UNITED STATES TRUST COMPANY OF NEW YORK, TRUSTEE v. NEW JERSEY ET AL.
No. 75-1687
SUPREME COURT OF THE UNITED STATES
Argued November 10, 1976—Decided April 27, 1977
431 U.S. 1
William F. Hyland, Attorney General of New Jersey, pro se, argued the cause for appellees. With him on the brief were Michael I. Sovern and Murray J. Laulicht.*
This case presents a challenge to a New Jersey statute, 1974 N. J. Laws, c. 25, as violative of the Contract Clause1 of the United States Constitution. That statute, together with a concurrent and parallel New York statute, 1974 N. Y. Laws, c. 993, repealed a statutory covenant made by the two States in 1962 that had limited the ability of The Port Authority of New York and New Jersey2 to subsidize rail passenger transportation from revenues and reserves.
The suit, one for declaratory relief, was instituted by appellant United States Trust Company of New York in the Superior Court of New Jersey, Law Division, Bergen County. Named as defendants were the State of New Jersey, its Governor, and its Attorney General. Plaintiff-appellant sued as trustee for two series of Port Authority Consolidated Bonds, as a holder of Port Authority Consolidated Bonds, and on behalf of all holders of such bonds.3
After a trial, the Superior Court ruled that the statutory repeal was a reasonable exercise of New Jersey‘s police power, and declared that it was not prohibited by the Contract Clause or by its counterpart in the New Jersey Constitution,
I
BACKGROUND
A. Establishment of the Port Authority. The Port Authority was established in 1921 by a bistate compact to effectuate “a better co-ordination of the terminal, transportation and other facilities of commerce in, about and through the port of New York.” 1921 N. J. Laws, c. 151, p. 413; 1921 N. Y. Laws, c. 154, p. 493. See
The compact granted the Port Authority enumerated powers and, by its Art. III, “such other and additional powers as shall be conferred upon it by the Legislature of either State concurred in by the Legislature of the other, or by Act or Acts of Congress.” The powers are enumerated in Art. VI. Among them is “full power and authority to purchase, construct, lease and/or operate any terminal or transportation facility within said district.” “Transportation facility” is defined, in Art. XXII, to include “railroads, steam or electric, . . . for use for the transportation or carriage of persons or property.”
The Port Authority was conceived as a financially independent entity, with funds primarily derived from private investors. The preamble to the compact speaks of the “encouragemеnt of
B. Initial Policy Regarding Mass Transit. Soon after the Port Authority‘s inception, the two States, again with the consent of Congress, 42 Stat. 822, agreed upon a comprehensive plan for the entity‘s development. 1922 N. J. Laws, c. 9; 1922 N. Y. Laws, c. 43. This plan was concerned primarily, if not solely, with transportation of freight by carriers and not with the movement of passengers in the Port Authority district. The plan, however, was not implemented.6 The New
In 1927 the New Jersey Legislature, in an Act approved by the Governor, directed the Port Authority to make plans “supplementary to or amendatory of the comprehensive plan . . . as will provide adequate interstate and suburban transportation facilities for passengers.” 1927 Laws, c. 277. The New York Legislature followed suit in 1928, but its bill encountered executive veto.7 The trial court observed that this veto “to all intents and purposes ended any legislative effort to involve the Port Authority in an active role in commuter transit for the next 30 years.” 134 N. J. Super., at 149, 338 A. 2d, at 846.
The States in 1931 also enacted statutes creating the general reserve fund of the Port Authority. 1931 N. J. Laws, c. 5; 1931 N. Y. Laws, c. 48. Surplus revenues from all Port Authority facilities were to be pooled in the fund to create an irrevocably pledged reserve equal to one-tenth of the par value of the Port Authority‘s outstanding bonds. This level was attained 15 years later, in 1946.
In 1952, the Port Authority abandoned the practice of earmarking specific facility revenues as security for bonds of that faсility. The Port Authority‘s Consolidated Bond Resolution established the present method of financing its activities; under this method its bonds are secured by a pledge of the general reserve fund.8
In 1958, Assembly Bill No. 16 was introduced in the New Jersey Legislature. This would have had the Port Authority take over, improve, and operate interstate rail mass transit between New Jersey and New York. The bill was opposed vigorously by the Port Authority on legal and financial grounds. The Port Authority also retaliated, in a sense, by including a new safeguard in its contracts with bondholders. This prohibited the issuance of any bonds, secured by the general reserve fund, for a new facility unless the Port Authority first certified that the issuance of the bonds would not “materially impair the sound credit standing” of the Port Authority. App. 812a. Bill No. 16 was not passed.
In 1959, the two States, with the consent of Congress, Pub. L. 86-302, 73 Stat. 575, created the New York-New Jersey Transportation Agency to deal “with matters affecting public mass transit within and between the 2 States.” 1959 N. J. Laws, c. 13, § 3.1, as amended by c. 24; 1959 N. Y. Laws, c. 420, § 3.1.
Also in 1959, the two States enacted legislation providing that upon either State‘s election the Port Authority would be authorized to purchase and own railroad passenger cars for the purpose of leasing them to commuter railroads. 1959 N. J. Laws, c. 25; 1959 N. Y. Laws, c. 638. Bonds issued for this purpose would be guaranteed by the electing State. New York so elected,
E. The 1962 Statutory Covenant. In 1960 the takeover of the Hudson & Manhattan Railroad by the Port Authority was proposed. This was a privately owned interstate electric commuter system then linking Manhattan, Newark, and Hoboken through the Hudson tubes. It had been in reorganization for many years, and in 1959 the Bankruptcy Court and the United States District Court had approved a plan that left it with cash sufficient to continue operations for two years but with no funds for capital expenditures. In re Hudson & Manhattan R. Co., 174 F. Supp. 148 (SDNY 1959), aff‘d sub nom. Spitzer v. Stichman, 278 F. 2d 402 (CA2 1960). A special committee of the New Jersey Senate was formed to determine whether the Port Authority was “fulfilling its statutory duties and obligations,” App. 605a. The committee concluded that the solution to bondholder concern was “[1]imiting by a constitutionally protected statutory covenant with Port Authority bondholders the extent to which the Port Authority revenues and reserves pledged to such bondholders can in the future be applied to the deficits of possible future Port Authority passenger railroad facilities beyond the original Hudson & Manhattan Railroad system.” Id., at 656a. And the trial court found that the 1962 New Jersey Legislature “concluded it was necessary to place a limitation on mass transit deficit operations to be undertaken by the Authority in the future so as to promote continued investor confidence in the Authority.” 134 N. J. Super., at 178, 338 A. 2d, at 863-864.
The statutory covenant of 1962 was the result. The covenant itself was part of the bistate legislation authorizing the Port Authority to acquire, construct, and operate the Hudson & Manhattan Railroad and the World Trade Center. The statute in relevant part read:
“The 2 States covenant and agree with each other and
with the holders of any affected bonds, as hereinafter defined, that so long as any of such bonds remain outstanding and unpaid and the holders thereof shall not have given their consent as provided in their contract with the port authority, (a) . . . and (b) neither the States nor the port authority nor any subsidiary corporation incorporated for any of the purposes of this act will apply any of the rentals, tolls, fares, fees, charges, revenues or reserves, which have been or shall be pledged in whole or in part as security for such bonds, for any railroad purposes whatsoever other than permitted purposes hereinafter set forth.” 1962 N. J. Laws, c. 8, § 6; 1962 N. Y. Laws, c. 209, § 6.9
The “permitted purposes” were defined to include (i) the Hudson & Manhattan as then existing, (ii) railroad freight facilities, (iii) tracks and related facilities on Port Authority vehicular bridges, and (iv) a passenger railroad facility if the Port Authority certified that it was “self-supporting” or, if not, that at the end of the preceding calendar year the general reserve fund contained the prescribed statutory amount, and that all the Port Authority‘s passenger revenues, including the Hudson & Manhattan, would not produce deficits in excess of “permitted deficits.”
A passenger railroad would be deemed “self-supporting” if the amount estimated by the Authority as average annual net income equaled or exceeded the average annual debt service for the following decade. Though the covenant was not explicit on the point, the States, the Port Authority, and its bond counsel have agreed that any state subsidy might be included in the computation of average annual net income of the facility.
The terms of the covenant were self-evident. Within its conditions the covenant permitted, and perhaps even contemplated, additional Port Authority involvement in deficit rail mass transit as its financial position strengthened, since the limitation of the covenant was linked to, and would expand with, the general reserve fund.
A constitutional attack on the legislation containing the covenant was promptly launched. New Jersey and New York joined in the defense. The attack proved unsuccessful. Courtesy Sandwich Shop, Inc. v. Port of New York Authority, 12 N. Y. 2d 379, 190 N. E. 2d 402, appeal dismissed, 375 U. S. 78 (1963). See Kheel v. Port of New York Authority, 331 F. Supp. 118 (SDNY 1971), aff‘d, 457 F. 2d 46 (CA2), cert. denied, 409 U. S. 983 (1972).
With the legislation embracing the covenant thus effective, the Port Authority on September 1, 1962, assumed the ownership and operating responsibilities of the Hudson & Manhattan through a wholly owned subsidiary, Port Authority Trans-Hudson Corporation (PATH). Funds necessary for this were realized by the successful sale of bonds to private investors accompanied by the certification required by § 7 of the Consolidated Bond Resolution that the operation would not materially impair the credit standing of the Port Authority, the investment status of the Consolidated Bonds, or the ability of the Port Authority to fulfill its commitments to bondholders. This § 7 certification was based on a projection
The PATH fare in 1962 was 30 cents and has remained at that figure despite recommendations for increase. App. 684a-686a. As a result of the continuation of the low fare, PATH deficits have far exceeded the initial projection. Thus, although the general reserve fund had grown to $173 million by 1973, substantially increasing the level of permitted deficits to about $17 million, the PATH deficit had grown to $24.9 million. In accordance with a stipulation of the parties, id., at 682a-683a, the trial court found that the PATH deficit so exceeded the covenant‘s level of permitted deficits that the Port Authority was unable to issue bonds for any new passenger railroad facility that was not self-supporting. 134 N. J. Super., at 163 n. 26, 338 A. 2d, at 855 n. 26.10
F. Prospective Repeal of the Covenant. Governor Cahill of New Jersey and Governor Rockefeller of New York in April 1970 jointly sought increased Port Authority participation in mass transit. In November 1972 they agreed upon a
G. Retroactive Repeal of the Covenant. It soon developed that the proposed PATH expansion would not take place as contemplated in the Governors’ 1972 plan. New Jersey was unwilling to increase its financial commitment in response to a sharp increase in the projected cost of constructing the Plainfield extension. As a result the anticipated federal grant was not approved. App. 717a.
New Jersey had previously prevented outright repeal of the 1962 covenant, but its attitude changed with the election of a new Governor in 1973. In early 1974, when bills were pending in the two States’ legislatures to repeal the covenant
On April 10, 1975, the Port Authority announced an increase in its basic bridge and tunnel tolls designed to raise an estimated $40 million annually. App. 405a-407a, 419a-421a, 528a. This went into effect May 5 and was, it was said, “[t]o increase [the Port Authority‘s] ability to finance vital mass transit improvements.” Id., at 405a.
II
At the time the Constitution was adopted, and for nearly a century thereafter, the Contract Clause was one of the few express limitations on state power. The many decisions of
Home Building & Loan Assn. v. Blaisdell, 290 U. S. 398 (1934), is regarded as the leading case in the modern era of Contract Clause interpretation. At issue was the Minnesota Mortgage Moratorium Law, enacted in 1933, during the depth of the Depression and when that State was under severe economic stress, and appeared to have no effective alternative. The statute was a temporary measure that allowed judicial extension of the time for redemption; a mortgagor who remained in possession during the extension period was required to pay a reasonable income or rental value to the mortgagee. A closely divided Court, in an opinion by Mr. Chief Justice Hughes, observed that “emergency may furnish the occasion for the exercise of power” and that the “constitutional question presented in the light of an emergency is whether the power possessed embraces the particular exercise of it in response to particular conditions.” Id., at 426. It noted that the debates in the Constitutional Convention were of little aid in the construction of the Contract Clause, but that the general purpose of the Clause was clear: to encourage trade and credit by promoting confidence in the stability of contractual obligations. Id., at 427-428. Nevertheless, a State “continues to possess authority to safeguard the vital interests of its people. . . . This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court.” Id., at 434-435. The great clauses of the Constitution are to be considered in the
This Court‘s most recent Contract Clause decision is El Paso v. Simmons, 379 U. S. 497 (1965). That case concerned a 1941 Texas statute that limited to a 5-year period the reinstatement rights of an interest-defaulting purchaser of land from the State. For many years prior to the enactment of that statute, such a defaulting purchaser, under Texas law, could have reinstated his claim to the land upon written request and payment of delinquent interest, unless rights of third parties had intervened. This Court held that “it is not every modification of a contractual promise that impairs the obligation of contract under federal law.” Id., at 506-507. It observed that the State “has the ‘sovereign right . . . to protect the . . . general welfare of the people‘” and “‘we must respect the “wide discretion on the part of the legislature in determining what is and what is not necessary,“‘” id., at 508-509, quoting East New York Savings Bank v. Hahn, 326 U. S. 230, 232-233 (1945). The Court recognized that “the power of a State to modify or affect the obligation of contract is not without limit,” but held that “the objects of the Texas statute make abundantly clear that it impairs no protected right under the Contract Clause.” 379 U. S., at 509.
Both of these cases eschewed a rigid application of the Contract Clause to invalidate state legislation. Yet neither indicated that the Contract Clause was without meaning in modern constitutional jurisprudence, or that its limitation on state power was illusory. Whether or not the protection of contract rights comports with current views of wise public policy, the Contract Clause remains a part of our written Constitution. We therefore must attempt to apply that constitutional provision to the instant case with due respect for its purpose and the prior decisions of this Court.
We first examine appellant‘s general claim that repeal of the 1962 covenant impaired the obligation of the States’ contract with the bondholders. It long has been established that the Contract Clause limits the power of the States to modify their own contracts as well as to regulate those between private parties. Fletcher v. Peck, 6 Cranch 87, 137-139 (1810); Dartmouth College v. Woodward, 4 Wheat. 518 (1819). Yet the Contract Clause does not prohibit the States from repealing or amending statutes generally, or from enacting legislation with retroactive effects.13 Thus, as a preliminary matter, appellant‘s claim requires a determination that the repeal has the effect of impairing a contractual obligation.
In this case the obligatiоn was itself created by a statute, the 1962 legislative covenant. It is unnecessary, however, to dwell on the criteria for determining whether state legislation gives rise to a contractual obligation.14 The trial court
found, 134 N. J. Super., at 183 n. 38, 338 A. 2d, at 866 n. 38, and appellees do not deny, that the 1962 covenant constituted a contract between the two States and the holders of the Consolidated Bonds issued between 1962 and the 1973 prospective repeal.15 The intent to make a contract is clear from the statutory language: “The 2 States covenant and agree with each other and with the holders of any affected bonds . . . .” 1962 N. J. Laws, c. 8, § 6; 1962 N. Y. Laws, c. 209, § 6. Moreover, as the chronology set forth above reveals, the purpose of the covenant was to invoke the constitutional protection of the Contract Clause as security against repeal. In return for their promise, the States received the benefit they bargained for: public marketability of Port Authority bonds to finance construction of the World Trade Center and acquisition of the Hudson & Manhattan Railroad. We therefore have no doubt that the 1962 covenant has been properly characterized as a contractual obligation of the two States.
The parties sharply disagree about the value of the 1962
In any event, the question of valuation need not be resolved in the instant case because the State has made no effort to compensate the bоndholders for any loss sustained by the repeal.16 As a security provision, the covenant was not superfluous; it limited the Port Authority‘s deficits and thus protected the general reserve fund from depletion. Nor was the covenant merely modified or replaced by an arguably comparable security provision. Its outright repeal totally eliminated an important security provision and thus impaired the obligation of the States’ contract. See Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co., 300 U. S. 124, 128-129 (1937).17
The trial court recognized that there was an impairment in this case: “To the extent that the repeal of the covenant authorizes the Authority to assume greater deficits for such”
purposes, it permits a diminution of the pledged revenues and reserves and may be said to constitute an impairment of the states’ contract with the bondholders.” 134 N. J. Super., at 183, 338 A. 2d, at 866.Having thus established that the repeal impaired a contractual obligation of the States, we turn to the question whether that impairment violated the Contract Clause.
IV
Although the
The trial court concluded that repeal of the 1962 covenant was a valid exercise of New Jersey‘s police power because repeal served important public interests in mass transportation, energy conservation, and environmental protection. 134 N. J. Super., at 194-195, 338 A. 2d, at 873. Yet the
The States must possess broad power to adopt general regulatory measures without being concerned that private contracts will be impaired, or even destroyed, as a result. Otherwise, one would be able to obtain immunity from state regulation by making private contractual arrangements. This principle is summarized in Mr. Justice Holmes’ well-known dictum: “One whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the State by making a contract about them.” Hudson Water Co. v. McCarter, 209 U. S. 349, 357 (1908).18
Yet private contracts are not subject to unlimited modification under the police power. The Court in Blaisdell recognized that laws intended to regulate existing contractual relationships must serve a legitimate public purpose. 290 U. S., at 444-445. A State could not “adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them.” Id., at 439. Legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption. Id., at 445-447.19 As is customary in reviewing economic and social
When a State impairs the obligation of its own contract, the reserved-powers doctrine has a different basis. The initial inquiry concerns the ability of the State to enter into an agreement that limits its power to act in the future. As early as Fletcher v. Peck, the Court considered the argument that “one legislature cannot abridge the powers of a succeeding legislature.” 6 Cranch, at 135. It is often stated that “the legislature cannot bargain away the police power of a State.” Stone v. Mississippi, 101 U. S. 814, 817 (1880).20 This doctrine requires a determination of the State‘s power to create irrevocable contract rights in the first place, rather than an inquiry into the purpose or reasonableness of the subsequent impairment. In short, the
In deciding whether a State‘s contract was invalid ab initio under the reserved-powers doctrine, earlier decisions relied on distinctions among the various powers of the State. Thus, the
The instant case involves a financial obligation and thus as a threshold matter may not be said automatically to fall
Of course, to say that the financial restrictions of the 1962 covenant were valid when adopted does not finally resolve this case. The
The trial court recognized to an extent the special status of a State‘s financial obligations when it held that total repudiation, presumably for even a worthwhile public purpose, would be unconstitutional. But the trial court regarded the protection of the
The trial court‘s “total destruction” test is based on what we think is a misreading of W. B. Worthen Co. v. Kavanaugh, 295 U. S. 56 (1935).26 In the first place, the impairment held
The only time in this century that alteration of a municipal bond contract has been sustained by this Court was in Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U. S. 502 (1942). That case involved the New Jersey Municipal Finance Act, which provided that a bankrupt local government could be placed in receivership by a state agency. A plan for the composition of creditors’ claims was required to be approved by the agency, the municipality, and 85% in amount of the creditors. The plan would be binding on nonconsenting creditors after a state court conducted a hearing and found that the municipality could not otherwise pay off its creditors and that the plan was in the best interest of all creditors. Id., at 504.
It is clear that the instant case involves a much more serious impairment than occurred in Faitoute. No one has suggested here that the States acted for the purpose of benefiting the bondholders, and there is no serious contention that the value of the bonds was enhanced by repeal of the 1962 covenant. Appellees recognized that it would have been impracticable to obtain consent of the bondholders for such a change in the 1962 covenant, Brief for Appellees 97-98, even though only 60% approval would have been adequate. See n. 10, supra. We therefore conclude that repeal of the 1962 covenant cannot be sustained on the basis of this Court‘s prior decisions in Faitoute and other municipal bond cases.
V
Mass transportation, energy conservation, and environmental protection are goals that are important and of legitimate public concern. Appellees contend that these goals are so
The more specific justification offered for the repeal of the 1962 covenant wаs the States’ plan for encouraging users of private automobiles to shift to public transportation. The States intended to discourage private automobile use by raising bridge and tunnel tolls and to use the extra revenue from those tolls to subsidize improved commuter railroad service. Appellees contend that repeal of the 1962 covenant was necessary to implement this plan because the new mass transit facilities could not possibly be self-supporting and the covenant‘s “permitted deficits” level had already been exceeded. We reject this justification because the repeal was neither necessary to achievement of the plan nor reasonable in light of the circumstances.
The determination of necessity can be considered on two levels. First, it cannot be said that total repeal of the cov-
We also cannot conclude that repeal of the covenant was reasonable in light of the surrounding circumstances. In this regard a comparison with El Paso v. Simmons, supra, again is instructive. There a 19th century statute had effects that were unforeseen and unintended by the legislature when originally adopted. As a result speculators were placed in a position to obtain windfall benefits. The Court held that adoption of a statute of limitation was a reasonable means to “restrict a party to those gains reasonably to be expected from the contract” when it was adopted. 379 U. S., at 515.30
By contrast, in the instant case the need for mass transportation in the New York metropolitan area was not a new development, and the likelihood that publicly owned commuter railroads would produce substantial deficits was well known. As early as 1922, over a half century ago, there were pressures to involve the Port Authority in mass transit. It was with
During the 12-year period between adoption of the covenant and its repeal, public perception of the importance of mass transit undoubtedly grew because of increased general concern with environmental protection and energy conservation. But these concerns were not unknown in 1962, and the subsequent changes were of degree and not of kind. We cannot say that these changes caused the covenant to have a substantially different impact in 1974 than when it was adopted in 1962. And we cannot conclude that the repeal was reasonable in the light of changed circumstances.
We therefore hold that the
It is so ordered.
MR. JUSTICE STEWART took no part in the decision of this case.
MR. JUSTICE POWELL took no part in the consideration or decision of this case.
MR. CHIEF JUSTICE BURGER, concurring.
In my view, to repeal the 1962 covenant without running afoul of the constitutional prohibition against the impairment of contracts, the State must demonstrate that the impairment was essential to the achievement of an important state purpose. Furthermore, the State must show that it did not know and could not have known the impact of the contract on that state interest at the time that the contract was made. So reading the Court‘s opinion, I join it.
MR. JUSTICE BRENNAN, with whom MR. JUSTICE WHITE and MR. JUSTICE MARSHALL join, dissenting.
Decisions of this Court for at least a century have construed the
I
The Court holds that New Jersey‘s repeal of the 1962 covenant constitutes an unreasonable invasion of contract rights and hence an impairment of contract. The formulation of
A
In an era when problems of municipal planning increasingly demand regional rather than local solutions, the Port Authority provides the New York-New Jersey community with a readymade, efficient regional entity encompassing some 1,500 square miles surrounding the Statue of Liberty. As the Court notes, from the outset public officials of both New York and New Jersey were well aware of the Authority‘s heavy dependence on public financing. Consequently, beginning in the decade prior to the enactment of the 1962 covenant, the Authority‘s general reserve bonds, its primary vehicle of public finance, have featured two rigid security devices designed to safeguard the investment of bondholders. First, pursuant to a so-called “1.3 test,” the Authority has been disabled from issuing new consolidated bonds unless the best one-year net revenues derived from all of the Authority‘s facilities at least equal 130% of the prospective debt service for the calendar year during which the debt service for all outstanding and proposed bonds would be at a maximum. Second, according to a procedure known as a “section 7 certifi-
The 1962 covenant existed alongside these security provisions. Viewed in simplest terms, the covenant served to preclude Authority investment and participation in transportation programs by shifting the financial focal point from the creditworthiness of the Authority‘s activities as a whole to the solvency of each proposed new transit project. Whereas the 1.3 and section 7 tests permit expanded involvement in mass transportation provided that the enormous revenue-generating potential of the Authority‘s bridges and tunnels aggregately suffice to secure the investments of creditors, the covenant effectively foreclosed participation in any new project that was not individually “self-supporting.”1 Both parties to this litigation are in apparent agreement that few functional mass transit systems are capable of satisfying this requirement.
Whether the 1962 New Jersey Legislature acted wisely in accepting this new restriction is, for me, quite irrelevant. What is important is that the passage of the years conclusively demonstrated that this effective barrier to the development
“The development of large-scale mass transit facilities and the expansion and modification of existing mass transit facilities is essential to any effort to reduce automotive pollution through reductions in vehicle use. The planning, acquisition, and operation of a mass transit system is, and should remain, a regional or State responsibility. Many improvements are being planned in mass transit facilities in the State that will make it possible for more people to use mass transit instead of automobiles.” 38 Fed. Reg. 31389 (1973).
Finally, the Court itself cites the
It was in response to these societal demands that the New Jersey and New York Legislatures repealed the 1962 covenant. The trial court found:
“In April 1970 Governors Cahill and Rockefeller announced a joint program to increase the Port Authority‘s role in mass transportation by building a rail link to John F. Kennedy International Airport and extending PATH [a commuter rail line under Authority control] to Newark International Airport and other parts of New Jersey.” 134 N. J. Super. 124, 168-169, 338 A. 2d 833, 858 (1975).
But, the court found, this expansion “was not economically feasible under the terms of the 1962 covenant.” Id., at 170, 338 A. 2d, at 859. Consequently, the States repealed the covenant. On signing the New York legislation, Governor Rockefeller stated:
“Passed with overwhelming bipartisan support in both houses of the Legislature, the bill removes the absolute statutory prohibition against the use of the revenues of the Port of New York Authority for railroad purposes. That statutory covenant, together with the provision of the bi-state compact creating the Authority that neither State will construct competing facilities within the Port District, could forever preclude the two states from undertaking vitally needed mass transportation projects. In removing the present restriction, the bill would not jeopardize the security of Port Authority bondholders or their rights to maintain that security.” Quoted ibid.
In following suit, New Jersey also expressly grounded its action upon the necessity of overturning “the restrictions imposed by the covenant [that] effectively preclude sufficient port authority participation in the development of a public transportation system in the port district. ” Id., at 172, 338
The Court‘s consideration of this factual background is, I believe, most unsatisfactory. The Court never explicitly takes issue with the core of New Jersey‘s defense of the repeal: that the State was faced with serious and growing environmental, energy, and transportation problems, and the covenant worked at cross-purposes with efforts at remedying these concerns. Indeed, the Court candidly concedes that the State‘s purposes in effectuating the 1974 repeal were “admittedly important.” Ante, at 29. Instead, the Court‘s analysis focuses upon related, but peripheral, matters.
For example, several hypothetical alternative methods are proposed whereby New Jersey might hope to secure funding for public transportation, and these are made the basis for a holding that repeal of the covenant was not “necessary.” Ante, at 29-31. Setting aside the propriety of this surprising legal standard,3 the Court‘s effort at fashioning its own legislative program for New York and New Jersey is notably unsuccessful. In fact, except for those proffered alternatives which also amount to a repeal or substantial modification of the 1962 covenant,4 none of the Court‘s suggestions is com-
Equally unconvincing is the Court‘s contention that repeal of the 1962 covenant was unreasonable because the environmental and energy concerns that prompted such action “were not unknown in 1962, and the subsequent changes were of degree and not of kind.” Ante, at 32. Nowhere are we told why a state policy, no matter how responsive to the general welfare of its citizens, can be reasonable only if it confronts issues that previously were absolutely unforeseen.9 Indeed,
B
If the Court‘s treatment of New Jersey‘s legitimate policy interests is inadequate, its consideration of the countervailing injury ostensibly suffered by the appellant is barely discernible at all. For the Court apparently holds that a mere “technical impairment” of contract suffices to subject New Jersey‘s repealer to serious judicial scrutiny and invalidation under the Contract Clause. Ante, at 21. The Court‘s modest statement of the economic injury that today attracts its judicial intervention is, however, understandable. For fairly read, the record before us makes plain that the repeal of the 1962 covеnant has occasioned only the most minimal damage on the part of the Authority‘s bondholders.
Obviously, the heart of the obligation to the bondholders—and the interests ostensibly safeguarded by the 1962 covenant—is the periodic payment of interest and the repayment of principal when due. The Court does not, and indeed cannot, contend that either New Jersey or the Authority has called into question the validity of these underlying obligations. No creditor complains that public authorities have defaulted on a coupon payment or failed to redeem a bond that has matured. In fact, the Court does not even offer any reason whatever for fearing that, as a result of the covenant‘s repeal, the securities in appellant‘s portfolio are jeopardized. Such a contention cannot be made in the face of the finding of the trial judge, who, in referring to the increasingly lucrative financial
“Suffice it to say that between 1962 and 1974 the security afforded bondholders had been substantially augmented by a vast increase in Authority revenues and reserves, and the Authority‘s financial ability to absorb greater deficits, from whatever source and without any significant impairment of bondholder security, was correspondingly increased.” 134 N. J. Super., at 194-195, 338 A. 2d, at 873
.10
By simply ignoring this unchallenged finding concerning the Authority‘s overall financial posture, the Court is able to argue that the repeal of the 1962 covenant impaired the Authority‘s bonds in two particular respects. First, it is suggested that repeal of the covenant may have adversely affected the secondary market for the securities. Ante, at 19. The Court, however, acknowledges that appellant has adduced only ambiguous evidence to support this contention, and that the actual price position of Authority bonds was, at most, only temporarily affected by the repeal. Ibid.11 In fact, the trial
“The bottom line of plaintiff‘s proofs on this issue is simply that the evidence fails to demonstrate that the secondary market price of Authority bonds was adversely affected by the repeal of the covenant, except for a short-term fall-off in price, the effect of which has now been dissipated insofar as it can be related to the enactment of the repeаl.” 134 N. J. Super., at 181-182, 338 A. 2d, at 866 (emphasis supplied).
Secondly, repeal of the covenant is said to have canceled an important security provision enjoyed by the creditors. Ante, at 19. Of course, there is no question that appellant prefers the retention to the removal of the covenant, but surely this alone cannot be an acceptable basis for the Court‘s wooden application of the Contract Clause or for its conclusion that the repeal unfairly diminished bondholder security. By placing reliance on this superficial allegation of economic injury, the Court again is able simply to disregard the trial court‘s contrary finding that appellant‘s complaint of insecurity is without factual merit:
“The claim that bondholder security has been materially impaired or destroyed by the repeal is simply not supported by the record. The pledge of the Authority‘s net revenues and reserves remains intact; the Authority will still be barred from the issuance of any new consolidated bonds unless the 1.3 test required by the CBR is met, and the Authority will continue to be prohibited from the
issuance of any consolidated bonds or other bonds secured by a pledge of the general reserve fund without the certification required by section 7 of the series resolutions, to wit, that in the opinion of the Authority the estimated expenditures in connection with any additional facility for which such bonds are to be issued would not, for the ensuing ten years, impair the sound credit standing of the Authority, the investment status of its consolidated bonds, or the Authority‘s obligations to its consolidated bondholders.” 134 N. J. Super., at 196, 338 A. 2d, at 874 (emphasis supplied).12
In brief, only by disregarding the detailed factual findings of the trial court in a systematic fashion is the Court today able to maintain that repeal of the 1962 covenant was anything but a minimal interference with the realistic economic interests of the bondholders. The record in this case fairly establishes that we are presented with a relatively inconsequential infringement of contract rights in the pursuit of substantial and important public ends. Yet, this meager record is seized upon by the Court as the vehicle for resuscitation of long discarded Contract Clause doctrine—a step out of line with both the history of Contract Clause jurisprudence and with constitutional doctrine generally in its attempt to delineate the reach of the lawmaking power of state legislatures in the face of adverse claims by property owners.
II
The Court today dusts off the Contract Clause and thereby undermines the bipartisan policies of two States that mani
One of the fundamental premises of our popular democracy is that each generation of representatives can and will remain responsive to the needs and desires of those whom they represent. Crucial to this end is the assurance that new legislators will not automatically be bound by the policies and undertakings of earlier days. In accordance with this philosophy, the Framers of our Constitution conceived of the Contract Clause primarily as protection for economic transactions entered into by purely private parties, rather than obligations involving the State itself. See G. Gunther, Constitutional Law 604 (1975); B. Schwartz, A Commentary On the Constitution of the United States, pt. 2, The Rights of Property 274 (1965); B. Wright, The Contract Clause of the Constitution 15-16 (1938).13 The Framers fully recognized that nothing would so jeopardize the legitimacy of a system of government that relies upon the ebbs and flows of politics to “clean out the rascals” than the possibility that those same rascals might perpetuate their policies simply by locking them into binding contracts.
Following an early opinion of the Court, however, that
This theme of judicial self-restraint and its underlying premise that a State always retains the sovereign authority to legislate in behalf of its people was commonly expressed by the doctrine that the Contract Clause will not even recognize efforts of a State to enter into contracts limiting the authority of succeeding legislators to enact laws in behalf of the health, safety, and similar collective interests of the polity 14—in
“We cannot doubt that the police power of the State was applicable and adequate to give an effectual remedy [to the nuisance]. That power belonged to the States when the Federal Constitution was adopted. They did not surrender it, and they all have it now. . . .
“. . . Pure air and the comfortable enjoyment of property are as much rights belonging to [the village residents] as the right of possession and occupancy. . . .
“The [company‘s] charter was a sufficient license until revoked; but we cannot regard it as a contract guaranteeing, in the locality originally selected, exemption for fifty years from the exercise of the police power of the State, however serious the nuisance might become in the future. . . .” Id., at 667, 669, 670.
Two years later, this principle of the Contract Clause‘s subservience to the States’ broad lawmaking powers was reasserted in another context. In 1867, the Mississippi Legislature entered into a contract with a company whereby the latter was chartered to operate a lottery within the State “in consideration of a stipulated sum in cash. . . .” The next year the State adopted a constitutional provision abolishing lotteries. The Court once again unhesitantly dismissed a challenge to this provision grounded on the Contract Clause, Stone v. Mississippi, 101 U. S. 814, 817-818 (1880):
“Irrevocable grants of property and franchises may be made if they do not impair the supreme authority to make laws for the right government оf the State; but no legislature can curtail the power of its successors to make
such laws as they may deem proper in matters of police’ . . . No one denies . . . that [this legislative power] extends to all matters affecting the public health or the public morals.”
Later cases continued to read the Contract Clause as qualified by the States’ powers to legislate for the betterment of their citizens, while further expanding the range of permissible police powers. For example, in Atlantic Coast Line R. Co. v. Goldsboro, 232 U. S. 548 (1914), the State chartered and contracted with the plaintiff railway company to operate rail lines within the State. Pursuant to this contract, the railroad acquired in fee land for use as rights-of-way and similar transportation activities. The Court recognized that the charter was a binding contract, and that the company, in reliance on the agreement, had acquired land which it enjoys as “complete and unqualified” owner. Id., at 556, 558. Yet, the Court brushed aside a constitutional challenge to subsequent ordinances that greatly circumscribed the railroad‘s activities on its own land:
“For it is settled that neither the ‘contract’ clause nor the ‘due process’ clause has the effect of overriding the power of the State to establish all regulations that are reasonably necessary to secure the health, safety, good order, comfort, or general welfare of the community; that this power can neither be abdicated nor bargained away, and is inalienable even by express grant; and that all contract and property rights are held subject to its fair exercise.” Id., at 558.
In perfect conformity with these earlier cases that recognized the States’ broad authority to legislate for the welfare of their citizens, New Jersey and New York sought to repeal the 1962 covenant in furtherance of “admittedly important” interests, ante, at 29, in environmental protection, clean air, and safe and efficient transportation facilities. The States’ policy of deploying excess tolls for the maintenance and ex
“are . . . clearly unreasonable and arbitrary . . . [And in applying this standard] [u]ndoubtedly the city, acting as the arm of the State, has a wide discretion in determining what precautions in the public interest are necessary or appropriate under the circumstances.” New Orleans Pub. Serv., supra, at 686.
Nor is the Court‘s reading of earlier constitutional doctrine aided by cases where the Contract Clause was held to forestall state efforts intentionally to withhold from creditors the unpaid interest on, Von Hoffman v. City of Quincy, 4 Wall. 535 (1867), or principal of, Louisiana ex rel. Hubert v. New Orleans, 215 U. S. 170 (1909); Wolff v. New Orleans, 103 U. S. 358 (1881), outstanding bonded indebtedness. Beyond dispute, the Contract Clause has come to prohibit a State from embarking on a policy motivated by a simple desire to escape its financial obligations or to injure others through “the repudiation of debts or the destruction of contracts or the denial of means to enforce them.” Home Bldg. & Loan Assn. v. Blaisdell, supra, at 439. Nor will the Constitution permit
“The question is . . . whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to that end.” Home Bldg. & Loan Assn. v. Blaisdell, supra, at 438.
The Court, however, stands the Contract Clause completely on its head, see supra, at 45, and both formulates and strictly applies a novel standard for reviewing a State‘s attempt to relieve its citizens from unduly harsh contracts entered into by earlier legislators:16 Such “an impairment may be con
Mr. Justice Cardozo‘s opinion in W. B. Worthen Co. v. Kavanaugh, 295 U. S. 56 (1935), is the prime exposition of the
In the present case, the trial court expressly applied the Kavanaugh standard to New Jersey‘s repeal of the covenant, and properly found appellant‘s claim to be wanting in all material respects: In a detailed and persuasive discussion, the court concluded that neither New Jersey nor New York repealed the covenant with the intention of damaging their creditors’ financial position. Rather, the States acted out of “vital interest[s],” for “[t]he passage of time and events between 1962 and 1974 satisfied the Legislatures of the two states that the public interest which the Port Authority was intended to serve could not be met within the terms of the covenant.” 134 N. J. Super., at 194, 338 A. 2d, at 873. And the creditors’ corresponding injury did not even remotely reach that proscribed in Kavanaugh: Not only have Authority bonds remained “an ‘acceptable investment,‘” but “[t]he claim that bondholder security has been materially impaired or destroyed by the repeal is simply not supported by the record.” Id., at 196, 338 A. 2d, at 874.
The Court, as I read today‘s opinion, does not hold that
“[w]here the respective parties are not private persons . . . but are persons or corporations whose rights and powers were created for public purposes, by legislative acts, and where the subject-matter of the contract is one which affects the safety and welfare of the public.” Id., at 514 n. 2, quoting Chicago, B. & Q. R. Co. v. Nebraska, 170 U. S., at 72.
In my view, the fact that New Jersey‘s repeal of the 1962 covenant satisfies the constitutional standards defined in Kavanaugh and Faitoute should, as the state courts concluded, terminate this litigation. But even were I to agree that the test
“The Blaisdell opinion, which amounted to a comprehensive restatement of the principles underlying the application of the Contract Clause, makes it quite clear that ‘[n]ot only is the constitutional provision qualified by the measure of control which the State retains over remedial processes, but the State also continues to possess authority to safeguard the vital interests of its people. It does not matter that legislation appropriate to that end “has the result of modifying or abrogating contracts already in effect.” . . .’ ‘Once we are in this domain of the reserve power of a State we must respect the “wide discretion on the part of the legislature in determining what is and what is not necessary.“‘”
By the same token, if unforeseeability is the key to a “reasonable” decision, as the Court now contends, ante, at 32, almost all prior cases again must be repudiated. Surely the legislators of Illinois could not convincingly have claimed surprise because a fertilizer company polluted the air and transported fertilizer to its factory, Fertilizing Co. v. Hyde Park, supra. Nor was it unforeseeable to Mississippi that a corporation which was expressly chartered to operate a lottery, in fact, did so, Stone v. Mississippi, 101 U. S. 814 (1880). And, of course, it was “not unknown,” ante, at 32, to either debtor or creditor that a municipality‘s financial condition might falter as in Faitoute Iron & Steel Co. v. City of Asbury Park, supra; indeed, the foreseeability of that very risk inheres in the process of selecting an appropriate coupon rate. Yet, in all these instances this Court did not cоnstrue the Contract Clause to prevent the States from confronting their real problems if and when their legislators came to believe that such action was warranted. It is not our province to contest the “reasonable judgments” of the duly authorized decisionmakers. Knebel v. Hein, supra, at 297.
Thus, as I had occasion to remark only last Term, the Court again offers a constitutional analysis that rests upon “abstraction [s] without substance,” National League of Cities v. Usery, 426 U. S. 833, 860 (1976) (dissenting opinion). Given that this is the first case in some 40 years in which this Court has seen fit to invalidate purely economic and social legislation on the strength of the Contract Clause, one may only hope that it will prove a rare phenomenon, turning on the Court‘s particularized appraisal of the facts before it. But there also is reason for broader concern. It is worth remembering that there is nothing sacrosanct about a contract. All property rights, no less than a contract, are rooted in certain “expectations” about the sanctity of one‘s right of ownership. Compare ante, at 19-21, n. 17, with J. Bentham, Theory of Legislation c. 8 (1911 ed.). And other constitutional doctrines are akin to the Contract Clause in directing their protections to the property interests of private parties. Hence the command of the Fifth Amendment that “private property [shall not] be taken for public use, without just compensation” also “remains a part of our written Constitution.” Ante, at 16. And during the heyday of economic due process associated with Lochner v. New York, 198 U. S. 45 (1905), and similar cases long since discarded, see Whalen v. Roe, supra, at 597, this Court treated “the liberty of contract” under the Due Process Clause as virtually indistinguishable from the Contract Clause. G. Gunther Constitutional Law, 603-604 (1975); Hale, The Supreme Court and the Contract Clause: III, 57 Harv. L. Rev. 852, 890-891 (1944). In more recent times, however, the Court wisely has come to embrace a coherent, unified interpretation of all such constitutional provisions, and has granted wide latitude to “a valid exercise of [the States‘] police powers,” Goldblatt v. Hempstead, 369 U. S. 590, 592 (1962), even if it results in severe violations of property rights. See Pittsburgh v. Alco Parking Corp., 417 U. S. 369 (1974); Sproles v. Binford, 286 U. S. 374, 388-389 (1932); Miller v. Schoene, 276 U. S. 272, 279-280 (1928); cf. Williamson v. Lee Optical Co., 348 U. S. 483, 488 (1955). If today‘s case signals a return to substantive constitutional review of States’ policies, and a new resolve to protect property owners whose interest or circumstances may happen to appeal to Members of this Court, then more than the citizens of New Jersey and New York will be the losers.
III
I would not want to be read as suggesting that the States should blithely proceed down the path of repudiаting their obligations, financial or otherwise. Their credibility in the credit market obviously is highly dependent on exercising their vast lawmaking powers with self-restraint and discipline, and I, for one, have little doubt that few, if any, jurisdictions would choose to use their authority “so foolish[ly] as to kill a goose that lays golden eggs for them,” Erie R. Co. v. Public Util. Comm‘rs, 254 U. S., at 410. But in the final analysis, there is no reason to doubt that appellant‘s financial welfare is being adequately policed by the political processes and the
Notes
The two States subsequently took steps to protect the Port Authority‘s financial integrity. See, for example, the 1925 statutory declarations not to authorize the construction of competitive bridges within the district or to limit the right of the Port Authority to levy such charges and tolls as it deemed necessary to produce revenues to fund its bonds. 1925 N. J. Laws, c. 37, § 5; 1925 N. Y. Laws, c. 210, § 5. Cf. Friends of the Earth v. Carey, 552 F. 2d 25 (CA2 1977); Friends of the Earth v. Carey, 535 F. 2d 165 (CA2 1976); Friends of the Earth v. EPA, 499 F. 2d 1118 (CA2 1974).“Under the terms of the Compact the power to levy taxes or to pledge the credit of either state was expressly withheld from the Authority. From its inception, with the exception of monies advanced as loans by the states, the Authority was required to finance its facilities solely with money borrowed from the public and to be repaid out of the revenues derived from its operations. By reason of these finаncial limitations two concepts initially emerged which have played an important role in the realization of the purposes for which the Authority was created: first, the specific projects undertaken by the Authority should be self-supporting, i. e., the revenues of each should be sufficient to cover its operating expenses and debt service requirements; and second, since the Authority is a public agency over which its creditors have no direct control, the bondholders should be protected by covenants with the Authority and with the states which have ultimate control over its operations.” 134 N. J. Super. 124, 139-140, 338 A. 2d 833, 841 (1975).
Thus, if toll funds cannot be diverted to rapid transit needs, any increase in bridge revenues necessarily would produce an expansion of the Authority‘s general reserve fund well beyond that necessary or contemplated for the protection of bondholders. Faced with such a mere accumulation of capital, the Federal Highway Administrator, acting under“[I]t has been a great disappointment to me to find that the opposition of the railroads has prevented to date the making of real progress in working out the program of freight distribution in the port which always has been the main object and purpose of the Port of New York Authority. I am satisfied that the Port Authority should stick to this program and I am entirely unwilling to give my approval to any measure which at the expense of the solution of the great freight distribution problem will set the Port Authority off on an entirely new line of problem connected with the solution of the suburban passenger problem.” App. 573a-574a.
The parties, however, are in disagreement as to the actual and proper fiscal policy of the Port Authority. Appellant claims that each facility should have prospects of producing sufficient revenue to support itself. Appellees’ position is apparent from their assertion that although the self-supporting-facility concept may have “initially emerged,” as the trial court stated, 134 N. J. Super., at 140, 338 A. 2d, at 841, “the concept had no practical significance because it was not attained prior to 1931 and was unnecessary after 1931,” with the establishment of the general reserve fund. Brief for Appellees 7.
The trial court observed that upon the adoption of the Consolidated Bonds Resolution in 1952, the self-supporting-facility concept “ceased to have the significance previously attached to it.” 134 N. J. Super., at 143, 338 A. 2d, at 843.
See, e. g., n. 7, supra. In short, all the alternatives that the Court leaves to the States, ante, at 30 n. 29, deny access to the Authority‘s tolls, even though they represent a potentially lucrative revenue source which can be tapped without injury to the bondholders. See Part B, infra.to serve rapid transit needs should qualify as “reasonable and just,” and, therefore, would be capable of supporting a general increase in toll revenues. Ibid. This is in stark contrast with the Court‘s suggested alternative policies outlined ante, at 30 n. 29, which would permit no general increase in bridge tolls and no coordination of the bridge toll and transit subsidization strategies that are central to the antipollution effort in metropolitan New York, and, therefore, until today, have been considered secondary and inadequate to serve the community‘s needs.
Earlier in 1972 the New York Legislature had enacted, and the Governor had signed, a bill repealing the 1962 covenant in its entirety. 1972 N. Y. Laws, c. 1003. New Jersey did not adopt the necessary complementary legislation at that time. The 1973 amendment to the New York legislation, noted in the text, was then enacted to conform to the New Jersey statute.
Indeed, one of the anomalous aspects of this suit is the Court‘s willingness to invalidate an Act of the State of New Jersey, and indirectly of New York, while apparently recognizing that if this were an action by creditors for damages, or an action to fix “just compensation,” the trial court‘s findings raise serious doubt that any compensable monetary loss would be found. Ante, at 19. By sidestepping the damages question, ibid., and by mandating reinstatement of the covenant, the Court manages to burden the Port Authority with an unwanted contract, while relieving the creditor-appellant of the need to establish any tangible economic injury arising from the covenant‘s repeal. This suggests that any protection afforded bondholders today may well prove to be purely illusory. Even after the mandate issues, New Jersey, we are told, may again condemn or repeal the covenant and offer just compensation to its creditors. See ante, at 29 n. 27. However, in light of the trial court‘s factual conclusions, this promise of compensation will entitle bondholders to little or no financial recovery.The fundamental soundness of the Authority‘s bonds is reflected in the ratings received from the principal financial surveys, Moody‘s and Standard & Poor‘s, following repeal of the covenant. The trial court found: “The bonds carried the same [“A“] rating prior to the enactment of the covenant, after it was enacted, after it was prospectively repealed, and after the [retroactive] repeal act of 1974.” 134 N. J. Super., at 179, 338 A. 2d, at 864.“It is with great reluctance that I approve a bill that overturns a solemn pledge of the State. I take this extraordinary step only because it will lead to an end of the existing controversy over the validity of the statutory covenant, a controversy that can only have an adverse affect [sic] upon the administration and financing of the Port Authority, and because it will lead to a speedy resolution by the courts of the questions and issues concerning the validity of the statutory covenant. Because it is the province of the courts to decide questions of constitutionality, I will not prevent the covenant issue from being brought before them, especially where it is the unanimously expressed desire of the members of both houses of the New York State Legislature as well as the expressed will of the Governor and both houses of the Legislature of the State of New Jersey to do so.” App. 774a.
Along these lines, it is noteworthy that the state law of New Jersey itself raises serious doubts concerning the reasonableness of appellant‘s reliance on the covenant for permanent protection from later laws enacted by the state legislature. In a case involving an alleged impairment of a township‘s municipal bonds, Hourigan v. North Bergen Township, 113 N. J. L. 143, 149, 172 A. 193, 196 (1934), the State‘s highest court declared: “It is a well established doctrine that the interdiction of statutes impairing the obligation of contracts does not prevent the state from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general good of the public, though contracts entered into between individuals may thereby be affected. This power, which in its various ramifications is known as the police power, is an exercise of the sovereign right of the government to protect the lives, health, morals, comfort and general welfare of the people, and is paramount to any rights under contracts between individuals. While this power is subject to limitations in certain cases, there is wide discretion on the part of the legislature in determining what is and what is not necessary—a discretion which courts ordinarily will not interfere with.” In my view, therefore, appellant should be held to have purchased the Authority‘s bonds subject to the knowledge that under New Jersey law the State‘s obligation was conditionally undertaken subject to reasonable future legislative action.
The record raises similar doubts and ambiguities. Thus, State Senator Farley, who chaired the committee that inquired into the status of the Authority‘s bonds prior to enactment of the covenant, noted: “[W]e well appreciate that . . . we could not impair any obligation such as contracts of bond issues. Likewise, you [Commissioner Clancy of the Port Authority] as a lawyer know that one legislature cannot bind the other involving policy five, ten, or twenty years hence.” App. 89a (emphasis supplied). It may well be that appellant subjectively believed that the covenant was unimpeachable under state law. But given the doubts and hesitancies contained in the record, the principles established in earlier cases extending back to John Marshall should require that such “doubt is fatal to [appellant‘s] claim.” Fertilizing Co., supra, at 666.
In any event, in addition to resting on a most dubious conception of sovereignty, the Court‘s effort to demonstrate that the States are free to contract away their taxing and spending powers and hence free “to enter into effective financial contracts” notwithstanding later exercises of the police power—must fail because it is untenable. While it is true that New Jersey v. Wilson, 7 Cranch 164 (1812) (Contract Clause precludes a legislature from repudiating a grant of tax exemption) has never explicitly been overruled, subsequent cases have almost uniformly avoided adherence to either its reasoning or holding. See, e. g., New York ex rel. Clyde v. Gilchrist, 262 U. S. 94 (1923); Seton Hall College v. South Orange, 242 U. S. 100 (1916); Rochester R. Co. v. Rochester, 205 U. S. 236 (1907); Wisconsin & M. R. Co. v. Powers, 191 U. S. 379 (1903); Morgan v. Louisiana, 93 U. S. 217 (1876). These cases appreciate, as today‘s decision does not, that the operative consideration for constitutional purposes is not whether a contract can or cannot be branded as “financial.” Rather, in adjudging the constitutionality of “an exercise of the sovereign authority of the State,” Seton Hall College, supra, at 106—be it financial or otherwise—the Contract Clause tolerates reasonable legislative Acts in the service of the broader interests of the society generally.
It is not always unconstitutional, however, for changes in statutory remedies to affect pre-existing contracts. During the early years when the Contract Clause was regarded as an absolute bar to any impairment, this result was reached by treating remedies in a manner distinct from substantive contract obligations. Thus, for example, a State could abolish imprisonment for debt because elimination of this remedy did not impair the underlying obligation. Penniman‘s Case, 103 U. S. 714 (1881); Mason v. Haile, 12 Wheat. 370 (1827); see Sturges v. Crowninshield, 4 Wheat. 122, 200-201 (1819).
Yet it was also recognized very early that the distinction between remedies and obligations was not absolute. Impairment of a remedy was held to be unconstitutional if it effectively reduced the value of substantive contract rights. Green v. Biddle, 8 Wheat. 1, 75-76, 84-85 (1823). See also Bronson v. Kinzie, 1 How. 311, 315-318 (1843); Von Hoffman v. City of Quincy, 4 Wall., at 552-554. More recent decisions have not relied on the remedy/obligation distinction, primarily because it is now recognized that obligations as well as remedies may be modified without necessarily violating the Contract Clause. El Paso v. Simmons, 379 U. S., at 506-507, and n. 9; Home Building & Loan Assn. v. Blaisdell, 290 U. S., at 429-435.
Although now largely an outdated formalism, the remedy/obligation distinction may be viewed as approximating the result of a more particularized inquiry into the legitimate expectations of the contracting parties. The parties may rely on the continued existence of adequate statutory remedies for enforcing their agreement, but they are unlikely to expect that state law will remain entirely static. Thus, a reasonable modification of statutes governing contract remedies is much less likely to upset
The Court‘s newly announced standard of review, like all such formulations, can merely hope to suggest the direction that a court‘s inquiry should take, and the relative weight to be afforded a constitutional right. But particular words like “reasonable” and “necessary” also are fused with special meaning, for judges have long experience in applying such standards to constitutional contexts. Reasonableness generally has signified the most relaxed regime of judicial inquiry. See, e. g., Dandridge v. Williams, 397 U. S. 471, 485 (1970) (“If the classification has some ‘reasonable basis,’ it does not offend the Constitution“). Contrariwise, the element of necessity traditionally has played a key role in the most penetrating mode of constitutional review. See e. g., Shapiro v. Thompson, 394 U. S. 618, 634 (1969) (a classification which burdens a fundamental constitutional right must be “necessary to promote a compelling governmental interest“). The Court‘s new test, therefore, represents a most unusual hybrid which manages to merge the two polar extremes of judicial intervention, see generally Gunther, Foreword: In Search of Evolving Doctrine on A Changing Court: A Model for a Newer Equal Protection, 86 Harv. L. Rev. 1, 8 (1972), into one synthesis. Plainly, courts are apt to face considerable confusion in wielding such a schizophrenic new instrument. And well they might, for until today one would have fairly thought that as a matter of common sense as well as doctrine, state policies that are “necessary to serve an important public purpose,” ante, at 25, a fortiori would be “reasonable.”The Court, however, seems to discover new meanings in these terms. “Necessary” appears to comport with some notion of a less restrictive alternative. As applied by the Court in this instance, however, the less restrictive alternative bears no relationship to previous uses of that analytical tool when economic and social matters were involved. Thus, the Court does not actually inquire whether “the government can achieve the purposes of the challenged regulation equally effectively by one or more narrower regulations.” Struve, The Less-Restrictive-Alternative Principle and Economic Due Process, 80 Harv. L. Rev. 1463 (1967). Rather, the Court concludes that an impairment of contract was not “necessary” because the Court apparently is able to hypothesize other means of achieving some or all of the State‘s objectives, even though these alternatives have long been deemed as secondary in importance, nn. 7, 8, supra, or arguably are unconstitutional, ante, at 30 n. 28. Under this approach, few, if any, Contract Clause cases in history that have deferred to state policymaking have been correctly decided. See infra, at 59.
The “reasonableness” test does no better. No longer does it mean that this Court will defer to the “reasonable judgments” of the authorized policymakers. Knebel v. Hein, 429 U. S. 288, 297 (1977). Instead, the Court appears to ask whether changed circumstances took the state legislature by surprise, ante, at 31-32. Again, I find no basis in this Court‘s prior cases for adopting such a constrictive view of that constitutional test. See infra, at 59-60.
By contrast, the doctrine that a State cаnnot contract away the power of eminent domain has been established since West River Bridge Co. v. Dix, 6 How. 507 (1848). See Contributors to Pennsylvania Hospital v. Philadelphia, 245 U. S. 20, 23-24 (1917). The doctrine that a State cannot be bound to a contract forbidding the exercise of its police power is almost as old. See n. 20, supra.
A number of cases have held that a State may not authorize a municipality to borrow money and then restrict its taxing power so that the debt cannot be repaid. Louisiana ex rel. Hubert v. New Orleans, 215 U. S. 170, 175-178 (1909); Wolff v. New Orleans, 103 U. S. 358, 365-368 (1881);
See also Wood v. Lovett, 313 U. S. 362 (1941); Indiana ex rel. Anderson v. Brand, 303 U. S. 95 (1938).
“The truth is, States and cities, when they borrow money and contract to repay it with interest, are not acting as sovereignties. They come down to the level of ordinary individuals. Their contracts have the same meaning as that of similar contracts between private persons. Hence, instead of there being in the undertaking of a State or city to pay, a reservation of a sovereign right to withhold payment, the contract should be regarded as an assurance that such a right will not be exercised. A promise to pay, with a reserved right to deny or change the effect of the promise, is an absurdity.” Murray v. Charleston, 96 U. S. 432, 445 (1878).