The trial court recognized that there was an impairment in this case: "To the extent that the repeal of the covenant authorizes the Authority to assume greater deficits for such

taining to interpretation and enforcement. "This Court has said that 'the laws which subsist at the time and place of the making of a contract, and where it is to be performed, enter into and form a part of it, as if they were expressly referred to or incorporated in its terms.'" Home Building & Loan Assn. v. Blaisdell, 290 U. S. 398, 429-430 (1934), quoting Von Hoffman v. City of Quincy, 4 Wall. 535, 550 (1867). See also Ogden v. Saunders, 12 Wheat., at 259-260, 297-298 (opinions of Washington and Thompson, JJ.). This principle presumes that contracting parties adopt the terms of their bargain in reliance on the law in effect at the time the agreement is reached.

It is not always unconstitutional, however, for changes in statutory remedies to affect pre-existing contracts. During the early years when the Contract Clause was regarded as an absolute bar to any impairment, this result was reached by treating remedies in a manner distinct from substantive contract obligations. Thus, for example, a State could abolish imprisonment for debt because elimination of this remedy did not impair the underlying obligation. Penniman's Case, 103 U. S. 714 (1881); Mason v. Haile, 12 Wheat. 370 (1827); see Sturges v. Crowninshield, 4 Wheat. 122, 200-201 (1819).

Yet it was also recognized very early that the distinction between remedies and obligations was not absolute. Impairment of a remedy was held to be unconstitutional if it effectively reduced the value of substantive contract rights. Green v. Biddle, 8 Wheat. 1, 75-76, 84-85 (1823). See also Bronson v. Kinzie, 1 How. 311, 315-318 (1843); Von Hoffman v. City of Quincy, 4 Wall., at 552-554. More recent decisions have not relied on the remedy/obligation distinction, primarily because it is now recognized that obligations as well as remedies may be modified without necessarily violating the Contract Clause. El Paso v. Simmons, 379 U. S., at 506-507, and n. 9; Home Building & Loan Assn. v. Blaisdell, 290 U. S., at 429-435.

Although now largely an outdated formalism, the remedy/obligation distinction may be viewed as approximating the result of a more particularized inquiry into the legitimate expectations of the contracting parties. The parties may rely on the continued existence of adequate statutory remedies for enforcing their agreement, but they are unlikely to expect that state law will remain entirely static. Thus, a reasonable modification of statutes governing contract remedies is much less likely to upset

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." 134 N. J. Super., at 183, 338 A. 2d, at 866.

Having thus established that the repeal impaired a contractual obligation of the States, we turn to the question whether that impairment violated the Contract Clause.

IV

Although the Contract Clause appears literally to proscribe "any" impairment, this Court observed in Blaisdell that "the prohibition is not an absolute one and is not to be read with literal exactness like a mathematical formula." 290 U. S., at 428. Thus, a finding that there has been a technical impairment is merely a preliminary step in resolving the more difficult question whether that impairment is permitted under the Constitution. In the instant case, as in Blaisdell, we must attempt to reconcile the strictures of the Contract Clause with the "essential attributes of sovereign power," id., at 435, necessarily reserved by the States to safeguard the welfare of their citizens. Id., at 434-440.

The trial court concluded that repeal of the 1962 covenant was a valid exercise of New Jersey's police power because repeal served important public interests in mass transportation, energy conservation, and environmental protection. 134 N. J. Super., at 194-195, 338 A. 2d, at 873. Yet the Contract Clause limits otherwise legitimate exercises of state legislative authority, and the existence of an important public interest is not always sufficient to overcome that limitation. "Undoubtedly, whatever is reserved of state power must be consistent with the fair intent of the constitutional limitation. of that power." Blaisdell, 290 U. S., at 439. Moreover, the

expectations than a law adjusting the express terms of an agreement. In this respect, the repeal of the 1962 covenant is to be seen as a serious disruption of the bondholders' expectations.

scope of the State's reserved power depends on the nature of the contractual relationship with which the challenged law conflicts.

The States must possess broad power to adopt general regulatory measures without being concerned that private contracts will be impaired, or even destroyed, as a result. Otherwise, one would be able to obtain immunity from state regulation by making private contractual arrangements. This principle is summarized in Mr. Justice Holmes' well-known dictum: "One whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the State by making a contract about them." Hudson Water Co. v. McCarter, 209 U. S. 349, 357 (1908).19

Yet private contracts are not subject to unlimited modification under the police power. The Court in Blaisdell recognized that laws intended to regulate existing contractual relationships must serve a legitimate public purpose. 290 U. S., at 444 445. A State could not "adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them." Id., at 439. Legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption. Id., at 445-447.19 As is customary in reviewing economic and social

18 Accord: Stephenson v. Binford, 287 U. S. 251, 276 (1932); Manigault v. Springs, 199 U. S. 473, 480 (1905). See Home Building & Loan Assn. v. Blaisdell, 290 U. S., at 437-438.

19 Blaisdell suggested further limitations that have since been subsumed in the overall determination of reasonableness. The legislation sustained in Blaisdell was adopted pursuant to a declared emergency in the State and strictly limited in duration. Subsequent decisions struck down state laws that were not so limited. W. B. Worthen Co. v. Thomas, 292 U. S. 426, 432-434 (1934) (relief not limited as to "time, amount, circumstances, or need"); Treigle v. Acme Homestead Assn., 297 U. S. 189, 195 (1936) (no emergency or temporary measure). Later decisions abandoned these limitations as absolute requirements. Veix v. Sixth Ward Building &

regulation, however, courts properly defer to legislative judgment as to the necessity and reasonableness of a particular measure. East New York Savings Bank v. Hahn, 326 U. S. 230 (1945).

When a State impairs the obligation of its own contract, the reserved-powers doctrine has a different basis. The initial inquiry concerns the ability of the State to enter into an agreement that limits its power to act in the future. As early as Fletcher v. Peck, the Court considered the argument that "one legislature cannot abridge the powers of a succeeding legislature." 6 Cranch, at 135. It is often stated that "the legislature cannot bargain away the police power of a State." Stone v. Mississippi, 101 U. S. 814, 817 (1880).20 This doctrine requires a determination of the State's power to create irrevocable contract rights in the first place, rather than an inquiry into the purpose or reasonableness of the subsequent impairment. In short, the Contract Clause does not require a State to adhere to a contract that surrenders an essential attribute of its sovereignty.

In deciding whether a State's contract was invalid ab initio under the reserved-powers doctrine, earlier decisions relied on distinctions among the various powers of the State. Thus, the

Loan Assn., 310 U. S., 32, 39-40 (1940) (emergency need not be declared and relief measure need not be temporary); East New York Savings Bank v. Hahn, 326 U. S. 230 (1945) (approving 10th extension of oneyear mortgage moratorium). Undoubtedly the existence of an emergency and the limited duration of a relief measure are factors to be assessed in determining the reasonableness of an impairment, but they cannot be regarded as essential in every case.

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

Opinion of the Court.

431 U.S. police power and the power of eminent domain were among those that could not be "contracted away," but the State could bind itself in the future exercise of the taxing and spending powers.21 Such formalistic distinctions perhaps cannot be dispositive, but they contain an important element of truth. Whatever the propriety of a State's binding itself to a future course of conduct in other contexts, the power to enter into effective financial contracts cannot be questioned. Any financial obligation could be regarded in theory as a relinquishment of the State's spending power, since money spent to repay debts is not available for other purposes. Similarly, the taxing power may have to be exercised if debts are to be repaid. Notwithstanding these effects, the Court has regularly held that the States are bound by their debt contracts.22

The instant case involves a financial obligation and thus as a threshold matter may not be said automatically to fall

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

By contrast, the doctrine that a State cannot contract away the power of eminent domain has been established since West River Bridge Co. v. Dix, 6 How. 507 (1848). See Contributors to Pennsylvania Hospital v. Philadelphia, 245 U. S., at 23-24. The doctrine that a State cannot be bound to a contract forbidding the exercise of its police power is almost as old. See n. 20, supra.

22 State laws authorizing the impairment of municipal bond contracts have been held unconstitutional. W. B. Worthen Co. v. Kavanaugh, 295 U. S. 56 (1935); Louisiana v. Pilsbury, 105 U. S. 278 (1882). Similarly, a tax on municipal bonds was held unconstitutional because its effect was to reduce the contractual rate of interest. Murray v. Charleston, 96 U. S. 432, 443-446 (1878).

A number of cases have held that a State may not authorize a municipality to borrow money and then restrict its taxing power so that the debt cannot be repaid. Louisiana ex rel. Hubert v. New Orleans, 215 U. S. 170, 175-178 (1909); Wolff v. New Orleans, 103 U. S. 358, 365-368 (1881);