Public Question #1: A Wolf in Sheep's Clothing
Posted October 31, 2008

All too often in government, the devil is in the details. And Public Question # 1, which voters will decide on Tuesday, is no exception.

At face value, the question seems a “no-brainer.” Requiring voter approval for all future state borrowing, the measure, according to supporters, will finally put an end to Trenton’s spending sprees. Indeed, with out-of-control debt the new hallmark of New Jersey’s state government, one would think giving voters a say in public borrowing and spending is the right thing to do.

And on this point, we agree.

The problem appears, however, in the details of Senate Concurrent Resolution 39 (SCR-39), which would amend our current state constitution if Question  #1 is approved. First, the resolution states:

Voter approval shall not be required for any such law [creating debt] providing that the ways and means to pay the interest of and to pay and discharge the principle of such debt or liability shall be subject to appropriations of an independent non-State source of revenue paid by third persons for the use of the single object or work thereof, or from a source of State revenue otherwise required to be appropriated pursuant to another provision of this Constitution.

As Seth Grossman, attorney and acting president of www.libertyandprosperity.org notes in a column which appeared in Wednesday’s Asbury Park Press, “Any Enron accountant or Abbot lawyer can drive a truck through those loopholes.”

But beyond this – and in what Grossman calls “the real kicker,” under SCR-39,

No voter approval shall be required … authorizing the creation of a debt or debts … for the refinancing of all or a portion of any outstanding debts or liabilities of the State, or of an autonomous public corporate entity, established either as an instrumentality of the State or otherwise exercising public and essential governmental functions, heretofore or hereafter created….

In other words, if voters approve Question #1, the state could refinance – without voter approval – the current $30 billion plus in state debt. As it stands now, by a New Jersey Supreme Court ruling, the state is not legally bound to pay this debt. Grossman writes:

For the past 25 years, Republicans and Democrats – with help from Wall Street – created a loophole to borrow $29 billion without voter approval. They created “shell corporations,” such as the Economic Development Authority. These corporations then borrowed billions from Wall Street lenders even though they had no way to pay that money back. That is because the state Legislature promised to pay the debts of these authorities.

When former Bogota Mayor Steve Lonegan sued to close this loophole in 2000, the New Jersey Supreme Court narrowly agreed to permit it. In a 4-to-3 decision, it ruled voter approval was not needed, because promises the state made to pay these debts were unenforceable and could be broken at any time.

If voters approve Public Question #1, New Jersey could refinance its debt, thus making repayment legally enforceable. And when current state revenues prove insufficient to foot the bill, Trenton will undoubtedly come knocking on taxpayers’ doors.

“Once the full faith and credit of New Jersey is pledged, all state sales tax money is earmarked to pay that debt before it is spent on anything else,” Grossman writes. “And if that money is not enough, the state is legally obligated to adopt a new statewide property tax to pay the difference.”

Unfortunately, Public Question #1 promises one thing but would deliver quite another. While we wholeheartedly support requiring voter approval before Trenton incurs additional debt, we oppose the proposed measure, the attached strings of which could legally bind New Jersey taxpayers to billions of dollars in state debt.

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