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>State Seeks Dismissal of Lonegan’s Lawsuit, Which Would Address N.J. Debt Crisis

>WASHINGTON – New Jersey’s so-called “contract debt,” which is not backed by the full faith and credit clause of the state, begs a financial crisis, the free-market grassroots group Americans for Prosperity (AFP) said today. The group said it would be wrong for the courts to dismiss a lawsuit brought against the state by long-time Bogota Mayor and AFP New Jersey Director Steve Lonegan, which would block the sale of $3.9 billion in EDA bonds on the grounds that they are being sold without voter approval. The state filed a legal motion today to move for a dismissal.

“Our New Jersey members are deeply concerned about the financial crisis politicians are bringing down on them by spending irresponsibly and taking on debt without meeting the Constitutional requirement of voter approval,” said AFP Policy Director Phil Kerpen. “The courts should not just dismiss this case offhand. Billions in state debt rests on nothing more than the political whims of future legislatures – a shaky foundation to be sure.”

AFP pointed out that the practice of referring to these bonds as revenue bonds is highly misleading, because often, and specifically in the case of the pending $3.9 billion bond offering for school construction bonds, there is no revenue source other than appropriations by future legislatures, which cannot be bound contractually.

Lonegan filed suit in July against New Jersey to block a $3.9 billion borrowing scheme from being pushed through without voter approval. Article 8 of the state constitution bars the state from incurring debt of more than $3.2 million without voter approval. However, during the past 25 years the state has avoided most referendums by creating separate entities, like the Economic Development Authority, to borrow the money. Eight years ago Lonegan first filed suit to stop the practice of issuing so-called “contract debt.” In a narrow 3-4 decision, The state Supreme Court permitted then-Governor Christie Whitman’s bond issue, but required a disclaimer be added to contract debt noting that the debt was not backed by the full faith and credit of the state.

“Gov. Jon Corzine has repeatedly told voters that the state is facing a “debt crisis, yet politicians continue to issue billions in debt through a Supreme Court-created loophole in the state constitution,” said Lonegan. “This irresponsibility begs a financial crisis that will leave New Jersey’s bonds as worthless as Fannie Mae, Freddie Mac, or Lehman stock.”

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