In the case of United States Trust Company of New York, Trustee v. New Jersey et al., 1976, the Supreme Court ruled that states cannot retroactively alter contractual obligations without a significant and legitimate public purpose. The case arose when both New York and New Jersey repealed a statutory covenant that limited their ability to subsidize rail passenger transportation from revenues generated by Port Authority facilities. This repeal effectively reduced the security for bonds issued by the Port Authority which were held in trust by U.S. Trust Co., who then sued on behalf of bondholders claiming this violated Contract Clause protections against impairing contracts' obligation. The court found that while states have some flexibility to modify their own contracts in response to unforeseen circumstances or important public needs, they must meet stringent standards before doing so; specifically, any impairment must be reasonable and necessary to serve an important public purpose.

In the dissenting opinion for United States Trust Company of New York, Trustee v. New Jersey et al., Justice Blackmun argued that the majority's decision was too broad and failed to respect state sovereignty. He contended that states should have more flexibility in managing their own fiscal affairs without interference from federal courts. According to him, a state's repeal of its statutory covenant should not be considered as an impairment of contract if it is done reasonably and necessary for an important public purpose. In this case, he believed that New Jersey acted within its rights when it repealed a law limiting the use of revenues from Port Authority projects because it served significant public interests such as improving mass transit systems and reducing air pollution.