The opinion
Disney, J., dissenting: I am unable to concur in the conclusion expressed in the majority opinion and, although I shall not attempt to cover herein all of the considerations impelling this dissent, I wish to set down some thoughts upon the subject. The majority opinion confines itself to consideration of the question whether the Port of New York Authority is a political subdivision of a state; therefore, I shall so limit myself. Several reasons in particular require, in my opinion, that the Port Authority be not considered a political subdivision of a state.
At the outset it is to be noted that, this being a matter of exemption from taxation, the petitioner must bring himself fully within the terms of the statute; and, secondly, that the expression “State, Territory, or any political subdivision thereof” should under primary rules of statutory construction be given its ordinary and usual connotation, Congress being presumed to have given no unusual or extraordinary meanr ing to the expression. Though there is no lack of variety in the definition- of “political subdivision,” all cases start out with the idea that the primary and usual sense of the term denotes an actual fraction of the state and its sovereignty, such as a county. 38 Op. Atty..Gen, 563, relied upon by the majority opinion, speaks of “a true governmental subdivision such as a county, township, etc.,” thus recognizing the primary and usual connotation of the term — avoidance of which is sought by the petitioner here. Since, however, such entities as reclamation districts have been considered state subdivisions, it is pertinent to inquire further as to the intent of Congress on this matter.
As the majority opinion points out, the statute was initiated in the Revenue Act of 1913, and to that act, therefore, we may well turn for assistance. Indeed, the majority opinion seems to recognize the weight of the original language used in 1913, for it expressly points out the statement of Mr. Cordell Hull, then in the House of Representatives, with reference to the exemption provision. His remarks furnish, however, no definition of political subdivision. The exemption here involved is found in section II B. In section II G, it is also provided “That there shall not be taxed under this section any income derived from any public utility or from the exercise of any essential governmental function accruing to any State * * *, or any political subdivision of a State * * It is further provided in substance that if any state or political subdivision of a state had contracted to acquire a public utility, no tax shall be levied upon the income derived therefrom “so far as the payment thereof will impose a loss or burden upon such State, * * * or a political subdivision of a State.” Though these provisions.of subsection G concern taxation upon income of the state or political subdivision, and not exemption of interest upon obligations, nevertheless, the fact that such income is to escape taxation only if it is from the exercise of an essential governmental function and will impose a loss or burden upon such political subdivision of a state, is not without significance here; for it seems apparent that the initial idea upon this general subject, as expressed in 1913 by the Congress, was that nothing less than a burden upon a state (or political subdivision thereof) through interference with its essential function should deter the impact of Federal taxation. In case such political subdivision issued interest-bearing bonds, such income would be expended in payment thereof. Therefore, reading the provisions of subsection' A and those of subsection G together, I am impressed with the idea that in considering the exemptions of obligations of a state or political subdivision, we should not ignore the fact that in the beginning of the legislation on this subject Congress saw fit to express aptly the constitutional question of connection between essential governmental function and taxes having, reference to a state or political subdivision thereof; and it is altogether reasonable and proper to consider that it was the Congressional intent to exclude from considerations of taxation only such obligations or incidents of obligations, of a state or political subdivision thereof, as would lay a detriment upon such state or subdivision within constitutional principles. It seems patent that there is little distinction, if any, in the matter of burden upon the state or political subdivision, between income thereto, and the obligations thereof, or interest thereon, in payment of.which such income would be expendable. In either event, the tax would tend to diminish the net return to the state or political subdivision, and if taxation was to be unimpeded, as to the income itself, save by the bar ereete'd by essential governmental function and loss or burden upon the state or political subdivision, logic seems to require that the same considerations were intended to affect the obligations and incidents thereof, such as interest. Such attention on the part of the Congress in the genesis of legislative history on this question, to the constitutional principle of nontaxation of essential governmental activities of a state or political subdivision must be recognized, and the generality of the principle recognized, in any later effort to arrive at the basic intent of Congress, for the reason underlying the exemption of interest upon obligations of state or political subdivision is plainly found in the governmental and constitutional position, or contention of position, of such entity, i. e., upon the right, or at least claim of right, to be free from burden of tax by the central government. No other reason appears for a distinction between such civic organism as state or subdivision, and ordinary bodies corporate, the interest upon the obligations of which was taxed.
Prior to .1913 the Supreme Court had held that the basis of exemption of state agencies and instrumentalities was the “strictly governmental character,” South Carolina v. United States (1905, 199 U. S. 437, 461 , or essential governmental function. Flint v. Stone Tracy Co. (1911), 220 U. S. 108 , 172. In 1913 Congress legislated in the light of such decisions and used, in essence, their words on the subject. It plainly recognized the limits upon taxation of the states, and the limits of state immunity. In my opinion, it was with such limits in mind that Congress acted, and, in exempting interest on state or subdivision obligations, it appears to have intended to exempt interest only so far as it adversely affected such state or subdivision, i. e., only in the exercise of such essential governmental functions, and therefore, did not intend to include in the concept of state subdivision an entity not carrying on essential governmental functions. With that criterion so explicitly set out in subsection G, it seems implicit in subsection B. I realize that it rests-upon implication, but so does the entire doctrine of exemption of the instrumentalities of state and of general government, from taxation by the other. South Carolina v. United States, supra, p. 453 .
In the constitution of the State of New York also convincing evidence is found that that state.does not consider the Port of New York Authority as a political subdivision thereof. Article 10, § 5, has to do with “Public corporations; restrictions on creation and powers; accounts; obligations of.” The section was added by the Constitutional Convention of 1938. After referring to public corporations and indebtedness and powers, it is pointed out that “this paragraph shall not apply to a corporation created pursuant to an interstate compact.” Then, with reference to supervision by state or city comptroller, it is provided that such provision “shall not apply to such public corporation created pursuant to agreement or compact with another state * * * except with the consent of the parties to such agreement or compact.” Then follows the highly significant expression, “Neither the state nor any political subdivision thereof shall at any time be liable for the payment of any obligations issued by such á public corporation heretofore or hereafter created, nor may the legislature accept, authorize acceptance of or impose such liability upon the state or any political subdivision thereof.” All this indicates a clear distinction between a political subdivision of the state and a public corporation, including one created by compact with another state. If not, then in order to guard against liability of the state or any political subdivision for the payment of obligations issued by the Port Authority, it would have been necessary to insert some such expression as “Neither the state nor any political subdivision thereof shall at any time be liable for the payment of any obligations issued by such a public corporation heretofore or hereafter created, or by any other political subdivision of the state”; for if the Port of New York Authority is a political subdivision and not a public corporation, the language of the constitution as written above does not prevent assumption of its obligations by the state or any political subdivision thereof. Yet, the object of the constitution to prevent just such contingency is crystal clear. This constitutional provision shows well that the Port of New York Authority or any organization to the same effect is, within the intendment of the constitution of New York, merely a public corporation and not a political subdivision of the state — and in Helvering v. Gerhardt, 304 U. S. 405 , it is stated: “The Port Authority is a bi-state corporation, * * ; again, “a state-owned corporation such as the Port Authority.”
The same effect is found in City of New York v. Wilcox, 189 N. Y. S. 724. The case involved an injunction sought by the city of New York against the setting up of the Port of New York Authority, upon the ground, among others, that the proposed compact sought to create an unauthorized quasi-political subdivision of the United States. The court does not narrow its discussion to a political subdivision of the United States, but says:
The contention that the legislative act herein creates a new political subdivision is also without merit. It is obvious that the outlining of a district for the purpose of applying therein certain rules and regulations under which the citizens of the whole state and of an adjoining state will reap an unqualified and direct benefit is not the creation of a political subdivision. No power to tax is granted, no governmental authority is bestowed, and, as pointed out above, the powers of existing municipalities over their properties and their sinking funds and their power to develop port and harbor facilities are expressly preserved. The sole power granted to the joint board of managers, which power is not to be exercised until the states have agreed upon a comprehensive plan, is to do only what any private corporation may do, namely, to own and operate terminal and transportation facilities, and to operate them not for private gain, but for the welfare and progress of the community.
The courts of New Jersey seem to agree with the general principles laid down by the New York Court, for in Lydecker v. Township of Englewood, 41 N. J. L. 154, a political subdivision appears to.be tested by territory, organization of its inhabitants, the exercise of governmental functions, and the exercise by the electors therein of some powers of local government. Again, in Van Cleve v. Passaic Valley Sewerage Commissioners, 71 N. J. L. 574; 60 Atl. 214 , the test applied was that of functions of local self-government. Such tests, it seems to me, the Port of New York Authority very obviously can not meet.
In considering whether Congress in 1913, when it first used the language here involved, intended to include such entities as the Port of New York Authority, it seems altogether helpful to remember that at that time, as I understand the record in this case, such organization was new thought, if not actually unknown, at least in the United States. Congress can hardly be presumed to have intended to describe or include, therefore, such organization, unless it plainly so signified. It was obviously not within the ordinary and usual concept at that time of the expression “political subdivision of a state.” To believe that the expression then used was intended to include such an anomalous corporate body as one resulting from a completely novel compact between two states and including some 200 ordinary municipalities or political subdivisions, seems to me impossible. The language has been continued throughout later revenue acts, yet the fact remains that it was set up in 1913, has remained unchanged since that time, and must take its primary significance from Congressional intendment at that time. The opinions of the Attorney General quoted by the majority opinion were rendered with reference merely to special assessment improvement districts, and, except for reference to the term “political subdivision” as “broad and comprehensive,” seem to offer little aid on the peculiar problem here. I can not agree that they offer reason for varying the usual rule of statutory interpretation that legislatures must be presumed to have used language with its usual significance. The first opinion relies most heavily upon the power of taxation given the special assessment district — and denied to the Port Authority. The legislative history in this matter is not convincing.
The conclusion of the majority can find no basis in a general subdivision of state governmental power. It is clear that the Port Authority is not of the same category as a county, city, town, or municipality, with a fraction of general sovereign power. The conclusion, therefore, that the Port Authority is a political subdivision rests perforce upon an enumeration of some powers which, it is contended, are governmental in nature and are sufficient to uphold the definition of “political subdivision of a state.” Far from comprising the greater part or even a substantial portion of the totality of state governmental power, those enumerated and relied upon seem scanty indeed. They are: the power of eminent domain, the exercise of certain police power, the power to issue subpoenas, and certain regulatory powers.
It should, of course, be noted at the outset, from this point, that an enumeration of powers delegated by state is not of itself sufficient even to indicate the creation of a political subdivision. If that were true, then every corporate agency of a state would be a political subdivision. In order to classify the Port Authority as a political subdivision, we must find it exercising powers which take it out of the class of mere state instrumentality. Upon examination of the only powers relied upon in the majority opinion, I find none that indicates anything more than mere state instrument. The power of eminent domain, first, is variously delegated by different states. In particular, it is usually delegated to railroads and public utilities. Eminent domain is eliminated as evidencing political subdivision. The police powers relied upon are also, in my opinion, insufficient to so demonstrate. The assistance rendered by a state to various organizations, through a police force, is well known and it seems to me that unless the police officers can not be considered as officers of the state, utilized by state instrumentalities, their existence is not indicative of political subdivision. The state did not surrender police power to the Port Authority, but the state exercised it through Port Authority personnel as officers of the state, They are “désignated by statute as regular peace and police officers of both states * * * ” Montgomery B. Case, 34 B. T. A. 1229, 1235- The power to issue subpoenas has in fact, as I read this record, not oeen granted. The State of New Jersey never concurred in the statute passed on that subject by New York, with the intent to amend the “Comprehensive Plan.” The majority opinion merely says that “The laws of New York purport to grant the Authority the power of subpoena.” Since power must be mutually granted by both states, apparently this element is not relied upon as basis of decision. So far as concerns regulations, it appears that they derived their sanction from the state legislatures themselves and do not constitute, therefore, a delegated power.
With the power of taxation specifically denied, the Port of New York Authority appears no more than a mere legal instrumentality. Indeed, as the majority opinion recites, it is stipulated, that the Port of New York Authority “is a body politic and corporate, the joint agency of the States of New York and New Jersey * * *.” In my opinion, it is just that, and no more, and to class as nontaxable the interest upon its obligations would require freedom from taxation of such interest as to state instrumentalities in general. That the whole matter of the Port Authority is “public,” does not answer the question. Any state agency seems public in its nature. In my concept of a political subdivision, there is an element of home rule. It exists in reclamation districts or drainage districts where the burdens, either by taxation or assessments against property, are voted by the parties affected, and that seems to be the reason underlying classification of such entities as political subdivisions. Such element, however, is lacking in the present instance.
There remains for consideration the fact that the alleged “political subdivision of a state” has reference to two states. The point is not inconsequential. To analyze the constitutional aspects of a political subdivision of two states, a sort of fusion of separate sovereign state powers, is beyond the scope of this dissent. Only the logical and constitutional impossibility is suggested. The Port Authority is such fusion, or it is nothing but a compact. As the majority opinion states, the actions of the commissioners of the board are binding only after approval by a majority from each state and the governor of each state has a veto power over the acts of the commissioners from his state. He apppears to have none over the commissioners from the other state. Logic forbids that such entity be regarded as a political subdivision of a state. The government of the Port depends not upon the electors or officers of one state, but upon them and those of another state, acting conjointly and mutually. It is truly a compact. New York can not be subdivided into something which is in part New Jersey. The organization is sui generis in governmental principles; beyond the idea •of political subdivision of a state. It involves property and territory beyond the borders of each state, which, to say the least, is something beyond the usual significance of the term involved. This extraordinary organism is seen to be merely the “bi-state corporation created by compact between New York and New Jersey,” which Helvering v. Gerhardt, supra, denominates it. The concept of political subdivision of a state appears to me too foreign to the nature of the Port Authority to permit classification therein. In my view, too, as more fully expressed by my brothers Black and Mellott, Helvering v. Gerhardt, supra, holds contrary to the majority opinion here. I would deny the exemption, and therefore respectfully dissent.