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NJ Faces Hefty Pricetag for Rail Tunnel, Transportation Projects

Mark J. Magyar | October 21, 2013
nj transit

This is the first in a series of articles laying out the critical policy challenges that the next governor and Legislature will face, as well as their positions on these issues.

Two years from now, New Jersey’s governor and Legislature will not only have to come up with an $8 billion plan to fund the Transportation Trust Fund for another five years, but also $3 billion or more if they want New Jersey Transit trains to be able to use Amtrak’s Gateway Tunnel into New York’s Penn Station.

These are two of the most difficult fiscal challenges that the winner of the November 5 gubernatorial election will face, and Republican Gov. Chris Christie and his challenger, Sen. Barbara Buono (D-Middlesex), staked out opposing positions on the importance of a new rail tunnel long before the campaign began.

The Obama administration demonstrated its commitment to the $13.5 billion Gateway Tunnel project when it started construction 17 days ago on a $185 million concrete casement under the Hudson Yards in Manhattan for the rail tunnel to run through. The 800-foot-long “tunnel box” is scheduled for completion in October 2015 -- about the same time Northeast Corridor environmental impact studies are scheduled to be completed – and that’s when financing plans have to be put into place.

“What happens when Amtrak comes forward at midterm of the Obama administration, and says ‘You get at least 13 peak hour slots for NJ Transit trains direct into Penn Station. Are you interested?’” asked Martin E. Robins, director emeritus of Rutgers University’s Alan M. Voorhees Transportation Center.

“There will be pressure on the governor to put New Jersey’s cash on the barrelhead, or the project will stop,” Robins said. “New Jersey’s share will undoubtedly be $3 billion to $5 billion because we will be one of the major beneficiaries. Where does that money come from?”

Funding a new rail tunnel into New York and renewing the Transportation Trust Fund without relying entirely on debt are impending fiscal challenges as daunting as the annual increase in pension payments that has been eating up the state budget. But neither Gov. Chris Christie nor his Democratic challenger, Sen. Barbara Buono (D-Middlesex) nor legislative candidates from either party have spent much time talking about these issues.

Christie defended his decision to kill the $8.7 billion Access to the Region’s Core (ARC) rail tunnel early in his tenure, which was already under construction in October 2010, by arguing that New Jersey taxpayers would have been on the hook for potentially billions of dollars in cost overruns. He also said the “tunnel to Macy’s basement,” as the new 7th Avenue station was dubbed, did not provide the direct service to Penn Station that New Jersey commuters needed.

Since then, the governor has not talked about the massive funding needed for a new rail tunnel project or about how he would renew the Transportation Trust Fund without spiking state debt. Christie financed his first TTF renewal in December 2010 partly by diverting $1.3 billion in New Jersey Turnpike Authority toll revenue and $1.8 billion from the Port Authority that was supposed to go to the ARC Tunnel.

As part of the TTF plan, Christie promised to provide at least $1.4 billion in “pay as you go” financing out of state revenues, but so far he has relied almost entirely on new debt. He has ruled out an increase in the gas tax, which is the third-lowest in the nation, to pay for transportation projects, just as he has ruled out any state tax increase for any purpose.

Throughout her campaign, Buono has tried to remind New Jerseyans of the ARC tunnel cancellation. She said she would not have cancelled the tunnel, which was projected to generate 6,000 construction jobs and 40,000 permanent jobs in New Jersey municipalities near rail stations that would benefit from improved service to New York.

But Buono has not put forward any plan to fund a new rail tunnel or to renew the Transportation Trust Fund, and has not said how she would fund increased investments in transportation any more than the increased spending on higher education, universal preschool, and property tax relief programs she has promised.

And unlike Assembly Transportation Committee Chairman John Wisniewski (D-Middlesex), the Legislature’s most ardent advocate of investing in New Jersey’s transportation infrastructure, Buono has not advocated an increase in the state’s gas tax to provide dedicated funding for transportation improvements -- not in the middle of a campaign in which Christie is already attacking her as a “tax and spend” liberal.

For the governor and 120 legislators who are elected November 5, coming up with a plan to pay for New Jersey’s share of a new rail passenger tunnel and simultaneously expand and repair the state’s highways, bridges. and mass transit capital projects will be one of the most difficult political decisions they will face.

And this time, there won’t be an easy way out, like there was three years ago when Christie “robbed Peter to pay Paul” by using billions of dollars originally earmarked for the ARC Tunnel to fund Transportation Trust Fund projects in New Jersey instead.

“We can’t be satisfied with a 19th Century infrastructure in a 21st Century world and expect to stay competitive in a high-tech, fast-paced, global economy,” U.S. Sen. Robert Menendez (D-NJ) declared last month as Amtrak broke ground on the $185 million concrete casement that could handle up to 12 Amtrak trains and 20 New Jersey Transit trains an hour.

“For the growth of the entire region, it’s critical that we invest in new rail tunnels across the Hudson,” said Menendez, who has assumed the mantle of the late U.S. Sen. Frank Lautenberg (D-NJ) as the foremost advocate of a new trans-Hudson rail tunnel on Capitol Hill and has been working closely with both the Obama administration and U.S. Sen. Charles Schumer (D-NY) to push the project.

Schumer expressed optimism that funding for the $13.5 billion project could be lined up in as little as two years, and Robins noted that “President Obama moved heaven and earth” to get the concrete casement built. The 800-foot-long tunnel box between 10th and 11th Avenues is being built large enough to accommodate two new rail tubes, and Obama allowed $185 million in superstorm Sandy relief funding to be used for the project because the Gateway Tunnel will be flood-resistant, unlike the Amtrak and NJ Transit tunnels that flooded during Sandy.

For mass transit advocates who warn that a new rail tunnel is needed if New Jersey Transit is to provide more direct one-seat rides to New York and to meet projected ridership growth, the last three years of the Obama administration “are an important window because President Obama is committed to this project, and Amtrak has no more dedicated supporter than Vice President Joe Biden,” Robins said.

Christie has made no commitment to the Gateway Tunnel project. However, he noted during a gubernatorial debate that he provided $250,000 for a feasibility study on New York City Mayor Michael Bloomberg’s idea of extending the City’s No. 7 subway line to Secaucus.

That option faces an uncertain future, however, because New York Gov. Andrew Cuomo refused to provide matching funds for the project, Bloomberg is leaving office, and his likely successor, Democrat Bill DiBlasio, has yet to take a position on the project.

The new rail tunnel isn’t the only project critical to New Jersey’s transportation system and future economic growth that is sitting on the drawing board because of a lack of funding. The extension of the west branch of the Hudson-Bergen light rail line across Route 440 would open up for development land owned by Jersey City and Honeywell. The extension of the north branch of the Hudson-Bergen light rail to Englewood and the expansion of the Gloucester County light rail system are also awaiting funding, possibly as part of the next Transportation Trust Fund renewal. Together, the three projects could cost $1.5 billion to $2 billion.

The backup in mass-transit projects, coupled with New Jersey’s low ranking on annual surveys of highway maintenance and bridges that need replacement or repair, raises questions about whether renewal of the Transportation Trust Fund in 2016 for five years at the current $1.6 billion state funding level is adequate to meet the state’s transportation capital needs.

In fact, the Facing Our Future task force convened by the Council of New Jersey Grantmakers concluded that New Jersey would need an additional $1.5 billion a year above current Transportation Trust Fund expenditure levels to meet the needs of the state’s aging transportation infrastructure, Sam Crane, a former state treasurer, said in releasing the infrastructure report of the bipartisan blue-ribbon panel last April.

“The problem of underfunding goes back a long time, and it’s not a partisan issue,” Robins said. “It was about 10 years ago that [Democratic] Governor [Jim] McGreevey undermined his own blue-ribbon commission that recommended a 12 ½ cent increase in the gas tax. Had that been considered and adopted, we would not be in the position we are today. If that gas tax increase had been considered and approved, it would have done so much “

Facing Our Future now projects that New Jersey might need to triple its 14.5 cent gas tax to fully meet its transportation needs. While such an increase is unlikely, it would simply bring New Jersey’s gas tax up to the 43-cent tax now imposed in New York State and just above Pennsylvania’s 39 cents a gallon.

No gas tax increase is likely to be approved in the next four years if Christie, who has a large lead in the polls over Buono, is reelected Nov. 5.

That will make finding $3 billion for the new Gateway Tunnel and reauthorizing the Transportation Trust Fund at current levels a heavy lift for the new governor and Legislature, especially if Christie is in the early stages of a bid for the Republican presidential nomination in 2015 when difficult transportation funding decisions need to be made.

On June 30, 2016, New Jersey’s Transportation Trust Fund will be essentially bankrupt, left with no money for new projects.

That is the same situation that Christie and the Democratic-controlled Legislature faced in late 2010, when years of overborrowing by governors and legislatures reluctant to raise the gas tax left the Transportation Trust Fund unable to fund any new projects as of June 30, 2011, because all future gas taxes and other dedicated revenue streams were earmarked to pay off the principal and interest on past projects.

Christie had to come up with a new dedicated source of funding for the Transportation Trust Fund that year because the Wall Street bond rating agencies would not have accepted a Transportation Trust Fund financed solely by borrowing an additional $8 billion over the next five years.

Ironically, it was former Democratic Gov. Jon Corzine, Christie’s favorite whipping boy in both his 2009 and current gubernatorial campaign, who inadvertently provided Christie with an easy way out. Fortunately for Christie, Corzine had pushed through a $1.3 billion New Jersey Turnpike toll hike and earmarked $3 billion from New Jersey’s share of future toll revenue on Port Authority bridges and tunnels to fund the new ARC rail tunnel.

In October 2010, Christie cancelled the ARC Tunnel project, saying New Jersey taxpayers would have been on the hook for any cost overruns. U.S. Transportation Secretary Ray LaHood, a former Republican congressman serving in the Democratic Obama administration, charged that Christie refused his good-faith efforts to renegotiate the agreement to meet his concerns

Two months later, Christie diverted $1.8 billion in Port Authority funds and the $1.3 million Turnpike toll increase to provide the acceptable level of dedicated funding he needed for the Transportation Trust Fund without raising gas taxes -- ignoring Wisniewski’s demand that he cancel the Turnpike toll hike because it was supposed to be used for the ARC Tunnel.

Christie got a political boost from the cancellation both nationally and in New Jersey.

Conservative commentators lauded his decision, and newly elected Republican governors in Ohio, Wisconsin, and Florida followed suit by cancelling high-profile mass transit projects in their states. And within New Jersey, labor opposition was muted because Transportation Trust Fund projects would be built by New Jersey union labor, while three-fourths of the construction jobs on the ARC Tunnel would have been in New York. That’s one of the reasons Christie was endorsed by the Laborers and a slew of other New Jersey building trades unions.

The $2.8 billion in New Jersey Turnpike and Port Authority money took the immediate political heat off Christie, even though he later went back on his pay-as-you-go funding promise and diverted more than $600 million in Turnpike funds from pay-as-you-go funding for the Transportation Trust Fund to plug shortfalls in his past two budgets. He then filled the hole created in the Transportation Trust Fund by the Turnpike toll diversions by issuing additional debt.

Through the first four years of his administration, Christie has borrowed 97.4 percent of the state money that has gone into the Transportation Trust Fund projects, the highest percentage of any governor since Republican Gov. Thomas H. Kean created the program almost three decades ago.

Christie’s shift of the ARC Tunnel money to the Transportation Trust Fund was attacked by Wisniewski and mass-transit advocates as “robbing Peter to pay Paul.” The problem for Christie and legislators trying to decide how to fund a new rail tunnel and a five-year reauthorization of the Transportation Trust Fund is that there will be no “Peter” to rob in 2015.

The $1.8 million in ARC Tunnel funds diverted from the Port Authority have already gone into rebuilding the Pulaski Skyway, the Bayonne Bridge, the Goethals Bridge, the Wittpenn Bridge, and other projects in the Port Authority region in northeastern New Jersey. Christie has begun negotiating with the Port Authority to put $1 billion into an extension of the PATH system to Newark Airport, reportedly contingent upon United Airlines agreeing to run flights out of Atlantic City’s small airport to boost casino tourism and conference business.

Whether the Port Authority can come up with significant funding for the new Gateway Tunnel is questionable, especially in the wake of high cost overruns on the Freedom Tower and the rest of the World Trade Center site. Presumably, the $1.3 billion generated by New Jersey Turnpike toll increases from 2012 to 2016 could be dedicated in future years by a vote of the Turnpike Authority board, which Christie appointed, to support the Gateway Tunnel.

But Christie has been forced to divert the Turnpike toll money for the past two years to the state’s general treasury to fill budget gaps caused largely by the strain of having to come up with $600 million every year out of existing revenues to pay for the seven-year ramp-up to full funding of the state and local government pension system required by a 2011 law pushed through by Christie and Senate President Stephen Sweeney (D-Gloucester).

That ramp-up will not end until the fiscal Year 2018 state budget -- two years after the Legislature has to approve a new five-year $8 billion Transportation Trust Fund and most likely after a funding commitment for Amtrak’s Gateway Tunnel will need to be approved.

“It’s hard to see where the money is going to come from without some new source of revenue,” Robins concluded.

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