United States Trust Co. of New York v. Jersey, 431 U.S. 1 (1977)

The covenant does enable the Authority to finance passenger railroad facilities to a level of “permitted deficits,” defined as one-tenth of the General Reserve Fund or 1% of the total bonded indebtedness. While the Court notes in passing that this provision “permitted, and perhaps even contemplated, additional Port Authority involvement in deficit rail mass transit,” ante, at 11, the formula restricts the Authority to a small percentage of the fund, even though aggregate reserves and revenues may far exceed expenses and creditor claims. In any event, the parties have stipulated that as a practical matter the Authority has been unable to expand its involvement in rapid transit by reliance on this alternative formula. App. 692a.

The 1962 covenant does not merely bind the Authority’s hands for the decades of the 1960’s and 1970’s. Rather, the covenant will preclude the deployment of the Authority’s toll revenues to public transit needs until all the bonds previously issued under the covenant have been retired. Appellant trust company advises that the covenant thus continues “as a practical matter until the year 2007,” Brief for Appellant 24, even if now repealed prospectively as suggested ante, at 18 n. 15.

See, e. g., infra, at 59, and n. 17.

See ante, at 30 n. 28. I am puzzled whether the Court really intends these alternatives to be taken seriously in view of the footnote’s closing reminder that even these "lesser impairments” also may be found to be unconstitutional. If the Court, in fact, means that New Jersey and New York could remedy any Contract Clause defects merely by modifying their repeal of the 1962 covenant so as to limit transit subsidization solely to future toll increases — the policy that is being followed by the States in actual practice — then today’s decision would be rendered into a temporary formalism.

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).

Because cars entering or leaving Manhattan must pass over bridges or through tunnels, the regulation of tolls offers an unusually convenient and effective method of discouraging automobile usage in addition to promising a highly lucrative revenue base.

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 § 503 of the General Bridge Act of 1946, 33 U. S. C. § 526, evidently would be obligated to disallow any toll increases as not “reasonable and just” under the Act. See generally Delaware River Port Authority v. Tiemann, 531 F. 2d 699 (CA3 1976). The United States Department of Transportation, however, has stated that “in some areas (New York, Philadelphia, San Francisco), bridge toll revenues provide significant support for transit capital and/or operating costs, thereby providing transit service improvements which promote decreased dependence on automobile travel.” App. 726a-727a. The Department has recommended that a diversion of funds *40to 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.

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.

Indeed, the Court’s single-minded emphasis on the existence of changed circumstances leads it to embrace a rather perverse constellation of values in which New Jersey’s desire to care for the health, environmental, and energy needs of its citizenry is relegated to lesser importance than the desire of Texas in El Paso v. Simmons, 379 U. S. 497 (1965), to deny windfall economic gains to purchasers of school land from the State. Ante, at 31. I, of course, do not dispute the importance of Texas’ stake in Simmons. But surely any reasonable ordering of values and social objectives would'compel the conclusion that a State’s concern for its citizens’ health and general welfare is far more deserving of this Court’s recognition.

The court found: “Between 1961 and 1973 the net revenues of the Authority increased from $68,000,000 to $137,000,000, and over that period the Authority had available to it $582,732,000 in excess of its debt service requirements .... Through 1974, the corresponding figures are $161,283,000 and $649,750,000, respectively.” 134 N. J. Super., at 195 n. 43, 338 A. 2d, at 873 n. 43. Thus, both prior to and following the repeal of the covenant, the Authority’s revenues and earned surplus continued their unhampered and overwhelmingly impressive growth.

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 *43economic 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.

One scholar for example, after undertaking extensive research into the history of the Constitutional Convention, concluded that there is no evidence that the Constitution’s Framers perceived of the Contract Clause as applicable to public agreements. “[I]t is evident that all of them discussed the clause only in relation to private contracts, i. e., contracts between individuals.” B. Wright, The Contract Clause of the Constitution 15 (1938). Moreover, “[a] careful search has failed to unearth any other statements even suggesting that the contract clause was intended to apply to other than private contracts.” Id., at 16. Indeed, Professor Wright found that only two antifederalists, neither of whom was a member of the Convention, ever suggested that the Clause would support “a broader meaning” encompassing public contracts, but “their interpretations were denied by members of the Convention, and the denials were not challenged.” Ibid.

Parallel doctrines worked to the same end of freeing the States from contractual duties allegedly imposed by earlier legislators. For example, it has long been held that in applying the Contract Clause to government contracts, every ambiguity and gap is to be strictly construed in behalf of the State. “[I]n grants by the public, nothing passes by implication.” Charles River Bridge v. Warren Bridge, 11 Pet. 420, 546 (1837). “Every reasonable doubt is to be resolved adversely [to the private party claiming under the contract]. Nothing is to be taken as conceded but what is given in unmistakable terms, or by an implication equally clear. The affirmative must be shown. Silence is negation, and doubt is fatal to the claim. This doctrine is vital to the public welfare.” Fertilizing Co. v. Hyde Park, 97 U. S. 659, 666 (1878). Along these lines, it is noteworthy that the state law of New Jersey itself raises serious doubts concerning the reasonableness of appellant's *47reliance 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 similiar 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 jive, 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.

Among other difficulties, the question-begging attempt to categorize inviolable legislation powers vis-á-vis the Contract Clause depends upon a conception of state sovereignty that is both simplistic and unpersuasive. We are told that the Contract Clause “does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty,” ante, at 23, but in applying this principle, the Court finds that the States’ “taxing and spending powers,” unlike the power of eminent domain, lie outside this rule, ante, at 24. Before today, one might well have supposed that the States’ authority to tax, spend money, and generally make basic financial decisions is among the most important of their governmental powers. Indeed, only last Term, this Court announced that a State’s decision to pay its employees less than the minimum wage — a decision of far less importance to the citizens generally than efforts to derive funding for improving the facilities that directly and vitally affect their health and safety — is immune from federal regulation under the Commerce Clause, an authority previously thought to be virtually plenary in nature. The Court there reasoned that the minimum-wage decision falls within the sovereign powers of “States qua States.” National League of Cities v. Usery, 426 U. S. 833, 847 (1976). One may rightfully feel unease that the Court is in the process of developing a concept of state sovereignty that is marked neither by consistency nor intuitive appeal. 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 *52 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.

The Court makes clear that it contemplates stricter judicial review under the Contract Clause when the government’s own obligations are in issue, but points to no case in support of this multiheaded view of the scope of the Clause. See ante, at 25-26. As noted previously, see n. 13, supra, this position finds no support in the historical rationale for inclusion of the Contract Clause in the Constitution. And it is clear that the Court’s citation to Perry v. United States, 294 U. S. 330 (1935), see ante, at 26 n. 25, offers no support for its rewriting of history. In that case, one of the Gold Clause Cases, Perry challenged the constitution*54ality of a congressional enactment which authorized the redemption of outstanding United States gold bonds by payment of legal tender currency rather than “ ‘by the payment of 10,000 gold dollars each containing 25.8 grains of gold, .9 fine,’ ” 294 U. S., at 347, the value of the dollar in gold when the bonds were acquired. Perry complained that inflation had devalued the worth of legal tender with respect to gold and, therefore, claimed financial injury by the conversion. The Government defended its actions on the ground that the gold clause obstructed Congress’ express power to “regulate the Value” of money, Art. I, § 8, and, accordingly, argued that Congress was free to repudiate the gold standard under that power. Although Perry ultimately was denied recovery, the Court found that the authority to “regulate the Value” of money, while permitting Congress “to control or interdict the contracts of private parties” with regard to the legal exchange rate, 294 U. S., at 350, did not include the power to repudiate the Government’s own obligations, which were governed by entirely different constitutional provisions: E. g., Congress may “borrow Money on the credit of the United States,” Art. I, § 8, cl. 2, and “The validity of the public debt of the United States . . . shall not be questioned,” Amdt. 14, § 4. Thus the differential standard in Perry emerged from the collision of competing grants of power to the Federal Government, and did not purport to suggest that the Contract Clause — or its federal counterpart, the Fifth Amendment — standing alone would produce different standards for reviewing governmental interference with public and private contractual obligations.

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 taire, 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 *55a 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.

And, of course, there is every reason to expect that appellant, with combined trust and fiduciary holdings of Authority bonds amounting to some $300 million, is not powerless in protecting its interests either before the state legislature or in the economic marketplace. Indeed, a myriad of sophisticated investors, investment banks, and market analysts regularly oversee the operation of the bond market and the affairs of municipalities which appear in search of credit. Accordingly, any city or State that enters the marketplace is well aware that, should it treat its creditors abusively, the market is apt to exact “justice” that is quicker and surer than anything that this Court can hope to offer. In brief, appellant is ihe paradigm of a litigant who is neither “discrete” nor “insular” in appealing for this Court’s time or protection.

Blaisdell suggested further limitations that have since been subsumed in the overall determination of reasonableness. The legislation sustained in Blaisdell was adopted pursuant to a declared emergency in the State and strictly limited in duration. Subsequent decisions struck down state laws that were not so limited. W. B. Worthen Co. v. Thomas, 292 U. S. 426, 432-434 (1934) (relief not limited as to "time, amount, circumstances, or need"); Treigle v. Acme Homestead Assn., 297 U. S. 189, 195 (1936) (no emergency or temporary measure). Later decisions abandoned these limitations as absolute requirements. Veix v. Sixth Ward Building & *23 Loan Assn., 310 U. S., 32, 39-40 (1940) (emergency need not be declared and relief measure need not be temporary); East New York Savings Bank v. Hahn, 326 U. S. 230 (1945) (approving 10th extension of one-year mortgage moratorium). Undoubtedly the existence of an emergency and the limited duration of a relief measure are factors to be assessed in determining the reasonableness of an impairment, but they cannot be regarded as essential in every case.

Stone v. Mississippi sustained the State’s revocation of a 25-year charter to operate a lottery. Other cases similarly have held that a State is without power to enter into binding contracts not to exercise its police power in the future. E. g., Pierce Oil Corp. v. City of Hope, 248 U. S. 498, 501 (1919); Atlantic Coast Line R. Co. v. Goldsboro, 232 U. S. 548, 558 (1914); Douglas v. Kentucky, 168 U. S. 488, 502-505 (1897). See Home Building & Loan Assn. v. Blaisdell, 290 U. S., at 436-437.

In New Jersey v. Wilson, 7 Cranch 164 (1812), the Court held that a State could properly grant a permanent tax exemption and that the Contract Clause prohibited any impairment of such an agreement. This holding has never been repudiated, although tax exemption contracts generally have not received a sympathetic construction. See B. Wright, The Contract Clause of the Constitution 179-194 (1938). By contrast, the doctrine that a State cannot 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., at 23-24. 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.

State laws authorizing the impairment of municipal bond contracts have been held unconstitutional. W. B. Worthen Co. v. Kavanaugh, 295 U. S. 56 (1935); Louisiana v. Pilsbury, 105 U. S. 278 (1882). Similarly, a tax on municipal bonds was held unconstitutional because its effect was to reduce the contractual rate of interest. Murray v. Charleston, 96 U. S. 432, 443-446 (1878). 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); *25 Von Hoffman v. City of Quincy, 4 Wall., at 554-555. See Fisk v. Jefferson Police Jury, 116 U. S. 131 (1885) (contract for payment of public officer). 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., at 445.

See El Paso v. Simmons, 379 U. S. 497 (1965); Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U. S. 502 (1942); Louisiana v. New Orleans, 102 U. S. 203 (1880).

For similar reasons, a dual standard of review was applied under the Fifth Amendment to federal legislation abrogating contractual gold clauses. “There is a clear distinction between the power of the Congress to control or interdict the contracts of private parties when they interfere with the exercise of its constitutional authority, and the power of the Congress to alter or repudiate the substance of its own engagements when it has borrowed money under the authority which the Constitution confers.” Perry v. United States, 294 U. S. 330, 350-351 (1935). Cf. Norman v. Baltimore & O. R. Co., 294 U. S. 240, 304-305 (1935). See also Lynch v. United States, 292 U. S. 571, 580 (1934) (need for money is no excuse for repudiating contractual obligations); Note, The Constitutionality of the New York Municipal Wage Freeze and Debt Moratorium: Resurrection of the Contract Clause, 125 U. Pa. L. Rev. 167, 188-191 (1976).

In Kavanaugh, the State changed its statutory procedure for enforcing certain municipal assessments against property owners. The holders of bonds for which the assessments were pledged as security were found to *27have contract rights in the previous statutory scheme. Without classifying the enforcement statutes as substantive or remedial, the Court held the change unconstitutional because it “[took] from the mortgage the quality of an acceptable investment for a rational investor.” 295 U. S., at 60. In the instant case the State has repudiated an express promise rather than one implied from the statutory scheme in effect at the time of the contract. Thus, the instant case may be regarded as a more serious abrogation of the bondholders’ expectations than occurred in Kavanaugh. See n. 17, supra.

The dissent suggests, post, at 41-44, that such careful scrutiny is unwarranted in this case because the harm to bondholders is relatively small. For the same reason, however, contractual obligations of this magnitude need not impose barriers to changes in public policy. The States remain free to exercise their powers of eminent domain to abrogate such contractual rights, upon payment of just compensation. See n. 16, supra.

If in fact the States sought to divert only new revenues to subsidize mass transit, then the covenant could have been amended to exclude the additional bridge and tunnel tolls from the revenue use limitation that was imposed. Such a change would not have reduced the covenant to a nullity because it would have continued to prevent the diminution of revenues and reserves that historically secured the bonds. And even if the plan contemplated use of current revenues and reserves, the formula for computing “permitted deficits” perhaps could have been modified without totally abandoning an objective limitation on the Port Authority’s involvement in deficit mass transit. Finally, the procedures for obtaining bondholder approval could have been modified so that such consent would present a feasible means of undertaking new projects. See n. 10, supra. Of course, we express no opinion as to whether any of these lesser impairments would be constitutional.

Transportation control strategies are available that do not require direct application of revenues from bridge and tunnel tolls to subsidize mass transit. In calling for air pollution abatement measures in New Jersey, the Administrator of the Environmental Protection Agency encouraged “close examination” of such measures as, inter alia, “State taxes to encourage VMT [vehicle miles traveled] reductions while raising revenues to benefit mass transit” and realignment of toll structures by “elimination of commuter discounts” and “possibly an increase in tolls during peak commuting times to encourage carpools.” 38 Fed. Reg. 31389 (1973). Thus, the States could discourage automobile use through taxes on gasoline or parking, for example, and use the revenues to subsidize mass transit projects so they would be “self-supporting” within the meaning of the covenant. Bridge and tunnel tolls could be increased for commuters and decreased at other times, so that there would be no excess revenue for purposes of the General Bridge Act of 1946, 33 U. S. C. § 526.

This Court previously has regarded the elimination of unforeseen windfall benefits as a reasonable basis for sustaining changes in statutory deficiency judgment procedures. These changes were adopted by several States when unexpected reductions in property values during the Depression permitted some mortgagees to recover far more than their legitimate entitlement. See Gelfert v. National City Bank, 313 U. S. 221, 233-235 (1941); Honeyman v. Jacobs, 306 U. S. 539, 542-543 (1939); Richmond Mortgage & Loan Corp. v. Wachovia Bank & Trust Co., 300 U. S. 124, 130-131 (1937).

The covenant does enable the Authority to finance passenger railroad facilities to a level of “permitted deficits,” defined as one-tenth of the General Reserve Fund or 1% of the total bonded indebtedness. While the Court notes in passing that this provision “permitted, and perhaps even contemplated, additional Port Authority involvement in deficit rail mass transit,” ante, at 11, the formula restricts the Authority to a small percentage of the fund, even though aggregate reserves and revenues may far exceed expenses and creditor claims. In any event, the parties have stipulated that as a practical matter the Authority has been unable to expand its involvement in rapid transit by reliance on this alternative formula. App. 692a.

The 1962 covenant does not merely bind the Authority’s hands for the decades of the 1960’s and 1970’s. Rather, the covenant will preclude the deployment of the Authority’s toll revenues to public transit needs until all the bonds previously issued under the covenant have been retired. Appellant trust company advises that the covenant thus continues “as a practical matter until the year 2007,” Brief for Appellant 24, even if now repealed prospectively as suggested ante, at 18 n. 15.

See, e. g., infra, at 59, and n. 17.

See ante, at 30 n. 28. I am puzzled whether the Court really intends these alternatives to be taken seriously in view of the footnote’s closing reminder that even these "lesser impairments” also may be found to be unconstitutional. If the Court, in fact, means that New Jersey and New York could remedy any Contract Clause defects merely by modifying their repeal of the 1962 covenant so as to limit transit subsidization solely to future toll increases — the policy that is being followed by the States in actual practice — then today’s decision would be rendered into a temporary formalism.

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).

Because cars entering or leaving Manhattan must pass over bridges or through tunnels, the regulation of tolls offers an unusually convenient and effective method of discouraging automobile usage in addition to promising a highly lucrative revenue base.

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 § 503 of the General Bridge Act of 1946, 33 U. S. C. § 526, evidently would be obligated to disallow any toll increases as not “reasonable and just” under the Act. See generally Delaware River Port Authority v. Tiemann, 531 F. 2d 699 (CA3 1976). The United States Department of Transportation, however, has stated that “in some areas (New York, Philadelphia, San Francisco), bridge toll revenues provide significant support for transit capital and/or operating costs, thereby providing transit service improvements which promote decreased dependence on automobile travel.” App. 726a-727a. The Department has recommended that a diversion of funds *40to 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.

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.

Indeed, the Court’s single-minded emphasis on the existence of changed circumstances leads it to embrace a rather perverse constellation of values in which New Jersey’s desire to care for the health, environmental, and energy needs of its citizenry is relegated to lesser importance than the desire of Texas in El Paso v. Simmons, 379 U. S. 497 (1965), to deny windfall economic gains to purchasers of school land from the State. Ante, at 31. I, of course, do not dispute the importance of Texas’ stake in Simmons. But surely any reasonable ordering of values and social objectives would'compel the conclusion that a State’s concern for its citizens’ health and general welfare is far more deserving of this Court’s recognition.

The court found: “Between 1961 and 1973 the net revenues of the Authority increased from $68,000,000 to $137,000,000, and over that period the Authority had available to it $582,732,000 in excess of its debt service requirements .... Through 1974, the corresponding figures are $161,283,000 and $649,750,000, respectively.” 134 N. J. Super., at 195 n. 43, 338 A. 2d, at 873 n. 43. Thus, both prior to and following the repeal of the covenant, the Authority’s revenues and earned surplus continued their unhampered and overwhelmingly impressive growth.

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 *43economic 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.

One scholar for example, after undertaking extensive research into the history of the Constitutional Convention, concluded that there is no evidence that the Constitution’s Framers perceived of the Contract Clause as applicable to public agreements. “[I]t is evident that all of them discussed the clause only in relation to private contracts, i. e., contracts between individuals.” B. Wright, The Contract Clause of the Constitution 15 (1938). Moreover, “[a] careful search has failed to unearth any other statements even suggesting that the contract clause was intended to apply to other than private contracts.” Id., at 16. Indeed, Professor Wright found that only two antifederalists, neither of whom was a member of the Convention, ever suggested that the Clause would support “a broader meaning” encompassing public contracts, but “their interpretations were denied by members of the Convention, and the denials were not challenged.” Ibid.

Parallel doctrines worked to the same end of freeing the States from contractual duties allegedly imposed by earlier legislators. For example, it has long been held that in applying the Contract Clause to government contracts, every ambiguity and gap is to be strictly construed in behalf of the State. “[I]n grants by the public, nothing passes by implication.” Charles River Bridge v. Warren Bridge, 11 Pet. 420, 546 (1837). “Every reasonable doubt is to be resolved adversely [to the private party claiming under the contract]. Nothing is to be taken as conceded but what is given in unmistakable terms, or by an implication equally clear. The affirmative must be shown. Silence is negation, and doubt is fatal to the claim. This doctrine is vital to the public welfare.” Fertilizing Co. v. Hyde Park, 97 U. S. 659, 666 (1878). Along these lines, it is noteworthy that the state law of New Jersey itself raises serious doubts concerning the reasonableness of appellant's *47reliance 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 similiar 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 jive, 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.

Among other difficulties, the question-begging attempt to categorize inviolable legislation powers vis-á-vis the Contract Clause depends upon a conception of state sovereignty that is both simplistic and unpersuasive. We are told that the Contract Clause “does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty,” ante, at 23, but in applying this principle, the Court finds that the States’ “taxing and spending powers,” unlike the power of eminent domain, lie outside this rule, ante, at 24. Before today, one might well have supposed that the States’ authority to tax, spend money, and generally make basic financial decisions is among the most important of their governmental powers. Indeed, only last Term, this Court announced that a State’s decision to pay its employees less than the minimum wage — a decision of far less importance to the citizens generally than efforts to derive funding for improving the facilities that directly and vitally affect their health and safety — is immune from federal regulation under the Commerce Clause, an authority previously thought to be virtually plenary in nature. The Court there reasoned that the minimum-wage decision falls within the sovereign powers of “States qua States.” National League of Cities v. Usery, 426 U. S. 833, 847 (1976). One may rightfully feel unease that the Court is in the process of developing a concept of state sovereignty that is marked neither by consistency nor intuitive appeal. 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 *52 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.

The Court makes clear that it contemplates stricter judicial review under the Contract Clause when the government’s own obligations are in issue, but points to no case in support of this multiheaded view of the scope of the Clause. See ante, at 25-26. As noted previously, see n. 13, supra, this position finds no support in the historical rationale for inclusion of the Contract Clause in the Constitution. And it is clear that the Court’s citation to Perry v. United States, 294 U. S. 330 (1935), see ante, at 26 n. 25, offers no support for its rewriting of history. In that case, one of the Gold Clause Cases, Perry challenged the constitution*54ality of a congressional enactment which authorized the redemption of outstanding United States gold bonds by payment of legal tender currency rather than “ ‘by the payment of 10,000 gold dollars each containing 25.8 grains of gold, .9 fine,’ ” 294 U. S., at 347, the value of the dollar in gold when the bonds were acquired. Perry complained that inflation had devalued the worth of legal tender with respect to gold and, therefore, claimed financial injury by the conversion. The Government defended its actions on the ground that the gold clause obstructed Congress’ express power to “regulate the Value” of money, Art. I, § 8, and, accordingly, argued that Congress was free to repudiate the gold standard under that power. Although Perry ultimately was denied recovery, the Court found that the authority to “regulate the Value” of money, while permitting Congress “to control or interdict the contracts of private parties” with regard to the legal exchange rate, 294 U. S., at 350, did not include the power to repudiate the Government’s own obligations, which were governed by entirely different constitutional provisions: E. g., Congress may “borrow Money on the credit of the United States,” Art. I, § 8, cl. 2, and “The validity of the public debt of the United States . . . shall not be questioned,” Amdt. 14, § 4. Thus the differential standard in Perry emerged from the collision of competing grants of power to the Federal Government, and did not purport to suggest that the Contract Clause — or its federal counterpart, the Fifth Amendment — standing alone would produce different standards for reviewing governmental interference with public and private contractual obligations.

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 taire, 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 *55a 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.

And, of course, there is every reason to expect that appellant, with combined trust and fiduciary holdings of Authority bonds amounting to some $300 million, is not powerless in protecting its interests either before the state legislature or in the economic marketplace. Indeed, a myriad of sophisticated investors, investment banks, and market analysts regularly oversee the operation of the bond market and the affairs of municipalities which appear in search of credit. Accordingly, any city or State that enters the marketplace is well aware that, should it treat its creditors abusively, the market is apt to exact “justice” that is quicker and surer than anything that this Court can hope to offer. In brief, appellant is ihe paradigm of a litigant who is neither “discrete” nor “insular” in appealing for this Court’s time or protection.

Louis J. Lefkowitz, Attorney General, Samuel A. Hirshowitz, First Assistant Attorney General, and Daniel M. Cohen, Assistant Attorney General, filed a brief for the State of New York as amicus curiae urging affirmance.