The Supreme Court yesterday curbed the power of a state to back out of a contract with a private party in order to protect health, safety or other public interests.
The 4-to-3 decision invalidated parallel laws that New Jersey and New York enacted in 1974 to enable the Port of New York Authority to develop rail rapid transit and thus conserve fuel and ease air polluton.
The laws repealed retroactively a 1962 legislated covenant in which the two states had sought to enhance the ability of the authority to attract private investors. The covenant had barred the use of bridge toll and other revenues for mass transportation projects at least until the year 2007.
Its purpose was to reassure lenders these revenues would be available for paying off loans.
In ruling for the United States Trust Co., which held $296 million in authority bonds, a four-member majority led by Justice Harry A. Blackmun relied on the Constitution's seldom-invoked contract clause. It says, "No state shall . . . pass any . . . law impairing the obligation of contracts . . ."
Three dissenting justices said that the decision - the first "in some 40 years . . . to invalidate purely economic and social legislation on the strength of the contract clause" - creates "interference in political decision-making.
"If today's case signals return to substantive constitutional review of states" policies and a new resolve to protect property owners whose interest of 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." Justice William J. Brennan Jr. wrote, Justices Byron R. White and Thurgood Marshall joined in the dissenting opinion.
The 1962 statutory covenant followed the port authority's takeover of the debt-ridden Hudson & Manhattan Railroad commuter system. It was intended to put a cap on mass transit deficits so as-to-promote continued investor confidence in the authority.
The 1974 repeal followed efforts by the governors of New Jersey and New York to increase participation in mass transit and the enactment of federal emergency energy legislation.
The outright repeal "totally eliminated an important security provision and thus impaired obligation of the states' contract," Blackmun said, writing for himself. Chief Justice Warren E. Burger and Justices William E. Rehnquist and John Paul Stevens. He said the impairment could be upheld of it was "both reasonable and necessary" in encouraging a shift from cars to transit. But, he said, the states could have accomplished this by other means - for example, raising gasoline and parking taxes and using the revenues for transit.
Dissenting Justice Brennan said the decision rejects a century of court interpretations of the contract clause, remolds it "into a potent instrument for overseeing determinations of the state legislature," and "by creating a constitutional safe haven for property rights embodied in a contract, substantially distorts modern constitutional jurisprudence governing regulation of private economic interests."
He noted that there is no evidence that the 1974 laws jeopardized the bondholders.