Opinion ID: 1961950
Heading Depth: 1
Heading Rank: 3

Heading: The Debt Limitation Clause

Text: We also reject plaintiff's argument that the New Jersey Building Authority Act, L. 1981, c. 120, N.J.S.A. 52:18A-78.1 to .32, violates the debt limitations clause of the State Constitution. N.J. Const. (1947), Art. VIII, § 2, ¶ 3. Plaintiff claims that the debts of the Authority resulting from its issuance of notes and bonds are debts of the State, and therefore the procedures in Art. VIII, § 2, ¶ 3 must be followed. The Court rejected this argument in Clayton v. Kervick, 52 N.J. 138 (1968). In that case, as here, the Legislature created an independent authority empowered to borrow money and issue bonds that were not the liabilities of the State or any political subdivision. In Clayton, the New Jersey Educational Facilities Authority built school facilities with the borrowed money and leased them to schools, whose rental payments were used to repay the Authority's creditors. The Court held that the Authority's debts were not debts of the State, despite [t]he fact that the rentals were admittedly geared to satisfy the bonded indebtedness and enable the State ultimately to become the owner of the buildings, 52 N.J. at 153. Similarly, in Holster v. Bd. of Trustees of Passaic County College, 59 N.J. 60 (1971), the Court upheld the County College Bond Act, under which a county issued bonds whose repayment was expressly subject to appropriations being made by the Legislature. The Court stated: Although there is doubtless a strong likelihood that payment of the bonds will in fact be met by legislative appropriations, we find nothing in the statute compelling the State to make such payments as a matter of law. Hence, both issuing counties and purchasing bondholders are on notice that the faith and credit of the State will not be pledged in respect of bonds issued pursuant to this enactment, but that payment on the part of the State will be dependent upon appropriations provided from time to time. [59 N.J. at 66-67] No relevant distinction exists between the financing schemes upheld in those cases and that in the New Jersey Building Authority Act. The Authority's bonds and notes are not a debt or liability of the State. They state on their face that the State does not pledge its faith and credit to their payment. N.J.S.A. 52:18A-78.14(f). Although the Act not only contemplates that the State will make the necessary appropriations but also seeks to ensure this result, supra at 402-404, the State is under no legal obligation to do so. The Authority's creditors have notice that their only remedy lies against the Authority. Nor does the liability of the State on its lease agreements with the Authority create any debt of the State. Both the statute and the lease make clear that all rent payments from the State are subject to legislative appropriations. Moreover, the State may incur liability for future rentals without violating the debt limitations clause. See Bulman v. McCrane, 64 N.J. 105, 117-18 (1973). Plaintiff does not contend otherwise. Since the Building Authority Act does not authorize the creation of any debts by the State, the debt limitations clause, N.J. Const. (1947), Art. VIII, § 2, ¶ 3, does not apply to the Authority's debts or any obligations of the State on its lease agreements with the Authority. We have already disapproved the contrary result reached by a sharply divided Court in McCutcheon v. State Building Authority, 13 N.J. 46 (1953), and now expressly overrule that case.