In the case of Louisiana v. New Orleans (1896), the state of Louisiana sued the city of New Orleans to recover a tax that was levied on all real and personal property within its jurisdiction, including properties owned by municipalities. The Supreme Court ruled in favor of New Orleans, stating that under Louisiana's constitution and laws, municipal corporations were exempt from taxation for their public buildings and other property used for corporate purposes. Therefore, it held that such properties could not be taxed by the state unless there was clear legislative intent to do so. This decision upheld an important principle regarding fiscal relationships between states and their subdivisions: while states have broad powers over local governments, they cannot arbitrarily impose financial burdens on them without explicit legal authority.

In the dissenting opinion for Louisiana v. New Orleans, it was argued that the city of New Orleans should not be held responsible for paying interest on bonds issued by a previous administration. The dissenting justices believed that this responsibility fell to the state of Louisiana as they had originally authorized and guaranteed these bonds. They contended that holding municipalities accountable for such debts could lead to financial instability and potential bankruptcy, which would ultimately harm citizens who rely on public services provided by local governments. Furthermore, they expressed concern over setting a precedent where cities could be forced into insolvency due to decisions made by past administrations or higher levels of government without their consent or control.