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Judge Won't Block $380M Sale of Controversial State Bonds for Building Projects

Opponents of Christie administration’s debt issuance for new government buildings are running out of options. Only a final court appeal — and a snowstorm — can obstruct bond sale now

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A Superior Court judge yesterday refused to block the state from issuing more than $380 million in new debt for replacing two state office buildings in Trenton, as well as the state’s largest juvenile detention center. The bond sale, to take place in the final days of the Christie administration, will go forward without voter approval unless a last-ditch appeal is successful.

A lawsuit was filed last month by Assemblyman Reed Gusciora (D-Mercer), former Trenton Mayor Doug Palmer, and several other city residents who oppose the plan by Gov. Chris Christie to finance the construction of new state office buildings outside of the city’s core downtown district.

The case originally was scheduled to be heard today, but after the state announced last week that it had scheduled its bond sale for today, Superior Court Judge Paul Innes moved up the hearing to yesterday, in part because the plaintiffs sought to bar the state from issuing the bonds until the legal challenge was heard.

In his ruling yesterday, Innes effectively agreed with the Christie administration’s argument that the bond issue should not be put on hold because it would not, as the plaintiffs contended, violate limits on state debt that are written into the New Jersey Constitution. A 1974 state law gave the Economic Development Authority the statutory authority to issue so-called subject-to-appropriation bonds. While Innes did refer some issues in the lawsuit to the court’s Appellate Division, he agreed with the state’s argument. A 2008 constitutional amendment sought to restrain state borrowing by requiring voter approval for such borrowing, but Innes agreed with the state that the constitutional amendment did not apply to the EDA because the language of the amendment essentially grandfathered the agency’s borrowing authority.

‘Governor’s midnight project’

Gusciora called yesterday’s ruling from Innes “disheartening.”

“The outgoing Governor’s midnight project will only enrich his friends at the expense of citizens of Trenton,” Gusciora said.

Bruce Afran, a lawyer for the Trenton plaintiffs, and Assemblyman John Wisniewski — who filed his own legal challenge — both promised to appeal the ruling to the Appellate Division, and last night Afran said the appeals court would accept emergency briefs on the bid for a last-ditch injunction this afternoon.

The bond sale originally was scheduled to be held today, but it could be delayed for at least a day by the expected snowstorm. Under documents released by the state last week, the bonds would raise a total of $381.2 million — $216.5 million to finance the construction of two new government office buildings in Trenton, and $164.7 million to pay for two new Juvenile Justice Commission facilities in Ewing and Winslow.

The bonds, assigned an “A-” rating by Fitch Rating, follow a $300 million bond issue the Christie administration floated earlier this year, also without voter approval, to finance a major renovation of the State House in Trenton.

Although planning for the new government office buildings started in 2014, Christie first announced the project in September 2016, saying it would generate new economic development and private-sector investment in the capital city, which has struggled in the wake of the Great Recession. Under the latest version of the plans approved by the EDA last month, the project will involve the construction of two new office buildings in downtown Trenton to house the Department of Health and the Department of Treasury’s Division of Taxation.

No say for voters or lawmakers

Gusciora, Palmer, and several other Trenton residents and local business owners, including members of a group called Stakeholders Allied for the Core of Trenton, have spoken out against the Christie administration’s plan, faulting the state for not locating the new buildings in the city’s core downtown district, and for not including a mixed-use element to encourage more downtown foot traffic. The Christie administration has also been criticized for not taking advantage of public-private partnerships to increase the city’s ratable base, and for advancing the project without first having a completed impact statement from the Capital City Redevelopment Corporation.

In court yesterday, Afran and Wisniewski (D-Middlesex) both argued that the bond issue itself would violate the state constitution’s debt-limitation clause, which restrains the state from taking on substantial debt without first getting voter approval. They said the buildings’ proposed financing, which involves a 30-year lease between the state and the EDA, was effectively creating a new, long-term debt that neither lawmakers nor voters have had the chance to weigh in on.

“No doubt these are wonderful projects, but there’s never a good reason to violate the constitution of the state of New Jersey,” Wisniewski said.

But assistant state Attorney General Melissa Schaffer argued that long-held public-finance legal precedent in New Jersey dictates that the debt-limitation clause only applies to general-obligation bonds that are backed by the “full faith and credit” of the state itself. Debt service on the EDA’s lease-revenue bonds will be subject to appropriation each year out of the annual budget, meaning they do not trigger the constitutional protections, including the requirement for voter authorization of state borrowing, Schaffer said.

“The issues are clear,” she said during oral arguments that lasted for nearly two hours.

Nuclear option

Schaffer also said that since the plaintiffs were contesting the actions of the EDA, the legal challenge should be heard by the Appellate Division, which has sole jurisdiction over challenges of state agency actions.

Outside the courtroom after Innes ruled in favor of the state, Wisniewski said he did not believe it was the intention of lawmakers — who voted in 2008 to put the constitutional amendment on the ballot that year — to create a loophole for agencies like the EDA that were granted the authority to issue subject-to-appropriation debt before the amendment was adopted. The amendment is known widely as the “Lance amendment,” after its sponsor, former Republican state lawmaker Leonard Lance, who is now a member of Congress.

Wisniewski also faulted the state for arguing that lawmakers will retain the power to vote against appropriating revenue to cover the debt payments each year in the annual budget, saying such an action would have a disastrous effect on the state’s already weak bond rating.

“It’s a nuclear option that will never be utilized,” said Wisniewski, who also challenged the bonds for the State House renovation in a case that remains active in the Appellate Division.

A spokeswoman for the EDA declined comment yesterday, and a Treasury spokesman referred questions to the Attorney General’s Office, which also declined comment.

Afran said last night that the Attorney General’s Office told him the bond sale would have to be delayed at least a day because of the expected snowstorm.

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