This issue began in the 1830s. Then,
as now, state governments borrowed heavily
to support bad business deals for people
with good political connections. When the
deals failed, payments on the bonds stopped.
Banks around the country failed during the
"panic of 1837."
In 1844, New Jersey and people in
most states rewrote state constitutions so
this never could happen again. With New
Jersey's new constitution, state government
could not have total debt of more than 1
percent of our yearly budget ($33 million)
without a vote of the people.
So far, New Jersey voters approved
$3 billion in state debt. But Gov. Corzine's
charts during his highway monetization
hearings showed the state is almost $40
billion in debt, with more than $3 billion
paid on that debt every year.
What happened?
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.
So, why did Wall Street loan $29
billion in return for a promise that could
be legally broken at any time? Because Wall
Street's biggest insurance companies insured
the debt. Until six months ago, they made
huge profits by betting our state government
would pay billions of dollars it did not
legally have to pay for the next 30 years.
Now those companies need bailouts.
In June, Corzine and the Legislature
made another unenforceable promise — to pay
for $3.9 billion more of the Economic
Development Authority's junk debt without
voter approval. But now, nobody on Wall
Street will buy or insure these bonds. Wall
Street knows fed-up voters now may demand
that their legislators refuse to pay
billions of dollars we do not legally have
to pay.
The problem of runaway debt by
independent authorities such as this has
fixed itself. So, why do Sen. Ray Lesniak,
D-Union, and Sen. Leonard Lance,
R-Hunterdon, and others want to fix a
problem that no longer exists?
The answer is in the fine print of
Senate Concurrent Resolution No. 39, which
will replace our current constitution if
Question No. 1 is approved.
First, voter approval will not be
needed if a proposed project has "an
independent nonstate source of revenue" or
"a source of revenue otherwise required to
be appropriated pursuant to another
provision of this Constitution." Any Enron
accountant or Abbott lawyer can drive a
truck through those loopholes.
But here is the real kicker: "No
voter approval shall be required . . .
authorizing the creation of . . . debts . .
. for the refinancing of all or a portion of
any outstanding debts or liabilities of . .
. an autonomous public corporate entity."
The state Supreme Court ruled that
New Jersey voters don't have to pay a dime
on any of the $29 billion previously
borrowed by shell entities unless they vote
to do it. But with a "Yes" vote on Question
No. 1, Corzine and the Legislature could
pass a simple law to refinance every dollar
of the $37 billion borrowed by state
authorities without voter approval. Then,
every unenforceable contract to pay $3
billion a year will become enforceable for
the first time for the next 30 years.
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. And if that
money is not enough, the state is legally
obligated to adopt a new statewide property
tax to pay the difference.
Don't be fooled. Vote "No" on
Question No. 1.
Seth Grossman, a Somers Point
attorney who represents Lonegan, is a former
Atlantic City councilman and Atlantic County
freeholder. He is acting president of
www.libertyandprosperity.org.