dissenting from denial of petition for rehearing en banc:
I have, albeit unsuccessfully, voted for rehearing en banc and dissent from its denial.
The case involves negotiations whereby members of the Baltimore City police department and public school teachers of the same municipality worked out agreements as to wages with City representatives, subject to recommendation by the City’s Board of Estimates and adoption by the City Council in the annual budget. Said recommendation by the Board of Estimates and adoption by the City Council occurred.
During the year involved, there was a shortfall in expected revenue. The State of Maryland reduced its appropriation to the City. The City moved to remain within balanced budget requirements and decided not to honor in all respects the contractual promises made to the police and to the teachers. Two of the three members of the panel rendering the decision which I have wished should be reheard en banc constituted the majority and decided that a substantial impairment of contract resulted from the consequent reduction in salary paid from what had been promised.
The constitutional proviso against impairment of contract, U.S. Const, art. I, § 10, cl. 1 (“No State shall ... pass any ... Law impairing the Obligation of Contracts_”), applies to a corporate municipality such as Baltimore City. See Northern Pac. Ry. Co. v. Minnesota, 208 U.S. 583, 590, 28 S.Ct. 341, 343, 52 L.Ed. 630 (1908) (stating that it is not “open to question” that the Contract Clause applies to municipal legislation). Substantial contract impairment by a state or municipali-tyis permissible only if 1) reasonable and 2) necessary. See United States Trust Co. v. New Jersey, 431 U.S. 1, 25, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92 (1977) (holding that the Contract Clause prohibits a substantial impairment of a contractual relationship unless the impairment “is reasonable and necessary to serve an important public purpose”).*
The panel majority determined that deference should be accorded to the Board of Estimates, which ordered the reduction in pay (ie., breaches of contract), treating such orders as legislative in nature although the City Council did not make or approve them. The fact that the Board of Estimates engages somewhat in what amounts to part of the legislative process, and therefore has freedom from the obligation to testify, see Baker v. Mayor and City Council of Baltimore, 894 F.2d 679, 682 (4th Cir.), cert. denied, 498 U.S. 815, 111 S.Ct. 56, 112 L.Ed.2d 31 (1990), does not elevate its steps to the dignity of actual legislation. But whether the breach of contract was legislative or not, *1027it was not proper, in any event, as legislation. The pay reduction impairing contractual undertakings was an improper abdication of the responsibility to see that the federal constitution is complied with. The City should have considered several items .in the budget which could have been cut, without any impairment of contract occurring, thereby insuring that the budget would be balanced. Besides issuance of bonds, reduction of support for cultural institutions comes immediately to mind. The City, disliking such cuts, even though they would not represent breaches of contract, could alternatively impose taxes to meet the reduction in state revenues allocated to the City which would be at a level not equaling the highest level reached by the City in the past.
What was done was by no means necessary. Its reasonableness is quite dubious. At most, it minimized somewhat the political dissatisfaction of Baltimore voters which could be expected by City Council members if funding for cultural activities were reduced or taxes were raised. The pay reduction, though it clearly impaired the obligation of contract, could only benefit the political interest of City Council members who regularly must run for reelection. To avoid what politics would have rendered unpopular, Baltimore City chose to ignore, that is to break, contracts and thereby to interfere quite unfavorably with the bargained rights, namely the livelihood of important city workers, the police and public school teachers. See Association of Surrogates & Supreme Court Reporters v. New York (“Surrogates I”), 940 F.2d 766, 773 (2d Cir.1991) (“In fact, the [scheme at issue here] smacks of the political expediency that United States Trust Co. warned of: ‘A governmental entity can always find a use for extra money, especially when taxes do not have to be raised.’ ” (quoting United States Trust Co., 431 U.S. at 26, 97 S.Ct. at 1519)), cert. denied, — U.S. -, 112 S.Ct. 936, 117 L.Ed.2d 107 (1992); cf. Association of Surrogates & Supreme Court Reporters v. State (“Surrogates II”), 79 N.Y.2d 39, 47, 580 N.Y.S.2d 153, 156, 588 N.E.2d 51, 54 (1992) (noting that the deferral of state employees’ salaries was “not an insubstantial impairment to one confronted with monthly debt payments and daily expenses for food and the other necessities of life”). The two-member panel majority opinion infringes on the holdings in Condell v. Bress, 983 F.2d 415, 419-20 (2d Cir.) (holding that a December 1990 statute deferring state employees’ salary payments violated the Contract Clause because it was not reasonable and necessary to further an important public purpose), cert. denied, — U.S. -, 113 S.Ct. 1849, 123 L.Ed.2d 473 (1993); “Surrogates I”, 940 F.2d at 773 (holding that a May 1990 statute deferring state employees’ salary payments was “in no way ‘necessary’ to the achievement of the [state legislature’s] stated goals”); “Surrogates II”, 79 N.Y.2d at 46, 580 N.Y.S.2d at 156, 588 N.E.2d at 54 (holding unanimously that a 1991 statute deferring state employees’ salary payments was not “reasonable and necessary to accomplish the State’s purposes”); and Carlstrom v. State, 103 Wash.2d 391, 396-97, 694 P.2d 1, 5-6 (1985) (holding unanimously that a state statute canceling teachers’ contractual salary increases violated the Contract Clause because it was not reasonable). See also Opinion of the Justices, 135 N.H. 625, 636, 609 A.2d 1204, 1211 (1992) (concluding unanimously that a “furlough” bill requiring certain state employees to take unpaid leave would violate the Contract Clause because it would be “neither reasonable nor necessary to serve an important public purpose”); cf. Sonoma County Org. of Pub. Employees v. County of Sonoma, 23 Cal.3d 296, 313-14, 152 Cal.Rptr. 903, 912-13, 591 P.2d 1, 10-11 (1979) (holding that a state statute capping local governmental employees’ contractual cost-of-living wage increases violated the Contract Clause because the state’s supposedly “grave fiscal crisis” did not actually constitute a significant and legitimate public purpose).
There is thus substantial authority, federal and state, appearing to contradict the opinion of the two-judge panel majority. A conflict of circuits emerges on an item of potentially immense importance. Accordingly, I dissent from the denial of en banc rehearing.
In defending the supposed "reasonableness” of the City’s salary reductions, the panel incorrectly asserted that "Baltimore's plan ... extended to all City employees” and thus constituted a generally applicable rule untainted by any "special interest character.” Op. at 1019-21 (emphasis added) (citation and internal quotation marks omitted). But, as the opinion elsewhere acknowledged, the plan did not apply to "firefighters, who enjoy certain privileges.” Id. at 1025.
Moreover, a truly general impairment of contract applying exclusively to injure employees, would still be, in a monetary sense, for the benefit of the employer, the City.