By Joseph De Avila 

The New Jersey Supreme Court upheld a law giving the state the authority to borrow $9.9 billion to cover a budget shortfall stemming from the coronavirus shutdown.

The state's Republican Party and other GOP lawmakers challenged the new measure on constitutional grounds and argued that a previous state Supreme Court ruling forbids counting borrowed money as revenue to balance the budget.

In a unanimous decision written by Chief Justice Stuart Rabner, the state's top court determined that the new measure was constitutional because it met an exemption for an emergency caused by a disaster. But the court said it wasn't judging whether the law was wise public policy.

"Like so much else brought on by Covid-19, the legal issue before the court is unprecedented," Chief Justice Rabner wrote. "Laypeople, scientists and legal scholars alike would agree that Covid-19 is a true disaster with widespread consequences. The pandemic has caused a health emergency, a broad-based economic one that has devastated many individuals and families and a fiscal crisis for the state."

Doug Steinhardt, chairman of the New Jersey Republican Party, said the GOP was compelled to challenge the new law because it was bad policy.

"This decision confirms that all three branches of the New Jersey state government are firmly in the grasp of the Democrat Party," Mr. Steinhardt said. "The only way to put an end to out of control spending is to send more Republicans to Trenton."

Democratic Gov. Phil Murphy signed the law last month and it was passed by the state Legislature, also controlled by Democrats, along partisan lines.

The state Department of the Treasury has estimated that tax revenue will come up short by $9.2 billion through June 2021. Supporters of the law said the state will be forced to make steep budget cuts if they can't borrow money to fill a yawning budget gap.

Mr. Murphy said he welcomed the state's Supreme Court's decision.

"The alternative would've been something that no one up here or anywhere would have wanted to experience," Mr. Murphy said at an unrelated news conference Wednesday. "Our schools can be funded, our residents and communities can be protected and our state can move forward."

Peter Verniero, a former justice of the New Jersey Supreme Court and former state attorney general, said, "The COVID-19 pandemic was central to the court's historic decision" and paved the way for the state to borrow funds without voter approval.

The court's ruling set caps on how much New Jersey can borrow, limiting the amount to no more than the state's projected shortfall as caused by the pandemic. Those revenue figures must be certified by the state, under the ruling from the court.

The court "recognized constitutional guardrails to caution against future borrowing that might be unrelated to a genuine emergency," Mr. Verniero said.

Write to Joseph De Avila at joseph.deavila@wsj.com

(END) Dow Jones Newswires

August 12, 2020 16:36 ET (20:36 GMT)