

6, 2015. This Court subsequently granted New Jersey Citizen

Action’s motion to appear as amicus curiae, as well as the

motion of Senate President Stephen M. Sweeney and General

Assembly Speaker Vincent Prieto to participate as amicus curiae.

The New Jersey Retirement System Boards of Trustees also

20

participate as amici curiae pursuant to the trial court’s

November 2014 order granting them such status.

II.

A.

The parties’ arguments before this Court are refined

versions of their arguments before the trial court. We address

them as part of our substantive analysis of the instant

controversy.

That said, no analysis of this matter fairly can commence

without initially recognizing the promises made on the State’s

part toward meeting the scheduled payments to reduce the

unfunded liability. Plaintiffs and amici highlight those

promises. They emphasize the many statements –- statements made

as part of the legislative process and to the public before and

after Chapter 78 was enacted –- praising the bipartisan

legislative endeavor and referring to the legislative

achievement as a contract.

Most certainly, a litany of public statements indicate

State officials’ satisfaction in respect of Chapter 78’s

passage. A 2011 joint statement from the Governor and the

leaders of the various legislative factions declared that “[t]he

legislation [(i.e., Chapter 78)] . . . saves the public pension

system for current and future retirees . . . . We all fully

support this legislation and will work together to assure its

21

passage by both houses of the Legislature and enactment into law

. . . .” Press Release, Office of the Governor, Statement from

Governor Chris Christie, Senate President Stephen Sweeney,

Assembly Speaker Sheila Oliver, Senate Minority Leader Thomas

Kean, Jr. and Assembly Minority Leader Alex DeCroce (June 15,

2011), available at

http://www.state.nj.us/governor/news/news/552011/approved/201106

15c.html. Chapter 78 was called “bold” and the product of

“cooperation, bipartisanship and compromise.” Press Release,

Office of the Governor, Governor Christie Signs into Law Bold,

Bipartisan Pension and Health Benefits Reform (June 28, 2011),

available at

http://www.state.nj.us/governor/news/news/552011/approved/201106

28B.html.

Likewise, there is no question that the participants in the

legislative process referred to Chapter 78 as creating a

contract. See NJ Citizen Action Joins Pension Lawsuit,

Politicker NJ (Apr. 28, 2015),

http://politickernj.com/2015/04/nj-citizen-action-joins-pension-

lawsuit/ (quoting Governor’s remarks at 2011 appearance: “Th[e

pension payment] schedule is codified into the legislation we

have right now and makes it a contractual right of the folks in

the pension system to have those payments made.”); Mark J.

Magyar, Sweeney Urges Pension Funding Overhaul to Reduce Impact

22

on State Budget, NJ Spotlight (Oct. 28, 2014),

http://www.njspotlight.com/stories/14/10/28/sweeney-urges-

pension-funding-overhaul-to-save-nj-s-troubled-plagued-system/

(noting legislative leader’s assertion that Chapter 78’s

language expresses clear legislative intent to create

contractual obligation).

We do not question the good intentions of those

participating in the enactment of Chapter 78 or that they

intended to create a contractual arrangement that addressed

future payments into the funds of the several public pension

systems to promote the fiscal health of those funds. But a

strictly legal question is now before us. That, and that alone,

is what must be resolved in this matter of great public

importance to members of the public pension systems and citizens

throughout the State.

B.

Both the New Jersey and Federal Constitutions prohibit the

passage of laws impairing the obligation of contracts. U.S.

Const. art. I, § 10, cl. 1 (“No State shall . . . pass any . . .

Law impairing the Obligation of Contracts . . . .”); N.J. Const.

art. IV, § 7, ¶ 3 (“The Legislature shall not pass any . . . law

impairing the obligation of contracts, or depriving a party of

any remedy for enforcing a contract which existed when the

contract was made.”). This Court has recognized that the

23

Federal and State Contracts Clauses provide “‘parallel

guarantees.’” Fid. Union Trust Co. v. N.J. Highway Auth., 85

N.J. 277, 299 (1981) (quoting P. T. & L. Constr. Co. v. Comm’r,

60 N.J. 308, 313 (1972)); see also In re Pub. Serv. Elec. & Gas

Co.’s Rate Unbundling, 330 N.J. Super. 65, 92 (App. Div. 2000)

(noting coextensive protection provided under both

clauses), aff’d o.b., 167 N.J. 377, 382, 395, cert. denied, 534

U.S. 813, 122 S. Ct. 37, 151 L. Ed. 2d 11 (2001).

“Legislation unconstitutionally impairs a contract when it

(1) ‘substantially impair[s] a contractual relationship,’ (2)

‘lack[s] a significant and legitimate public purpose,’ and (3)

is ‘based upon unreasonable conditions and . . . unrelated to

appropriate governmental objectives.’” Farmers Mut. Fire Ins.

Co. of Salem v. N.J. Prop.-Liab. Ins. Guar. Ass’n, 215 N.J. 522,

546-47 (2013) (alterations in original) (quoting State Farm Mut.

Auto. Ins. Co. v. State, 124 N.J. 32, 64 (1991)); see also U.S.

Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 25, 97 S. Ct. 1505,

1519, 52 L. Ed. 2d 92, 112 (1977) (“[A]n impairment may be

constitutional if it is reasonable and necessary to serve an

important public purpose.”).

Under the Contracts Clause of either the State or Federal

Constitution, the premise for performing a contract impairment

analysis is the existence of a valid enforceable contract under

state law. Thus, the first step in the substantial impairment

24

analysis is, necessarily, to determine “‘whether there is a

contractual relationship.’” N.J. Educ. Ass’n v. State (NJEA),

412 N.J. Super. 192, 205 (App. Div.) (quoting Gen. Motors Corp.

v. Romein, 503 U.S. 181, 186, 112 S. Ct. 1105, 1109, 117 L. Ed.

2d 328, 337 (1992)), certif. denied, 202 N.J. 347 (2010). When

a contractual relationship is purportedly created through a

statute’s enactment, two questions may be distilled and must be

addressed in analyzing whether a contract was successfully

formed:

(1) did the Legislature speak with sufficient clarity to

evince intent to create a contract right, see, e.g.,

San Diego Police Officers’ Ass’n v. San Diego City

Emps.’ Ret. Sys., 568 F.3d 725, 737 (9th Cir. 2009)

(stating that in Contracts Clause analysis, state

statutes “must evince a clear and unmistakable

indication” of legislature’s intent to form

contractual relationship before they may be read to

create contract); Parker v. Wakelin, 123 F.3d 1, 5

(1st Cir. 1997) (requiring “a clear indication that

the legislature intends to bind itself in a

contractual manner” to create contract rights); and

(2) did state law grant to the Legislature the authority to

enter into the binding and enforceable contract in

question, see, e.g., Indiana ex rel. Anderson v. Brand,

25

303 U.S. 95, 100, 58 S. Ct. 443, 446, 82 L. Ed. 685, 691

(1938) (explaining that in Federal Contracts Clause

claims court must evaluate validity of contract under

state law); San Diego Police Officers’ Ass’n, supra, 568

F.3d at 737 (explaining that in Federal Contracts Clause

claims “federal courts look to state law to determine

the existence of a contract” before using federal

principles in conducting Contracts Clause analysis).

C.

On the question of clarity of expression to exhibit

sufficient intent to create a contract, the United States

Supreme Court has instructed courts adjudicating Federal

Contracts Clause claims not to presume that a statute creates

private contract rights unless “some clear indication”

establishes the intent to do so. Nat’l R.R. Passenger Corp. v.

Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465-66, 105

S. Ct. 1441, 1451, 84 L. Ed. 2d 432, 446 (1985). Our state

jurisprudence reflects that federal law requirement.

In Spina v. Consolidated Police & Firemen’s Pension Fund

Commission, 41 N.J. 391, 405 (1964), on which plaintiffs rely,

this Court said that a statute may be construed as creating a

contract when the Legislature’s intent to create a contractual

commitment is “so plainly expressed that one cannot doubt the

individual legislator understood and intended it.” Similarly,

26

in NJEA, supra, the Appellate Division recognized that clarity

of language is necessary if a statute is to be regarded as

having been intended to create contractual rights “because the

effect of such authorization is to surrender the fundamental

legislative prerogative of statutory revision and amendment and

to restrict the legislative authority of succeeding

legislatures.” 412 N.J. Super. at 206-07 (citations omitted).

Here the Legislature certainly spoke with clarity and used

terminology that plainly expressed its intent to create

contractual rights. Chapter 78 expressly references a

“contractual right” to the method of ARC payment three times,

and the statute denotes the State’s failure to make the ARC

payment an “impairment,” which invokes the language of the State

and Federal Constitutions’ Contracts Clauses. See U.S. Const.

art. I, § 10, cl. 1; N.J. Const. art. IV, § 7, ¶ 3; N.J.S.A.

43:3C-9.5(c)(2). Such language markedly contrasts with that of

other pension statutes that New Jersey courts previously have

determined did not create a contract with attendant contractual

rights. See, e.g., Spina, supra, 41 N.J. at 399 (“‘[T]he common

council or other governing body shall include in any tax levy a

sum sufficient to meet the requirements of said fund . . . .’”

(emphasis added) (quoting L. 1920, c. 160)); NJEA, supra, 412

N.J. Super. at 199 (“‘[T]he Legislature shall make an

appropriation sufficient to provide for the obligations of the

27

State’ . . . .” (emphasis added) (quoting N.J.S.A. 18A:66-33)).

Where the statutory language in Spina and NJEA was implicit, at

most, in expressing any intention to contractually commit either

municipalities in Spina or the State in NJEA to a payment

obligation, Chapter 78’s repetitious use of the phrase

“contractual right” and inclusion of the word “impairment” to

describe the State’s failure to perform its payment obligation

plainly expresses legislative intent to create a contract right.

See Spina, supra, 41 N.J. at 405.

We conclude that the Legislature and Governor clearly

expressed an intent that Chapter 78 create a “contract right” to

timely and recurring ARC payments to reduce the unfunded

liability of the pension funds to safe levels. But, that

conclusion does not address the question of authority to do so.3

The essential question that must be answered is whether

legislative authority could be exercised through Chapter 78 to

create a legally binding, enforceable contract compelling future

3 Although Spina recognized that the Legislature can create a

contract through clear language, that case dealt with a statute

purporting to bind municipalities. Spina, supra, 41 N.J. at

395, 399. Municipalities are not subject to the Debt Limitation

and Appropriations Clauses, and so Spina does not address the

issue at the heart of this case: the State’s authority to form

the clearly intended contract in Chapter 78 in light of those

constitutional provisions. Therefore, Spina is not of further

assistance beyond the threshold principle that the Legislature

must speak with clarity to form a contract through legislative

enactment.

28

State appropriations to pay down the unfunded liability.4

Indeed, although the Legislature clearly may express its intent

to contract, that body’s actions must comport with the

Constitution. See, e.g., U.S. Trust Co., supra, 431 U.S. at 23,

97 S. Ct. at 1518, 52 L. Ed. 2d at 110 (noting reserved-powers

doctrine limits State’s authority to enter into contract

relinquishing “an essential attribute of its sovereignty”); Gen.

Assembly v. Byrne, 90 N.J. 376, 391 (1982) (“The Legislature

cannot pass an act that allows it to violate the

Constitution.”).

In making that determination, it is generally recognized

that state law governs the existence of a valid contract, even

for impairment claims under the Federal Contracts Clause. See,

e.g., Brand, supra, 303 U.S. at 100-09, 58 S. Ct. at 446-50, 82

L. Ed. at 690-95 (applying Indiana law to determine “existence

4 Entirely distinct from this question is the issue addressed in

the recent decision of the Supreme Court of Illinois. Heaton v.

Quinn (In re Pension Reform Litig.), ___ N.E.2d ___ (Ill. 2015)

(slip op. at 19). In that case, the court addressed the

reduction of benefits in violation of the state constitution’s

pension protection clause, which provides: “Membership in any

pension or retirement system of the State . . . shall be an

enforceable contractual relationship, the benefits of which

shall not be diminished or impaired.” Ill. Const. art XIII, §

5; Heaton, supra, ___ N.E.2d at ___ (slip op. at 2-3). The

Illinois lawmakers clearly created a substantive constitutional

right to benefits that could not be diminished, and diminution

in benefits was the issue before the court, Heaton, supra, ___

N.E.2d at ___ (slip op. at 19). The Illinois Supreme Court was

not addressing a purported right to a specific funding scheme.

29

and nature” of contract); Appleby v. City of New York, 271 U.S.

364, 380, 46 S. Ct. 569, 573, 70 L. Ed. 992, 999 (1926)

(explaining that “construction and effect” of contract was to be

determined from “the law of the state”); Tron v. Condello, 427

F. Supp. 1175, 1186 (S.D.N.Y. 1976) (“[W]e must look to the law

of New York at the time plaintiff’s alleged contractual rights

were created to see exactly what provisions are protected

against impairment.”). We therefore turn to New Jersey law that

pertains to the legal enforceability of the purported statutory

contractual right to Chapter 78’s required annual pension

payments.

III.

A.

The Debt Limitation Clause of the New Jersey Constitution,

in full, provides:

The Legislature shall not, in any manner,

create in any fiscal year a debt or debts,

liability or liabilities of the State, which

together with any previous debts or

liabilities shall exceed at any time one per

centum of the total amount appropriated by the

general appropriation law for that fiscal

year, unless the same shall be authorized by

a law for some single object or work

distinctly specified therein. Regardless of

any limitation relating to taxation in this

Constitution, such law shall provide the ways

and means, exclusive of loans, to pay the

interest of such debt or liability as it falls

due, and also to pay and discharge the

principal thereof within thirty-five years

from the time it is contracted; and the law

30

shall not be repealed until such debt or

liability and the interest thereon are fully

paid and discharged. Except as hereinafter

provided, no such law shall take effect until

it shall have been submitted to the people at

a general election and approved by a majority

of the legally qualified voters of the State

voting thereon.

[N.J. Const. art. VIII, § 2, ¶ 3.]

It is unnecessary to recount yet again the historical

origins of the Debt Limitation Clause. That has been done, well

and thoroughly, numerous times before, most recently by this

Court in Lonegan v. State (Lonegan I), 174 N.J. 435, 443-45, 464

(2002). See also, e.g., Lonegan v. State (Lonegan II), 176 N.J.

2, 14 (2003) (“The Debt Limitation Clause was adopted in 1844

because of concerns about binding obligations imposed on future

generations of taxpayers and because of unchecked speculation by

the state.”); Clayton v. Kervick, 52 N.J. 138, 146-47 (1968)

(discussing historical context of Debt Limitation Clause’s

adoption); McCutcheon v. State Bldg. Auth., 13 N.J. 46, 67-68

(1953) (Jacobs, J., dissenting) (same), overruled by Enourato v.

N.J. Bldg. Auth., 90 N.J. 396, 410 (1982). Those cases indicate

that in drafting the Debt Limitation Clause, the Framers

intended to empower the people of the State by giving them the

final word in respect of creating financial commitments that

might impair the State’s fiscal health and have inter-

generational repercussions. See Lonegan I, supra, 174 N.J. at

464 (“The framers believed that future generations of taxpayers

31

should not have to pay for their generation’s mistakes.”);

Spadoro v. Whitman, 150 N.J. 2, 12-13 (1997) (Handler, J.,

concurring in part and dissenting in part) (explaining that Debt

Limitation Clause serves the “broad and fundamentally important

purpose of not binding future majorities to the financial

policies of current majorities”).

Similarly, on several occasions this Court has canvassed

the development of its Debt Limitation Clause jurisprudence and,

again, Lonegan I, supra, represents the most recent of those

discussions. 174 N.J. at 445-52; see also, e.g., id. at 475-93

(Stein, J., concurring in part and dissenting in part)

(discussing in detail Debt Limitation Clause jurisprudence); In

re Loans of N.J. Prop. Liab. Ins. Guar. Ass’n, 124 N.J. 69, 75-

77 (1991) (recounting this Court’s cases involving Debt

Limitation Clause). The decisions in Lonegan I and Lonegan II

distilled the animating principle applied throughout those

decisions: the State cannot by contract or statute create a

binding and legally enforceable financial obligation above a

certain amount that applies year to year without voter approval.

See Lonegan II, supra, 176 N.J. at 13-14; Lonegan I, supra, 174

N.J. at 462-63. Such long-term financial arrangements require

voter approval to be enforced; or, such financial promises

otherwise avoid the Debt Limitation Clause’s interdiction by

being regarded as expressions of intent to provide the funding,

32

but they must be subjected to the annual appropriation process

for fulfillment in whole, in part, or not at all. See Lonegan

II, supra, 176 N.J. at 14-15 (“When contract or appropriations-

backed debt is issued, . . . the State does not pledge its full

faith and credit and is not legally bound to make payment on

that debt.”); Lonegan I, supra, 174 N.J. at 462-63.

In Lonegan II, supra, this Court confronted “a broad

challenge to the validity of fourteen New Jersey statutes

authorizing contract or appropriations-backed debt.” 176 N.J.

at 4. The plaintiffs argued that the “subject to appropriation”

qualification contained in the statutes authorizing financial

obligations was meaningless because the State’s failure to

appropriate funds to make the particular bond payments would

negatively affect the State’s credit and access to financial

markets; thus, according to the plaintiffs, appropriations-

backed financial obligations were effectively “full faith and

credit bonds” requiring voter approval to pass muster under the

Debt Limitation Clause. See id. at 10-11.

This Court rejected the plaintiffs’ challenge, noting that,

“[u]nder our case law, only debt that is legally enforceable

against the State is subject to the Debt Limitation Clause.”

Id. at 13. The Court continued: “By its terms, . . . the

Clause as written requires voter approval only when the State is

legally required to make payment on the debt it has incurred.”

33

Id. at 14. Therefore, the various statutory financing

mechanisms at issue in Lonegan II did not violate the Debt

Limitation Clause: because payments on contract or

appropriations-backed debt are necessarily left to the

Legislature’s discretion to appropriate, the State is not

legally bound to make such payments. See id. at 14-15 (citing

Enourato, supra, 90 N.J. at 410; N.J. Sports & Exposition Auth.

v. McCrane, 61 N.J. 1, 14, appeal dismissed, 409 U.S. 943, 93 S.

Ct. 270, 34 L. Ed. 2d 215 (1972)).

The Lonegan II Court recognized that, at the time the Debt

Limitation Clause was adopted, “[t]he variety of financing

mechanisms employed in both the private and the public sectors

today were unheard of,” id. at 14; indeed, “the variety of

functions assumed by the government since the 1800s, and the

sophisticated means now used to finance those functions, make it

difficult if not impossible to differentiate among acceptable

and unacceptable types of twenty-first century appropriations-

backed debt under a nineteenth-century paradigm,” id. at 15

(citations omitted). The trial court in this matter interpreted

that expression as exhibiting this Court’s “willingness to find

a contemporary, workable interpretation of the Clause to

accommodate fiscal realities in the [twenty-first] century,” and

as evidencing the Court’s “flexible approach” when confronted

with legislation implicating the strictures of the Clause. The

34

trial court determined that that flexibility allowed Chapter 78

to bind the State in the manner intended by the Legislature.

However, the trial court based its Debt Limitation Clause

analysis on a fundamental misperception of the flexibility that

was discussed in Lonegan II. In Lonegan II, we recognized

flexibility in the manner in which financing is structured,

noting that many types of financing used today were not in use

in 1844 (i.e., sale and leaseback agreements). See id. at 14-

15. The Lonegan II decision acknowledged the need for

flexibility in modern financing, and adjusted for same in the

performance of a Debt Limitation Clause analysis by reducing the

prohibited conduct to an easily understood principle: so long

as the State’s full faith and credit is not pledged and a

legally enforceable financial obligation, above a certain amount

and lasting year to year, is not created, without voter

approval, no Debt Limitation Clause violation ensues. See id.

at 13-15. As applied in the circumstances presented in Lonegan

II, if a financial obligation is made dependent on securing an

appropriation from year to year, then parties are apprised of

the element of risk and no constitutional debt limitation

violation arises. What matters is not what the financing scheme

is called, but rather how it operates.

Lonegan II thus requires a court confronted with a Debt

Limitation Clause issue to drill down to determine if a

35

purported debt or liability, created in any manner, establishes

an impermissible legally enforceable obligation binding the

State and compelling the appropriation of monies in future

years. The trial court’s analysis in this matter found Lonegan

II’s reference to flexibility to encompass a permissive approach

to modern financing methods tied only to the identified,

evolving public good that the modern form of financing will

serve. That reading is inconsistent with Lonegan II’s analysis

and holding, as well as the jurisprudence it synthesized. In

sum, the atmosphere of flexibility that the Lonegan II analysis

exudes cannot be divorced from the Debt Limitation Clause’s

stark directives, the Lonegan II Court’s clear statements

concerning the import of the Clause, or other of this Court’s

decisions assessing the Clause’s restrictions. See, e.g.,

Enourato, supra, 90 N.J. at 410 (noting Debt Limitation Clause

not implicated where State not legally obligated to make

appropriations); City of Camden v. Byrne, 82 N.J. 133, 152

(1980) (“The obligations created by the various statutes under

which the several plaintiffs in this action claim entitlement,

if directly enforceable as appropriations, would constitute

debts incurred by the Legislature contrary to the terms and

intent of the constitutional debt limitation clause.”); City of

Passaic v. Consol. Police & Firemen’s Pension Fund Comm’n, 18

N.J. 137, 147 (1955) (holding legislation “provid[ing] that the

36

State shall annually contribute” to pension fund did not create

debt (emphasis added)).

To the extent plaintiffs argue that Chapter 78 does not

implicate the Debt Limitation Clause, we pause to address the

assertion that the Clause’s language and intent is “to prevent

the State from creating new debts or liabilities, not to prevent

it from paying for overdue ordinary expenses,” like Chapter 78’s

“payment plan,” which does not include borrowing, principal, or

interest, and is “contingent on the exact amount actually owed.”

In support, plaintiffs rely on cases that are cited as

distinguishing between ordinary expenses of government and

borrowing, specifically Bulman v. McCrane, 64 N.J. 105, 117-18

(1973), and minority views expressed by separately writing

Justices as supporting the distinction we are asked to embrace.

(Citing Spadoro, supra, 150 N.J. at 10-11; Lance v. McGreevey,

180 N.J. 590, 603 (2004); Lonegan v. State, 341 N.J. Super. 465,

487-88 (App. Div. 2001)). The trial court resorted to a

“borrowing only” interpretation of the Debt Limitation Clause to

conclude that the Clause’s interdiction did not apply to the

instant contractual language.

The approaches to the Debt Limitation Clause maintained by

plaintiffs and utilized by the trial court are belied by the

Clause’s language and application in prior case law.

37

First, we need only look to the plain language of the Debt

Limitation Clause to discern that its prohibition is broad. It

is clearly written to have wide sweep, covering “debts” or

“liabilities” created “in any manner,” thereby reaching various

forms of financial arrangements. The Framers underscored their

broad intent through the inclusion of the “in any manner”

language. Nothing about that language supports that traditional

borrowing scenarios were the only intended prohibited

transactions. That interpretation would render meaningless the

“debt” or “liability” language, which has added dimension due to

the inclusion of the “created in any manner” language. We do

not support interpretations that render statutory language as

surplusage or meaningless, and we certainly do not do so in the

case of constitutional interdictions. See Innes v. Innes, 117

N.J. 496, 509 (1990) (noting “well-established canon[] of

statutory interpretation” that “avoid[s] constructions that

render any part of a statute inoperative, superfluous, or

meaningless” (citations omitted)); Kervick v. Bontempo, 29 N.J.

469, 480 (1959) (“The Constitution was made to serve and protect

the people of the State and all of its language must be sensibly

construed with that uppermost in mind.”); Gangemi v. Berry, 25

N.J. 1, 10 (1957) (“[I]t is to be presumed that the words

employed have been carefully measured and weighed to convey a

38

certain and definite meaning, with as little as possible left to

implication.”).

Second, if only borrowing invoked the Clause’s prohibition,

this Court would not have engaged in Debt Limitation Clause

analyses in prior decisions addressing settings that clearly did

not involve traditional borrowing or debt instruments. Rather,

many forms of promises to pay in statutory as well as in

contractual settings that did not involve traditional borrowing

have invoked Debt Limitation Clause analyses. See, e.g.,

Bulman, supra, 64 N.J. at 117-18 (holding long-term lease did

not create present debt within meaning of Debt Limitation Clause

because rent installments were subject to appropriation); City

of Passaic, supra, 18 N.J. at 144, 147 (holding statutory

requirement that State shall contribute annually to pension

funds did not violate Debt Limitation Clause because “present

legislation merely provides that the State shall annually

contribute to the fund”).

Those analyses were necessary because the Clause’s

animating principle is to prevent well-meaning state actors from

presently binding the State to enforceable future financial

obligations over a certain amount -- one percent of the annual

appropriations act -- unless voter approval has been secured.

Otherwise any such promises to pay must be subjected to the

39

appropriations process.5 That simple yet definite dividing line

between transactions that avoid a Debt Limitation Clause

transgression and those that do not is the common theme to the

Clause’s jurisprudence.6 The Clause’s plain language directs

voter approval for long-term liabilities or debt in excess of

5 Thus, this Court’s case law has found reason to conclude that

the Debt Limitation Clause is not violated when the State

indicates that it is not bound to expend state monies or has

erected structural barriers through the use of independent

agencies (or dedicated streams of non-General Fund revenue) that

prevent the financial obligation from being enforceable and made

an obligatory expenditure under the annual appropriations act.

See, e.g., N.J. Sports & Exposition Auth., supra, 61 N.J. at 11

(statute empowering New Jersey Sports and Exposition Authority

to issue bonds to finance construction of Meadowlands Complex

provided that bonds issued were “under no circumstances debts of

the State,” and bonds themselves were required to carry

statement that “the State . . . is [not] obligated to pay . . .

[the bonds’] principal or interest and that neither the faith

and credit nor the taxing power of the State . . . is pledged to

the payment of the principal of or the interest on such bonds”

(citation and internal quotation marks omitted)); N.J. Tpk.

Auth. v. Parsons, 3 N.J. 235, 242 (1949) (legislation

authorizing New Jersey Turnpike Authority to issue bonds to

finance construction of Turnpike stated “bonds . . . shall be

payable solely from . . . tolls and revenues of all or any part

of the turnpike project . . . .”).

6 Because we find no ambiguity in the Debt Limitation Clause or

in this Court’s case law interpreting it, we find unpersuasive

out-of-state case law interpreting the debt limitation clauses

of other state constitutions to be limited to borrowing only,

notwithstanding the trial court’s use of such cases in reaching

its conclusion. See, e.g., Village of Chefornak v. Hooper Bay

Constr. Co., 758 P.2d 1266, 1270 (Alaska 1988); Rochlin v.

State, 540 P.2d 643, 648 (Ariz. 1975); State ex rel. Wittler v.

Yelle, 399 P.2d 319, 324-25 (Wash. 1965); Columbia Cnty. v. Bd.

of Trs., 116 N.W.2d 142, 153 (Wis. 1962).

40

the Clause’s threshold prohibitory amount. Moreover, it

established parameters for the incurring of any interest

obligation and set a thirty-five year duration for full payment

of any long-term obligation.

The Debt Limitation Clause’s prohibition against the

incurring of future debt or liability is vital and it is broad -

- sufficiently broad to reach long-term financial obligations

addressing so-called operating expenses. Despite plaintiffs’

argument to the contrary, the holding of Lance v. McGreevey,

supra, 180 N.J. at 596-99, does not exempt “operating expenses”

from the Clause’s prohibition against entering into long-term

binding and enforceable financing arrangements crossing fiscal

years. Lance stands for the proposition that long-term

financial arrangements seeking to bind future Legislatures to

make specific annual appropriations cannot be reconciled with

the Constitution’s commands in respect of legislative financing,

even when those arrangements are proposed for the unorthodox

purpose of funding “operating expenses” of government. See

ibid. In short, neither the fact that Chapter 78 seeks to

correct the failure of previous administrations to properly fund

the pension systems nor plaintiffs’ designation of the Chapter

78 funding mechanism as an “operating expense” of government

remove Chapter 78 from the Debt Limitation Clause’s purview.

41

Third, as this Court’s decisions reflect, the Clause was

intended by the Framers to play a coordinate role with the

Appropriations Clause of the State Constitution. In

combination, the Debt Limitation Clause and the Appropriations

Clause of the New Jersey Constitution interdict the Legislature

from creating a debt or liability, in any manner, in excess of a

certain amount that binds the State to appropriate funds in

future fiscal years. A consistent line of cases from our Court

holds that the Appropriations Clause operates to render

purported dedications of monies as line items in forthcoming

appropriations acts as mere expressions of intent to pay. Thus,

a “debt” or “liability” that is subject to appropriation through

the annual appropriations process violates neither the Debt

Limitation Clause nor the Appropriations Clause. Examination of

our prior precedent reveals the case law’s consistency on these

subjects.

B.

The Appropriations Clause of the New Jersey Constitution

mandates that:

No money shall be drawn from the State

treasury but for appropriations made by law.

All moneys for the support of the State

government and for all other State purposes as

far as can be ascertained or reasonably

foreseen, shall be provided for in one general

appropriation law covering one and the same

fiscal year; except that when a change in the

fiscal year is made, necessary provision may

42

be made to effect the transition. No general

appropriation law or other law appropriating

money for any State purpose shall be enacted

if the appropriation contained therein,

together with all prior appropriations made

for the same fiscal period, shall exceed the

total amount of revenue on hand and

anticipated which will be available to meet

such appropriations during such fiscal period,

as certified by the Governor.

[N.J. Const. art. VIII, § 2, ¶ 2.]

Under this Clause, the power and authority to appropriate

funds is vested in the Legislature. See City of E. Orange v.

Palmer, 52 N.J. 329, 337 (1968). The Clause has three

requirements. One, all withdrawals of money from the State

Treasury must be accomplished through legislative appropriation.

Karcher v. Kean, 97 N.J. 483, 488 (1984). Two, the Legislature

must provide for that appropriation “‘in one general

appropriation law covering one and the same fiscal year.’”

Ibid. (quoting N.J. Const. art. VIII, § 2, ¶ 2). And three, the

budget created by the appropriations law must be balanced; the

State cannot “adopt[] an annual budget in which expenditures

exceed revenues.” Lance, supra, 180 N.J. at 596.

The legislative authority to appropriate is subject to a

system of checks and balances. Karcher, supra, 97 N.J. at 489.

The Governor is authorized by statute to “examine and consider

all requests for appropriations” and to “formulate . . . budget

recommendations” to submit to the Legislature. N.J.S.A. 52:27B-

43

20. More importantly, the Governor is constitutionally

empowered to reject any item or items contained in an

appropriations bill through the exercise of a selective veto

(the line-item veto power). N.J. Const. art. V, § 1, ¶ 15.

That veto may be overridden by a two-thirds vote of both the

Senate and General Assembly. Ibid. When the Legislature does

not reenact itemized appropriations by overriding the Governor’s

line-item vetoes, that action is regarded as intentional and

advertent, and any earlier statutes purporting to appropriate

future monies “must be deemed to be suspended by adoption of the

later appropriation acts.” City of Camden, supra, 82 N.J. at

154 (citations omitted).

The significance of the Appropriations Clause, and its

related budgetary provisions, has long been recognized. “The

constitutional requirement of a unitary general appropriations

law . . . is the center beam of the state’s fiscal structure.”

Karcher, supra, 97 N.J. at 488. The constitutional provision

“was intended to eliminate uncoordinated spending on the state

level and to overcome the inefficiency, confusion and abuses

which had surrounded the practice of using separate and

different budgets, appropriations, and fiscal years within State

government.” City of Camden, supra, 82 N.J. at 146-47 (citation

omitted).

44

Equally, this Court has recognized the Judiciary’s “absence

of authority” for any role in the budgetary process. Karcher,

supra, 97 N.J. at 490 (citations omitted); see also Fitzgerald

v. Palmer, 47 N.J. 106, 108 (1966) (citing Appropriations Clause

in holding that even if court imposed payment obligation on

State, courts “could not enforce a judgment”). Because “the

power and authority to appropriate funds lie solely and

exclusively with the legislative branch of government,” City of

Camden, supra, 82 N.J. at 148 (citations omitted); see also

Commc’ns Workers of Am. v. Florio, 130 N.J. 439, 451 (1992)

(reaffirming Court’s “commitment to that fundamental

constitutional principle”), “[t]here can be no redress in the

courts to overcome either the Legislature’s action or refusal to

take action pursuant to its constitutional power over state

appropriations,” City of Camden, supra, 82 N.J. at 149, 149-50

(citations omitted) (declining to find that statutes purporting

to dedicate funds for local government uses constituted

enforceable legislative appropriations); see also N.J. Div. of

Youth & Family Servs. v. D.C., 118 N.J. 388, 399-400, 402 (1990)

(following City of Camden in holding that Court could not order

appropriation for payment to appointed counsel for indigent

parents in termination-of-parental-rights actions, and adding

specific rejection of argument that such power existed because

45

appointment scheme constituted taking without just

compensation).

In City of Camden, supra, several municipalities and

counties brought actions against State officials, arguing that

certain State revenues should have been appropriated for their

use as provided in various statutes. 82 N.J. at 141-45.

However, the appropriations act for that fiscal year failed to

include an appropriation of said funds. See ibid. This Court

held that the Appropriations Clause “firmly interdicts the

expenditure of state monies through separate statutes not

otherwise related to or integrated with the general

appropriation act governing the state budget for a given fiscal

year.” Id. at 146 (emphasis added). Therefore, the laws at

issue (1) “d[id] not constitute legislative appropriations in

and of themselves” but instead “purport[ed] to ‘dedicate’ state

revenues for a particular purpose,” (2) were not properly

“included within a single appropriation law encompassing one

fiscal year,” and (3) could not “serve . . . as valid authority

for the withdrawal of monies from the State treasury” under the

Appropriations Clause. See id. at 145-47. Given the

Legislature’s “inherent power to disregard prior fiscal

enactments,” id. at 147, the Court held that it could not compel

the Legislature to appropriate in accordance with those

statutes, see id. at 150.

46

Further, the Court explained that to find otherwise -- to

enforce the statutes as legislative appropriations -- would

undermine the Appropriations Clause requirement that

appropriations “be incorporated into a single balanced budget in

which current expenditures must be met by current revenues.”

Id. at 151. Rather, the Appropriations Clause is intended to be

“an effective barrier to any judicial or executive attempts to

give independent effect as appropriations to miscellaneous

statutes calling for the disbursement of state revenues.” Ibid.

Moreover, the Court in City of Camden underscored that

“[t]he constitutional fulcrum [wa]s not shifted by attempts to

characterize the several statutes as creating ‘substantive

rights.’” Id. at 148. In fact, the Court noted that even if

the statutes conferred substantive rights to the funds, it would

“in no way diminish[] the Legislature’s constitutional control

over the state fisc.” Ibid.; see also Lonegan II, supra, 176

N.J. at 18 (noting that State may enter into lease agreement but

it “is not legally bound to make the rental payments and can opt

not to do so”); Enourato, supra, 90 N.J. at 410 (noting that

although New Jersey Building Authority Act “contemplates that

the State will make the necessary appropriations [for

contractual lease payments] . . . , the State is under no legal

obligation to do so” (citation omitted)).

47

The analysis and holding in Enourato presents, perhaps, the

paradigmatic example of the effect of the intersection of the

Debt Limitation and Appropriations Clauses. In Enourato, supra,

the Legislature enacted the New Jersey Building Authority Act

(Act), which authorized the New Jersey Building Authority

(Authority) to issue bonds to finance the construction and

operation of State offices. 90 N.J. at 399. The Authority’s

bonds were to be repaid from rents received from State agencies

that leased the Authority’s facilities. Id. at 402. “In fact,

the rental fees [we]re calculated to satisfy the Authority’s

obligations on its bonds and notes.” Ibid. In addition to the

bonds, which “state[d] on their face that they shall not create

any indebtedness, liability or obligation of the State,” id. at

399 (citation omitted), the Act declared that payment of rent to

the Authority was “‘subject to and dependent upon appropriations

being made from time to time by the Legislature for that

purpose,’” id. at 402 (quoting N.J.S.A. 52:18A-78.22).

The Court held that

[t]he 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. . . .

Nor does the liability of the State on

its lease agreements with the Authority create

48

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.

[Id. at 410 (citations omitted).]

Thus, in circumstances where legislation sought to bind

future Legislatures in a manner that implicated both the Debt

Limitation and Appropriations Clauses, this Court was careful to

note that the legislation survived those Clauses because the

Legislature retained its constitutionally enshrined power to

annually appropriate funds as necessary for the fiscal health of

the State. No such reservation of power can be found in Chapter

78.

C.

Applying those principles here, Chapter 78’s purported

creation of an enforceable long-term financial contractual

obligation, payable by the State through dedicated line items in

ensuing annual appropriations acts, falls squarely within the

sights of the Debt Limitation Clause and all that that Clause is

intended to prohibit. The Debt Limitation Clause precludes such

action precisely to save the State from itself –- itself being

the presently positioned, albeit well-intentioned legislators

and Governor, who were not given permission to fiscally bind, by

contract or otherwise, future taxpayers, legislators, and

governors tasked with evaluating on an annual basis the

49

appropriations spending for the fiscal year in issue, unless

voter approval was obtained.

The Legislature and Governor were without power, acting

without voter approval, to transgress the Debt Limitation Clause

and, similarly, the corresponding Appropriations and other

budget clauses of the State Constitution. See Behnke v. N.J.

Highway Auth., 13 N.J. 14, 24 (1953) (“A state constitution,

unlike the Federal Constitution, is not a grant but a limitation

of legislative power. The State Legislature exercises a portion

of the sovereign power residing in the people, subject to the

limitation imposed by the Federal Constitution and its own

organic law . . . .”); see also City of Camden, supra, 82 N.J.

at 146 (noting that Appropriations Clause “cannot in any sense

be regarded as merely providing governmental ‘housekeeping

details,’ necessary and important but not truly vital”).

The Legislature and Governor, as well as the many

interested parties involved in the legislative process, may have

included contractual words in Chapter 78, but those words, no

matter their clarity, could not create an enforceable contract

of the type asserted. The Debt Limitation Clause barred it.

The amount of monies that Chapter 78 purports to contractually

require the State annually to dedicate to pay down the unfunded

liability of the various pension funds -- for example, the

amount required in FY15 -- substantially exceeds the limits

50

annually allowed under the Debt Limitation Clause. In light of

the Debt Limitation Clause’s constitutional command, we hold

that the contract rights set forth in Chapter 78 did not create

a legally binding financial contract enforceable against the

State.

Voter approval is required to render this a legally

enforceable contractual agreement compelling appropriations of

this size covering succeeding fiscal years; otherwise, this

agreement is enforceable only as an agreement that is subject to

appropriation, which under the Appropriations Clause renders it

subject to the annual budgetary appropriations process. In that

process, the payment may not be compelled by the Judiciary. See

City of Camden, supra, 82 N.J. at 147-49 (addressing statutes

purporting to create dedications of monies in future fiscal

years); Enourato, supra, 90 N.J. at 402, 410 (addressing

contracts promising to pay monies in future fiscal years).

At bottom, this matter concerns a statute. Contrary to

what plaintiffs argued to this Court, this statute is not

immutable. To restore their fiscal health, Chapter 78 set a

schedule for payments into the pension funds that is capable of

being revisited and evaluated in the political budgetary process

against competing fiscal demands, as Appropriations Clause case

law demands. This is City of Camden v. Byrne dressed in new

clothing. Despite its trappings, Chapter 78 cannot

51

constitutionally dedicate future amounts of monies, in excess of

Debt Limitation Clause limits, without voter approval. Absent

compliance with the Debt Limitation Clause requirement of voter

approval, Chapter 78’s contractual language does not work an

evasion of the rigors of the annual appropriations process. We

conclude that Chapter 78 must be interpreted constitutionally to

be an obligation that is subject to appropriation.

In sum, Chapter 78 collides with state constitutional

provisions; the Debt Limitation Clause, the Appropriations

Clause, and related budgetary constitutional provisions prevail.

Those constitutional provisions establish the Constitution’s

prescribed way in which State government is to work. The

Legislature was without power to alter that annual budget-

setting scheme. Inclusion of contract words in Chapter 78 does

not alter that outcome. This is not a clash between a

“constitutional contract right,” as the trial court and

plaintiffs denominate it, and the Debt Limitation and

Appropriations Clauses. There simply is no legally enforceable

financial obligation imposed on the State by virtue of Chapter

78’s enactment. That interpretation reconciles the present

statute’s desired funding mechanism with the constitutional

provisions that define the State’s annual budget process.

Indeed, the Legislature’s strong expression of intent remains

clear in Chapter 78, but it does not bind future legislatures or

52

governors in a manner that strips discretionary functions

concerning appropriations that our Constitution leaves to the

legislative and executive branches.

Because of the importance of maintaining the soundness of

the pension funds, the loss of public trust due to the broken

promises made though Chapter 78’s enactment is staggering. We

recognize that the present level of the pension systems’ funding

is of increasing concern, as does the dissent.7 But this

constitutional controversy has been brought to the Judiciary’s

doorstep, and our obligation is to enforce the State

Constitution’s limitations on legislative power. The hyperbole

of the dissent is no replacement for legal precedent, and it

does not nullify state constitutional law interdicting the

formation of the so-called binding contractual right asserted by

plaintiffs. Our State Constitution compels the declaration that

there is no valid contractual right under Chapter 78 that

provides the basis for a contract impairment analysis under

either the State or Federal Constitutions.

7 The concern that the pension systems are underfunded and placed

at risk does not license casting aside the Constitution’s

protections against financial ruin with the serenity embraced by

the dissent. Our paramount obligation is to enforce the

Constitution’s prohibitions evenhandedly, whenever they apply,

notwithstanding the mutual and legitimately widespread interest

in seeing the fiscal health of the funds restored to safe

levels.

53

IV.

We briefly pause to address views expressed in the dissent.

First, we note that even the dissent acknowledges that any

Federal Contracts Clause analysis begins with a determination

whether a binding contractual obligation has been created. See

post ___ (slip op. at 29). And, whether legislative action

creates a valid contract under state law goes beyond a

determination of clear intent to enter into a contract; it

includes the authority of a legislature to enter into the

contract under the law of the state. See Appleby, supra, 271

U.S. at 380, 46 S. Ct. at 573, 70 L. Ed. at 999 (explaining, in

Federal Contracts Clause analysis, that “construction and

effect” of contract at issue depended on “the extent of the

power of the State and city” under New York law to deed property

under navigable waters to private persons). Thus, the

impediment that the dissent seeks to ignore -- the State

Constitutional interdiction against authorizing the Legislature

to enter into a contract of the binding nature that plaintiffs

argue and the dissent would find -- cannot be avoided.8 It is

8 Although federal courts independently evaluate whether a valid

contract exists, that inquiry generally is recognized to turn on

state law and the United States Supreme Court accords “great

weight” to a state’s highest court on this issue. See Brand,

supra, 303 U.S. at 100, 58 S. Ct. at 446, 82 L. Ed. at 691. In

Brand, supra, the United States Supreme Court held that Indiana

law permitted formation of teacher contracts for an “indefinite

period,” see id. at 105, 58 S. Ct. at 448, 82 L. Ed. at 693, but

54

the necessary first hurdle no matter how much one might prefer

to avoid it.

In postulating that the constitutional restrictions of the

Debt Limitation Clause do not pertain to Chapter 78, the dissent

picks selectively from language in certain prior Debt Limitation

Clause cases. See, e.g., post at ___, ___, ___ (slip op. at 17,

19, 21). The dissent’s effort to find the Debt Limitation

Clause inapplicable to the asserted financial obligation at

issue demonstrates the thinness of its analysis. The argument

mounted by the dissent is irreconcilable with our Debt

Limitation Clause jurisprudence.

The dissent’s logic breaks down under scrutiny because it

does not -- and cannot -- account for the uniform line of

reasoning in this Court’s decisions regarding the Debt

Limitation Clause and its impact on legislative attempts to

create legally enforceable financial obligations to which the

State is bound year to year. That reasoning was summed up in

in that case the Indiana Supreme Court invalidated such

contracts based on its belief that the legislature, in general,

could not contract to cede its power to change governmental

policy in the future, Indiana ex rel. Anderson v. Brand, 5

N.E.2d 531, 532-33 (Ind. 1937). Unlike the present case, the

Indiana Supreme Court did not rely on an express, specific

provision in its state constitution restricting legislative

power to enter into the contract at issue. Ibid. The dissent

points to no federal case in which a court held that the

Contracts Clause allows the creation of a contract that is

interdicted by a distinct restriction on legislative power in a

state constitution.

55

the most contemporary majority opinion on the subject, Lonegan

II, supra, where we said that “debt that is legally enforceable

against the State is subject to the Debt Limitation Clause,” 176

N.J. at 13, and further reinforced that, “[b]y its terms, . . .

the Clause as written requires voter approval only when the

State is legally required to make payment on the debt it has

incurred,” id. at 14. Our State’s constitutional case law has

held true to this essential principle, and that principle

defeats the dissent’s position in this matter. See Lonegan I,

supra, 174 N.J. at 446 (reaffirming that Debt Limitation Clause

applies whenever State is legally obligated to have Legislature

make payments of certain magnitude over successive fiscal

years); In re Loans of N.J. Prop. Liab. Ins. Guar. Ass’n, supra,

124 N.J. at 77 (noting that loan can avoid transgressing debt

clause by rendering it contingent on whether “Legislature will

vote the necessary appropriation”); Enourato, supra, 90 N.J. at

410 (affirming that Debt Limitation Clause prohibition avoided

if State not legally obligated to make appropriations for

contractual leaseholds); Bulman, supra, 64 N.J. at 117-18

(holding long-term lease did not violate debt clause because

rent installments were annually subject to appropriation);

Holster v. Bd. of Trs., 59 N.J. 60, 72-73 (1971) (holding that

statute purporting to require State funding was, in fact,

subject to appropriation; thus, statute did not violate Debt

56

Limitation Clause). Despite the rhetoric, the emotional

references to the charged situation in which this financial

issue has arisen, and the modifiers used by the dissent to

undermine our mere present application of long-standing Debt

Limitation Clause principles of law, the dissent’s argument

gains no greater substance. Try as it might to interpret Debt

Limitation Clause case law as governing only a narrow category

of obligation, the dissent simply cannot wish away this Court’s

longstanding precedent.

Moreover, the dissent’s suggestion that pension commitments

are exempt from the Debt Limitation Clause does not withstand

scrutiny. No case holds that because a statute relates to

pensions for public servants it somehow evades the Debt

Limitation Clause case holdings. As noted earlier, it is of no

moment whether a matter relates to pensions or is labeled one

that involves the overused term of “ordinary operating expense”;

the label does not control the analysis. What matters is not

what the financing scheme is called, but the manner in which it

operates. See supra at ___ (slip op. at 35). Thus, contrary to

the dissent’s assertion, the subject statute in City of Passaic

did not survive Debt Limitation Clause analysis because the

State’s required annual contribution was “an ‘ordinary

government operating expense.’” See post at ___ (slip op. at

57

17) (quoting dissent in Spadoro, supra, 150 N.J. at 11).9

Instead, as this Court has made clear in numerous cases

interpreting and applying the City of Passaic holding, the

statute at issue there was permissible under the Debt Limitation

Clause because the payment it required was one that was subject

to legislative appropriation; for that reason, it did not create

an impermissible binding financial obligation enforceable

against the State. See Holster, supra, 59 N.J. at 71

(describing “point” of City of Passaic to be “that a projected

or anticipated future legislative appropriation is not a present

debt or liability,” as “[a] future legislature is not bound to

make the appropriation”); State ex rel. McLean v. Lanza, 27 N.J.

516, 525-26 (1958) (referring to statutorily required

contribution in City of Passaic as “a truly ‘voluntary

appropriation’” outside Debt Limitation Clause’s scope).

In the end, this case turns on the legality, under State

constitutional principles, of the Legislature’s attempt to

create a contract in this matter. Because the dissent

misconstrues the import of Debt Limitation Clause jurisprudence,

it fails to appreciate that the Clause bars the Legislature from

9 It bears adding that, although the dissent in this matter

relies on the dissents in Spadoro and in Lonegan II, dissenting

opinions are not binding authority. See In re Civil Commitment

of W.X.C., 204 N.J. 179, 194-95 (2010).

58

creating a binding obligation in Chapter 78. By virtue of that

failure, the dissent inexplicably maintains that Chapter 78

creates some form of federal substantive constitutional right.

See post at ___, ___ (slip op. at 25-26, 33).

The only reconfiguration at work in the consideration of

this matter takes place as part of the dissent’s view of what

contracts may constitutionally be created. In its attempt to

support its basic proposition -- that in order for the

Legislature to create a valid, enforceable legislative contract

in a statute, all that is necessary is a clear and unambiguous

expression of intent on the part of the Legislature -- the

dissent relies entirely on this Court’s holding in Spina, supra.

See post at ___ (slip op. at 10-12). In the dissent, Spina is

elevated to a status never before conferred on it in any prior

opinion: the seminal case regarding the “conditions” for a

binding public contract. See post at ___ (slip op. at 12).

Notwithstanding the dissent’s characterization of this Court’s

holding in Spina, that opinion contains no suggestion that the

Court intended it to serve as a comprehensive guide for the

creation of a contract. Instead, the Court addressed conditions

relevant to the factual context of that case; it did not create

a roadmap setting forth all the conditions that would be, per

se, sufficient to create a valid contract. Moreover, the

dissent’s reference to the Appellate Division’s application of

59

the “test in Spina” in NJEA, post at ___ (slip op. at 11),

ignores the panel’s enumeration of multiple bases for finding

“no constitutionally-protected contract right to systematic

funding,” most significantly the fact that such a finding would

offend the Appropriations and Debt Limitation Clauses of our

State Constitution. NJEA, supra, 412 N.J. Super. at 216-17.

In sum, the State Constitution simply does not permit

Chapter 78’s payment provisions to have any more binding effect

than that of a contract that is subject to appropriation. As it

informed us at argument and in its brief, the State fully

understands the limits imposed by the fiscal clauses. The State

makes, for example, all multi-year collective negotiations

agreements and leases expressly subject to appropriation, as

well as other contract types identified in its briefing,

including payment of claims and judgments under the Tort Claims

Act and the Contractual Liability Act. See N.J.S.A. 59:12-1;

N.J.S.A. 59:13-9.10 Those essential and practical measures by

the State are ignored by the dissent in its perception of how

state government presently conducts its business. It would seem

that it is not the majority’s but the dissent’s view that would

have “far-reaching, negative consequences,” post at ___ (slip

10The State also referenced contracts for the purchase of goods

and services that the Division of Purchase and Property enters

into and contracts for the rental of property.

60

op. at 6), for the conduct of state government had it been the

one to prevail in this matter.

In closing, to be clear, we are not declaring Chapter 78

unconstitutional, contrary to the dissent’s suggestion that the

majority is “striking down,” “voiding,” or “invalidating” that

statute. Chapter 78 remains in effect, as interpreted, unless

the Legislature chooses to modify it. There is no need to

address severability or the mutuality of obligations. Those

considerations are for the political branches. Finally, it

bears emphasis that the parade of horribles on which the dissent

is focused is premised on the dark prediction that pension

members’ benefits will go unpaid in the future. Again, contrary

to the dissent’s attempt to conflate those issues, that question

of the State’s obligation to pay benefits is not before this

Court. Our holding is, simply, that Chapter 78 cannot

constitutionally create a legally binding, enforceable

obligation on the State to annually appropriate funds as Chapter

78 purports to require.

V.

That the State must get its financial house in order is

plain. The need is compelling in respect of the State’s ability

to honor its compensation commitment to retired employees.11 But

11We reiterate that there is no question that individual members

of the public pension systems are entitled to this delayed part

61

this Court cannot resolve that need in place of the political

branches. They will have to deal with one another to forge a

solution to the tenuous financial status of New Jersey’s pension

funding in a way that comports with the strictures of our

Constitution.

The Debt Limitation Clause and the Appropriations Clause

envisioned the absence of the Judiciary from the annual budget-

making process and prevent it from having to perform the

unseemly role of deciding in that process whether a failure to

fully fund a statutory program, including one labeled a

contract, was reasonable and necessary. If we had been required

to engage in a contract impairment analysis, the third prong to

that analysis -- whether the State’s action that substantially

impaired the contract “is reasonable and necessary to serve an

important public purpose,” U.S. Trust Co., supra, 431 U.S. at

25, 97 S. Ct. at 1519, 52 L. Ed. 2d at 112 -- would have

required annual incursions by the Judiciary into second-guessing

spending priorities and perhaps even revenue-raising

considerations in recurring years.

of their compensation upon retirement, but, as stated at the

outset, that is not in question in the instant matter before

this Court. That said, the State repeatedly asserted at oral

argument that it is not walking away from its obligations to the

pension systems and to pay benefits due to retirees.

62

The enactment of an appropriations act prior to the June 30

close of the fiscal year is the culmination of a budget process

that entails several months of analysis, hearings in the Senate

and Assembly, and negotiation of a final budget, as described in

this record in the Certifications of State Treasurer Andrew P.

Sidamon-Eristoff and Director of the Division of Budget and

Accounting, Department of the Treasury, Charlene M. Holzbaur.

Were the Court to undertake a contract impairment analysis, that

process would constitute only the first of two steps in the

appropriations process. In any fiscal year in which the payment

mandated by Chapter 78 was not made in full, the second step

could be judicial review of the appropriations determined by the

Legislature and Executive.

In each of those years, the State would be required to

present the argument that it makes before this Court to justify

its reduced pension payment in FY15: that the Legislature’s

decision not to appropriate the full pension payment is

reasonable and necessary so that the State may serve essential

public needs, justifying the contract impairment for purposes of

the Federal and State Contracts Clauses. See U.S. Trust Co.,

supra, 431 U.S. at 25, 97 S. Ct. at 1519, 52 L. Ed. 2d at 112;

Farmers Mut. Fire Ins. Co. of Salem, supra, 215 N.J. at 546-47.

Parties in plaintiffs’ position, seeking to challenge the

reduced payment, would counter that the Legislature improperly

63

placed competing fiscal considerations ahead of pension payments

required by Chapter 78. In short, the propriety of the budget

priorities of the Legislature and Executive would be litigated.

To resolve those arguments, a trial court would be required

to determine whether the Legislature properly balanced competing

budget priorities, a determination likely followed by appellate

review on that issue. The Judiciary could not fairly assess

those priorities without reviewing the information and analysis

on which the Legislature and Executive based the determinations

leading to the Appropriations Act -- a protracted undertaking

that would essentially reproduce the elaborate budgeting process

undertaken in step one.12 The determination to prioritize one

appropriation decision above another is best left to the

marketplace evaluators and the electorate, to whom the State

must answer on such comparative evaluations of fiscal

priorities.

Plaintiffs contend that the remedy imposed by the trial

court does not intrude on powers exclusively granted to the

Legislature and Executive because it is not an order directing a

12Review of the FY15 Appropriations Act reveals that the

Legislature made decisions among many competing priorities. In

addition to public employee pension contributions, the State’s

annual budget included appropriations that encompassed:

education aid programs, school construction debt, municipal aid,

Medicaid, adult prison and juvenile facilities, human services

institutions, property tax relief, and State employee salary

programs. See generally L. 2014, c. 14.

64

specific appropriation but, instead, a mere declaratory judgment

representative of the court’s intent to afford the other

branches an opportunity to act “in accordance with the court’s

decree.” That argument presents a distinction without a

difference. If a trial or appellate court determines that the

Legislature’s substantial impairment of a contract is not

“reasonable and necessary to serve an important public purpose,”

U.S. Trust Co., supra, 431 U.S. at 25, 97 S. Ct. at 1519, 52 L.

Ed. 2d at 112, it necessarily makes two critical determinations.

First, the court decides that the Legislature’s budgeting

priorities were misplaced for the fiscal year in question,

violating the Contracts Clause. Second, the court directs that

the budgeting priorities for that fiscal year be reordered and

revised in order that the pension payment be increased. The

absence of an order directing a specific appropriation is of no

moment; the judicial remedy compels the Legislature and

Executive to exercise their constitutional authority in a manner

prescribed by the court, not the manner that they choose.

Ultimately, the Contracts Clause reasonable-and-necessary

analysis implicated in this case would require the Judiciary to

exercise authority that is exclusively granted to the political

branches. N.J. Const. art. VIII, § 2, ¶ 2; N.J. Const. art. V,

§ 1, ¶ 15; see also City of Camden, supra, 82 N.J. at 158;

Karcher, supra, 97 N.J. at 489-90. In this setting, the

65

application of a Contracts Clause analysis by the Judiciary

would cause a violation of our Constitution’s separation-of-

powers principles. See N.J. Const. art. III, ¶ 1 (providing

that no branch of government may “exercise any of the powers

properly belonging to either of the others, except as expressly

provided in this Constitution”).

The practical impact of a Contracts Clause analysis in this

case underscores the wisdom of the fiscal clauses. In denying

the Legislature and Executive the authority to enter into

contracts that violate the Debt Limitation Clause, the

Appropriations Clause, and the line-item veto power of the

Governor, the Framers ensured that State appropriations would be

determined annually by the citizens’ elected representatives, on

the basis of revenue anticipated in a given fiscal year. By

virtue of the constraints imposed by those provisions, the State

is simply not authorized to enter into the financially binding

contract contemplated by Chapter 78, and the Judiciary is not

called upon to reassess the fiscal determinations of its

coordinate branches. The responsibility for the budget process

remains squarely where the Framers placed it: on the

Legislature and Executive, accountable to the voters through the

electoral process. Ultimately, it is the people’s

responsibility to hold the elective branches of government

responsible for their judgment and for their exercise of

66

constitutional powers. This is not an occasion for us to act on

the other branches’ behalf.

Moreover, although the trial court did not reach the issue,

we similarly decline to wade into the murky waters of an equal

protection analysis in respect of the Legislature’s and

Executive’s decision to appropriate for one purpose over another

where subject-to-appropriation liabilities or debts are

concerned. An equal protection analysis as to such decisions

inevitably leads to the same quagmire as a reasonable-and-

necessary analysis, and as we have explained, in this matter the

Judiciary is ill-suited to enter into the political decision

making that accompanies the balancing of competing spending

priorities.

Our conclusion that no enforceable contract was created

here because the Debt Limitation Clause prohibited the

Legislature and Governor from binding the State to an

enforceable contract of this nature eliminates the need to

engage further in a contract impairment analysis.13

13Although we do not engage in a Federal Contracts Clause

analysis, we note only that the dissent’s reliance on United

States Trust Co., supra, as support for its sought-after result

here is misplaced. 431 U.S. 1, 97 S. Ct. 1505, 52 L. Ed. 2d 92.

That case did not involve a finding of contract impairment in

the face of constitutional interdiction against contract

creation. That case did not involve an appropriations-backed

contract. Rather, the offending statute diverted dedicated New

York/New Jersey Port Authority toll revenue, thereby materially

increasing the risk contractually accepted by bondholders. Id.

67

That conclusion resolves both the federal, as well as any

state, constitutional contract impairment claim.

VI.

The judgment of the trial court is reversed.

JUSTICES PATTERSON, FERNANDEZ-VINA, and SOLOMON and JUDGE

CUFF (temporarily assigned), join in JUSTICE LaVECCHIA’s

opinion. JUSTICE ALBIN filed a separate, dissenting opinion in

which CHIEF JUSTICE RABNER joins.

at 3-4, 9-14, 97 S. Ct. at 1508, 1511-13, 52 L. Ed. 2d at 97-98,

101-04. Thus, the case did not involve any of the state

constitutional provisions at issue in this matter.

68

SUPREME COURT OF NEW JERSEY

A-55 September Term 2014

075736

CHRISTOPHER BURGOS,

Individually and as President

of the State Troopers

Fraternal Association of New

Jersey; JAMES KIERNAN,

Individually and as President

of State Troopers Non-

Commissioned Officers

Association of New Jersey

State, Inc.; STEPHEN STERNIK,

Individually and as President

of State Troopers Superior

Association of New Jersey;

STATE TROOPERS FRATERNAL

ASSOCIATION OF NEW JERSEY, on

behalf of all its present and

retired members; STATE

TROOPERS NON-COMMISSIONED

OFFICERS ASSOCIATION OF NEW

JERSEY, INC., on behalf of

all its present and retired

members; and STATE TROOPERS

SUPERIOR OFFICERS ASSOCIATION

OF NEW JERSEY, on behalf of

all its present and retired

members,

Plaintiffs-Respondents,

v.

STATE OF NEW JERSEY;

CHRISTOPHER CHRISTIE,

Governor of the State of New

Jersey; ANDREW SIDAMON-

ERISTOFF, Treasurer of the

State of New Jersey; NEW

JERSEY STATE SENATE; and NEW

1

JERSEY STATE GENERAL

ASSEMBLY,

Defendants-Appellants,

and

COMMUNICATIONS WORKERS OF

AMERICA, AFL-CIO;

PROFESSIONAL FIREFIGHTERS

ASSOCIATION OF NEW JERSEY,

IAFF, AFL-CIO; NEW JERSEY

FRATERNAL ORDER OF POLICE;

AMERICAN FEDERATION OF STATE,

COUNTY, AND MUNICIPAL

EMPLOYEES, COUNCIL 73;

AMERICAN FEDERATION OF

TEACHERS NEW JERSEY STATE

FEDERATION, AFL-CIO;

INTERNATIONAL FEDERATION OF

PROFESSIONAL AND TECHNICAL

ENGINEERS, AFL-CIO & CLC,

LOCAL 195; HEALTH

PROFESSIONAL AND ALLIED

EMPLOYEES, AFT, AFL-CIO; NEW

JERSEY STATE AFL-CIO; SANDRA

P. COHEN; MICHAEL A.

JUSTINIANO; DOMINICK MARINO;

DONNA CHIERA; DIANE CAMERON;

and RUSSELL LEAK,

Plaintiffs-Respondents,

v.

CHRIS CHRISTIE, as Governor

of the State of New Jersey;

NEW JERSEY DEPARTMENT OF THE

TREASURY; and ANDREW P.

SIDAMON-ERISTOFF, Treasurer,

State of New Jersey,

Defendants-Appellants,

2

and

NEW JERSEY EDUCATION

ASSOCIATION; NEW JERSEY STATE

POLICEMEN’S BENEVOLENT

ASSOCIATION, INC.; NEW JERSEY

STATE FIREFIGHTERS’ MUTUAL

BENEVOLENT ASSOCIATION;

AMERICAN FEDERATION OF STATE,

COUNTY, AND MUNICIPAL

EMPLOYEES, COUNCIL 1, AFL-

CIO; CHRISTINE SAMPSON-CLARK;

HEIDI OLSON; PATRICIA

PROVNICK; KEITH DUNN; PATRICK

COLLIGAN; MARC KOVAR;

TIM DEUTSCH; KYLE HUGHES;

JOHN E. MURPHY, JR.; LANCE P.

LOPEZ, SR.; THE NEW JERSEY

PRINCIPALS AND SUPERVISORS

ASSOCIATION; JANET S. ZYMROZ;

JOHN C. ALFIERI, JR.; HOPE

GRANT; and ROSARIO CAPACCIO,

Plaintiffs-Respondents,

v.

STATE OF NEW JERSEY;

CHRISTOPHER J. CHRISTIE, as

Governor of the State of New

Jersey; NEW JERSEY DEPARTMENT

OF THE TREASURY; and ANDREW

P. SIDAMON-ERISTOFF,

Treasurer, State of New

Jersey,

Defendants-Appellants,

and

PROBATION ASSOCIATION OF NEW

JERSEY, PROFESSIONAL CASE-

RELATED UNIT; PROBATION

ASSOCIATION OF NEW JERSEY,

3

PROFESSIONAL SUPERVISORS

UNION; DWIGHT COVALESKIE;

GAVIN CUMMINGS; and ELLEN

CRIBBIN,

Plaintiffs-Respondents,

v.

STATE OF NEW JERSEY;

CHRISTOPHER J. CHRISTIE, as

Governor of the State of New

Jersey; NEW JERSEY DEPARTMENT

OF THE TREASURY; and ANDREW

P. SIDAMON-ERISTOFF,

Treasurer, State of New

Jersey,

Defendants-Appellants.

JUSTICE ALBIN dissenting.

Today, the majority strikes down a law -- Chapter 78, L.

2011, c. 78 -- vaunted by the Governor and Legislature as the

solution to the State’s pension crisis. The decision strikes

down the promise made to hundreds of thousands of public workers

by the political branches of government that deferred wages

earned for years of service would be funded during their

retirement. The decision unfairly requires public workers to

uphold their end of the law’s bargain -- increased weekly

deductions from their paychecks to fund their future pensions --

while allowing the State to slip from its binding commitment to

make commensurate contributions. Thus, public workers continue

to pay into a system on its way to insolvency.

4

The Governor and Legislature cannot walk away from the

contractual commitments they signed into law in Chapter 78.

Their failure to make the required payments into the pension

fund constitutes an impairment of their contract with public

workers. The United States Constitution is the supreme law of

the land, U.S. Const. art. VI, cl. 2, and prohibits any state

from passing a law impairing a contract -- even its own

contract. The Federal Contracts Clause, U.S. Const. art I, §

10, cl. 1, restricts New Jersey from eviscerating the pre-

existing contractual rights of public workers, notwithstanding

provisions of its own Constitution.

The Governor and Legislature have the sovereign power to

enter into contracts. Chapter 78 meets the very conditions set

by this Court for the establishment of a binding public

contract. See Spina v. Consol. Police & Firemen’s Pension Fund

Comm’n, 41 N.J. 391, 404-05 (1964). Despite the legislative

enactment of a public contract satisfying the test in Spina, the

majority announces that those rights belonging to public workers

are unenforceable under the New Jersey State Constitution’s Debt

Limitation Clause, N.J. Const. art. VIII, § 2, ¶ 3, and

Appropriations Clause, N.J. Const. art. VIII, § 2, ¶2.

Never before, until today, has the Debt Limitation Clause

been applied to the ordinary operating expenses of government,

such as deferred compensation earned by public workers and

5

payable as pension benefits. Indeed, this Court previously held

that a statute requiring the State to make annual contributions

to a pension fund is not a debt within the intendment of the

Debt Limitation Clause. See City of Passaic v. Consol. Police &

Firemen’s Pension Fund Comm’n, 18 N.J. 137, 147 (1955).

Moreover, this Court has held that the Appropriations Clause

cannot stand as a barrier to the enforcement of constitutional

rights. In short, the majority’s contention that the Governor

and Legislature’s contract with public workers is unenforceable

under state law has no contemporary legal support.

Even if enforcement of the contractual rights embedded in

Chapter 78 were barred by the majority’s interpretation of the

New Jersey Constitution’s Debt Limitation and Appropriations

Clauses, those rights would be enforceable under the Federal

Constitution’s Contracts Clause, which was intended to prevent

precisely what occurred here -- a State destroying a contract of

its own making. Rights protected by the Federal Constitution

cannot be defeated by a novel interpretation or reconfiguration

of state contract law.

The majority’s decision will have far-reaching, negative

consequences. The majority has declared that it will not

enforce a statute intended to stem decades of political

dysfunction that has resulted in the balancing of budgets on the

backs of public workers. The majority has concluded that it

6

will not uphold any law that the Governor and Legislature pass

that is intended to bind the political branches to funding a

pension system on which public workers relied when entering

public service. The majority states that the rights

contractually promised by the Legislature require voter

approval. However, the Federal Contracts Clause was expected to

protect contractual rights from majority rule.

The majority’s cheery assurance that “there is no question

that individual members of the public pension systems are

entitled to [the] delayed part of their compensation upon

retirement,” ante at __-__ (slip op. at 61-62 n.11), runs

counter to its constitutional analysis that the political

branches cannot be compelled to fund the pension system. The

dismal logic of the majority’s decision is that the political

branches, in accordance with the State Constitution, can let the

pension fund run dry and leave public service workers pauperized

in their retirement.

The public workers, now left without an enforceable legal

right to funding of wages they have earned, are not strangers to

us. They are the police officers who protect our citizens and

neighborhoods from violent crime; the firefighters who enter

burning homes to save lives and salvage property; the teachers

who educate our children; the prosecutors, public defenders, and

judges, and their staffs, who operate our system of justice; the

7

crews who pave our roads and recycle our waste; and the myriad

other workers who, in their unheralded ways, improve the quality

of life for almost nine million people in New Jersey and allow

State and local governments to operate.

Unlike the majority, I believe public workers have

protectable contractual rights under the United States

Constitution -- as the Legislature and Governor intended in

enacting Chapter 78. Chapter 78 was not an aspirational or

moral promise, but a solemn contract, which, once made, is

binding on the State and cannot be nullified without offending

the Federal Constitution’s Contracts Clause. I therefore

respectfully dissent.

I.

A.

The current pension crisis is the backdrop to the

constitutional issues before us. A brief historical primer is

necessary to give those issues context.

Public workers enter into the career service with a

promise, engraved in statute, that part of their wages will be

deferred until their retirement. Public employees have earned

their present and deferred wages by their labor. To fund the

pension system, deductions are made from each employee’s

paycheck, and the State and municipalities are statutorily

required to make their contributions.

8

For decades, the State has been mandated by statute to

“make annual [contributions to the pension system] . . .

pursuant to standard actuarial practices.” L. 1997, c. 113, §

5; see N.J. Educ. Ass’n v. State (NJEA), 412 N.J. Super. 192,

195-96 (App. Div.), certif. denied, 202 N.J. 347 (2010). Since

1997, our pension laws have assured public workers that they

“shall have a non-forfeitable right to receive benefits as

provided under the laws governing the retirement system or fund

upon the attainment of five years of service credit in the

retirement system or fund.” N.J.S.A. 43:3C-9.5(b). The “‘non-

forfeitable right to receive benefits’ means that the benefits

program, for any employee for whom the right has attached,

cannot be reduced.” N.J.S.A. 43:3C-9.5(a).

The “non-forfeitable right” to receive one’s deferred wages

is a hollow right if there is insufficient money in the pension

fund to pay those wages. Public workers have never been given a

holiday from making their contributions into the pension system.

However, from 1997 through 2012, the State failed to pay its

full annual required contribution. Indeed, over that period,

the State paid less than ten percent of its statutorily required

contribution into the pension system. Truth & Consequence:

Status Report of the N.J. Pension & Health Benefit Study

Commission 6-8 (Sept. 25, 2014). Successive legislatures and

administrations balanced yearly budgets while shortchanging the

9

fund necessary to make good the deferred compensation owed to

public workers. The State’s yearly neglect to pay its

statutorily mandated contribution into the pension fund has

brought us to the current crisis.

B.

In enacting Chapter 78, the Legislature took direction from

this Court’s language in Spina, supra, 41 N.J. at 405, and the

Appellate Division’s language in NJEA, supra, 412 N.J. Super. at

213.

In Spina, this Court spelled out how the Legislature could

make a binding public contract. In that case, firefighters and

police officers brought suit, alleging that a 1944 legislative

enactment increasing the age at which they could retire and

receive pension benefits violated their contractual rights set

in a 1920 law. Spina, supra, 41 N.J. at 393. This Court

determined that the 1920 law did not create a contractual right

to receive benefits at the ages set in that law. Id. at 400.

It came to that conclusion because the 1920 law did not use

sufficiently explicit language to suggest that the Legislature

intended to confer a contractual right. Ibid. The Court noted,

“Not a word smacks of an intent to require or to permit one.”

Ibid. The Court recognized that “the general approach in our

State [is] that the terms and conditions of public service in

office or employment rest in legislative policy rather than

10

contractual obligation.” Ibid. (emphasis added). Nevertheless,

the Court acknowledged that the Legislature had the power to

create binding “public contracts” that restricted its policy

choices. Id. at 405. The Court stated: “The responsibility

for creating public contracts is the Legislature’s. A

commitment of that kind should be so plainly expressed that one

cannot doubt the individual legislator understood and intended

it.”1 Ibid.

The Appellate Division in NJEA, supra, looked to the test

in Spina in resolving the issue before it. See 412 N.J. Super.

at 207-15. In NJEA, certain active and retired members of the

New Jersey Education Association, as well as the Association,

brought a lawsuit seeking redress for the State’s failure to

make its statutorily mandated contributions to the Teachers’

Pension and Annuity Fund for fiscal years 2004 through 2007.

1I disagree with the majority that the Spina Court intended this

quoted language to apply only to laws passed by the Legislature

creating public contracts enforceable against municipalities and

not against the State. While it is true that the focus in Spina

was the 1920 law that required municipalities to fund the

pension system, the Court’s opinion noted that under legislation

in 1944, the “State agreed to contribute $1,000,000 annually” to

the pension fund and under legislation in 1952, the State agreed

to pay one-third of the “amount needed to achieve actuarial

solvency” in the then unfunded deficit. Id. at 396-97.

Therefore, the Spina Court undoubtedly recognized that in the

realm of pension funding, under its ruling, the legislative

creation of contractual rights would bind the State, not just

municipalities.

11

Id. at 192, 195-96. The Appellate Division ultimately concluded

that although the public employees who contributed to the

Teachers’ Pension Fund were “entitled by law to the receipt of

vested benefits upon retirement,” they did not possess a

“constitutionally-protected contract right to the particular

level, manner or method of State funding provided in the

statute.” Id. at 196. The appellate panel reached that

conclusion because the statutory language did not “clearly and

unequivocally express an explicit enforceable legislative

commitment” to create a contractual right in the manner required

by Spina. Id. at 213. Referring to Spina, the panel found it

far from clear that the “‘individual legislator[]’ . . . would

have ‘understood and intended’” to create a contractual

obligation to fund the pension system. Id. at 214 (quoting

Spina, supra, 41 N.J. at 405).

In Chapter 78, enacted on June 28, 2011, the Legislature

intended to satisfy the conditions for a binding public contract

required in Spina and NJEA. Both the Legislature and Governor

lauded Chapter 78 as the answer to the irresponsible

underfunding of the pension system in previous years.

C.

The language in Chapter 78 clearly establishes the intent

of the Legislature and Governor to create an enforceable

contractual right to funding of the pension system -- a point

12

not disputed by the majority. N.J.S.A. 43:3C-9.5(c) in relevant

part reads:

(1) The State and all other applicable

employers shall make their annual normal

contribution to each system or fund . . . .

The amount of the State’s annually required

contributions shall be included in all annual

appropriations acts as a dedicated line item.

(2) Each member of the [State’s pension

systems] . . . shall have a contractual right

to the annual required contribution amount

being made by the member’s employer or by any

other public entity. The contractual right to

the annual required contribution means that

the employer or other public entity shall make

the annual required contribution on a timely

basis . . . . The failure of the State or any

other public employer to make the annually

required contribution shall be deemed to be an

impairment of the contractual right of each

employee. The Superior Court, Law Division

shall have jurisdiction over any action

brought by a member of any system or fund or

any board of trustees to enforce the

contractual right set forth in this

subsection. The State and other public

employers shall submit to the jurisdiction of

the Superior Court, Law Division and shall not

assert sovereign immunity in such an action.

[L. 2011, c. 78, § 26 (codified at N.J.S.A.

43:3C-9.5(c)) (emphasis added).]

The contractual language here is “so plainly expressed that one

cannot doubt the individual legislator understood and intended

it.” See Spina, supra, 41 N.J. at 405.

Chapter 78’s enactment represented a historic compromise.

Public workers would pay more into the pension fund through

increased deductions from their paychecks, and the State would

13

do what it was always required to do -- pay its fair share into

the fund to insure its solvency. The State’s intention to enter

into a solemn, binding contract with its employees is clear not

only from the plain language of the statute, but also from the

Governor’s various public statements. At a Town Hall appearance

just days before Chapter 78’s enactment, the Governor stated

that the new law “makes it a contractual right of the folks in

the pension system to have those payments made. We’re further

locking ourselves [into] making those payments along those

schedule[s].” See NJ Citizen Action Joins Pension Lawsuit,

Politicker NJ (Apr. 28, 2015),

http://politickernj.com/2015/04/nj-citizen-action-joins-pension-

lawsuit/ (quoting Governor’s remarks at 2011 appearance). At

the signing of Chapter 78, the Governor stated, “The reforms

that we sign today . . . are an assurance to the hard working

men and women in government all across New Jersey that when the

time comes for them to retire their pension will be there for

them to collect[.]” Press Release, Office of the Governor,

Governor Christie Signs Bipartisan Pension & Health Benefits

Reform Bill (June 28, 2011), available at

http://www.state.nj.us/governor/news/news/552011/approved/201106

28c.html.

No doubt, many public workers took the legislation at its

word, and arranged their lives based on the contractual

14

guarantees in Chapter 78. Some may have remained in the career

service and others joined it based on the seemingly ironclad

contractual language in the legislation.

Chapter 78, like any legislative enactment, was clothed

with a presumption of constitutionality. See Lewis v. Harris,

188 N.J. 415, 459 (2006). That presumption could only be

overcome by a showing that Chapter 78’s “repugnancy to the

Constitution [was] clear beyond a reasonable doubt.” See ibid.

(internal quotation marks and citation omitted). This

jurisprudential canon required that Chapter 78 be read in a way

that strongly favored its validity.

Two years after Chapter 78 was signed into law, and the

public fanfare over its passage, the State reneged on making its

statutorily required payments into the pension system. In an

about-face, the State claimed that the portion of the law

mandating that it make its annual required contribution to the

pension fund violates the Debt Limitation Clause and the

Appropriations Clause of the New Jersey Constitution while

insisting on the validity of that portion of the law mandating

increased deductions from public employees’ paychecks. The

State argued that the law passed by the Legislature and signed

by the Governor was unconstitutional beyond a reasonable doubt.

The majority essentially adopts this argument and submits that

the State’s contractual obligation is unenforceable under the

15

State Constitution.

However, until today’s decision, our jurisprudence, Spina

in particular, signaled that a public contract is enforceable

under the New Jersey Constitution. State law cannot be

reconfigured and then used as an instrument to undermine the

Federal Constitution, which protects against state-legislative

impairment of contractual rights. The Contracts Clause of the

Federal Constitution forbids the State from doing precisely what

occurred here. The State cannot enter into a public contract

when to do so benefits it, and then legislatively impair that

contract when abiding by the contract no longer suits it.

Before turning to federal law, a review of our state-law

jurisprudence will show that the majority has mistakenly

concluded that Chapter 78 violates the Debt Limitation Clause

and Appropriations Clause of the New Jersey Constitution and is

therefore unenforceable.

II.

A.

In striking down Chapter 78, the majority construes the

State Constitution’s Debt Limitation Clause in an unprecedented

way that is at odds with the intent, history, and jurisprudence

of the Clause. The majority also eviscerates Spina’s protection

of public contractual rights.

The Debt Limitation Clause provides in relevant part that

16

[t]he Legislature shall not, in any manner,

create in any fiscal year a debt or debts,

liability or liabilities of the State, which

together with any previous debts or

liabilities shall exceed at any time one per

centum of the total amount appropriated by the

general appropriation law for that fiscal

year[.]

[N.J. Const. art. VIII, § 2, ¶ 3.]

This Court has previously determined that the State’s

statutorily required pension contributions are not a debt within

the intendment of the Clause. In City of Passaic, supra, the

Court held that a statute requiring the State to annually

contribute to a pension fund for a period of thirty years did

not violate the Debt Limitation Clause. 18 N.J. at 144, 147.

The Court “reject[ed] the argument that the statutory provision

requiring the State to contribute to the fund constitute[d] the

creation of a state debt contrary to [the Debt Limitation

Clause].” Id. at 147. The Court wrote that “[n]o debt has been

created here, but rather present legislation merely provides

that the State shall annually contribute to the fund.” Ibid.

Implicit in the Court’s decision was a recognition that the

State’s annual contributions did not constitute a debt because

such a payment is an “ordinary government operating expense.”

See Spadoro v. Whitman, 150 N.J. 2, 11 (1997) (Handler, J.,

concurring in part and dissenting in part) (citing City of

Passaic, supra, 18 N.J. 137).

17

In Spadoro, Justice Handler expressed that “[t]he 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,” and therefore is not a debt. See id. at 11.2

The drafters of the Debt Limitation Clause surely did not

intend that paying public workers for the work they are

presently performing is a debt. The Framers of New Jersey’s

1844 Constitution adopted the Debt Limitation Clause to check

speculative investments by the state and, as such, to restrict

the current Legislature from placing on future generations of

taxpayers binding financial obligations. Lonegan v. State

(Lonegan II), 176 N.J. 2, 14 (2003). The Debt Limitation Clause

“was enacted originally to ‘protect against the type of

2 In Spadoro, supra, the issue was whether the Debt Limitation

Clause was violated by a statute providing for the issuance of

$2.7 billion in bonds by a state authority that would be “used

to pay the State’s obligations for the unfunded accrued

liability of several state pension systems.” 150 N.J. at 2-4

(Handler, J., concurring in part and dissenting in part). The

Court did not reach the merits of the case because it deemed the

issue to be moot. Id. at 2. Justice Handler wrote a separate

concurring and dissenting opinion, which concluded that the Debt

Limitation Clause was violated by the State’s borrowing of money

to pay off its pension obligations. Id. at 4, 10-11 (Handler,

J., concurring in part and dissenting in part). Importantly,

Justice Handler noted that a statute requiring the State to make

annual pension contributions was not a debt under the Clause.

Id. at 11.

18

financial debacle experienced’ by other states that had borrowed

without restraint during the 1830s.” Ibid. (emphasis added)

(quoting Lonegan v. State (Lonegan I), 174 N.J. 435, 443-44

(2002)). States engaged in heavy borrowing, speculating in

western lands and risky capital projects that led to a number of

states defaulting on their obligations. Lonegan I, supra, 174

N.J. at 444. Even though New Jersey had not defaulted on its

loans, it sought to prevent financial catastrophe by adopting

one of the country’s first debt limitation clauses. Ibid.

Thus, “the Clause prohibits one Legislature from incurring debts

that subsequent Legislatures would be obliged to pay, without

prior approval by public referendum.” Id. at 444-45 (internal

quotations marks omitted). The Framers, however, did not intend

the Debt Limitation Clause to prevent the State from funding

ordinary, “essential[,] and appropriate governmental functions.”

See Lonegan II, supra, 176 N.J. at 14.

The pension owed to public workers is a form of deferred

compensation for the service they perform and therefore is part

of their accrued salary. Chapter 78 requires the State to make

its contribution to the pension fund so that the deferred

compensation earned by public workers will be available when

they retire. See Corvelli v. Bd. of Trs., 130 N.J. 539, 552

(1992) (noting that “prevailing view” is that pensions are

deferred compensation); Masse v. Bd. of Trs., 87 N.J. 252, 260

19

(1981) (“Th[e] legislative intent that the governmental pension

constitutes compensation for services rendered over a period of

time has been accorded substantial judicial recognition.”).

The State’s withholding of monies from a public worker’s

pension is no different than the State’s withholding part of the

worker’s salary. The Debt Limitation Clause was ratified to

address a much different scenario than obligating the State to

pay the ordinary operating expenses of government, which include

placing a public worker’s deferred wages into a pension fund.

Significantly, no member of the Court, in either the

majority or dissenting opinions in Lonegan II, supra, expressed

a view that requiring the State to pay the ordinary operating

expenses of running the government would be disallowed by the

Debt Limitation Clause. See 176 N.J. at 19. The dissenting

Justices who were inclined to give an expansive reading to the

Debt Limitation Clause in cases involving appropriations-backed

debt would have excluded from the Clause’s reach “labor

agreements, leases, and any other arrangement or transaction

that does not require the State’s contractual borrowing of

funds.” Id. at 24 (Long, Verniero, and Zazzali, JJ.,

dissenting). This viewpoint was well within the mainstream

understanding of the Debt Limitation Clause.

Other states have concluded that mandated contributions to

a pension fund do not constitute a debt for purposes of their

20

debt limitation clauses. See, e.g., Rochlin v. State, 540 P.2d

643, 648 (Ariz. 1975) (concluding that unfunded liability of

pension is not debt under State Constitution’s debt limitations

sections); State ex rel. Wittler v. Yelle, 399 P.2d 319, 320-21,

324-25 (Wash. 1965) (holding that statutes increasing payment to

pension fund did not violate state’s debt limitation clauses

because “debt” is defined as “borrowed money and [does] not

warrant obligations for the payment of the current expenses of

the state government such as services rendered and materials

furnished”); Booth v. Sims, 456 S.E.2d 167, 176 (W. Va. 1994)

(noting longstanding principle that “pension systems do not

involve the creation of an unconstitutional debt” under state’s

debt limitation clause).

Last, in Lonegan II, supra, the Court interpreted narrowly

the “shall not, in any manner, create a debt” language of the

Debt Limitation Clause to exclude “appropriations-backed” debt

from the constraints of the Clause. 176 N.J. at 18-21. Yet,

here the majority reads the “in any manner” language expansively

to disallow payment of the ordinary operating expenses of

government through Chapter 78. See ante at __-__ (slip op. at

37-42). The “in any manner” language should not be elastic when

applied to capital projects but unbendable when applied to human

capital.

In summary, the majority’s voiding of Chapter 78 based on

21

the Debt Limitation Clause cannot be squared with the intent of

the Clause or this Court’s jurisprudence.

B.

Contrary to the majority’s assertions, our State

Constitution’s Appropriations Clause, N.J. Const. art. VIII, §

2, ¶ 2, does not compel the invalidation of Chapter 78. The

Appropriations Clause provides, in pertinent part: “All moneys

for the support of the State government and for all other State

purposes as far as can be ascertained or reasonably foreseen,

shall be provided for in one general appropriation law covering

one and the same fiscal year . . . .” N.J. Const. art. VIII, §

2, ¶ 2. I do not quarrel with the notion that the Legislature

can pass a law funding a project one year, and repeal the

project’s funding the next year. City of Camden v. Byrne, 82

N.J. 133, 154-55 (1980). The Legislature ultimately is

responsible for setting the State’s social policy and needs

against available resources in producing a balanced budget. Id.

at 148. However, as we stated in Spina, supra, the Legislature

can limit its own policy choices by entering into a clear,

unequivocal binding public contract. 41 N.J. at 404-05; see

also Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 97-104, 58

S. Ct. 443, 444-48, 82 L. Ed. 685, 689-93 (1938).

The State knows how to draft a contract to limit its

financial obligation. Many state contracts include language

22

that the contractual terms are subject to appropriation by the

Legislature. On the other hand, the State knows how to draft a

binding public contract. In Spina, this Court set forth the

conditions for the making of an enforceable legislative

contract. The majority’s reading of the Appropriations Clause

renders Spina a nullity. It also runs afoul of the Federal

Contracts Clause. If the enforceability of a contract depends

on the willingness of the Legislature to appropriate money in

any particular year, then, by the majority’s logic, no contract

is enforceable. That conclusion will come as a great surprise

to many who count on the good faith and credit of the State in

honoring its contractual commitments. The Appropriations Clause

cannot stand as a barrier to the enforcement of federal or state

constitutional rights, including contractual rights. See Brand,

supra, 303 U.S. at 97-104, 58 S. Ct. at 444-48, 82 L. Ed. at

689-93; see also Abbott v. Burke (Abbott XXI), 206 N.J. 332,

363-64 (2011); N.J. Div. of Youth & Family Servs. v. D.C., 118

N.J. 388, 399-400 (1990).

In Missouri v. Jenkins, the United States Supreme Court

held that the Supremacy Clause empowers federal courts to compel

states to fulfill their constitutional obligations even if

state-law provisions limit the means of appropriating funds to

do so. 495 U.S. 33, 52-58, 110 S. Ct. 1651, 1663-67, 109 L. Ed.

2d 31, 55-58 (1990). In that vein, a state’s claim to a lack of

23

available funding cannot excuse a state’s constitutional non-

compliance with minimal living and health standards for those

kept in detention facilities. See, e.g., Hamm v. DeKalb Cnty.,

774 F.2d 1567, 1573 (11th Cir. 1985) (“[S]tate’s interest in

limiting the cost of detention . . . will justify neither the

complete denial of [food, living space, and medical care] nor

the provision of those necessities below some minimally adequate

level.”), cert. denied, 475 U.S. 1096, 106 S. Ct. 1492, 89 L.

Ed. 2d 894 (1986); Battle v. Anderson, 594 F.2d 786, 792 (10th

Cir. 1979) (“[C]onstitutional treatment of human beings confined

to penal institutions . . . is not dependent upon the

willingness or the financial ability of the state to provide

decent penitentiaries.” (Internal quotation marks omitted));

Newman v. Alabama, 559 F.2d 283, 286 (5th Cir. 1977)

(“[C]ompliance with constitutional standards may not be

frustrated by legislative inaction or failure to provide the

necessary funds[.]”), cert. denied, 438 U.S. 915, 98 S. Ct.

3144, 57 L. Ed. 2d 1160 (1978).

In Abbott XXI, supra, we rejected the State’s argument that

the appropriation power vested in the Legislature required this

Court to defer to the Legislature’s funding decisions that

violated the rights of certain school children to a thorough and

efficient education. 206 N.J. at 363-64. Simply stated, we

held that the Legislature could not suspend a constitutional

24

right through a shortfall of appropriation. Ibid. In that

case, we found that the State had underfunded its own school-aid

formula and, by doing so, had visited substantial harm on the

school children protected by our State Constitution. Ibid.

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