# Appendix — United States Trust Co. of NY v. New Jersey > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_2399%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1977 - **Citation:** 431 U.S. 1 ## Text a APPENDIX AUG 12 1976 IN THE Supreme Court of the United States OCTOBER TERM, 1976 No. 75-1687 Unitrep States Trust Company or New York, as Trustee for The Port of Authority of New York and New Jersey Consolidated Bonds, Fortieth and Forty-First Series, on its own behalf and on behalf of all holders of Consolidated Bonds of The Port Authority of New York and New Jersey and all others similarly situated, Appellant, v. THe State or New Jersty, Brenpan T. Byrne, Governor of The State of New Jersey, and Wixu1am F.. Hyanp, Attorney General of the State of New Jersey, Appellees. APPBAL FROM THE SUPREME COURT OF NEW JERSEY VOLUME I Pages la—528a FILED MAY 21, 1976 PROBABLE JURISDICTION NOTED JUNE 28, 1976 ' INDEX PAGE Docket Entries: Superior Court of New Jersey ...... la Supreme Court of New Jersey : 2a Pleadings: Complaint ™ 6a Answer and Counterclaim 24a Answer to Counterclaim 36a Consent Order 4la Affidavit of Edwin C. Landis, Jr. in Support of Con- sent Order (attachments omitted) dta Affidavit of J. Sinclair Armstrong, Esq., in Support of Motion to Maintain Class Action 55a Judgments and Opinions: Decision of the Superior Court of New Jersey, May 14, 1975 59a Judgment of the Superior Court of New Jersey, May 29, 1975 130a Decision of the Supreme Court of New Jersey, Feb- ruary 25, 1976 132a Other Parts of the Record: Excerpt From Exhibit P-l1—Municipal Credit Report dated December 28, 1961 (Admitted in Evidence at page 44) l7la Exeerpt From Exhibit P-2—Municipal Credit Report dated December 14, 1962 (Admitted in Evidence at page 44) 178a Exhibit P-3—Memo to William H. Morton from John F. Thompson dated February 27, i974 (Ad- mitted in Evidence at page 85) 185a PAGE Excerpt from Exhibit P-4—Draft Memo—Port of New York Authority-Mass Transportation vs. Bondholders Security (Admitted in Evidence at I TE secennntinsaninmnnasensitcimnengsnsenaiemantssinnnnienmnnias 190a Exhibit P-5—Letter dated June 10, 1974 from John F. Thompson to Norman T. Hurd (Admitted in Evidence at page 102) .......~........--.------.eccec------ ... 194a Exhibit P-7—Article from “The Daily Bond Buyer”, May 17, 1974 (Admitted in Evidence at page 111) 196a Exhibit P-10—Securities Industry Association News Release (Admitted in Evidence at page 111) 198a Exeerpt from Exhibit P-536—Address by Austin J. es AAI Sy GE sciscsemnesiisienosnnisntinnniasapenniiniinantianss 200a Exhibit P-89—Comparison Chart of Dollar Prices Port Auth. of N.Y. & NJ. 6.0% 2/1/2006 and Mass. Port. Auth. 6.0% 7/1/2011 (Admitted in 8 ee 209a Exhibit P-90-—-Comparison: Port Auth. of N.Y. & N.J. 6.0% 2/1/2006--Mass. Port Auth. 6.0% 7/1/2011 (Admitted in Evidence at page 117) -... 210a Ixhibit P-91—Comparison Chart of Dollar Prices 212a Exhibit P-92—Comparison: Port Auth. of N.Y. & N.J. 6.0% 6/1/2008—Mass. Port Auth. 6.0% 7/1/2011 (Admitted in Evidence at page 132) .... 2l3a Exhibit P-93—Explanation of Charts (Admitted in 8 en 215a Exhibit P-94—Comparison Chart of Dollar Prices (Admitted in Evidence at page 115) -~.........0......... 2 16a Exhibit P-95—Comparison: Kansas Turnpike 33¢% 10/1/94—Indiana Toll 542% 1/1/94—-Port Auth. of N.Y. & N.J. 314% 5/1/95—Port Auth. of N.Y. & N.J. 334% 5/1/94 (Admitted in Evidence at ED ainisitenstnsenniititiommmeigmmntnmmmtiies "17a ili PAGE Excerpt from Exhibit P-202—Index—June 14, 1962, and pp. 270-271 entitled “Hudson Tubes Finane- ing; Certification Required by Agreement with Bondholders” (Admitted in Evidence at page P-203—-Letter dated March 27, 1961 from Austin J. Tobin to Commissioners of Port Authority (Ad- mitted in Evidence at page 816) —.....0000022..... 22 la IMxhibit S-1—Artiecle from “The Wall Street Jour- nal”, August 15, 1974 (Admitted in Evidence at Sy III ie aiticeces aaah ld itabiabeniasiciaeantinibteaiadientiewesoediiteninnss 23 2a Exhibit S-2—Article from “The New York Times”, November 10, 1974 (Admitted in Evidence at EES San ARS SEES RE Oe 234a Exhibit S-3—Data Sheets: New York-New Jersey Ports 6% 2008 40th Series and Mass. Ports 6% 2011 (Admitted in Evidence at page 171) ............ 243a Exhibit S-4—Letter to the Editor from John F. Thompson, May 1, 1974 (Admitted in Evidence at 8 EE A Exhibit S-5-—Letter to the Editor from William J. Ronan, May 9, 1974 (Admitted in Evidence at SE SII sti cthrhctiiteniepeiniehiibanininvotiaininiatstntmnnmannstinenates 247a Exhibit S-15—Memorandum, “The Municipal Bond Club of New York” (Admitted in Evidence at SE IIIT saciehadaiiriitdtelenbilaeeiiehdashabiansiesiccannratincanpiaaammniasinnan 249a Exhibit S-16—Letter dated May 29, 1974 from John F. Thompson to Orville H. Schell, Jr. (Admitted _ Im Evidence at page 346) ~................-.--c..ess-ssesecseoes 21a Exhibit S-29—Municipal Credit Report, February 4, 1972, Supplementary to Report dated October 20, 1971 (Admitted in Evidence at page 780) ...,.... 252a Exhibit S-31—Municipal Credit Report dated June 14, 1973 (Admitted in Evidence at page 795) .... 263a lv PAGE Excerpt from Exhibit S-36—Report of Consolidated Bonds Thirty-Sixth Series (First Installment) by Blyth & Co., Ine., November 16, 1970 (Admitted in Evidence at page 801) 279a ixcerpt from Exhibit S-38—Quotations of Author- ity Bonds (Admitted in Evidence at page 823) .... 293a Excerpt from Exhibit S-39—Quotations of Author- ity Bonds (Admitted in Evidence at page 823) .... 293a Excerpt from Exhibit S-40—Publication of U.S. Government Printing Office—1961 Entitled “Hear- ings Before Subcommittee No. 5 of the Committee of the Judiciary, House of Representatives”, 86 Congress, 2nd Session (Admitted in Evidence at Sh ) 294a Exhibit S-44—Memorandum, “Port Authority of New York and New Jersey,” dated April 22, 1974 (Admitted in Evidence at page 840) ................-.---. 380a Exhibit S-56—Bid and Ask Quotations for Mass. Port Auth. 434% 1998, ete. (Admitted in Evi- Gence at page BBD) ...-....-ac-cccc-csccscesccsnsscsmnenstescenssens 38la Excerpt from Exhibit C-3—i972 Annual Report of The Port Authority of New York and New Jersey (Admitted in Evidence at page 878) ..............------- 385a Exeerpt from Exhibit C-4—1974 Annual Report of The Port Authority of New York and New Jersey (Admitted in Evidence at page 878) ........ 393a Exhibit C-5—Port Authority of New York and New Jersey Investments and Revenues (Admitted in Evidence at page 878) ..............-----s-cscscssesesceseseeeeeseee DOVE Exhibit C-15—Memorandum from the office of the Governor, February 10, 1975 (Admitted in Evi- dence at page 870) --..-.-+.c.:ss1-sseseese Exerpt from Fxhibit C-17—Minutes of Special Meeting of Port Authority of New York and New Jersey held April 21, 1975 (Admitted in Evidence TS 2. . |) Ee 404a PAGE Exhibit C-18—News Release from Port Authority of New York and New Jersey, April 10, 1975 (Admitted in Evidence at page 880) .................... 405a Excerpt from Exhibit C-19—Letter of U.S. Depart- ment of Transportation to Port Authority of New York and New Jersey with Enclosures (Admitted in Evidence at page 880) ~................... 408a Excerpt from Exhibit C-20—Modification of Toll Rate Schedule for Vehicular’ Crossings (Admitted in Evidence at page 880) ~................. 419a Supreme Court of New Jersey—State’s Supple- mental Exhibits—(Admitted in Evidence by order dated September 2, 1975) -0.0220202...2-..--.---- 42°a Supreme Court of New Jersey—Plaintiff’s Supple- mental E:xhibits—(Admitted in Evidence by order dated September 2, 1975) -....020200 ee. 449°a Port Authority of New York and New Jersey— Iixcerpts from Annual Report for year ended December 31, 1975—this document is subject to judicial notice and was added to Appendix by Stipulation Among Counsel dated July 7, 1976 .... 508a Port Authority of New York and New Jersey— Excerpts from Official Statement for Forty-See- ond Series Consolidated Bonds dated July 8, 1976—this document is subject to judicial notice ani was added to Appendix by Stipulation Among Counsel dated July 7, 1976 ...0000.0.00000000...... 519a Excerpts from Stipulation Among Counsel, dated December 20, 1974 (“Stip.” references are to pages of the Stipulation, R-JA Vol. IV) ............ 529a Exeerpts from Exhibit II to Stipulation Among Counsel, dated December 20, 1974 Iixeerpts from Exhibit IIT to Stipulation Among Counsel, dated December 20, 1974 00... 813a Exhibit V to Stipulation Among Counsel, dated EE 818a Excerpts from Testimony of John F. Thompson .... 844a vi la PAGE Docket Entries Exeerpts from Testimony of Lester Murphy ............ 97 4a Excerpts from Testimony of Michael Zarin ........... 1004a SUPERIOR COURT OF NEW JERSEY Kixcerpts from Testimony of Austin F. Fitzgerald ..1089a Brrcen County Kixcerpts from Testimony of Gordon Fowler ........... 1108a L-26861-73 kixcerpts from Transcript of hearing, February 11, oo TEPUTE sctecvniuisteiaainiainieddaciadiatinibliiideaabvanibiant aad Lie aatcaael 1119a Letter dated March 10, 1975 from George B. Gelman a ree ee inti J.S.C. to Counsel ‘1121 saad ADL. TO VOUMSCL ..................ccceceoceecscecceseccsceccccescscesess «1a —ws— Additional Material Added to Appendix by Stipula- tion Among Counsel dated August 4, 1976 ............ 1123a State or New JERSEY (Brendan T. Byrne), Defendant. Apr. 30 1974 Complaint $60.00 June 30 1974 Order Ex. Time July 16 1974 Ans. & C. CL. Aug. 2 1974 Ans. to Cl. Cl. Oct. 24 1974 Order for Class Action Oct. 24 1974 Affidavit Nov. 15 1974 Affidavit Dee. 10 1974 Order for Consolidation (L-2642-71) Jan. 9 1975 Notice of Deps. Mar. 27 1975 Orderas to Deps. ete. May 19 1975 Opinion May 16 1975 Copy of Notice of Appeal, Meyner. L & V 5.00 Dated: 12 July, 1976 I hereby certify that the foregoing is a true copy of the original on file in my office. Signature Illegible Clerk 2a Docket Entries SUPREME COURT OF NEW JERSEY From Superior Ct. Law Div. Trial Docket #L-26861-73 Docket # 11,498 PM United States Trust Co., of N. Y. v: Meyner, Landis & Verdon, Esqs. Attorneys State of N. J., Brendan T. Byrne, Governor of N. J., etal Murray Laulicht, Esq. Dean Michael I. Sovern, sq. Theodore W. Kheel, Esq. Howard Stern, Esq. Patrick Falvey, Esq. 5/16/75 5/16/75 5/16/75 5/28/75 5/28/75 5/28/75 Attorneys Notice of Motion for Direct Certification & Expedition. Statement in lieu of Brief in Support of Motion. Afft. in Support of Motion-J. Sinclair Arm- strong. Afft. in Support of Motion-John F. Thompson Afft. of Service; Ree’d App. Div. Opinion Cross Motion for Certification-Atty Gen. Checklist M-824-74 Motion for Direct Cert. is Granted and Appellants Brief due 6-6-75 Respondents Brief due 14 days after Reply Brief 7 days after (if any). Motion for Certification—Shavick, Esq. $5.00 Paid and Cert. of Serv. Checklist : M-837-74 Motion for Cross Motion is granted (def-resp.) M-847-74 Checklist Motion for Certification Granted 5-0. 6/ 6/75 6/11/75 6/ 6/75 6/17/75 6/20/75 6/20/75 6/20/75 6/20/75 6/23/75 6/26/75 6/26/75 6/26/75 7/ 1/75 3a Docket Entries Appendix and Brief of Cross Appellant Daniel M. Gaby, Esq.—Shavick, Esq. Afft. Serv. Shavick, Esq. Appellant’s Brief—Appendix 4 copies deposi- tion of J. Sinclair Armstrong: 9 copies of S. C. Briefs—findings of fact Meyner, Esq. Afft. of Serv. Reiner, Esq. (Meyner, Esq.) Brief of Def-resp. Cross App. State of N. J., Brendan T. Byrne—Wm. Hyland, Atty Gen. (Murray J. Laulicht, Esq.) Ree’d Defendant’s Trial Memorandum, Reec’d Defendant’s Post Trial Memorandum, Ree’d Defendant’s Proposed Findings of Fact, Ree’d Defendant’s Reply Brief and Appendices, (Atty Gen.) Murray J. Lan- licht, Esq. Transcripts—6 vol @ 4 copies each Brief for Intervening Defendant-Respondent, U.S. Trust Company of New York, Robert B. Meyner, Esq. Brief for Port ..athority Respondents, Francis A. Mulhern, Port Auth. Notice of Motion to Strike defendants supple- mental exhibits or in the alternative to supplement the record, and to supplement the record, Meyner, Esq. Reply Brief for Appellants and brief on cross appeal, Meyner, Esq. Memorandum in Support of Motion, Meyner, Esq. Afft. of Service—Meyner, Esq. (U. S. Trust Co.) Gaby vs. Port of N. Y. Authority. 9/ 2/75 9/ 2/75 9/ 2/75 9/ 2/75 4a Docket Entries Afft. of Service—Meyner, Esq. (U. S. Trust Co.) U. S. Trust vs. State, ete., etal. Memorandum in Opposition to Motion, Atty Gen. Notice of Motion for Leave to file oversized brief and ext. time to file reply brief, Atty Gen. Notice of Motion to Relax Page Limitations Statement in Lieu of Brief in Support of Motion—Afft. in Support, Afft. Serv., Meyner, Esq. Reply Brief, Lowenstein, Esq. Plaintiffs’ Reply Memorandum—Meyner, Esq. Notice of Motion to Suppress Points I and II of Reply Brief of def-resp. and Cross- Appellants. Memorandum in support of motion. Afft. of Serv., Meyner, Landis & Verdon, Esqs. Memorandum in Opposition to Motion to Suppress Points 1 and 2 of Reply Brief— Atty Gen. Joint Appnx. Vol. VI—Meyner, Landis & Verdon, Esqs. Checklist M-1067-74 Motion to strike is denied. Checklist M-1068-74 Mction to supplement the record is granted. Checklist M-1069-74 Motion for extension of time is granted. Checklist M-1070-74 Motion to file oversized reply brief is granted. Checklist M-1071-74 Motion to file oversized brief is granted. 9/ 2/75 10/ 1/75 10/ 7/75 2/25/76 3/ 8/76 3/10/76 3/11/76 3/22/76 4/19/76 4/26/76 5/ 4/76 5/14/76 5/14/76 5/24/76 5/24/76 5a Docket Entries Checklist M-1072-74 Motion to suppress points 1 and 2 of reply brief is denied. Supplemental Letter—Meyner, Landis & Ver- don. Afft. of Service of suppl. letter—Meyner, Landis. Opinion—6-1-P.C.—Affirm—8 Pg. Pashman- Cone. Part-Diss Part. Motion for Counsel Fees with Afft. & Brief & Shavick, Stern, Schotz, Steiger & Croland, Esqs. $5. Afft. of Service on Motion for Counsel Fees— Shavick, Stern, Schotz, Steiger & Croland, Esgqs. Supp. Letter to Motion for Counsel Fees— Shavick, Esq. Brief for Port Authority in Opposition to Motion for Counsel Fees—Mulhern, Esq. Response to Motion for Counsel Fees— Mulhern. Suppl. Letter—Howard Stern, Esq. Motion for Counsel Fees Denied; M-925-75; 6-1. Notice of Appeal to the U.S. Supreme Ct. Afft. of Service—Meyner, Landis & Verdon, Esqs. Notice of Appeal to the U.S. Supreme Ct. Afft. of Service—Shavick, Stern, Schotz, Steiger & Croland, Esqs. 6a Complaint SUPERIOR COURT OF NEW JERSEY Law Drvision — Bercen County Unitrep States Trust Company or New York, as Trustee for The Port Authority of New York and New Jersey Consolidated Bonds, Fortieth and Forty-First Series; on its own behalf and on behalf of all holders of Consoli- dated Bonds of The Port Authority of New York and New Jersey and all others similarly situated, Plaintiff, against Tue Strate or New Jersey; Brennan T. Byrne, Governor of The State of New Jersey; and Wmuiam F. Hytanp, Attorney General of The State of New Jersey, Defendants. Plaintiff, United States Trust Company of New York (hereinafter referred to as the “Trust Company”), a corpo- ration organized and existing under the laws of the State of New York, having its principal place of business at 45 Wall Street, New York, New York, for its complaint against the defendants says: FIRST COUNT 1. The Trust Company is the Trustee for The Port Authority of New York and New Jersey (hereinafter referred to as “The Port Authority”) Consolidated Bonds, Fortieth and Forty-First Series, and is also the holder, for its own account and as a fiduciary, of Consolidated Bonds of The Port Authority. 7a Complaint 2. Defendant The State of New Jersey along with the State of New York, is a party to a contract with bond- holders (including the plaintiff) made by the Legislatures of New Jersey and New York through concurring legisla- tion becoming effective in 1962 and set forth in N.J.S.A. 32 :1-35.55 and N.Y. Unconsol. Laws $6606, all as hereinafter described. 3. Defendant Brendan T. Byrne is the Governor of the State of New Jersey and in such capacity possesses the power to appoint Commissioners, to veto any and all action taken at meetings of The Port Authority by the Commis- sioners appointed by the Governor and generally to estab- lish the policy, planning, guidance and direction for the operations of The Port Authority. 4. Defendant William F. Hyland is the Attorney General of the State of New Jersey and in such capacity is charged with the duty to uphold the Constitution of the State of New Jersey and the United States Constitution. 5. The Trust Company brings this action as the Trustee for The Port Authority Consolidated Bonds, Fortieth and Forty-First Series, pursuant to Section 8 of the Resolution Establishing the Fortieth Series of Consolidated Bonds, due 2008 adopted May 10, 1973 and the Resolution Estab- lishing the Forty-First Series of Consolidated Bonds, due 2008 adopted September 13, 1973. 6. Pursuant to such Section 8 of the respective Resolu- tions adopted by The Port Authority the Trust Company is “authorized to act in its discretion to assure that all of the rights of and obligations to the holders of bonds of [such] Series are unconditionally recognized, protected and ful- filled.” Such Resolutions also permit the Trust Company “to institute any action on behalf of the holders of bonds of 8a Complaint [such] Series against [The Port Autgority] or others which it shall in its sole discretion deem advisable. . .” 7. The Trust Company also brings this action on its own behalf as the holder (in its own account, as custodian and in its several fiduciary capacities) of approximately $96,000,00 principal amount (as of April 15, 1974) of the Consolidated Bonds of The Port Authority and on behalf of all of the holders of Consolidated Bonds of The Port Authority who have an undivided interest in the revenues of The Port Authority and the reserve funds securing such Consolidated Bonds. 8. As of April 15, 1974, approximately $1,600,000,000 principal amount of Consolidated Bonds of The Port Authority were outstanding and held by banks, trust com- panies, other financial institutions, pension funds and private individuals. 9. The members of the class of persons whose interests will be affected by the outcome of this action are so num- erous that joinder of all members is impracticable. 10. The questions of law and fact raised by this action are common to ali of the members of the class and the claims made by the Trust Company are typical of the claims of the class. 11. The Trust Company will fairly and adequately pro- tect the interests of the class. 12. Inconsistent or varying adjudications with respect to individual members of the class would establish incom- patible standards of conduct for parties opposing the class or substantially impair or impede their ability to protect their interests. Complaint 13. An adjudication with respect to the issues raised by the Trust Company will’as a practical matter be dispositive of the interests of the other members of the class. 14. The defendants in this action have acted on grounds generally applicable to the class, thereby making appropri- ate declaratory and other relief with respect to the class as a whole. 15. This Court has jurisdiction over the claims asserted herein under N.J.S. 2A:16-50 et seq., the New Jersey Uni- form Declaratory Judgments Act. 16. The Port Authority is a municipal corporate instru- mentality of the State of New Jersey (N.J.S.A. 32:1-1 to 24) and of the State of New York (N.Y. Unconsol. Laws §§6401-6423), created in 1921 by compact between the two states with the consent of the Congress of the United States (Public Resolution No. 17, 67th Congress, First Session (42 Stat. 174)), pursuant to Article 1, Section 10, clause 3 * of the United States Constitution. 17. The Compact between the States of New Jersey and New York in 1921 which created The Port Authority (the “Port Compact”) stated that the development of the Port “will require the expenditure of large sums of money and the cordial cooperation of the States of New York and New Jersey in the encouragement of the investment of capital. ...” Article VI authorized The Port Authority “to borrow money and secure the same by bonds or by mortgages.” Article VII provided that “[The Port Authority] shall not pledge the credit of either state except by and with the authority of the legislature thereof.” Article XV provided that “Unless and until the revenues from operations con- ducted by [The Port Authority] are adequate to meet all expenditures,” the States would each appropriate up to 10a Complaint $100,000 a year to finance its operations. Thus the Port Compact, to which Congress consented, intended The Port Authority to be a self-supporting agency of State govern- ment. 18. The Port Authority secures the funds necessary for its various authorized projects primarily through the issu- ance of bonds. Since 1952 The Port Authority has issued 41 Series of Consolidated Bonds secured by the full faith and credit of The Port Authority, a pledge of the net rev- enues of all existing facilities of The Port Authority, the net revenues of new facilities financed through Consoli- dated Bonds, a general reserve fund and a consolidated bond reserve fund. 19. In 1962 the Legislatures of New Jersey and New York adopted concurring legislation (the “1962 Covenant”) providing that: “The two 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 pro- vided in their contract with the port authority, (a) the two states will not diminish or impair the power of the port authority (or any subsidiary corpora- tion incorporated for any of the purposes of this act) to establish, levy and collect rentals, tolls, fares, fees or other charges in connection with any facility constituting a portion of the port development pro}- ect or any other facility owned or operated by the port authority of which the revenues have been or shall be pledged in whole or in part as security for such bonds (directly or indirectly, or through the medium of the general reserve fund or otherwise) lla Complaint or to determine the quantity, quality, frequency or nature of the service provided in connection with each such facility; 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. ‘Affected bonds’ as used in this section shall mean bonds of the port authority issued or incurred by it from time to time for any of the purposes of this act or bonds as security for which there may or shall be pledged, in whole or in part, the general reserve fund or any reserve fund established by or pursuant to contract between the port authority and the holders of such bonds, or the revenues of the world trade center, Hudson tubes, Hudson tubes extensions or any other facility owned or operated by the port authority any surplus revenues of which would be payable into the general reserve fund, or bonds both so issued or incurred and so secured. ‘Permitted purposes’ as used in this section shall mean purposes in connection with (i) the Hudson tubes as authorized and limited on the effective date of this covenant and agreement, (ii) railroad freight transportation facilities or railroad freight terminal facilities, (iii) the construction, installation and maintenance of railroad tracks and related facilities on vehicular bridges owned by the port authority and (iv) any other railroad facility established, acquired, constructed or otherwise effectuated by the port authority (including but not limited to Hudson tubes 12a Complaint extensions) as to which the port authority shall have first certified either that said other railroad facility is self-supporting as hereinafter defined or, if not, that at the end of the preceding calendar year the general reserve fund contained an amount equal to one-tenth of the par value of bonds of the port authority which were outstanding at said year end and which were legal for investment as defined in the general reserve fund statutes and that the group of facilities consisting of such other railroad facility and of all prior other railroad facilities will not produce deficits in excess of permitted deficits as hereinafter defined. ‘Prior other railroad facili- ties’ at the time of any certification by the port authority hereunder shall mean all the railroad facilities described in subdivisions (i) and (iv) of this paragraph which were theretofore established, acquired, constructed or otherwise effectuated by the port authority any surplus revenues of which at such time would be payable into the general reserve fund. An other railroad facility shall be deemed to be ‘self-supporting’ as of the time of any certification hereunder if the amount estimated by the port authority for the ensuing ten years to be the aver- age annual net income (computed without deduction for debt service) derived from or incidental to such facility equals or exceeds the amount estimated by the port authority for such ten years to be the aver- age annual debt service upon bonds for purposes in connection with such proposed facility. ‘Deficits’ of a group of railroad facilities, as used in this section, shall mean the amount estimated by the port authority for the ensuing ten years to be the average annual combined debt service upon 13a Complaimt bonds for purposes in connection with the railroad facilities of such group less the amount estimated by the port authority for such ten years to be the average annual combined net income (computed without deduction for debt service) derived from or incidental to such railroad facilities or plus the amount estimated by the port authority for such ten years to be the average annual combined net losses (computed without deduction for debt service) sus- tained from or incidental to such railroad facilities; the estimate of deficits thus arrived at shall not be effective unless and until concurred in, in writing, by the governors of the said two states. ‘Permitted deficits’ of a group of railroad facili- ties as used in this section, shall mean deficits as of the time of any certification hereunder which do not exceed (A) such amount or amounts of deficits as of the time of any certification hereunder for the payment of which one or both of the two states, in connection with the proposed other railroad facility as to which the certification is made and in connec- tion with prior other railroad facilites, has made adequate, secure and effective provision for the duration of the period for which the port authority is liable for such deficits, plus (B) the greater of the following two amounts: (1) an amount equal to one- tenth of the amount in the general reserve fund at the end of the preceding calendar year, diminished by an amount equal to one per cent of the principal amount of all bonds of the port authority outstand- ing at the end of said preceding calendar year the proceeds of which shall have been applied for pur- _ poses in connection with the facilities of such group or (2) an amount equal to the sum of one-tenth of the 14a Complaint diminished one-tenth amount calculated under clause (1) of this sentence, plus one percent of the equity, at the end of the said preceding calendar year, of the port authority in its vehicular bridges and tunnels and in all other facilities owned and operated by it (not including railroad cars financed by state-guar- anteed bonds) except those of the aforesaid group of railroad facilities. Equity of the port authority in facilities as to which any calculation of equity shall be made shall mean the principal amount of bonds of the port authority retired from port author- ity revenues or reserves or both which have been derived from the operation of its facilities and the investment of its funds and not from governmental or other subsidy payments, the proceeds of which retired bonds shall have been applied for purposes in connection with such facilities. Each certification by the port authority hereunder shall be made at the time of the issuance of its first bonds for permitted purposes in connection with a proposed other railroad facility which bonds would be secured in whole or in part by the aforesaid pledged rentals, tolls, fares, fees, charges, revenues or reserves, or at such time, prior to such issuance, as any application of such pledged rentals, tolls, fares, fees, charges, revenues or reserves for pur- poses in connection with such proposed other rail- road facility would otherwise be permitted or re- quired. Anything herein to the contrary notwith- standing, any such certification by the port authority hereunder shall not be effective unless and until affirmatively concurred in, in writing, by the govern- ors of the said two states.” N.J.S.A. 32 :1-35.55; NVY. Unconsol. Laws § 6606. 15a Complaint 20. The 1962 Covenant set forth in paragraph 19 of this Complaint was enacted into law since in the early 1960’s it was proposed that The Port Authority be authorized to assume the responsibility for a commuter rail line by aequir- ing the deficit generating operations of the Hudson & Man- hattan Railroad Company (now calied, and referred to herein as the “PATH System”). This interurban electric railroad system has termini in Newark, Hoboken and Man- hattan. 21. In connection with the legislation which authorized The Port Authority to assume responsibility for the PATH System, The Port Authority had advised the New York and New Jersey Legislatures that the credit of The Port Authority would be impaired by such an undertaking of an anticipated continuing deficit facility unless the States would enter into an enforceable contract with The Port Authority bondho'ders which would protect bondholders against dilution of already pledged revenues and reserves by any additional passenger rail deficits beyond those of the basic PATH System. The 1962 Covenant was the legis- lation finally adopted. 22. The Port Authority advised potential investors of the existence of and protection afforded by the 1962 Cove- nant in Official Statements distributed in connection with each of the following Consolidated Bond financings: a) $35,000,000 Consolidated Bonds Twentieth Series, Due 1993 (First Installment) April 24, 1962; b) $25,000,000 Consolidated Bonds Twenty-First Series, Due 1993 (First Installment) October 3, 1962; ec) $25,000,000 Consolidated Bonds Twenty-Second Series, Due 1993 (First Installment) December 12, 1962; 16a Complaint d) $25,000,000 Consolidated Bonds Twenty-Third Series, Due 1994 (First Installment) May 7, 1963; e) $25,000,000 Consolidated Bonds Twenty-Fourth Series, Due 1994 (First Installment) October 16, 1963; f) $30,000,000 Consolidated Bonds Twenty-Fifth Series, Due 1965-1984, February 13, 1964; g) $35,000,000 Consolidated Bonds Twenty-Sixth Series, Due 1995 (First Installment) May 26, 1964; h) $25,000,000 Consolidated Bonds Twenty-Seventh Series, Due 1995 (First Installment) November 10, 1964; i) $25,000,000 Consolidated Bonds Twenty-Eighth Series, Due 1996 (First Installment) January 11, 1965; Jj) $25,000,000 Consolidated Bonds Twenty-Ninth Series, Due 1996 (First Installment) May 27, 1965; k) $25,000,000 Consolidated Bonds Thirtieth Series, Due 1998 (First Installment) October 27, 1965; 1) $100,000,000 Consolidated Bonds Thirty-First Series, Due 2002 (First Installment) March 22, 1967; m) $100,000,000 Consolidated Bonds Thirty-Second Series, Due 2003 (First Installment) February 26, 1968; n) $100,000,000 Consolidated Bonds Thirty-Third Series, Due 2003 (First Installment) July 31, 1968; 0) $100,000,000 Consolidated Bonds Thirty-Fourth Series, Due 2003 (First Installment) December 17, 1968; p) $100,000,000 Consolidated Bonds Thirty-Fifth Series, Due 2005 (First Installment) August 26, 1970; q) $50,000,000 Consolidated Bonds Thirty-Sixth Series, Due 2005 (First Installment) November 24, 1970; 17a Complaint r) $100,000,000 Consolidated Bonds Thirty-Seventh Series, Due 2006 (First Installment) February 18, 1971; s) $100,000,000 Consolidated Bonds Thirty-Eighth Series, Due 2006 (First Installment) October 13, 1971; t) $150,000,000 Consolidated Bonds Thirty-Ninth Series, Due 2007 (First Installment) February 2, 1972. 23. The Port Authority’s advice to potential investors described in paragraph 22 of this Complaint, was substan- tially equivalent to the following disclosure, contained in the Official Statement for the Thirty-Ninth Series Consoli- dated Bonds: “Tn connection with the legislation which author- ized the Port Authority to assume responsibility for the Hudson Tubes System, the Port Authority had advised the Legislatures of both States that the credit of the Port Authority would be impaired by such an undertaking of an anticipated perpetual defi- cit facility unless the States would enter into an enforceable contract with the Port Authority bond- holders which would grant assurances against dilu- tion of already pledged revenues and reserves by any additional passenger rail deficits beyond those of the basic Hudson Tubes system. The legislation as finally adopted includes such statutory covenants. The covenants are between the two States and with the holders of certain described ‘affected’ bonds which include all Consolidated Bonds including those of the present offering. The contract prohibits the application of any revenues or reserves pledged to such bonds (which includes all existing revenues, other than rentals under the New York State’s Com- 18a Complaint muter Railroad Car Program described on pp. 18-19, and all existing reserves) for any additional pas- senger railroad purpose beyond the basic Hudson Tubes, as defined, without the consent of the holders of such affected bonds as provided in their contract with the Authority unless the Port Authority shall have first certified the eligibility of such additional railroad, whether it be a Hudson Tubes extension, as defined, or new railroad facility. To be eligible the Port Authority must determine either that the pro- posed additional passenger railroad facility is self- supporting or, if not, that at the end of the preceding calendar year the General Reserve Fund contained the full statutory amount and that for the ensuing ten years the estimated average annual deficits from the proposed additional passenger railroad facility and any then existing Port Authority passenger railroad facility (including the basic Hudson Tubes) would not in the aggregate exceed an amount equal to one- tenth of the amount in the General Reserve Fund at the prior year end. Certain adjustments to this fig- ure are provided by the statute. For example, the amount equal to one-tenth of the General Reserve Fund is to be diminished by an amount equal to 1% of the principal amount of Port Authority bonds the proceeds of which shall have been applied for passen- ger railroad purposes; this prevents the enlargement of deficit capacity by bonds issued in connection with a deficit passenger railroad facility. Furthermore, if at some time in the future the adjusted 10% of the General Reserve Fund should he exceeded by an amount equal to 1% of the Port Authority’s equity, as defined in the statutes, augmented by 1/10 of that 19a Complatnt adjusted 10%, then the augmented 1% of the equity may be used as the limiting figure instead of the per- centage of the General Reserve Fund. Section 6 of the 1962 legislation (See Appendix ITI) should be studied for the exact terms of the statutory cov- enant.” 24. Purchasers of Consolidated Bonds of The Port Authority following enactment of the 1962 Covenant relied on the 1962 Covenant in making their purchase. 25. The legislation embodying the 1962 Covenant was amended effective May 10, 1973 by the States of New Jersey and New York (Ch. 208, Laws of New Jersey 1972, Ch. 1003, Laws of New York 1972, Ch. 318, Laws of New York 1973), to limit the application of the 1962 Covenant to obligations of The Port Authority issued before May 10, 1973. Since Consolidated Bonds issued prior to that date have varying maturity dates from 1993 to 2007, the 1962 Covenant remains binding on The Port Authority, and, thereby, affords protection through 2007 for the bonds of the Fortieth Series and subsequent issues even though it does not specifically apply to such bonds. 26. The Port Authority advised potential investors of the existence of and continued protection afforded by the 1962 Covenant in Official Statements distributed in connec- tion with the Fortieth and Forty-First Series of Consoli- dated Bonds as follows: “The statutory covenant against dilution of pledged revenues and reserves by additional passen- ger railroad facilities, which is discussed in the para- graph quoted above, remains in effect with respect to affected bonds, and remains binding on the Authority although it does not apply to the bonds 20a Complaint of the present offering. The legislation which authorized the Port Authority to assume respon- sibility for the Hudson Tubes system was amended, effective May 10, 1973, by the States of New York and New Jersey (Ch. 1003, Laws of New York 1972, Ch. 318, Laws of New York 1973; Ch. 208, Laws of New Jersey). The New Jersey amendment, when introduced in the New Jersey Assembly, was accom- panied by a statement that the bill was intended to preclude the application of the covenant to holders of bonds newly issued after its effective date, while maintaining in status quo the rights of the holders of the bonds issued after March 27, 1962 (the effec- tive date of the covenant legislation) but prior to the effective date of the amendment.” 27. Purchasers of Consolidated Bonds of The Port Authority following the prospective repeal of the 1962 Covenant relied on the continued protection afforded by the 1962 Covenant in making their purchase. 28. On April 30, 1974, defendant Byrne signed into law an Act of the Legislature of the State of New Jersey (Assembly Bill No. 1304) (the “Act”). 29. The Act purports to repeal the 1962 Covenant retro- actively to the date of its enactment, to be effective upon the passage of concurring legislation by the State of New York. 30. Although effectiveness of the Act is conditioned upon concurring action by the State of New York, as a result of the expressed intent of defendant Byrne and the Legislature of the State of New Jersey to pass the Act and as a result of the passage of the Act the contract between the States of New York and New Jersey and holders of 2la Complaint Consolidated Bonds has been impaired and the secondary market for Consolidated Bonds of The Port Authority has been and will continue to be adversely affected to the detri- ment of the Trust Company and all holders of Consolidated Bonds of The Port Authority. 31. The 1962 Covenant constitutes a contract as that term is used in Article 4, Section 7, paragraph 3 of the New Jersey Constitution. 32. The passage of the Act alleged in paragraph 28 of this Complaint constitutes an impairment of the contract among the States of New Jersey and New York and all holders of Consolidated Bonds of The Port Authority, in violation of Article 4, Section 7, paragraph 3 of the New Jersey Constitution. ’ SECOND COUNT 1. The Trust Company repeats and realleges para- graphs 1 through 30 of the First Count of this Complaint as if set forth fully herein. 2. The 1962 Covenant constitutes a contract as that term is used in Article 1, Section 10, Clause 1 of the United States Constitution. 3. The passage of the Act alleged in paragraph 28 of this Complaint constitutes an impairment of the contract among the States of New Jersey and New York and all holders of Consolidated Bonds of The Port Authority, in violation of Article 1, Section 10, Clause 1 of the United States Constitution. THIRD COUNT 1. The Trust Company repeats and realleges para- graphs 1 through 30 of the First Count of this Complaint as if set forth fully herein. 22a Complaint 2. The 1962 Covenant is property as that term is used in Article 1, paragraphs 1 and 20 of the New Jersey Constitution. 3. The passage of the Act alleged in paragraph 28 of this Complaint constitutes a taking of property of the holders of Consolidated Bonds of The Port Authority for public use without just compensation in violation of Article 1, paragraph 1 and Article 1, paragraph 20 of the New Jersey Constitution. FOURTH COUNT 1. The Trust Company repeats and realleges para- graphs 1 through 30 of the First Count of this Complaint as if set forth fully herein. 2. The 1962 Covenant is property as that term is used in the Fifth and Fourteenth Amendments to the United States Constitution. 3. The passage of the Act alleged:in paragraph 28 of this Complaint constitutes a taking of private property of the holders of Consolidated Bonds of The Port Authority without just compensation in violation of the Fifth Amend- ment and the Fourteenth Amendment to the United States Constitution. Wuererore, The Trust Company demands: (a) A declaratory judgment that the enactment of Assembly Bill No. 1304 was in violation of Article IV, Sec- tion 7, paragraph 3 of the New Jersey Constitution and that as a consequence thereof Assembly Bill No. 1304 was not lawfully enacted, is void and is of no consequence or effect. (b) A declaratory judgment that the enactment of Assembly Bill No. 1304 was in violation of Article I, Section 23a Complaint 10, Clause 1 of the United States Constitution and that as a consequence thereof Assembly Bill No. 1304 was not law- fully enacted, is void and is of no consequence or effect. (c) A declaratery judgment that the enactment of Assembly Bill No. 1304 was in violation of Article I, para- graphs 1 and 20 of the New J ersey Constitution and that as a consequence thereof Assembly Bill No. 1304 was not law- fully enacted, is void and is of no consequence or effect. (d) A declaratory judgment that the enactment of Assembly Bill No. 1304 was in violation of the Fifth and Fourteenth Amendments to the United States Constitution and that as a consequence thereof Assembly Bill No. 1304 was not lawfully enacted, is void and is of no consequence or effect. (e) Such other and further relief as the Court may deem just and proper. Dated: Newark, New Jersey April 30, 1974 Meyner, Lanpvis & VERDON Attorneys for Plaintiff By Rosert B. Meyner Robert B. Meyner Of Counsel: Carter, Lepyarp & MrsuKn 2 Wall Street New York, New York 10005 24a Answer and Counterclaim SUPERIOR COURT OF NEW JERSEY Law Drivistlon—Bercen Count —— Unirep States Trust Company or New York, etc., Plaintiff, —7T §— Tue State or New Jersey, et als., Defendants. ——EE ee Defendants, answering plaintiff’s complaint, say: FIRST COUNT 1. They admit that The Trust Company is The Trustee for the Fortieth and Forty-First Series of Port Authority Consolidated Bonds and they deny knowledge or informa- tion sufficient to form a belief with respect to the truth of the allegation that The Trust Company is the holder of Consolidated Bonds of The Port Authority. 2. They deny the allegations of paragraph 2, except that they admit that the concurring legislation referred to therein was enacted by the respective Legislatures of New Jersey and New York. 3. They deny the allegations of paragraph 3, except that they admit that defendant Byrne is the Governor of the State of New Jersey and in such capacity possesses the power to appoint six Commissioners of The Port Authority by and with the advice and consent of the Senate of New Jersey and to veto action taken by the Commissioners appointed from New Jersey and recited in minutes of Port Authority meetings. 25a Answer and Counterclaim 4. They admit the allegations of paragraph 4. 5. They admit that plaintiff purports to bring this action on the basis alleged. 6. They admit the allegations of paragraph 6. 7. They deny knowledge or information sufficient to form a belief with respect to the truth of the allegations of paragraph 7, except that they admit that the plaintiff purports to bring this action on the basis alleged. 8. They deny knowledge or information sufficient to form a belief with respect to the truth of the allegations of paragraph 8. 9. They admit the allegations of paragraph 9. 10. They admit that the questions raised by this action, including the counterclaim, are common to ali members of the class or classes and that the claims made by plaintiff are typical of the claims of the class or classes. 11. They admit on information and belief the allega- tions of paragraph 11. 12. They admit the allegations of paragraph 12. 13. They admit on information and belief that adjudica- tion with respect to the issues raised by the complaint and counterclaim will as a practical matter be dispositive of the interests of the other members of the class or classes. 14. They admit the allegations of paragraph 14. 15. They admit the allegations of paragraph 15. 16. They admit the allegations of paragraph 16 and they allege that the consent of the Congress was also given pur- suant to Article 1, Section 8, Clause 3 of the Constitution of the United States. 26a Answer and Counterclaina 17. They admit that the Compact contains the provi. _ sions alleged in the first four sentenecs contained in para- graph 17, but they refer to the entire Compact for are affected bonds under the terms of the covenant. “Permitted purposes” as defined in the statute include: (1) the H&M as it existed on the effective date of the legislation ; 23See infra at 179-180. 134 N.J.Super.—11 93a (2) any railroad freight facilities owned by the Authority ; (3) railroad tracks on vehicular bridges owned by the Au- tority; and (4) passenger railroad facilities (other than the H&M) only if one of two conditions is met: (i) the Au- thority certifies that such other railroad facility is self-sup- porting, or (ii) if the general reserve fund contains the re- quired statutory amount (10% of all outstanding Authority bonds) and the Authority certifies that the deficit of such other facility, together with the deficits of all other passenger railroad facilities owned by the Authority, will not exceed “permitted deficits” as thereafter defined. A passenger railroad facility may be certified as “self- supporting” if its estimated average annual net operating income for the first ten years of operations is at least equal to the estimated average annual debt service on bonds issued in connection with the facility. A passenger railroad “deficit” is defined as the average es- timated annual debt service upon the bonds issued for passen- ger railroad purposes over the first ten-year period of opera- tions less the average estimated annual net operating income of the railroad facility, or plus the average estimated annual net loss of the railroad facility. To illustrate: If the average annual debt service requirement is $10,000,000 and the average annual net operating income is $5,000,000, the statutory deficit is $5,000,000. If it is estimated that an average annual net loss of $5,000,000 will be incurred from operations, the statutory deficit would be $15,000,000. A “permitted deficit” is a deficit which does not exceed (A) the amount of the passenger railroad deficit the payment of which one or both states is willing to guarantee for the period for which the Authority would be liable for such deficit, plus (B) the greater of (1) an amount equal to 10% of the general reserve fund at the end of the preceding cal- endar year less an amount equal to 1% of the Authority’s bonds outstanding at the end of the preceding calendar year which were issued for passenger rail purposes (including the H&M), or (2) an amount equal to 10% of the amount 94a calculated under clause (1) plus 1% of the Authority’s equity in all facilities other than passenger rail facilities. Thus, assuming the States of New York and New Jersey enter into an agreement with the Authority to pay the deficit of a proposed passenger railroad facility, the deficit of such fa- cility is a permitted deficit under the 1962 covenant and the Authority is authorized to issue its bonds for such purpose. In the absence of a guarantee by the states to pay any part of the deficit, the maximum permitted deficit must be calculated under (B) as reflected in the following illustration: Assum- ing the general reserve fund contains $175,000,000 and the Authority has outstanding bonds issued for the H&M and other passenger railroad purposes in the amount of $150,000,000, clause (1) permits the Authority to issue bonds secured by the general reserve fund if the estimated average annual deficits of all its passenger rail facilities, including the proposed facility, do not exceed $16,000,000 ($17,500,000 — $1,500,000). Assuming the same facts and an Authority equity in nonrailroad facilities of $1,200,000,000, under clause (2) the permitted deficit would be $13,600,000 ($1,600,000 + $12,000,000). Hence, on the assumed facts, since the amount calculated under clause (1) is greater, the permitted deficit would be $16,000,0007°. On September 1, 1962, following enactment of the 1962 covenant legislation referred to above, the Port Authority, through a wholly-owned sub: \diary (Port Authority Trans- Hudson Corporation or PATH), assumed ownership and operating responsibilities over the H&M. The Commissioners’ 1962 certification with respect to the acquisition of the PATH System was made on the basis of an opinion of A. Gerdes Kuhbach, the Director of Finance of the Port Authority, 26Since the annual deficits of the H&M (operated by the Author- ity under the acronym PATH) are substantially in excess of the permitted deficits calculated under 1963 covenant formula, the cove- nant prohibits the Authority from issuing any bonds for passenger rail purposes which would be secured by a pledge of the reserve funds of the Authority. See infra at 165. 95a which was prepared at the request of the Commissioners. His opinion analyzed and reviewed the financial aspects and data relating to the proposed acquisition, rehabilitation and opera- tion of the PATH system. He concluded that the section 7 certification required under the series consolidated bond resolutions could be made, since the anticipated net loss after debt service for the years 1969 through 1991 would level off at approximately $6,595,000°" per year, an amount that would not impair the sound credit rating of the Port Authority. More specifically, Kubach concluded that a) There is always a comfortable margin between the anticipated net loss and 10% of the estimated General Reserve Fund; b) Net revenues available for Reserves will not be materially diluted by undertaking the acquisition, rehabilitation and operation of the Hudson Tubes: ce) The coverage of both annual obligatory long term debt service and future maximum debt service is sufficiently within the limits necessary to preserve the Port Authority’s credit and to continue the issuance of Consolidated Bonds. I therefore conclude that the application of all or any portion of unexpended proceeds of Consolidated Bonds, Nineteenth Series, Due 1991, will not during the years 1962 through 1991, in light of the estimated expenditures in connection with the Hudson Tubes, ma- terially impair the sound credit standing of the Authority or the investment status of the Consolidated Bonds or the ability of the Port Authority to fulfill its commitments, whether statutory or con- tractual or reasonably incidental thereto, including its undertakings to the holders of Consolidated Bonds. Since the enactment of the 1962 covenant the Port Au- thority has referred to the covenant in all official statements furnished to the public in connection with each series of con- solidated bonds issued by the Authority. The reference is set forth under the heading “Statutory Covenant With Prior Affected Bondholders Against Dilution of Pledged Revenues and Reserves by Additional Passenger Railroad Deficits,” and the terms of the covenant are then summarized. The first two sentences of text read as follows: *TIn 1962 the genera] reserve fund was approximately $69 million. 96a In connection with the legislation which authorized the Port Au- thority to assume responsibility for the Hudson Tubes system the Port Authority had advised the Legislatures of both States that the credit of the Port Authority would be impaired by such an un- dertaking of an anticipated perpetual deficit facility unless the States would enter into an enforceable contract with the Port Au- thority bondholders which would grant assurances against dilution of already pledged revenues and reserves by any additional passen- ger rail deficits beyond those of the basic Hudson Tubes System. The legislation ag finally adopted includes such statutory covenants. As of December 31, 1973 the Authority had invested $185,800,000 of its funds in the acquisition and improvement of PATH. The accumulated operating deficits of PATH (determined in accordance with ICC accounting practices) total $125,000,000,28 of which approximately $17,000,000 constitutes depreciation. PATH has incurred an annual deficit after debt service for each of the last five years in excess of 10% of the general reserve fund. Accordingly, under the 1962 covenant the Port Authority would be pre- cluded from pledging any of its revenues or reserves to any other deficit passenger railroad operation. In 1973, using the Authority’s accounting procedures, the PATI deficit for the year, including debt service, was $24,913,000. Following the enactment of the 1962 covenant legislation an action was instituted in the New York state courts chal- lenging the validity of the statute by New York property owners. The principal issues presented in the action dealt with the legislative authorization to the Authority to con- struct the World Trade Center. The plaintiffs urged, among other things, that the legislation was unconstitutional because no congressional consent had been obtained. The New York Court of Appeals upheld the constitutionality of the covenant legislation, and the appeal therefrom was dismissed by the United States Supreme Court for want of a substantial fed- 28Using the Authority’s method of accounting, the accumulated PATH deficit as of December 31, 1973 was $153,073,000, inclusive of debt service. 97a eral question. Courtesy Sandwich Shop v. Port of N. Y. Auth., 12 N. Y. 24 379, 240 N. Y. 8. 2d 1, 190 N. E. 2d 402, app. dism. 375 U. 3. 78, 84 8. Ct. 194, 11 L. Ed. 2d 141, reh. den. 375 U. S. 960, 84 8S. Ct. 440, 11 L. Ed. 2d 318 (1963). The Court of Appeals disposed of the consent argument in the following manner: This argument must fail because, assuming consent to be required for this sort of concurrent action, the congressional consent originally given in 1921 and 1922 to the bi-State compact creating the Port Authority expressly contemplated such further co-operative legisla- tion in furtherance of port purposes as was here accomplished. * * * Among the Articles of Agreement consented to were articles III, VII and VI, which created the Port Authority with the powers enumer- ated plus “such other and additional powers as shall be conferred upon it by the legislature of either State concurred in by the legisla- ture of the other.” Similarly, article XI, following the agreement for an initial comprehensive plan in article X, provides that the Port Authority should “from time to time make plans for the de- velopment of said district, supplementary to or amendatory of any plan theretofore adopted, and when such plans are duly approved by the legislatures of the two States, they shall be binding upon Seth Gtabas Wits Cs come Gevce ond Geet aa if incorporated in this agreement.” Chapter 209 clearly falls within the congressional con- sent given to the articles contemplating the grant to the Port Author- ity of additional powers within the framework of the compact. [12 N. Y. 2d at 391, 240 N. Y. 8. 2d at 7, 190 N. B. 2d at 406) The lack of congressional consent to the covenant legisla- tion was also raised by Port Authority bondholders in Port Authority Bondholders Pro. Com. v. Port of N. Y. Auth., 887 F. 2d 259 (2 Cir. 1967). The Court of Appeals affirmed the dismissal of the bondholders complaint, having concluded that the United States Supreme Court’s disposition in Cour- tesy Sandwich Shop had labeled the question “as unsub- stantial.” 387 F. 2d at 262. In 1971 Theodore Kheel, Esq., and others instituted a class action in the United States District Court for the Southern District of New York challenging the constitutionality of the 1962 covenant on the grounds that it restricted the Au- thority’s power to devote its revenues to nonself-supporting passenger rail facilities, in violation of the Compact and 98a Commerce Clauses of the United States Constitution, and impaired legislative sovereignty. The District Court dismissed the complaint, relying in part upon the disposition made in Courtesy Sandwich Shop. Kheel v. Port of N. Y. Auth., 331 F. Supp. 118 (S. D. N. Y. 1971), aff'd on other grounds, 457 F. 2d 46 (2 Cir. 1972), cert. den. 409 U. 8. 983, 93 S. Ct. 324, 34 L. Ed. 2d 248 (1973). Legislative History of the Repeal of the 1962 Covenant. Despite the enactment of the 1962 covenant, during the latter part of the 1960’s and continuing to date there has been increasing public and governmental demand for the Port Authority to make a greater contribution toward a solu- tion of the mass transit problems within the Port District. The critics of the Port Authority, as well as responsible ex- ecutive and legislative officials, have focused primarily upon the utilization of the surplus earning capacity of the Au- thority’s existing facilities to finance further Authority ac- quisition of or direct subsidies to mass transit facilities. It may be noted that between 1961 and 1970 the net revenues of the Authority had increased from $68,000,000 to $115,000,000, and over that period the Authority had avail- able to it $454,000,000 in funds in excess of its debt service requirements. In July 1964 Congress enacted the Urban Mass Trans- portation Act of 1964 (49 U. S. C. A. $8 1601 et seq.), ex- pressing for the first time a federal legislative interest in the support of urban mass transportation systems. In enact- ing the 1964 act Congress found (49 U. 8. C. A. § 1601(a)): (1) that the predominant part of the Nation’s population is lo- cated in its rapidly expanding metropolitan and other urban areas, which generally cross the boundary lines of local jurisdictions and often extend into two or more States; (2) that the welfare and vitality of urban areas, the satisfactory movement of people and goods within such areas, and the effective- ness of housing, urban renewal, highway, and other federally aided programs are being jeopardized by the deterioration or inadequate 99a provision of urban transportation facilities and services, the in- tensification of traffic congestion, and the lack of coordinated trans- portation and other development planning on a comprehensive and continuing basis; and (3) the Federal financial assistance for the development of ef- ficient and coordinated mass transportation systems is essential to the solution of these urban problems. The purposes of the 1964 act were declared to be (49 U. 8. C. A. § 1601(b)): (1) to assist in the development of improved mass transportation facilities, equipment, techniques, and methods, with the cooperation of mass transportation companies both public and private; (2) to encourage the planning and establicament of areawide urban mass transportation systems needed for economic and desirable urban development, with the cooperation of mass transportation companies both public and private; and (3) to provide assistance to State and local governments and their instrumentalities in financing such systems, to be operated by public or private mass transportation companies as determined by local needs. The scope of the 1964 act was expanded by the Urban Mass Transportation Assistance Act of 1970 on the basis of a finding by Congress (49 U. S. C. A. § 1601a) that “the rapid urbanization and the continued dispersal of population and activities within urban areas has made the ability of all citi- zens to move quickly and at reasonable cost an urgent national problem.”** In April 1970 Governors Cahill and Rockefeller an- nounced 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 to Newark International Airport and other parts of New Jer- 29In November 1974, after the repeal of the 1962 covenant, Congress enacted the National Mass Transportation Assistance Act of 1974, which provided $11.8 billion over the next six years for mass transit capital expenditures and, for the first time, operating subsidies on a matching basis. 100a sey. Bills were introduced in the New Jersey and New York Legislatures authorizing the Port Authority to undertake mass transportation projects providing access to John F. Kennedy and Newark International Airports. In March 1971 joint hearings were held in New York and New Jersey by the New York State Assembly Committee on Corpora- tions, Authorities and Commissions and by the Autonomous Authorities Study Commission of the New Jersey State Legislature with respect to the relationship of the Port Au- thority to mass transportation and the proposed passenger rail links to the airports. In June 1971 the Legislatures of New York and New Jersey enacted legislation authorizing the Port Afithority to extend passenger rail transportation to Kenriedy International Airport and to Newark Interna- tional Airport and Cranford. LZ. 1971, c. 245; N. J. 8. A. 32: 1-35.20 et seq. The sponsors of this legislation sought to avoid the limitations of the 1962 covenant by characterizing the proposed new railroad facilities “as constituting a part of each air terminal” rather than independent passenger railroads. L. 1971, c. 245, § 1. While this legislation was pending, the Port Authority obtained opinion letters from two New York law firms which concluded that the proposed rail extensions were subject to the provisions of the 1962 covenant and could not be financed out of Port Authority revenues or reserves unless “self-supporting” since PATH had used up all of the “permitted deficits” allowed by the covenant. Following the enactment of the 1971 legislation the Com- missioner of the New Jersey Department of Transportation commissioned a consulting firm to report on the Authority’s ability to finance and operate the New Jersey PATH exten- sion under the terms of existing covenants with bondhold-- ers, and to propose alternative financing programs if the Authority could not. The consultant’s report was submitted in December 1971. At the outset it was noted that on the assumption the proposed additional facilities would operate 10la at a deficit, the 1962 covenant prohibited Authority financ- ing and operation since the PATH deficit already exceeded the “permitted deficits” allowed by the covenant. The con- clusion of the report was that the Port Authority was not, under the 1962 covenant, in a “favorable position” to pro- vide the additional financing necessary for the proposed extensions of existing passenger rail facilities. The consul- tants recommended as an alternative solution the removal of PATH from the Authority’s control so that the latter would no longer be responsible for its deficits. In June 1972 the Port Authority and New Jersey De- partment of Transportation concluded on the basis of an engineering cost study that the proposed extension of PATH via Newark Airport to Cranford was not economically fea- sible under the terms of the 1962 covenant. In the same month the State of New York passed a bill repealing the 1962 covenant. Laws of N. Y. 1972, c. 1003. Governor Rockefeller’s message on the signing of that legis- lation stated: I am approving this bill in order to give incentive to the Port of New York Authority to proceed with urgently needed mass transpor- tation facilities in the metropolitan region. 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. * e ° e oS e e 6 New York, by the enactment of this measure, is taking an essential step in its long-range effort to realize the full potential of the Port Authority in meeting the total transportation needs of the New York-New Jersey port district. The Port Authority's active partici- pation in helping to solve the problems of mass transportation in the New York City metropolitan area will inure to the benefit not only of millions of area residents generally, but also to the port facilities operated by the Authority and the workers and businesses that rely 102a on them. This bill is consistent with the original purpose of the Port Authority — to ensure the coordinated development of terminal, transportation and other facilities of commerce in and about the port district for the greater benefit of the people of New York and New Jersey. The repeal of the 1962 covenant adopted by New York proved to be unacrzptable at that time to the New Jersey Legislature and Governor Cahill, and on November 15, 1972, following a series of meetings among Governors Ca- hill and Rockefeller and the Commissioners of the Port Av- ‘hority, the Governors announced agreement on a bi-state plan of passenger rail transportation development by the Port Authority. The plan provided for the extension of PATH via Newark Airport to Plainfield, direct rail ser- vice from Kennedy Airport to New York City, and direct rail service to Penn Station, New York, for riders of the Erie Lackawanna Railroad in six northern New Jersey counties and two counties in New York. The estimated total cost of the plan was $&50,000,000 and it was esti- mated that the Port Authority would invest between $250,000,000 and $300,000,000, with the balance of the funds being furnished by grants from the Federal Urban Mass Transportation Administration and the states. The Governors also proposed to repeal the 1962 covenant with respect to bonds issued subsequent to the enactment of the legislation proposed by the Governors. On December 11, 1972 the New Jersey Senate held an information session to consider pending Port Authority mass transit bills. During this session representatives of the Port Authority and of Governor Cahill’s office stated that the State of New Jersey would have to commit substantially all of the funds then available to the Staie of New Jersey from the Federal Urban Mass Transportation Administra- tion. The legislation embodying the 1962 covenant was amended by the State of New Jersey on December 28, 1972, L. 1972, c. 208, so as to repeal the 1962 covenant with respect to 13a Authority bonds issued after the effective date of the legis- lation. The New York Legislature enacted concurrent legis- lation which became effective on May 10, 1973. Laws of N. ¥. 1973, c. 318. On April 22, 1974 the New Jersey Legislature enacted chapter 25 of the Laws of 1974 (the “repeal act”). Gover- nor Byrne signed the bill on April 30, 1974. Section 1 of this act repealed section 3 of chapter 208 of the Laws of 1972, the effect of which is to repeal, retroactively, the 1962 covenant as to all issued and outstanding “affected bonds” issued by the Port Authority. The introducer’s state- ment annexed to the Assembly Pill No. 1304 (which be- came chapter 25), sums up the intent and purpose of the action taken: - This bill is designed to preclude the application of the 1962 cove- nant restricting port authority participation in mass transit projects. Chapter 208, P. L. 1972, precluded such application to bonds newly issued after the effective date of that act, but maintained in status quo the position of holdere of bonds issued between March 27, 1962 and December 28, 1972. Since affected bonds are outstanding until the year 2007, the restrictions imposed by the covenant effectively preclude sufficient port authority participation in the development of a public transportation system in the port district. In 1972 the State of New York passed legislation precluding the application of the 1962 covenant from outstanding bonds as well as newly issued bonds. It is the purpose of this act to accomplish effective repeal of the covenant. Concurring legislation was signed into law by Governor Wilson of New York on June 15, 1974. Laws of N. Y., c. 993. Governor Wilson issued a statement when he signed the bill, in which he said in part: In response to my inquiry, the Chairman of the Port Authority has also advised me that because of the heavy long term capital com- mitments for the PATH facilities and the Kennedy rail link, the Authority has no significant capacity to contribute funds for operat- ing subsidies for commuter railroads, Hence, the plain and simple fact of the matter appears to be that the Authority has virtually no excess funds that could be channeled into operating subsidies for mass transportation facilities in the New York metropolitan area. 104a Even if such funds were available, existing bond indenture provisions which survive despite repeal of the statutory covenant would prohibit their use except in relation to facilities owned, leased or operated by the Port Authority. The legislative history of the repeal of the covenant would not be complete without reference to other developments which were of immediate and continuing concern to the states and the nation at or about the time the repeal legis- lation was enacted. Commencing in the early 1950’s and continuing to date the two states initiated studies of air pollution problems in their jurisdictions, and legislative ac- tion to control air pollution was undertaken by New Jer- sey as early as 1954, see N. J. S. A. 26:2C-1 et seq., and by New York in 1957, see Laws of N. Y., c. 931. In 1955 the United States Congress enacted the Clean Air Act, 42 U. S. C. A. § 1857 et seq., the preamble of which sets forth the following findings (among others) : (a) The Congress finds -— (1) that the predominant part of the Nation's population is lo- cated in its rapidly expanding metropolitan and other urban areas, which generally cross the boundary lines of local jurisdictions and often extend into two or more States; (2) that the growth in the amount and complexity of air pollu- tion brought about by urbanization. industrial development, and the increasing use of motor vehicles, has resulted in mounting dangers to public health and welfare, including injury to agricultural crops and livestock, damage to and the deterioration and property, and hazards to air and ground transportation. (3) that the prevention and control of air pollution at its source is the primary responsibility of States and local governments * * * The: studies which were undertaken identified automobile exhaust emissions as a significant contributing factor in air pollution, and as the primary source of air pollution in the City of New York. In 1962 the State of New York adopted legislation requiring the installation of positive crankcase devices on new cars. Laws of N. Y. 1962, c. 994. While similar legislation was not enacted in New Jersey, the State did institute on February 1, 1974 an auto emission 105a tesiing program as part of the mandatory motor vehicle inspection system. The efforts of the states to alleviate health hazards as- sociated with air pollution were given a major impetus by the congressional enactment in 1970 of amendments to the federal Clean Air Act, 42 U. S. C. A. § 1857(e-1) et seq., pursuant to which the Administrator of the federal En- vironmental Protection Agency was authorized to establish national air quality standards and to prescribe, upon the failure of a state to do so, the steps necessary to achieve compliance with those standards. On November 13, 1973, after the State of New Jersey failed to present an acceptable plan for achieving compli- ance with the national air quality standards for hydrocar- bons and carbon monoxide, the federal Administrator pro- mulgated regulations designed to achieve a major reduction in hydrocarbon and carbon monoxide pollution in the north- ern part of New Jersey. 38 Fed. Reg. 31388 et seg. The federally-mandated plan for New Jersey included the man- datory use of retrofit devices on gasoline-powered vehicles and “the application of certain transportation control mea- sures including a requirement for a significant reduction in vehicle miles traveled.” 38 Fed. Reg. 31389. The Ad- ministrator also emphasized the importance of the develop- ment of mass transit to the effort to improve New Jersey’s air quality: The development of large-scale mass transit facilities and the expansion and modification of existing mass transit facilities is es- sential to any effort to reduce automotive pollution through reduc- tions in vehicle use. The planning, acquisition, and operation of a mass transit system is, and should remain, a regional or State re- sponsibility. 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) Finally, reference must be made to the energy crisis, the dimensions of which became a matter of national concern in the fall of 1973 with the imposition of an oil embargo by 106a Arabian suppliers of crude oil and the rapid escalation of the price of oil. On February 4, 1974, two months before the repeal legislation was enacted, the New Jersey Legisla- ture passed the Emergency Energy Fair Practices Act of 1974 (L. 1974, cc. 2, 6). Section 2 of that act stated: The Legislature finds and determines that because of world condi- tions and the manner in which energy sources and fuels are allocated and distributed that an energy shortage now exists and may continue for the foreseeable future. Section 3 of the act authorized the Governor “to proclaim by Executive Order the existence of an energy emergency” and to establish a State Energy Office and appoint an Ad- ministrator with broad powers to control the use and dis- tribution of all fuels. On February 5, 1974 Governor Byrne issued Executive Order No. 1 in which he proclaimed the existence of an energy emergency, created the State Energy Office and established the position of Administrator of that office. In December 1973 the Regional Plan Association issued a report on the relationship of the energy crisis to transpor- tation. Its findings noted the decline of public mass transit in the metropolitan region and the increased consumption of fuel caused by reliance upon private automobiles to satisfy the major passenger transportation demand of the region. The Association pointed out that If we are serious about meeting a profligate demand for energy over the long pull, we will have to begin now to design a Region that is less energy consumptive in transportation and in its development pattern. While the immediate effects of the oil embargo have been dissipated, the nation is still confronted with the long- range effects of oil price increases, particularly as they bear upon the economic well-being of the country. On February 107a 21, 1974 President Nixon described the problem in these terms in a special message to Congress on the energy crisis: We must also face the fact that when and if the oil embargo ends, the United States will be faced with a different but no less difficult problem. Foreign oil prices have risen dramatically in recent months. If we were to increase our purchase of foreign oil, there would be a chronic balance of payments outflow which, over time, would create a severe problem in international monetary relations. [U. 8. C. Cong. and Admin. News, 93rd Cong., 2d Sess. at 36.]} The President further observed, “it is widely recognized now that the development of better mass transit systems may be one of the key solutions to both our energy and environ- mental problems.” Jd. at 42. Congress has repeatedly made similar findings. For example, the Regional Rail Reorgani- zation Act of 1973, enacted on January 2, 1974, contains specific findings by Congress that “rail service and rail transportation offer economic and environmental advantages with respect to * * * energy efficiency and conservation * * * to such extent that the preservation and maintenance of adequate and efficient rail service is in the national in- terest,” and that “railroads are one of the most energy- efficient modes of transportation for the movement of pas- sengers and freight.” 45 U. 8S. C. A. §§ 701, 761. Bondholder Reliance on the 1962 Covenant and the Effects of Repeal. Commencing with the issuance of the 20th series of 1962 the Authority advised potential investors of the existence of and protection afforded by the 1962 covenant by in- cluding detailed reference to the covenant in the official statements distributed to the public. U. 8S. Trust alleges in its complaint that purchasers of the Authority’s consoli- dated bonds relied on the notice thus given to them in making their purchases. It is also alleged that the repeal of the covenant has diminished and will continue to adversely 108a affect the value of the bonds in the secondary market. These issues were the subject of a trial at which U. S. Trust produced four witnesses in its behalf, together with nu- merous exhibits. Defendants relied upon cross-examination of plaintiff’s witnesses plus their own exhibits. Port Authority consolidated bonds are known in the mar- ket place as revenue bonds, 1. e., they are payable solely from the revenues and reserve funds derived from the fa- cilities operated by the Authority. In the main these bonds are sold to relatively sophisticated institutional investors either for their own accounts or for the accounts of others whose investment funds they manage. Since the bonds carry a fixed rate of return and must compete against other sim- ilar types of securities available in the market place, the interest rate fixed when the bonds are initially marketed, as well as the price of the bonds in the secondary market, will normally reflect the investor’s evaluation of the under- lying security of his investment and the prevailing inter- est rates available on similar types of securities. Prior to 1962 the Authority had successfully marketed several hundreds of millions of dollars of its consolidated bonds without the existence of the covenant. Presumably those issues were marketed on the strength of the Author- ity’s overall revenues and reserves as well as in reliance on the previously enacted statutory covenants and the cove- nants contained in the CBR. The interest rates on these bond i-sues varicd from a low of 234% (the 2nd and 4th series) to a high of 44%4% (16th series). The interest rate on the last bond issue offered prior to the enactment of the covenant was 344% (19th series). In the early 1960’s, prior to the enactment of the 1962 covenant, the likelihood of legislation directing the Au- thority to take over the H & M became apparent. The record strongly suggests that the Authority itself took the 39The secondary market in this context refers to the over-the- counter price at which the bonds are traded after the initial offering. 134 N.J.Super.—12 109a initiative in arousing the concern of the investment bank- ing community to the implications of such legislation for the future financial well-being of the Authority. Whether this action was attributable to the Authority’s fear of the “disease” of mass transit, see Goldberg, at 22, or a legitimate concern as to the Authority’s ability to absorb substantial mass transit deficits is not the point; the fact of the matter is that the Legislature of 1962 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 pro- mote continued investor confidence in the Authority. The fact of the covenant’s existence and its terms were communicated to the public and were a matter of general knowledge among investment bankers, institutional investors and dealers in Authority bonds. It may fairly be said, however, that few, if any, members of the investment com- munity ever analysed closely the actual effect of the 1962 covenant upon bondholder security. The principal witness offered by U. S. Trust in support of its contentions, John F. Thompson, whose credentials and qualifications are 1m- peccable, when asked to compare the protections afforded bondholders by the 1962 covenant with the restrictions im- posed by the CBR (i. ¢., the 1.3 test and the section 7 cer- tification required by the bond series’ resolutions), testified: Well the 1962 covenant and its requirements, require more specific determinations by the commissioners, by the staff and the commis- sioners as to the earnings or prospects of deficits involved, and they are — well, in the case of the Section 7 requirements, the commission- ers can simply rule or state their opinion that the requirement would not harm the holders of the outstanding debt. In the case of the 1.3 times, they are permitted estimates of future earnings to some degree as well ag the historical earnings. This is a test which might be complied with on the initiation of a deficit rai] facility, and later be found to have not avoided deficits by any means as given the propensity of these deficits to greatly increase. The determinations which must be made under the covenant, I believe, are much more susceptible to active testing, by those looking at the Port Authority from the outside, and those in the investment community a much more secure feeling about the future profitability of the Port Authority. 110a Based upon the testimony offered by plaintiff, the invest- ment community’s understanding of the covenant was that it in some manner furnished “security for the bondholders and it protected the diversion of the earnings of the Port Au- thority into deficit mass rail transit.” If the covenant is to be understood in that sense, the record supports plaintiff's claim that investors relied on the covenant in purchasing Authority bonds. But while reliance existed, the covenant cannot be said to have been the “primary consideration” for the purchases having been made, for no witness testified that purchases would not have been made without the covenant, but only that they would not have purchased or recommended the purchase of the bonds “at the price which they were then offered.” The limited role of the covenant on the Authority’s credit standing is also reflected in the ratings assigned to Port Authority bonds by the principal rating services, Moody’s and Standard and Poor’s. Both have rated Authority bonds as “A” bonds, meaning that they are of investment quality and no default in payment of principal or interest is an- ticipated. The bonds carried the same rating prior to the en- actment of the covenant, after it was enacted, after it was prospectively repealed, and after the repeal act of 1974. As suggested in the reports of the rating services, the rating as- signed to Port Authority bonds is an amalgam of many fac- tors, including not only the covenant but “the Authority’s strong operating, financial and management record”.*! Following the 1962 covenant legislation the Port Authority issued 20 series of bonds prior to the enactment of the pro- spective repeal which became effective on May 10, 1973. The interest rates on these bonds ranged from a low of 3-1/4% (20th series) to a high of 6-5/8% (35th series). After the prospective repeal was enacted, the Authority marketed 31As expressed by one of the witnesses, the Authority “has been well-run, well-organized, well-managed * * *. It’s continually shown good revenues.” llla two additional bond issues, the 40th and 41st series, which carried interest rates of 6% and 5-1/2%, respectively. While it is claimed by plaintiff that the last two series of bonds are indirectly protected by the covenant until the “affected” bonds are retired in the year 2007, it is clear that the interest raies which the Authority has had to pay on non- affected bonds were not materially affected by the absence of direct covenant protection. Plaintiff also attempted to show through its witnesses and exhibits that the repeal of the covenant adversely affected the secondary market for Authority bonds.*? This conclusion was expressed by several witnesses who voiced the opinion that not only was the secondary market price of the bonds ad- versely affected, but that the nature of the market was altered in the sense that the market for the bonds became thin® and large institutional investors refused to purchase the bonds after repeal. There can be no question but that immediately following repeal and for a number of months thereafter the market price for Port Authority bonds was adversely af- fected. This was conclusively demonstrated by plaintiff’s ex- hibits comparing the market price of selected Port Authority bonds, before and after repeal, with the prices of comparable bonds over the same period. The problem presented by plaintiff’s proofs, however, is that they do not show that the adverse effect attributable to the covenant repeal was permanent. Thus, immediately prior to repeal the price of Massachusetts Port Authority bonds was approximately two points higher than thet quoted for New York-New Jersey Port Authority bonds having the same interest rate and a similar maturity.** The spread in 82The repeal became effective when the concurrent New York legis- lation was signed by Governor Malcolm Wilson on June 15, 1974. 383A “thin” market is one characterized by a low volume of trad- ing in which the price structure of the market is subject to sharp fluctuation by relatively small buy or sell orders. 84The bonds prices referred to in the text are derived from Ex- hibits P-90 and S-3 and the trial transcript. ll2a favor of “Mass Ports” fluctuated immediately after repeal but showed a market tendency to increase until it reached a maximum of 6-1/2 points on August 2. The spread con- tinued to fluctuate thereafter and reached a maximum of 12 points by December 13, 1974. By January 3, 1975 the spread had narrowed to three points, and never exceeded four points through January 23, 1975. By the date of the trial the spread was reduced to two points, which is the same differential that existed prior to the effective date of the repeal. Furthermore, beginning in August 1974 there were other factors which unquestionably contributed to the adverse price differential prevailing between Port Authority bonds and those of comparable issues. On August 15, 1974 the Wall Street Journal carried a story detailing the Authority’s prob- lems in completing and renting space in the World Trade Center. Then, on November 10, 1974, the New York Times ran a multi-column feature story with the headline “Port Authority Has Fallen on Hard Times.” This story, like the one carried by the Wall Street Journal in August, referred to the Authority’s difficulties at the World Trade Center and its losses on that project, estimated in the article to be as high as $25,000,000 a year.* The article also suggested that other Authority facilities which formerly had been profitable were breaking even or losing money. It is to be noted that Port Authority bonds suffered their sharpest de- cline for the whole period under review during the one month period following the New York Times article. On November 8, 1974 the bonds were quoted at 78, and by December 13, 1974 the price had dropped to 65. The bottom line of plaintiff’s proofs on this issue is simply that the evidence fails to demonstrate that the secondary mar- ket price of Authority bonds was adversely affected by the 85The latest available figures disclose that the World Trade Cen- ter incurred a deficit for the year 1973 of $16,460,000. 113a 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 repeal The Validity of the Repeal of the Covenant. [2] Plaintiff’s position here is premised on the proposition that the 1962 covenant legislation created a contract between the States of New Jersey and New York and the bondholders of the Port Authority which prohibited the use of Port Authority revenues and reserve funds for passenger railroad purposes except as expressly permitted by the terms of the act. The repeal act of 1974, it is said, impairs the obliga- tion of that contract in violation of U. 8. Const., Art. I, § 10 of the United States (“No State shall * * * pass any * * * Law impairing the Obligation of Contract * * *”) and N. J. Const. (1947), Art. IV, § VII, par. 3. (“The Legislature shall not pass any * * * law impairing the obligation of con- tracts * * *).96 [3] At the outset it is essential to define the terms of the contract and the nature of the impairment claimed by plain- tiff. When the 1962 covenant was enacted there was in exis- tence the CBR of 1952, pursuant to which the Authority had pledged its net revenues and the reserve funds as security 86Plaintiff also urges that the repeal act contravenes the Fifth and Fourteenth Amendments of the United States Constitution and Article I, par. 20 of the New Jersey Constitution. The contention is that the repeal constituted a “taking” of property without due process of law, i.¢., just compensation. This issue will not be considered in this opinion for the following reasons: (1) to the extent that the claim is based upon an alleged reduction in the secondary market price of Authority bonds, it has been factually rejected supra, and (2) the test of constitutional validity as applied to repeal legislation is the same under the Contract and Due Process Clauses, i.¢., if an unlawful impairment has occurred there has been a “taking,” and if not, then there is no taking. See Veie Ass'n, 310 U. 8. 82, 41, 60 8. Ct. Ed; 1 Lynch vo. United States, 292 U. S. 571, 578-581, 54 S. L. Ed. 1484 (1984); Hale, “The Supreme Court and Clause: III,” 57 Harv. L. Rev. 852, 800 (1944). = ll4a for the payment of debt service on all consolidated bonds. The CBR and the series’ resolutions, pursuant to which all outstanding consolidated bonds were issued, constitute a con- tract between the bondholders and the Authority, and that contract was unaffected by the enactment of the 1962 covenant. The covenant superimposed upon the security pro- visions of the CBR and the series’ resolutions the further agreement of the states that neither the Authority’s revenues nor its reserve funds would be used for any additional passen- ger railroad facility whose estimated deficit would exceed 10% of the amount in the general reserve fund.*? 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.** Bronson v. Kinzie, 42 U. 8. (1 How.) 311, 11 L. Ed. 143 (1843) ; Planters’ Bank of Miss. v. Sharp, 47 U. 8. (6 How.) 301, 327, 12 L. Ed. 447 (1848); Haw- thorne v. Calef, 69 U. S. (2 Wall.) 10, 17 L. Ed. 776 (1864) ; Von Hoffman v. City of Quincy, 71 U. 8. (4 Wall.) 535, 18 L. Ed. 403 (1867); W. B. Worthen Co. v. Kavanaugh, 295 U. S. 56, 55 S. Ct. 555, 79 L. Ed. 1298 (1935); New Jersey Highway Authority v. Sills, 109 N. J. Super. 424 (Ch. Div. 1970), supplemented 111 N. J. Super. 313 (Ch. Div. 37The statutory formula for permitted deficits is set forth in more precise detail, supra at 162-163. 38It is not disputed by defendants that a legislative enactment, such as the 1962 covenant, may constitute a contract. Such has been the law since Fletcher v. Peck, 10 U. 8S. (6 Cranch.) 87, 3 L. Ed. 162 (1810). See also, New Jersey v. Yard, 95 U. 8. 104, 114, 24 L. Ed. 352 (1877), where the court said: “It has become the established law of this Court that a legislative enactment * * * may contain provisions which * * * become contracts * * * within the protection of the [Contract Clause].” The legislative history associated with the enactment of the 1962 covenant as well as the statutory language used establish fairly conclusively that the Legislature intended the covenant to be a contract between the states and the bondholders of the Authority. 1ll5a 1970), aff'd 58 N. J. 482 (1971) ; First Nat’l Bank of Boston v. Main Tpke. Auth., 153 Me. 131, 136 A. 2d 699 (Sup. Jud. Ct. 1957). [4] The Contract Clause addresses itself not only to the obligation, but also to the remedy and the security furnished to enforce the obligation and assure its performance. The first expression of this view of the Contract Clause occurs in Green v. Biddle, 21 U. 8. (8 Wheat.) 1, 5 L. Ed. 547 (1823), which arose out of a compact between Virginia and Kentucky creating the latter as a separate state. Under the terms of the compact Kentucky agreed that all private rights and land titles derived from the laws of Virginia would “remain valid and secure” under Kentucky law. Thereafter, Kentucky en- acted a series of laws designed to diminish and impede the remedies available to Virginia claimants to recover possession and the rents and profits of lands occupied by Kentucky resi- dents. In holding the legislation invalid under the Contract Clause, Justice Story said: It is no answer that acts of Kentucky, now in question, eve regula- tions of the remedy, and not of the right to lands. If those acts so change the nature and extent of existing remedies, as materially to impair the rights and interests of the owner, they are just as much a violation of the compact as if they directly overturned his rights and interests.” [21 U. 8S. (8 Wheat.) at 17).89 89Upon rehearing in Green v. Biddle, Justice Washington delivered the opinion of the court containing perhaps the most extreme ex- pression of the reach of the Contract Clause rendered by the court: The objection to a law, on the ground of its impairing the ob- ligation of a contract, can never depend upon the extent of the change which the law effects in it. Any deviation from its terms, by postponing, or accelerating, the period of performance which it prescribes, imposing conditions not expressed in the contract, or dispensing with the performance of those which are, however, minute or apparently immaterial in their effect upon the contract of the parties, impairs its obligation. [21 U. 8. (8 Wheat.) at 8488] In contrast to the language of Justice Story quoted in the text above, Justice Washington states that ony impairment, whether or not material to the obligation, violates the Contract Clause. It is 1l6a In Von Hoffman v. City of Quincy, supra, bonds were is- sued by a city under existing Illinois law which authorized a special property tax to be levied in an amount sufficient to pay the interest on the bonds. The taxes thus collected were to be held in a separate fund specially pledged for the payment of the interest and not to be used for any other purpose. Subsequently, the legislature enacted a statute which limited the rate of property tax that could be levied by municipalities, and repealed the prior law authorizing the levy of a special tax for the benefit of bondholders. The property taxes col- lected by the city under the new law were insufficient to pay the interest due on the bonds. A bondholder instituted suit against the city and judgment was entered in his favor for the amount of interest owed on the bonds. The city failed to pay the judgment and refused to levy a property tax for such purpose. The judgment creditor thereupon sought a writ of mandamus to compel the city to pay the judgment or to levy a special tax. In its defense the city relied upon the repeal legislation as constituting a valid exercise of the state’s sovereign power with respect to future public revenues, as to which it urged no binding contract could exist.4° The court held the repeal legislation to be an invalid impairment under the Contract Clause. The court reaffirmed the doctrine laid down by Justice Story in Green v. Biddle, supra, this time describing the prohibited area in terms of an impairment of “substantial” rights, rather than a “material” impairment. It is competent for the States to change the form of the remedy, or to modify it otherwise, as they may see fit, provided no substantial right secured by the contract is thereby impaired. No attempt has been made to fix definitely the line between alterations of the remedy, doubtful whether this view was ever embraced by the court at any time. But see Planters’ Bank of Miss. v. Sharp, 47 U. 8. (6 How.) 301, 327, 12 L. Ed. 447 (1848); Ogden v. Saunders, 25 U. S. (12 Wheat.) 213, 256, 6 L. Ed. 606 (1827). 40The Supreme Court had earlier rejected this argument in a dif- ferent context. See New Jersey v. Wilson, 11 U. S. (7 Cranch.) 164, 3 L. Ed. 303 (1812). 117a re to be deemed legitimate, and those which, under the form Seaton the remedy, impair substantial rights. Every case must be determined upon its own circumstances. Whenever the result last mentioned is produced, the Act is within the prohibition of the Con- stitution, and to that extent void. [71 U. S. at 553). In its analysis of the issue presented the court viewed the question as addressing itself to the impairment of a remedy. However, the “remedy” in this context is actually the security furnished for the payment of the obligation, i. e., the authorization to levy a special property tax to pay the interest on the bonds. This line of authority culminates in W. B. Worthen Co. v. Kavanaugh, supra, one of the last adjudications by the Supreme Court declaring repeal or amendatory legislation invalid under the Contract Clause. In Kavanaugh bonds had been issued by a municipal improvement district or- ganized under the laws of Arkausas. At the time of issu- ance the statutory scheme to secure payment of the bonds provided for mortgage benefit assessments to be made against each parcel of property which “contained provisions well planned to make these benefit assessments an acceptable security.” 295 U. 8. at 57, 55 S. Ct. at 555. Thereafter, the legislature amended the statute so as to modify the pro- cedures relative to defaulted obligations. The interest and penalties payable on default were substantially reduced, the time in which the property was to be sold for nonpayment was extended from 65 days to 2% years, and the property owner was permitted to remain in possession with a right of redemption for a further period of four years without accounting for rents. The court struck down the subse- quent legislation under the Contract Clause and in the course of doing so it gave a more precise definition of what constitutes a prohibited impairment. Speaking for the court Justice Cardozo said: In the books there is much talk about distinctions between changes of the substance of the contract and changes of the remedy. The dividing line is at times obscure. There is no need for the 118a purposes of this case to plot it on the legal map. Not even changes of the remedy may be pressed so far as to cut down the security of a mortgage without moderation or reason or in a spirit of oppres- sion. Even when the public welfare is invoked as an excuse, these bounds must be respected. * * * We state the outermost limits only. In stating them we do not exclude the possibility that the bounds are even narrower. The case does not call for definition more precise. A catalogue of the changes imposed upon this mortgage must lead to the conviction that the framers of the amendments have put restraint aside. With studied indifference to the interests of the mortgagee or to his appropriate protection they have taken from the mortgage the quality of an acceptable investment for a rational investor. 7 ° . 7 > > ° * Whether one or more of the changes effected by these statutes would be reasonable and valid if separated from the others, there is no occasion to consider, A state is free to regulate the procedure in its courts even with reference to contracts already made * * * and moderate extensions of the time for pleading or for trial will ordinarily fall within the power so reserved. A different situation is presented when extensions are so piled up as to make the remedy a shadow. * * * What controls our judgment at such times is the underlying reality rather than the form or label. The changes of remedy now challenged as invalid are to be viewed in combination, with the cumulative significance that each imparts to all. So viewed they are seen to be an oppressive and unnecessary destruction of nearly all the incidents that give attractiveness and value to col- lateral security. [295 U. S. at 60, 62, 55 S. Ct. at 557]. [5, 6] As the language of the court in the cases cited above makes manifest, not every impairment of a contract obligation or security for its performance runs afoul of the Contract Clause; a state acting under its reserved police powers may alter its remedial processes and thereby diminish contractual security provided it does not destroy its quality as “an acceptable investment fora rational investor.” This view of the Contract Clause has its origin in the concurring opinion of Justice Johnson in Fletcher v. Peck, 10 U. 8. (6 Cranch) 87, 145, 3 L. Ed. 162 (1810). See Hale, supra at 873. Justice Johnson’s conception of the states’ reserved power under the Contract Clause was cogently expressed in his dissenting opinion in Ogden v. Saunders, 25 U. 8. (12 Wheat.) 213, 6 L. Ed. 606 (1827), where he said: 119a Societies exercise a positive control as well over the inception, con- struction, and fulfillment of contracts, as over the form and measure of the remedy to enforce them. + ° . . . . ¢ + herefore, far from being truc, as a general proposition, “ats r canine necessarily violates the obligation of a contract which it puts an end to without performance.” It is the motive, the policy, the object, that must characterize the legislative act, to affect it with the imputation of violating the obligation of contracts. [25 U. 8. (12 Wheat.) at 286, 291.] [%] Justice Johnson’s formuiation of the police power doctrine as applied to the Contract Clause was quoted with approval and forms the rationale for the court’s decision in Home B. & L. Ass'n v. Blaisdell, 290 U. 8. 398, 428-429, 54 S. Ct. 231, 78 L. Ed. 413 (1933). During the span of more than a century between Ogden v. Saunders and Blais- dell the court had held on numerous occasions that the states retained the power to impair contractual obligations — including those to which the state was a party — in the exercise of their always reserved police powers to act in the interest of the public health, safety and general wel- fare.“ First in dictum, Boyd v. Alabama, 94 U. S. 645, 650, 24 L. Ed. 302 (1877), and then by direct application of the doctrine, the court held that a lottery franchise granted for a definite term of years could be repealed. Stone v. Mississippi, 101 U. 8. 814, 25 L. Ed. 1079 (1880) ; Douglas v. Kentucky, 168 U. 8. 488, 18 S. Ct. 199, 42 L. Ed. 553 (1897). In Northwestern Fertilizing Co. v. Hyde Park, 97 U. 8. 659, 24 L. Ed. 1036 (1878), it was held that a franchise to operate a fertilizer factory at a given location could be negated by the exercise of the police power to abate a nuisance. Similarly, the power to control the use of the public streets may not be bargained away, + Lad 2 Not 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 in- terests of its people. It does not matter that legislation appropriate to that end “has the result of modifying or abrogating contracts al- ready in effect.” Stephenson v. Binford, 287 U. 8. 251, 276, 53 8. Ct. 181, 189, 77 L. Ed. 288. Not only are existing laws read into con- tracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order. The policy of pro- tecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worth while, — a government which retains adequate authority to secure the peace and good order of society. This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court. [200 U. 8. at 428, 434-5, 54 8. Ct. at 236) [8-10] The line of demarcation between Blaisdell and Kavanaugh may be expressed as one of degree: The states’ inherent power to protect the public welfare may be validly exercised under the Contract Clause even if it impairs a contractual obligation so long as it does not destroy it. While Blaisdell placed great emphasis upon the emergency character of the Minnesota law to validate the action taken, decisions of the court since then have sanctioned nonemer- gent legislation impairing contractual rights and remedies where necessary to protect the economic well being of the state. See Veir v. Sizth Ward B. & L. Ass’n of Newark, 310 U. 8. 32, 60 S. Ct. 792, 84 L. Ed. 1061 (1940) ; Gel- fert v. National City Bank, 313 U. 8. 221, 61 S. Ct. 898, 85 L. Ed. 1299 (1941). Furthermore, in keeping with the principles set forth in Kavanaugh, we must deal with reali- ties and not abstractions, for “[t]he Constitution is ‘in- 122a tended to preserve practical and substantial rights, not to maintain theories.’” Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U. 8. 502, 514, 62 S. Ct. 1129, 1133, 86 L. Ed. 1629 (1942). The most recent case dealing with the issue, and that upon which defendants place greatest reliance, is City of El Paso v. Simmons, 379 U. 8. 497, 85 S. Ct. 577, 13 L. Ed. 2d 446, reh. den. 380 U. 8. 926, 85 S. Ct. 879, 13 L. Ed. 2d 813 (1965). The facts of the case may be briefly sum- marized. Texas law had provided for the sale of public lands on easy credit terms to raise money for school funds and to encourage land settlement. The credit terms set forth in the law governing such sales included a provision per- mitting the contract owner, were the land forfeited back to the State for nonpayment of interest, an unlimited time in which to reinstate the contract by payment of back inter- est, subject only to the rights of intervening third persons. In 1941, after a history of land title disputes and rampant speculation in such lands, Texas limited the right of rein- statement to five years. Upon expiration of this five-year period the State would have clear title. Simmons, owner of a quitclaim deed to land contracted for in 1910, had not made timely payment of the interest arrearages. His con- tract title was forfeited by the state which subsequently transferred the land to the City of El Paso. He instituted suit against the city to determine title to the land, urging that the 1941 law was a violation of the Contract Clause since it not only impaired his contractual right of rein- statement but destroyed it completely. The 1941 legislation was held by the court to constitute a valid exercise of the state’s power to modify or affect the obligation of its contracts. The essential question, in the court’s view, was not whether the statute impaired the “obligation” or the “remedy”, for not “every modification of a contractual promise * * * [or] every alteration of ex- isting remedies * * * violates the Contract Clause.” 379 123a U. 8S. at 506-507, 85 S. Ct. at 582. Rather, the question was whether the modification of the contractual obligation to reinstate the purchaser’s title was reasonable on the facts disclosed. Citing the legislative history, the court noted that Texas had a vital interest in “the integrity of land titles” and in the administration “of its property in a busi- nesslike manner” (379 U. S. at 511-12, 85 S. Ct. at 585) and * * © [t]he Contract Clause of the Constitution does not render Texas powerless to take effective and necessary measures to deal with [these matters]. * * * [T])he promise of reinstatement, whether deemed remedial or substantive, was not the central undertaking of the seller nor the primary consideration for the buyer’s undertaking. * © © We do not believe that it can seriously be contended that the buyer was substantially induced to enter into these contracts on the basis of a defeasible [sic] right to reinstatement in case of his fail- ure to perform * * * We, like the Court in Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U. 8. 502, 514, 62 8. Ct. 1129, 1135, 86 L. Ed. 1629, believe that “[t)he Constitution is ‘intended to pre- serve practical and substantial rights, not to maintain theories.’ ee" 279 U. 8. at 515-515, 85 8. Ct. at 586. - ° s o . s e e The measure taken to induce defaulting purchasers to comply with their contracts * * * was a mild one, indeed, hardly burdensome to the purchaser who wanted to adhere to his contract of purchase, but nonetheless an important one to the State’s interest. The Contract Clause does not forbid such a measure. (379 U. 8S. at 516-517, 85 8S. Ct. at 588] The view of the Contract Clause and its subservience to the police power as expressed in Blaisdell and El Paso co- incides with the interpretation placed upon the Contract Clause of the New Jersey Constitution as interpreted by our highest courts. Thus, in Hourigan v. North Bergen Tp., 113 N. J. L. 143 (E. & A. 1934), Justice Heher cited Blaisdell with approval for the proposition that “the reser- vation of essential attributes of sovereign power” is to be read iuto the contracts of the State. He there defined the police power as 124a * * © an exercise of the sovereign right of the governr :nt to tect the lives, health, morals, comfort and general welfare of people and [it] is paramount to any rights under contracts between individuals. While this power is subject to limitations in certain cases, there is a wide discretion on the part of the legislature in de- termining what is and what is not necessary — a discretion which courts ordinarily will not interfere with. [at 149] [11] Neither New Jersey Highway Auth. v. Sills, supra, nor New Jersey Sports & Expos. Auth. v. McCrane, 61 N. J. 1 (1972), app. dism. 409 U. 8. 943, 93 S. Ct. 270, 84 L. Ed. 2d 215 (1972), suggests that our present Su- preme Court has adopted a narrower interpretation of the Contract Clause of either the State or the Federal Constitu- tions. In Sills the court viewed a statute exempting Na- tional Guardsmen from the payment of tolls on the Park- way as “ordinary and relatively unimportant legislation” not intended to deal with “any problem of state-wide im- portance” as was the case in El Paso (111 N. J. Super. at 320). And in McCrane the Supreme Court expressly af- firmed that while a contract between the State and the bondholders of an independent governmental authority is entitled to protection under the State and Federal Consti- tutions, such contracts are nevertheless subject to “a proper exercise of the State’s never abdicated police powers.” 61 N. J. at 26. [12] The history of the creation and evolution of the Port Authority establishes beyond peradventure that it was in- tended by the states and by the Congress to perform govern- 42In their brief and at oral argument defendants ask the court pass upon the validity of the New York repeal act under the N: York Constitution. While it would unquestionably be desirable do so in the interest of resolving all issues within the context 4 litigation, that question should be left to the New York cou decision. Cf. Interstate Wrecking Co. v. Palisades Intersta cnee | Comm'n, 57 N. J. 342, 352 (1971). It may be noted that U. py gt hyd a Seale ’ Court which is presently pending. 134 N.J.Super.—13 HH 125a mental functions necessary and vital to the public safety, health and welfare of the citizens of the two states and the nation as well. Cf. Comm’r of Int. Rev. v. Ten Byck, 76 F. 2d 515, 518 (2 Cir. 1935). The states have a continuing interest in and can never abdicate their sovereign powers to control and direct the activities of the Authority to meet the everchanging needs of a complex bociety. See Blaisdell, supra, 290 U. S. at 442, 54 S. Ct. 231. Senator Farley summed it up when he advised Commissioner Kellogg in 1961: * * * I appreciate that if the Legislature directs you to enter into a contract involving the issuance of bonds, there will be no impair- ment of obligations of contract, but I must call to your attention and the members of your Commission that one Legislature cannot bind a subsequent Legislature invol:ing policy. If, perchance, may I illustrate — ten, fifteen, twenty years from now the respective legis- latures of New York and New Jersey importune your Port Author- ity Commission to do something in addition involving public service, one legislature cannot bind another ‘nvolving policy. [Supra at 157] The interest of the states in the development of a coordi- nated system of public and private transportation within the Port District hes vee spread on the public record for more than 50 years, and legislative action to accomplish that ob- jective clearly involves an exercise by the states of their fundamental sovereign powers. The enactment of the 1962 covenant was indeed an attempt to satisfy an immediate pub- lic need to preserve the H&M as a viable public transporta- tion system. The 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. [13,14] The events which occurred between the passage of the covenant and its repeal are described elsewhere in this opinion (supra at 167-176) and need not be detailed again. 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 126a whatever source and without any significant impairment of bondholder security, was correspondingly increased.** During the same interval mass transit facilities within the District continued to deteriorate while the public need for such facili- ties became unprecedented as the result of the promulgation of stringent federal air pollution regulations designed to re- duce automobile usage and the emergence of an energy crisis which threatened the entire system of private automobile transportation in the two States.“ “The motive, the policy [and] the object” of the repeal legislation, read against its background, was to further a vital interest of the states which their Legislatures deemed to be essential to the public good. The question is whether the exercise of such power falls within the prohibited scope fo the Contract Clause, or does it, in the language of Chief Justice Hughes in Blaisdell, represent “a rational compromise between the individual rights and the public welfare.” 290 U. S. at 442, 54 S. Ct. at 241. Conceding the existence of some impairment of bond- holder security as a result of the repeal, has the action of 43Between 1961 and 1973 the net revenues of the Authority in- creased 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, after taking into account the deficits of the H&M. Through 1974, the corresponding figures are $161,283,000 and $649,750,000, respectively. 44Plaintiff urges that none of the legislative history (detailed at 167-176, supra) which preceded the repeal of the covenant should be considered relevant to the question of whether the repeal con- stituted a reasonable exercise of the states’ police powers inasmuch as the repeal legislation was unnecessary and the Legislature made no findings or declarations with respect to such matters. A judg- ment as to the necessity of the legislation is for the Legislature and not the courts. See Hourigan v. North Bergen Tp., supra 113 N. J. L. at 149. Nor is the Legislature required to make explicit findings and declarations within the context of the legislation to support an exercise of the police power. See Gelfert v. Nat'l. City Bank of N. Y., supra 313 U. 8. at 235, 61 S. Ct. 898; Bucsi v. Longworth B. @ I. Asa’n, 119 N. J. L. 120, 122 (E. & A. 1937), app. dism. 305 U. 8. 665, 59 S. Ct. 154, 83 L. Ed. 431 (1938). 127a the states destroyed the quality of their security as an “ac- ceptable investment for a rational investor”? The repeal, of course, leaves intact the provisions of the CBR and the series resolutions which now constitute, together with the General Reserve Fund Act, the same measure of the bondholders’ con- tractual security rights as existed prior to the enactment of the covenant in 1962. Presumably, rational investors—includ- ing plaintiff—purchased hundreds of millions of dollars of consolidated bonds prior to 1962, without the additional se- curity afforded by the covenant and with full knowledge of the power of the states to direct the Authority into mass transit operations. The two principal bond rating services, upon whose judgment the financial community places great reliance, rated the consolidated bonds—minus the covenant —as securities as to which no default was anticipated. The claim that bondholder security has been materially im- paired 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 con- tinue to be prohibited from the issuance of any consolidated bonds or other bonds secured by a pledge of the general re- serve fund without the certification required by section 7 of the series resolutions, to wit, that in the opinion of the Au- thority 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. [15] Plaintiff's claim of an unconstitutional impairment is predicated upon such slender reeds as the assertion that the “quality” of the certification required und [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_2399%3A02. Public record. Not legal advice.