The U.S. Supreme Court case City of Trenton v. State of New Jersey in 1922 revolved around the issue of whether a state can impose charges on its own municipalities for water supply without violating the Contract Clause or Due Process Clause under the Fourteenth Amendment. The city argued that it had been granted rights to use water from certain sources free of charge, and imposing such fees would infrally upon these rights. However, the court ruled in favor of New Jersey, stating that states have an inherent right to control their resources and ensure public welfare; therefore they could not contract away this power by granting perpetual tax exemptions or other privileges to cities or corporations within their jurisdiction. This decision upheld states' sovereign powers over natural resources within their boundaries.

In the dissenting opinion for the case City of Trenton v. State of New Jersey, Justice Holmes argued that a state should not have unrestricted power to impose financial burdens on municipalities without their consent. He contended that such an approach would undermine the autonomy and functionality of local governments. Furthermore, he disagreed with the majority's interpretation of 'public purpose', arguing it was too broad and could be used to justify virtually any form of taxation or regulation imposed by a state on its municipalities. In his view, this could potentially lead to abuses of power and infringements upon municipal rights. Therefore, he believed there needed to be certain limitations placed on states' powers in order to protect these entities from potential exploitation or overreach by higher levels of government.