United States Trust Company of New York v. New Jersey – Oral Argument – November 10, 1976

Media for United States Trust Company of New York v. New Jersey

Audio Transcription for Opinion Announcement – April 27, 1977 in United States Trust Company of New York v. New Jersey

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Warren E. Burger:

We’ll hear arguments next in United States Trust Company against New Jersey and others.

Mr. Milburn, I think you may proceed when you’re ready.

Devereux Milburn:

Mr. Chief Justice and may it please the Court.

This case comes from the Superior Court, Bergen County, New Jersey, a decision by Judge Gilman, appealed directly to the Supreme Court of New Jersey, affirmed largely on the opinion of Judge Gilman.

We filed a jurisdictional statement with this Court, probable jurisdiction was noted and here we are.

Let me say at the beginning before I start the statement of facts.

We have a stipulation among counsel of 387 pages plus exhibits.

Of all the briefs, at least half are devoted to facts and they are lengthy, according to new standards, too lengthy.

However, I would like to very briefly review the facts.

I would then like to discuss the question of emergency as it applies to the impairment of contracts.

I would then like to discuss the reliance of bondholders upon the 1962 covenant and then the protection afforded to bondholders by the 1962 covenant.

The facts very briefly are that the subject after the report of a commission in 1921 a compact was entered into between New Jersey and New York establishing the Port Authority.

In 1922, a comprehensive plan was adopted, both of those have the consent of Congress.

In the comprehensive plan, I think without question, there was no mention of passenger traffic.

The Port Authority was conceived to handle the freight problem in the Port District.

Things went along quietly until about 1927 and a legislation was passed requiring the Port Authority to take over the passenger Mass Transit problem.

This legislation was vetoed by Governor Smith and I might add that Governor Smith was an architect of the compact and of the comprehensive plan and he pointed out on his veto message that the moving of freight was a primary, the soul — no, I won’t say the soul, but the primary and the most important job for the Port Authority and the one for which they were created.

The Port Authority thrives although the Mass Transit problem was chronic.

In 1959, there was a legislative finding out of a joint assembly committee of the New Jersey legislature.

I would call your attention to page 16 of appellee’s brief and page seven of our reply brief.

Page seven of our reply brief sets out this finding a little more completely shall we say than the brief of appellee.

Warren E. Burger:

Did you say page 16?

Devereux Milburn:

Seven of our reply briefs.

16 of appellee’s brief, the blue one and 7 of our brief.

It says that no doubt, the Port Authority could undertake an activity which would involve a deficit even a pendent one.

If you’re reading the appellee’s brief, that’s where it stops with a period.

But I would like to just continue what’s in our brief.

It could only do so if there was real assurance that the size of the deficit would be such that there could be no doubt of its ability to absorb it, an important addition.

Now, nothing came of that, but in 1959, there were rumblings about the H&M, the Hudson Tubes.

The rumblings was such that were cause by the fact that a District Court had just decided that the Hudson Tubes could continue and gave them enough cash for two years.

Devereux Milburn:

It was obvious something had to be done and the Port Authority was looked to and it was suggested to them.

Now, the Port Authority was not unused to deficits.

Ever since 1931 and the General Reserve Fund, the Port Authority had gone on a pooling paces.

It took its revenues and it took its deficits and then mixed them all together, but we are talking about deficits.

Let me point out that, for instance that in 1962, the biggest deficit we’re talking about was $500,000.00 for the Newark Airport.

Now, all these deficits came from facilities which were expected to make money and most of them didn’t.

It took a long time for some of them, but they all, except with the one or two minor exceptions made money and the major deficit in 1962 was $529,000.00.

So, along comes the H&M, and what it its projective deficit, $5 Million, a completely different bargain.

Now, $5 Million was expected to level out at $6,725,000.00 over of a period of time.

There are two fallacies.

It didn’t level out at $6 Million.

It leveled out, well to take 1973, at $18 Million operating deficit plus $7 or more Million debt service or $25 to $28 million.

Now, that is important because it shows how wrong people can be when they project deficits and as you will see that becomes very important later.

Warren E. Burger:

Nothing unique about that in public enterprise?

Devereux Milburn:

No sir.

Warren E. Burger:

You are right and it still goes on and will.

Devereux Milburn:

Now, with this deficit, looking the investors in the face, a new deficit, a completely different concept of $5 Million to $6 Million, we are told with that Austin Toven went out and beat up investment consent.

I don’t think you have to beat up investment consent when this type of operation, which you’re not used to and which you don’t want is face-to-face with you.

Now, the 1962 covenant isn’t very long, but what it provides is that if you take over —

William J. Brennan, Jr.:

Excuse me Mr. Milburn.

You mentioned Mr. Toven.

Was this after his retirement or — ?

Devereux Milburn:

No sir.

This is 1961 when he was beating up the investor consent for that $6 Million deficit.

The 1962 covenant, basically what it said was you take H&M and you don’t have to take anymore railroad deficits.

There were limitations, but we’ve all agree that the cause of the PATH deficit at the moment, does no room for anymore Mass Transit Enterprises because they are all deficit and we’ve used up the limitations which were contained in the covenant.

The covenant was passed, the investments were made and things were quite until 1971, and $1,200,000,000.00 worth of bonds were sold during that period with the covenant in effect.

In 1971, there was a hearing on our same old favorite subject in the Port takeover, Mass Transit.

In 1972, there were further hearings and New York repealed the covenant and Governor Rockefeller signed it.

This was too much for New Jersey.

Devereux Milburn:

They thought that it was an unconstitutional act and they would not go along.

In 1973, we had more hearings and finally, what happened was, there was a prospective repeal of the covenant because it was thought that a Retroactive Appeal would be unconstitutional.

Included in that legislation was the original PATH Triborough-Kennedy Newark Link.

Now, in 1974, the covenant was repealed without any further legislative hearing.

We can guess why it was repealed and we can guess right or we can guess wrong, we do not know why it was repealed.

We do know this, however, built into the covenant, there is a provision for changing it, from modifying it and that provision calls for the consent of two-thirds of the bondholders.

This may sound like a difficult proposition, but I might remind the Court that it was done in the Triborough Bridge Authority case where the bondholders can set them.

They got an extra quarter of a point and they put out something like $305 Million which was applied to Mass Transit.

No effort was made to contact the bondholders.

I understand, it would be absolutely impossible to contact them, but I have to tell you that I understand that from being sovereign and from nobody else.

I do not know why they didn’t try, I know they didn’t try.

Now, we have heard, we’ve read in the briefs, a great deal of $40 million which is going to be realized from an increase in the fares over Port Authority facilities, George Washington Bridge, in particular they were doubled.

We are not sure they‘re going to stay double because of the Bridge Act of 1906 and because there are hearings, and because there is certain amount of litigation.

But right at the moment, they are doubled, and it is anticipated if they hold they would give out $40 Million.

We are told by appellees, this $40 Million would go to Mass Transit.

It said it was going to Mass Transit and the paraphernalia went along with the toll rate, but let me ask you this, how can it go to Mass Transit?

It belongs to the bondholders under the rate schedule, under the rate agreement.

It doesn’t just go $40 Million to Mass Transit.

It goes into the PATH and what does that mean?

It means that between 1974 and 1975 the surplus of the Port Authority after a mandatory provision for the retirement of two years of debt service amounted to $296,000.00.

Where did the $40 Million go?

It went to increased expenses of the Port Authority.

There is no $40 Million that we’re talking about.

That goes into the bondholders PATH and what came out was $296,000.00.

If there is an overflow from or flow through of the $40 Million, it can go to Mass Transit, but the flow through we’re talking about is $296,000.00 which does not deal much with Mass Transit.

John Paul Stevens:

Mr. Milburn, has the covenant been repealed by New York too?

Devereux Milburn:

Yes.

It had to be.

John Paul Stevens:

Whole State, is it?

Devereux Milburn:

By a State action, yes, sir.

Devereux Milburn:

They did it both in the — I believe sir in 1974 months apart.

John Paul Stevens:

Was the New York repeal was litigated in the New York Court?

Devereux Milburn:

It has been litigated.

John Paul Stevens:

I see, that’s still not —

Devereux Milburn:

There’s been a complaint and an answer, and a lot of papers prepared, but if you ask me why we haven’t proceeded immediately, I’ll give you the answer; we were waiting for the Flushing Bank case to come down from the Court of Appeals of New York.

The argument was September 8th, we haven’t had the decision and I have to confess I’m surprised we haven’t had it, but depending on that simply using that in our papers we will proceed in the —

William J. Brennan, Jr.:

What’s the issue there Mr. Milburn?

Devereux Milburn:

Big Mack.

Now, the New York notes —

William J. Brennan, Jr.:

Yes.

Devereux Milburn:

New York notes it were extended and somebody sued and —

William J. Brennan, Jr.:

Yes.

Devereux Milburn:

— it’s before the Court of Appeals of New York.

William J. Brennan, Jr.:

What’s the (Inaudible) support authority about it?

Has it been effected by this appeal?

Devereux Milburn:

The effect on the market was for a period of eight months.

There was a very decided drop and we used the Mass Ports as a comparison and it showed a decided-drop for eight months and then a basic return and leveling off.

I can say in that connection that prior the repeal —

William J. Brennan, Jr.:

A leveling off at what?

Devereux Milburn:

At about the same as same spread.

Prior the repeal the Port Authorities in New York were of much finer bond than Mass Ports.

After repeal, they have never been a finer bond than Mass Ports.

Now I have to admit that when we pick Mass Ports, we pick a limit.

There was fine for that short period after appeal.

But all of sudden Mass Ports got mixed up and political controversy in Massachusetts where the Governor tried to take over the Commissioners and make their term co-terminus with his, and in other words, it became a political football and that affected the market.

The banks blew a fuse, if you will, and just to complain in the market, their market reacted accordingly, so we picked the wrong one.

We could not predict that, but during before that and during the eight-month period, there was a decided-drop in the secondary market.

Now, we admit that the States have another advocated police power.

We’ve heard that time and time again and we admit its there to take lotteries, prohibition, things like that to —

Byron R. White:

Even with respect to its own obligation?

Devereux Milburn:

Even if — well, in this — may I say this.

I do not admit that there has ever been a case where a contract in a form of a statute made by a State or two sovereign States with its creditors made to induce investment, bargained for and relied upon has ever been reputed and sustained in the Courts.

Byron R. White:

You could have a few more facts and just describe this case.

Devereux Milburn:

I almost did, I think sir.

Byron R. White:

That’s not what I thought.

Devereux Milburn:

I may have misled —

Byron R. White:

Even — you wouldn’t say there’s any per se rule against a State exercising its police powers with respect to its own obligation?

Devereux Milburn:

Per se no.

I think that that’s — it is possible that circumstances could exist where the State can do anything.

Byron R. White:

What you think of this case is a —

Devereux Milburn:

This case I think is —

Byron R. White:

— is distinguishable from any cases that approve the modifications such as El Paso?

Devereux Milburn:

I do sir and if a — would you like to discuss El Paso?

Byron R. White:

No.

Devereux Milburn:

I wish you will hear bring it alive.

Byron R. White:

You’ve gone by along there.

Devereux Milburn:

We’re going to discuss El Paso, Mr. Justice White.

Thurgood Marshall:

Mr. Milburn, we don’t need — the creditors know but how long is Holland Tunnel been paid for? Did you make agreement on that that if it were paid for it, it would be free?

Devereux Milburn:

[Laughter] No, sir.

That’s part of our pool.[Laughter]

That takes care of some of the deficits including PATH.

As a matter of fact the Holland Tunnel was thrown in to make a pool work because at that time everybody is going busted around 1931 and 1932 including the Port Authority and the pool wasn’t working because of a deficit pool and the State’s put in the Holland Tunnel and that brought it up over.

And that’s one of our pride and joys after the George Washington Bridge.

Now, what justifies the use of the police power?

In such a case as we have here, if it can be justified and I say, that Blaisdell and its progeny established that it must be an emergency.

Now, Blaisdell had a real emergency.

They have mobs in the Middle West.

They have the —

Warren E. Burger:

Do you mean something like the Minnesota Mortgage Moratorium?

Devereux Milburn:

This was it, sir.

Devereux Milburn:

Yes, that was the statute in Blaisdell and there were riots and there were mobs and something had to be done.

The statute was passed and Mr. Justice Hughes’ opinion in that case refers again and again, and again to emergency.

He also refers to temporary.

Now, the appellees say in their case that an emergency is not necessary.

No case that I can find has ever so held, Gelfert doesn’t which is cited by appellees.

In Gelfert, the contract was not covered by the contract clause and that was a result of Honeyman against Jacobs.

But then they tried to say because there is no emergency declared, therefore, the police power doesn’t work, therefore, you’re covered by the contract clause and the Court said nothing doing it.

If you weren’t covered on Honeyman and Jacobs just because there’s no emergency, we’re not going to slip you in under that coverage.

So, the fact that there was no emergency declared, didn’t help Gelfert because it wasn’t covered by the contract clause.

You don’t have a conflict between police power and the conflict for contract clause in Gelfert and the other case’s name I have difficulty to pronounce it but I call it Viex — V-I-E-X.

There was an emergency, but I think we’re directing — the attention is directed in that case against the word temporary.

Now, Mr. Justice Hughes used temporary all the way through his decision in Blaisdell.

But here the Court said, “You have a serious crisis, you had an emergency, you passed permanent legislation.”

Now, let’s take a look at it and they took a look at it, and they said that situation still exists. You still got withdrawals from your savings and loans.

Your insurance companies will all be controlled.

We’re not going to strike down that because it isn’t temporary.

We are going to permit permanent legislation because the facts that gave rise to the emergency are still there.

Now, why did do appellees claim that they can — that doesn’t have to be an emergency.

In my opinion, it’s because they got a very poor emergency and it would be nice if you could say they did not have to have one because they’ve got two — that the legislature didn’t consider them as far as we know.

Maybe they did, but as far as we know, as far as there’s any legislative history that legislature did not talk about energy.

The legislature did not talk about the environment and neither did Governor Burn and neither did Governor Wilson.

Byron R. White:

What did they talk about?

Devereux Milburn:

Nothing.

Byron R. White:

Well, they must have — this wasn’t just a focus thing.

I don’t see the —

Devereux Milburn:

As far as — as far as the record shows, Mr. Justice White, it was completely focused.

Now, they might have been thought.

Byron R. White:

You would like to — I know you would like to say they’re — it was that and they would like say there was an emergency.

Devereux Milburn:

That is exactly right.

Byron R. White:

But the —

Devereux Milburn:

But I don’t what would made —

Byron R. White:

Is there any evidence at all?

Devereux Milburn:

No.

If you’re talking about energy and if you’re talking about environment, if you say that there was an energy crisis, we admit that.

We ought to have, to get gasoline, sure there was one, but they didn’t mention it.

They did not tie their legislation to the —

Byron R. White:

Or perhaps, at the minimum you could say their object was to achieve what the repeal of the covenant would achieve, which was what?

Devereux Milburn:

They, as far as we know, the object was to put the Port Authority in the Mass Transit.

Byron R. White:

Well, that’s a —

Devereux Milburn:

And the Mass Transit is going to — someday it’s going to have an effect on environment and it’s going to have an effect on energy.

William J. Brennan, Jr.:

Do you say Mr. Milburn to put the Port Authority in the Mass Transit?

Devereux Milburn:

Well, let’s reverse that.

Put Mass Transit on the Port Authority it was —

Byron R. White:

With the covenant that they could –Mass Transit would mean more deficits and the covenant would prevent more deficits?

Devereux Milburn:

Absolutely.

John Paul Stevens:

And the —

Devereux Milburn:

The covenant basis had no more error.

No more Mass Transit because it is all deficit and we agree with you and I could put it in.

So, that’s what the covenant said.

So, that’s a stumbling line.

There is no question about that.

Byron R. White:

So was there an emergency about Mass Transit?

I guess you would say there isn’t anymore than always it did?

Devereux Milburn:

Well, I can go back to 1921 if you like and come all the way through, there’s always been an emergency — well, why is that word because I don’t think it’s apt, it’s — it’s chronic situation.

Emergency to me is a house on fire.

Byron R. White:

And it’s precisely the object of the covenant?

Devereux Milburn:

Precisely.

Byron R. White:

Yes.

Devereux Milburn:

Was to stop it and — and to get the investors to put the money in to buy H & M which is Mass Transit and it is a beautiful piece of Mass Transit they —

Byron R. White:

The covenant said this is one emergency that we won’t take care of on the Port Authority, that’s what the covenant said?

Devereux Milburn:

Comes with what?

Byron R. White:

If you call Mass Transit as an emergency, you can say that the covenant said this is one emergency that Port Authority won’t take care of?

Devereux Milburn:

If you call it an emergency, yes.

Then I got to take care of it because of the covenant.

No matter what you call it, the covenant is there.

Now, we say because of the lack of legislative history because we don’t really basically know what emergency was — what the emergency was.

We would have to say that we don’t think that this legislation was based on emergency and if it was we don’t think this is the way to handle the situation.

If you come around the corner then you might have or tend to see a house on fire, what you are going to do?

You’ll put it out.

You’re not going to go to your desk and draft a legislation to get a new fire department which is going to come into existence 10 years from now and put the next fire out.

The emergency — an emergency to us is something immediate and here we have a drop in a bucket even when it works, All Port Authority could do is to drop in a bucket of the transit problem on the eastern seaboard.

Now, —

Byron R. White:

Well, suppose that you don’t — suppose you just don’t go at it by labels and you just say that the real inquiry is the significance of the interest of the State in achieving what they’re trying to achieve by the repeal of the covenant?

Devereux Milburn:

If you say that that is the interest of the State —

Byron R. White:

Say that instead of calling it an emergency or instead of asking where there is an emergency, shouldn’t you ask how important the interest of that state that seem to justify the action?

Devereux Milburn:

I think you can ask how important the interest of the State is and the interest of the State in Mass Transit is extraordinarily important.

I might add here and we’ve developed it in our brief to some extent.

They are lots of other ways to do it and the worst way in our opinion that you can possibly do it is to break your word to the creditors that you induced to invest in the bonds of Port Authority and because you have an interest in Mass Transit and God knows there are lots of other ways you can get that money and there are lots of other ways you can cut down on automobiles.

I merely mention World War II, they cut down on automobiles.

They cut down on the use of gasoline.

If you got an emergency you can handle it, but you do not handle it by going out and breaking your solemn word to investors, who have invested $1,200,000,000.00 while that covenant was in effect on reliance on the States that they were not going to repeal it.

So much for emergency and the basis for the State’s action.

In 1962, — from 1962 and 1974, the covenant was an integral part of the bondholders’ contract.

It was contained in every official statement.

John Paul Stevens:

Mr. Milburn before you use all your time, be sure to discuss El Paso, the El Paso case?

Devereux Milburn:

I was going to ask the time to rebut but the let me discuss El Paso and may be I —

Warren E. Burger:

I think in the circumstances which will enlarge the time of each side five minutes, so that —

Devereux Milburn:

Thank you.

Warren E. Burger:

You take that into account.

Devereux Milburn:

Thank you sir.

Devereux Milburn:

Just to finish reliance.

Well, I won’t finish reliance, I’ll come back to reliance and let us go to El Paso.

Gentleman, everyone here is familiar with the facts of that case and decision in it.

I have established here, I hope that the covenant induced investors to put their money into the Port Authority.

There was no inducement in El Paso.

El Paso, the people that were hurt by El Paso were defaulters.

The plaintiff there or the petitioner was a rank speculator.

He had in that statute an unbargained for benefit.

If he had any bona fide interest in the piece of land in which he owned that interest, he had five years after the passage of a new statute within which to come up with the money to stop being a defaulter and to own the land.

William H. Rehnquist:

Why do you call his interest an unbargained for one?

Devereux Milburn:

He bought the land.

He did buy one, when he bought the land the statute was in effect.

Now, in our case, we bargained for the statute.

We said you’ll — we’ll give you the money, but you do this, in person at that time in 1962.

The investment community talked to the state that if you do this, we’ll do that and the H & M will run.

This fellow didn’t have any bargain with the statute with the legislation to past statute and that’s an important difference.

Now, as Mr. Justice White said, five years is a pretty fair deal for anybody, any defaulter who really wants its land.

It gave him five years to come up with the money and he could keep it.

This statute was directly against the defaulters, the speculators who were in there and it was a case to correct the land problem in the State of Texas.

Now, again in my opinion, this Court never dreamed that the El Paso case, dealing as it did with defaulters and speculators, would be brought out and used as binding precedent in a case such as this where the creditors of a State dealt with the State bargained for a deal with the state and then it was repudiated, abrogated not modified but abrogated completely.

Now in El Paso, it was modified.

It was not abrogated.

So, Mr. Justice Stevens, I can say that I agree with El Paso.

I think El Paso is right, but I agree with our position in this case and I think we’re right.

I think you have two completely different contracts and two completely different situations.

Now, excuse me, is that light is going to go on again in five minutes or — ?

Warren E. Burger:

Do you want to save — how much do you want to save for rebuttal?

Devereux Milburn:

Well, I’d like to save what I have left.

It will be about seven minutes I guess.

That’s about right.

Warren E. Burger:

So, you may reserve that for now.

Devereux Milburn:

Thank you.

Warren E. Burger:

Mr. Sovern.

Michael I. Sovern:

Mr. Chief Justice, if the Court please.

Of all the hundreds of cases alleging contract impairment that have come before this Court in two centuries, none has involved public ends as vital as those sought to be served by the State here and few would involve contract infringements so inconsequential.

In the second Slaughter House case, the Court found offensive smell sufficiently serious to bring butchering squarely within the State’s police power and the justification for the State’s repealing a statute granting an exclusive franchise to a company that had invested large sums of money in reliance on a promise that the exclusive franchiser would be good for 25 years.

No one suggested that butchering threatened anybody’s life would help.

Warren E. Burger:

Did you have any express, are there any express assurances there about the malodorous factors?

Michael I. Sovern:

As the way that it —

Warren E. Burger:

Or just so that it was an incident of running a slaughter house in those days?

Michael I. Sovern:

That was the basis on which the police power was asserted.

Warren E. Burger:

Yes I know, but was there any grant?

Was it articulated there that they could go on without any restraint of that kind?

Michael I. Sovern:

In that case, Your Honor, the repeal did not involve their losing the right to continue.

All they lost was the right to do it exclusively.

So, the existence of the police power justified a destruction of a very valuable pushing of their investment.

Even though there had been explicit promise that was be to be good for 25 years and the justification was that when one is dealing with stench, the State has the power to act as it will.

Here, the federal environmental protection administrator has found automobile emissions so threatening to the physical well being of the Citizens of New Jersey that he has ordered them to drive less.

He has insisted that parking facilities be limited, that trucks not pick up or deliver on weekday mornings from six to 11, with all the economic dislocation that entails, and has said that if these and other measures don’t work, he will reduce the amount of gasoline that may be sold in the State.

In Blaisdell, as this Court knows well that the Court upheld Minnesota’s Mortgage Moratorium Act because of the economic distress.

John Paul Stevens:

Mr. Sovern, how does the repealer of the 1962 covenant could change the air quality in New Jersey?

Michael I. Sovern:

The covenant does two things, Your Honor, that it is critical to correct.

One is, it effectively prevents the imposition of higher tolls on the users of the Port Authority’s bridges and tunnels between New York and New Jersey.

That is to say because the Port Authorities’ revenues and reserves are so large, a toll rise on the bridges would be disapproved as not just unreasonable within the meaning of the Bridge Act of 1906 which means that the disincentive to automobiles crossing from New Jersey to New York, the Port Authority owns all of the crossings between those two States in the District.

John Paul Stevens:

Is the only method of limiting the number vehicles across the bridge to increase the fare?

Michael I. Sovern:

No, Your Honor.

There —

John Paul Stevens:

That would be the only consequence in terms of air quality, wouldn’t it?

Michael I. Sovern:

Well, there are many other methods at least some of which would be far more destructive of the bondholders’ interest without —

John Paul Stevens:

Well, are there other methods of — just if you concentrate in a one feature limiting the amount of traffic coming across the bridge, are there any ways that that could be done without tampering at all with the New York Port Authority, with the bondholder structure?

Michael I. Sovern:

Ah.

John Paul Stevens:

Could you close the bridge for a couple of hours a day?

Michael I. Sovern:

You could Your Honor.

I do believe Mr. Milburn would be here maintaining that that was a violation of covenants with bondholders.

I do believe that the police power does entitle a State to do that.

This is far less intrusive on bondholder rights.

The bridges are among the Port Authorities biggest money makers.

I believe the States could close them.

I believe the States could close them during the summers, during commuting hours, for as many hours as they wish, that bore the relationship that was necessary to reduce carbon monoxide and hydrocarbon poison.

The bondholders would be seriously hurt by that.

They’ve not been hurt at all in this case.

That point is important to focus on, so that the states here have sought to achieve their goals in the ways that at least destructive of the interest that aren’t being claimed to have been violated.

To complete my answer to your question Mr. Justice Stevens, not only does the covenant prevent that particular mode of responding to the pollution problem it also prevents what all students of this subject regard as the most rational approach and that is to say to use charges imposed upon other drivers to support Mass Transit.

John Paul Stevens:

Is there any evidence of an attempt to get more limited change in the terms of the bond in venture to just permit that change without repealing the entire covenant?

Michael I. Sovern:

The difficulty, Your Honor is that the covenant is absolutely categorical and —

John Paul Stevens:

Does it have a procedure for getting consent to changes, isn’t it?

Michael I. Sovern:

Yes, Your Honor.

And the —

John Paul Stevens:

You don’t think the bondholders would have consented to permission to increase the toll?

Michael I. Sovern:

Unquestionably not, Mr. Justice Stevens.

Mr. Milburn says, the only person from whom he heard how difficulty would be was me.

The chief witness for the plaintiff in the trial Court was Mr. John Thompson.

At page 192 of the appendix.

Mr. Thompson wrote as follows, “In my opinion and approach to the bondholders for modification of the 1962 restrictions accompanied by a moderate increase in interest rates on their bonds would fail, partly because it would be unacceptable and partly because of the procedural difficulties –“

John Paul Stevens:

Did that change — ?

Thurgood Marshall:

And who is Mr. Thompson?

Michael I. Sovern:

Mr. Thompson was plaintiff’s witness called to discuss this question among others.

Thurgood Marshall:

What is his expertise?

I mean, (Voice Overlap)

Michael I. Sovern:

Oh, he said he was presented as an expert on the bond market, the rights of bondholders and the behavior of the investment community.

John Paul Stevens:

But was the change he was discussing, one that would permit investment in the Mass Transit or merely a change in the toll?

When I said — does that really be — is that testimony responsive to the question that I was asking you?

Michael I. Sovern:

Well, I’m not clear Your Honor.

His basic position was that any moderate rise in the interest rate for bondholders would not induce them to come out and go through the procedures required to consent the end changes.

That is to say, there is a very elaborate procedure for bondholder change.

John Paul Stevens:

Was the reason — let me just tie it.

I don’t want to be obtuse and I may not be following you, but as I understand their argument, they say the objection to the repealer is that it will permit the Port Authority to make investments in Mass Transits which are deficit operation, you lose lots of money.

And you say, “Well, we want to do that because we want to raise the tolls on the bridges” and I’m asking you, you, couldn’t if you have made an amendment that would’ve permitted you to raise the tolls on the bridges, without also permitting you to go under Mass Transit facility operation?

Michael I. Sovern:

I think not, Your Honor.

There would have been several problems.

One is that the legislation governing tolls on bridges is federal, that is to say the Bridge Act of 1906 entrusts now to the Federal Highway Administrator, the discretion, judgment really to determine what the bridge tolls are just and reasonable.

In his proceeding and it has been confirmed in the Third Circuit Court of Appeals, he has taken into account the use to which tolls are put and has declared that the use of tolls for the purpose of Mass Transit justifies a higher toll than would otherwise be permissible.

Therefore, the simple modification of the New Jersey legislation to raise tolls would not pass Federal muster.

Moreover —

John Paul Stevens:

In other words, still raising cap would be a device for cutting down on air pollution then?

Michael I. Sovern:

It —

John Paul Stevens:

— which I thought you were saying was the reason for this —

Michael I. Sovern:

It can as part of a package,Your Honor, that’s the point.

The covenant blocks a coordinated addressing of these problems.

What it does when it’s gone, you can then take a package, it says you charge higher toll, creating disincentive to those polluting automobiles.

You take those increased tolls, you support Mass Transit.

With that Mass Transit you then provide the alternative to those auto drivers so that you’re not just simply preventing them from travel.

And it is that coordinated attack on the problems of the State that the covenant precludes.

Now, its not just pollution as this Court knows very well, the energy problems of the region were critical.

Indeed, the gun battles that attended the fuel oil allocations in ports of this country were of very strong resemblance to the way which Minnesota farmers greeted the foreclosing sheriffs and judges, and the economic dislocation that the federal environmental protection administrators told us this State must there if it is to become to apply with federal law is very much like the kind of destruction of economic affairs that reflected in Minnesota.

Warren E. Burger:

Is it possible Mr. Sovern that closing the bridges down and doing some of these other things that were suggested by Justice Stevens were politically unpalatable?

Michael I. Sovern:

Well, there’s no question about that Your Honor that neither legislature —

Warren E. Burger:

The voices of those people would be heard more widely than the voices of the bondholders in the public arena, wouldn’t they?

Michael I. Sovern:

Well, the different — yes, there’s no question about it.

But the difficulties are not simply those of political choice the State has only the most limited kinds of controls left to it really is under the gun of those environmental orders.

Michael I. Sovern:

And when the environmental protection administrator tells the State of New Jersey that it must sell no more gasoline than it did in 1973, I do not know where politics would be.

I would guess there are a lot more New Jersey voters who never cross the Hudson and that closing down the bridges and tunnels may begin to look like an attractive alternative.

As this Court said in El Paso, when you get to the subject of means, that’s exactly the kind of question as to which the legislature has to have the widest possible discretion.

For this Court to put the State of New Jersey in condition where it has to choose whether to close those bridges and tunnels or let the local business close up for certain number of days, is I respectfully submit that —

Byron R. White:

Mr. Sovern, couldn’t the States have provided that if the authority was to go in Mass Transit, you could go into it as a separate operation in the sense that its other revenues and its other assets would not be subject to a lien of any losses in Mass Transit and couldn’t the State have otherwise underwritten those losses, rather than expose the bondholders who have the right to a revenues and other operations?

Michael I. Sovern:

Well, let me say two things about that Mr. Justice White.

First, I think it is not of that —

Byron R. White:

Isn’t it historically, didn’t — in the beginning didn’t they used to — in the Port Authority in the early days specialized in bonds.

I mean, the bonds would just reach certain projects?

Michael I. Sovern:

In the very earliest days, the bonds were a single project.

Byron R. White:

Yes, the bonds.

Michael I. Sovern:

But they failed and that’s why this —

Byron R. White:

I understand that but nevertheless, if the State had wanted to commit there own credit than that of the Port Authorities, they could have had the Port Authority to go into Mass Transit as a separate, single venture.

Michael I. Sovern:

There is no project of the Port Authority for which it would have been possible to sell bonds if it were not supported by the others.

Byron R. White:

Unless the States themselves —

Michael I. Sovern:

Unless the States guarantee.

But it is —

Byron R. White:

Well, that’s what I’m asking you.

Wasn’t this some — this is certainly was a feasible and less intrusive way of going about it?

Michael I. Sovern:

I’m afraid to say it wasn’t feasible and it is —

Byron R. White:

It wasn’t feasible, but it was less intrusive as far as the bondholders —

Michael I. Sovern:

No question that the bondholders would’ve been happier had the States done it that way.

Some State in constitutional error or state (inaudible) like that?

Michael I. Sovern:

Well, in both States, it would require public referendum and you would have problems with debt limitation clauses.

Moreover, it is important to remember that the Port District is not a State so that in each referendum, the citizens voting from outside the Port District would be being asked to increase their taxes in order to pay for Mass Transit in the Port District while it is running annual revenues that grow every year and reserves that grow every year.

It does —

Thurgood Marshall:

I’d like to know.

How much Mass Transit do you get if you win?

Michael I. Sovern:

Well, the leverage is extraordinary by the commitment of $12 Million in increased tolls.

The State of New Jersey has so far been promised to $157 Million by the Department of Transportation for the PATH Plainfield extension and it has received permission to use another $70 Million for Federal Highway funds.

Michael I. Sovern:

Now, that $12 Million is already entailed.

It is not coming from bondholders, it is coming from drivers.

The returns on those tolls, as Mr. Milburn indicated, are an increase of $40 Million a year.

So, that by being able to apply those tolls, it will now be possible the DoT has signed off on that grant, provided the local share is committed, and the local share has by agreement between New Jersey and the Port Authority been divided between them.

If the Port Authority cannot put it up its share which is debt service of $12 Million a year, the project will fail.

The irony is that the project is intended to serve Newark Airport.

Thurgood Marshall:

Well I’m asking, what is this project?

I want to know how much Mass Transportation will you get, is this simple to answer?

Michael I. Sovern:

Yes, sir!

You will get an extension of the PATH railroad from Newark to the City of Elizabeth, New Jersey and Newark Airport, the area of Newark Airport.

The —

Thurgood Marshall:

When?

Michael I. Sovern:

Well, as soon as this litigation is concluded.

Thurgood Marshall:

It would be built as soon as this is concluded?

Michael I. Sovern:

Yes, Your Honor.

Thurgood Marshall:

It will be finish?

Michael I. Sovern:

No!

It will begun.

Thurgood Marshall:

When it will be finished?

Michael I. Sovern:

They have talked about two to four-year construction period.

Thurgood Marshall:

Alright.

And no — how much is the cost overlaying on the, don’t try to answer it, please.[Laughter]

Michael I. Sovern:

I don’t know but the —

Thurgood Marshall:

But the (inaudible) is stuck within great, big deficit bill?

Michael I. Sovern:

Yes.

Thurgood Marshall:

Year after year for four or five years.

Michael I. Sovern:

But it’s —

Thurgood Marshall:

And in the future because the Mass Trans will never pay for itself?

Michael I. Sovern:

That is correct, Your Honor.

It will not pay for itself but the Port Authority is not being stuck with the deficit.

Michael I. Sovern:

They are in this to the tune of $12 Million a year and they have already received far more than that from the toll rise.

And they will continue to receive far more than that from the toll rise.

Mr. Milburn talked about the rising deficits of the PATH railroad in every year in which those deficits went up, so did the revenues and reserves of the Port Authority.

It has absorbed every nickel of those reserves — of those deficits.

It has absorbed every nickel of the cost overruns on the World Trade Center.

It lived with the fuel crisis, hurting its airport, bridge, and tunnel business.

And every year, its revenues and reserves rose and it passed the quarter of a Billion dollar mark last year in reserves that have not been called upon.

That is to say, there is approximately $260 Million in reserves belonging to the Port Authority that are not going to have to be look to for support of anything because the annual revenues of the Port Authority also continue to grow and they are used to pay these deficits with enough leftover, so that each year the reserves grow again.

John Paul Stevens:

Mr. Sovern, if I might interrupt you.

Do you think that the Section 10 of Article 1 of the Federal Constitution which contains the constitutional provision we’re talking about in this case, imposes any restriction at all on the power of the Port Authority that legislates the two States to withdraw from any commitment when it sees it, would it be advantageous in the financial sense to do so?

Michael I. Sovern:

Yes, sir.

John Paul Stevens:

What’s — could you give me an example of what when it does impose?

Michael I. Sovern:

Well, I think this Court’s cases are clear on the point.

Where the into —

John Paul Stevens:

There’s never been long quite like this, is there?

Michael I. Sovern:

Well, not no.

Not exactly like this.

But there have been many cases that make it clear that promises whether by the State or by private party maybe modified depending on the ends to be served and on the degree of damage done.

John Paul Stevens:

Well, I assume every change that they would seek to make would be in the best interest of the State and —

Michael I. Sovern:

It’s not enough to be in the —

John Paul Stevens:

Is that enough, so they can make any change (Voice Overlap)

Michael I. Sovern:

No, Your Honor.

It seems to me it has to be to serve a matter of real consequence, now where that line is.

It is obvious the matter of —

John Paul Stevens:

You’re dealing with a $100 Million or a $100 Billion, it’s always going to be real consequences, isn’t it?

Michael I. Sovern:

Well, not like this.

I begun by saying it and it was not a rhetorical flourish that you haven’t had a case as important as this.

I mean, this is the living and breathing of the citizens of two states, the economic survival of their institutions in the face of an energy crisis.

These are consequences that are greater than any of those, any previous contract cases put before this Court.

Warren E. Burger:

It’s going to have something to do with the capacity of the Governments at all levels to borrow money, isn’t it also?

Michael I. Sovern:

Mr. Chief Justice, the evidence in this case indicates that it does not.

Just last month, the Port Authority sold $50 Million worth of bonds at 7% coupon.

With this case pending before this Court, the State having repealed the covenant, that is three-eighths of a point higher then the 35th series of Port Authority bonds sold for, with the covenant in effect and it sold at a time when every bond dealer that tries to sell a security with the name New York on it, finds himself with a drug.

So, that the notion that these record supports the proposition that the municipal bond market will be destroyed or even seriously impaired by permitting States to take measures that meet two conditions.

One, the pursuit of an important public purpose and two, no damage!

The — one of the witnesses for the plaintiff below was a fellow by the name of Murphy and he is an officer of Barr Brothers.

And Barr Brothers is — he was offered to tell us about the bond market too and Barr Brothers has announced as follows, this appears at pages 422 to 423 of the appendix, “Whether or not the Port Authority ever gets involve in Mass Transit, we feel it continues to be one of the finest revenue credits in the country, amply protected by the basic bond resolution, excellent management, and some highly profitable monopolistic facilities that can more than carry a reasonable amount of Mass Transit,” particularly with the recent toll increases that was issued after the Trial Court decision.

“There’s no risk of default, nobody has claimed any risk of default.

The revenues are safe, the reserves are safe.”

There are bondholder protections here that the General Solicitor of the Port Authority described as precluded any assumption of Mass Transit responsibilities that would threaten the bondholders.

Our friends profess puzzlement as to how we can say that the covenant is an impediment to rational planning and at the same time that its repeal will not hurt bondholders by freeing up resources.

The answer is that the other bondholder protections save the bondholders from any project that could really threaten their security.

All the covenant does is prevent projects that are threatening.

It bans categorical, and therefore, it prevents even a project that wouldn’t hurt.

There’s no way that the Port Authority can pick up a Mass Transit project that would threaten security of bondholders.

And that was the opinion of Mr. Goldberg in 1961 before the adoption of the covenant and not made in the context in which he was peddling bonds.

That was a talk he gave to Port Authority insiders and it was later published three years later because it was regarded as such a fine statement of the financial status of the Port Authority.

William H. Rehnquist:

Mr. Sovern, supposing that immediately after the repeal of the covenant, the value of these — the market value of these bonds had dropped to 50% of what they had been immediately before, you would obviously have a much worse case than you do now.

Would you think you would loose it or do you think you might still be able to win it?

Michael I. Sovern:

On this record, if that were the only change, I would think we should still win it.

The reason being that on the day of the repeal — on the day Governor Burn signed repeal, the plaintiff held a press conference and savaged these bonds, and said they have been gravely impaired.

The story was reported in the Wall Street Journal, in New York Times and every Jersey newspaper coming out weekly or daily.

Now, if anything is calculated to obscure the probative effect of the market reaction, that surely is the plaintiff is the largest holder of these bonds and to say that they had been severely damaged would clearly cause some drop in the market and it did.

The bonds did go down.

Mr. Milburn has suggested to you that something has happened to the Mass Ports — the bonds of the Massachusetts Port Authority to make them no longer comparable.

Nothing has happen to those bonds except that that original shake out, attributable we think to the United States Trust Companies damaging these bonds improved with the passage of the time, statements like Barr Brothers, the renewal of the of the same A rating by Moody’s and Standard & Poor’s that they had always given it, after that initial savaging, people had a chance take a look into and do an evaluation and what they found out was that these bonds are terrific.

Moreover, the briefs tell you that there’s a short-term effect to that recovery.

That recovery has now been in effect for two years.

The Mass Ports and New York ports last week were selling within a half a point of each other.

So, that there’s no damage in the market, there’s no damage in the light of Moody’s and Standards & Poor’s — the company that employs, one of the plaintiff’s witnesses says it is terrific.

Michael I. Sovern:

There’s nothing to fear, go out and buy it.

There’s no damage and all those opinions, and those are opinions that count that people are acting on not testimony and litigation.

All those opinions are supported by the documents themselves as when one looks at those bond covenants.

Thurgood Marshall:

That’s all before they begin to lose more money on that status.

Michael I. Sovern:

They can’t loose more at this time and than —

Thurgood Marshall:

What?

Mass Transit is not going to bring in any project?

Michael I. Sovern:

That’s absolutely correct Your Honor, but lots of other projects are and these enterprises always operated in number of deficit facilities, losing substantial —

Thurgood Marshall:

And it always stayed out of Mass Transit.

Michael I. Sovern:

Well, that’s not true, Your Honor.

One of the fascinating things is their peculiar belief that —

Thurgood Marshall:

Is anything in the record that comes up about San Francisco Mass Transit brainstorms?

Michael I. Sovern:

There’s nothing in the record, Your Honor.

Thurgood Marshall:

Okay.

Michael I. Sovern:

The reason — I saw a recent report that suggested it isn’t doing so well but of course it wasn’t running very well either.

Everybody agrees that the PATH is a very well run railroad.

But to come back to Mr. Justice Stevens’ question earlier about — what the opinions suggests about what kinds of modifications are permissible?

The modifications that have typically been permitted had been those that leave the basic obligation intact and that where a State deprives the bondholders’ principal or his interest that then you have a case in which the legislation may well be struck down, though even their given sufficient conditions and there are some of the emergency cases committed, there’s no requirement in this Court’s opinions that would be an emergency.

Viex, El Paso, Gelfert, Slaughter House cases, any number of cases that have upheld State repudiation and their promises in the absence of an emergency.

But where the repudiation in the bond context involves in actual taking away of the principal or interest, then it seems to me this Court is going to take a much closer look — it should take a much closer look at the justification and come to the case where —

John Paul Stevens:

You don’t think something that materially changed the risk would be within that definition?

Michael I. Sovern:

Ah.

John Paul Stevens:

The risk of the default?

Michael I. Sovern:

It —

John Paul Stevens:

You of course argue, there’s no material change.

I understand that.

Michael I. Sovern:

You understand why it is —

John Paul Stevens:

But assuming that we felt the other way on that particular problem, would it be within the constitutional provision?

Michael I. Sovern:

If there is a material change in the risk, it is at that point of the Court must look to the justification for the action taken and are the ends sufficiently important.

John Paul Stevens:

How do we judge where there is material change in the risk?

Michael I. Sovern:

Well, I would give great weight to the assessments of the security’s rating agencies, Standard & Poor’s and Moody’s, Barr Brothers assessment, and I believe the Court can look at the bond covenants themselves and see that —

John Paul Stevens:

Then that really boils down to the question of market values that Mr. Justice Rehnquist did imply?

Michael I. Sovern:

Well, except that it’s very important to remember that these are bonds that — whose temporary diminish in market value even in the early part of the days following the appeal, those — that kind of loss is only a temporary loss in liquidity and if there’s anything that this Court has upheld when there have been valid justifications, it’s a temporary loss in the liquidity.

That’s Blaisdell, that’s Viex and others.

As long as —

John Paul Stevens:

Well, I suppose the change in the risk here is not an immediate risk.

It’s rather the risk that after the several years that it required to build the extension of the railroad, you finally get it done but did on note one to know, but then you start losing larger sums of money that we’ve anticipated instead of being a $5 Million deficit, it is a $100 Million deficit?

Michael I. Sovern:

I —

John Paul Stevens:

It’s the kind of risk that I suppose is at stake here?

Michael I. Sovern:

But it is a very hypothetical risk, Your Honor.

The arrangement between the Court —

John Paul Stevens:

Well, isn’t there some factual basis for something that it could happen?

Michael I. Sovern:

Oh, that it is possible.

Yes, Your Honor.

John Paul Stevens:

Don’t you have experience with this one railroad that you taken over that its losses were much greater than anticipated?

Michael I. Sovern:

Yes, but this still does not contemplate the Port Authority paying operating deficits.

The arrangements that have been made will use the Port —

John Paul Stevens:

But the covenant would permit you to do so and the repealer would permit you to do so, wouldn’t it?

Michael I. Sovern:

The repealer would, but the state legislation and the implementing administrative actions have provided that the Port Authority is responsible only for the debt service unknowable defined figures —

John Paul Stevens:

Those various actions could be change if things get a little worse and you need more money some place else, you —

Michael I. Sovern:

Well —

John Paul Stevens:

— want the time.

Michael I. Sovern:

Conceivably yes, Your Honor.

Although, the Port Authority has on many occasions made its own promises to bondholders without spending through.

John Paul Stevens:

But there’s no obligation to keep them apparently?

Michael I. Sovern:

Well again, I come back to your question and that is, “does it have an obligation to keep them when nothing is at risk or very little is at risk.

It does — not only does it have an obligation to keep them, it has an obligation that has been quite, taken quite seriously by the Courts of both New York and New Jersey.

Byron R. White:

What the — if it’s such a little risk, why doesn’t the state use — the state as guarantee the outstanding law?

Michael I. Sovern:

They can’t do that, Your Honor.

Byron R. White:

Meaning they can’t deal without having a referendum, I guess?

Michael I. Sovern:

That’s right.

And both States must have it since it’s a by state agency.

Byron R. White:

Well, you can’t say its impossible?

Michael I. Sovern:

No, but we can say that the chances of success are very dim indeed.

Byron R. White:

Well, it’s a very tiny risk if you say, so I do not know why the State wouldn’t shoulder that risk?

Michael I. Sovern:

Well, they haven’t Your Honor.

It is the voters that will have to choose to vote to support projects that are already —

Byron R. White:

Although you can’t save as much of an emergency, when you try it, can you?

Michael I. Sovern:

Well, New York has had a transportation bond issue defeated and so has New Jersey.

The difficulty in trying it now is of course that the pending projects will be scrapped and further delay, further cost escalation and again, I come back to the statement in El Paso that states that where you have legitimate public ends, the choice of means is one is to which this Court would give wide latitude to the legislatures.

The judgment whether to hold referendum on support for the addition to the Port Authority facilities, it seems to me as one at the outcome of which is almost knowable.

It is hard like that people of two states will defeat those referendum, knowing as cannot be denied, it hasn’t been denied, but the Port Authority’s resources are ample to undertake that without a ripple.

I mean, the Port Authority has the continuing revenue from its other facilities that can support that without the least but of difficulty.

And as this Court knows that is not true of the ability to borrow of New York or New York State at this time.

Byron R. White:

Suppose the referendum among the bondholders on whether the covenants would be — should be repeal, wouldn’t they?

Michael I. Sovern:

Oh, I have no doubt Your Honor that they don’t like it.

Byron R. White:

Well, they don’t like.

They — but you couldn’t convince them that it’s just a tiny risk?

Michael I. Sovern:

I’ll tell you the fact is that when the covenant hasn’t been there, they have bought the bonds.

That is to say the last series to be sold before the covenant was sold in January 1962.

The previous year, the New York State legislature had directed the Port Authority to take over the Hudson and the Manhattan.

That was the fearful take over.

Those bonds went off without a hitch on then prevailing interest rates.

When the covenant was repealed prospectively, the Port Authority —

Byron R. White:

You’re saying if — you just say that they can still sell some bonds but the people buying bonds now are taking their risks?

Michael I. Sovern:

Well, what I’m suggesting here, Your Honor.

Byron R. White:

No bondholders — no bondholders didn’t think they were taking any risk?

Michael I. Sovern:

Well, what I’m suggesting to Your Honor is that the perception of purchases before and after the, before adoption of the covenant and after repeal was that they needed no protection from such a risk.

The Port Authority’s other bondholder protections would take care of them and riding in to draw inference that that kind of perception of the risks is an accurate one on which they betting.

We have no way of knowing whether the bondholders who bought during the period of the covenant would have bought without the covenant.

Michael I. Sovern:

What we do know is those who bought before bought without and then those who bought after bought without.

Byron R. White:

What you’re saying, that you wouldn’t expect this old bondholders would ever do agree to the repeal of the covenant?

Michael I. Sovern:

That is correct Your Honor.

I really am relying very heavily on the plaintiff’s own witnesses and on plaintiff’s counsel who swore that 95% of the bondholders identities were unknown to the Port Authority, so that the burden there really was assumed to be that the one that couldn’t be met.

The Court reaches the question of the impermanent contract of course only if it first finds that there was a contract and we have urged two grounds for maintaining that there was no contract.

One, the voidability of an amendment of an interstate compact without congressional consent and the other, the preemption of the covenant via federal enactments whose full effectuation — It impeded naturally if the Court is moved by either of those arguments.

It could quite logically take then instead of the impairment question.

Courts below shows to address the impairment question and not the compact questions.

And now, to come back for just a moment to the question of the effect of the covenant, we find it at a time when it’s desired to discourage auto traffic and increase Mass Transit.

We find that the public agency responsible for coordinating the region’s transportation entrusted by the states with the highly profitable monopoly of bridges and tunnels could contribute to the area’s transportation needs only because of the covenant by further support of the internal combustion engine.

The repeal of the covenant makes it possible to take a more balanced approach to those needs and we’ve talked about the PATH Plainfield project.

To sum up, the plaintiff admits at page 66 of the its brief that, if it can be said in the case at bar that the ends to the accomplished or improvement in Mass Transit, decrease in air pollution and conservation of energy, it must be granted that they are legitimate.

The ends are legitimate, repeals serve them, no damage has been proved, this is a classic case of proper use of the State’s police power.

Thank you, Your Honors.

Warren E. Burger:

Mr. Milburn, do you have anything further?

Devereux Milburn:

Yes, sir.

I was wrong and I apologize.

I’ve forgotten Mr. Thompson’s statement about the obtaining bondholder’s consent.

I don’t know who in the State was in touch with Mr. Thompson so, they didn’t try it.

But it seems to me they should have tried it.

It’s built right into the statute so that’s the way to change it and that’s way to modify it, and I don’t think there’s any excuse for not trying it because you think it isn’t going to work particularly and when it did work not to long before that with the Triber Bridge Authority.

Now, increasing tolls I thought I’ve covered this in my opening statement, $40 Million, $12 Million it doesn’t go to Mass Transit.

It goes to the bondholders, it goes into the PATH and if doesn’t go into the PATH, there is a breach of the covenant with bondholders.

And there’s another lawsuit and Dave Simmons is quite right I will be back, if that happens.

Now, actually there’s $296,000.00 increase between 1974 and 1975.

Now, you’re not talking about $40 Million, you’re talking about $12 Million.

You’re not talking about the $12 Million you need for PATH Plainfield.

Is a State guarantee impossible?

New York did it with the commuter cause.

New Jersey didn’t but New York did and they’re still there, some of them.

Devereux Milburn:

Now also, I might point out that the two Governors have prevented between them one through to one another a fair rise.

They don’t even do that.

They don’t even pass the five cents.

The Amtrak is running at a dollar, right next to it.

Two parallel tracks.

Would the Governors give them a fair rise than dollar?

No.

They won’t.

Why can’t the States do something except abrogate our contract?

That’s what I would like to know.

I don’t know the answer to that kind of question.

Now, Mr. Justice Marshall you mentioned a new deficit in filling into the PATH.

We’ve got ability, we all admit that, we’ve got one running about $28 million.

It was supposed to run six it is running 28.

Let’s put another one in there and let’s say that the commissioners are wrong again, a wrong by a factor of five again.

Let say we got another $30 Million deficit in there and in the meantime PATH has gone up.

We’re talking about a $70 Million deficit.

Let’s have a little depression.

Let’s have our airports slack off a little bit and they are going to default on the bonds.

That’s why we don’t want a tremendous new deficit into the Port Authority and you can’t stop it because it comes in as a baby and it grows into a giant.

Now, the plaintiff’s press conference, we savage the bonds.

In my humble opinion, one of the major reasons of those bonds haven’t gone down further is because we are standing here.

I don’t know a bondman in Wall Street that doesn’t think that this is an outrage and we’re going to win.

Now if we don’t, let’s see what happens to the bonds.

Now, I just — I if I could consider Mr. Murphy for a moment, Mr. Murphy made a statement which is quoted in our brief, that if you bought a car and you had a 12-month warranty and all of a sudden became six-month warranty, you wouldn’t buy a car from that fellow again.

So, that’s what’s happened to the bond market.

Now, Barr Brothers puts out their ads.

But what is there business?

Pushing bonds.

Who owns the Port Authority bonds?

Devereux Milburn:

They do.

They got to sell them.

They just can’t leave them on the shelf.

I put no credence on that and that’s an ad, that’s passing.

But Mr. Murphy was testifying under oath and I do put some credence in that.

Now, to sum up let me say this, I don’t think this is this case, is a case — it can be decided either way.

It has been decided the way that I thought it was impossible, but it has been decided that way.

It would be possible to decide it the other way.

I don’t think this is a fact case.

I don’t think this is lower case.

I think that this is a moral case.

I think the State have repudiated their words.

I think this case in its present posture represents a leak in the dike of state integrity and I think that this Court can stop that leak before it becomes an avalanche.

Thank you.

Warren E. Burger:

Thank you gentlemen.

The case is submitted.