The Future of the ARC Tunnel

Mark J. Magyar | September 28, 2010 | Budget
Will Gov. Christie derail the ARC tunnel -- the largest public works project in the nation -- to bail out the bankrupt Transportation Trust Fund?

Governor Christie’s unilateral suspension of new work on the $8.7 billion mass-transit tunnel into Manhattan sparked speculation that he was considering abandoning the project in order to use the money to replenish the drained Transportation Trust Fund, which underwrites highway, bridge and mass-transit infrastructure projects throughout the state. That theory was bolstered a week ago when Christie’s New Jersey Transit chief confirmed that there had been discussions within the administration about doing just that.

The Access to the Region's Core (ARC) rail tunnel to New York would be the first new rail tunnel built under the Hudson River in nearly 100 years.

More than two decades in planning, the new rail tunnel promises to double morning rush-hour rail capacity from New Jersey into Manhattan, provide nonstop service for Bergen County and the Raritan Valley Line, boost North Jersey’s sagging real estate market and provide 6,000 construction and 40,000 permanent jobs for New Jersey’s recession-battered economy.

But even though it is the largest public works project in the nation, canceling the tunnel would buy Christie and the legislature no more than a one- or two-year fix for the depleted Transportation Trust Fund, experts agree.

Follow the Money

Of the $8.7 billion in federal, state, Port Authority and New Jersey Turnpike Authority funding that has been lined up for the Access to the Region’s Core (ARC) tunnel, as the project is known, only the $1.25 billion contributed by the Turnpike Authority and the $100 million a year in federal transportation aid to New Jersey pledged to the project by former Governor Jon Corzine can readily be diverted to replenish the Transportation Trust Fund, Tom Wright, executive director of the Regional Plan Association, and Martin Robins, director emeritus of Rutgers University’s Alan M. Voorhees Transportation Center, noted.

The $3 billion dedicated to the project by the federal Department of Transportation would be lost, and the $3 billion dedicated by the Port Authority could be difficult to reallocate, and in any case could only be spent within the Port Authority district, which is within 25 miles of the Statue of Liberty.

For each of the past five years, New Jersey has allocated $1.6 billion from the Transportation Trust Fund, which was matched by $1.6 billion in federal funds, to provide a total of $3.2 billion to expand and repair the state’s highways, bridges and mass-transit system. The problem is that the Transportation Trust Fund, which was designed to operate on a pay-as-you-go basis from dedicated gas tax and sales tax revenues and motor vehicle receipts, will no longer have money for new projects as of July 1, 2011. For the past 15 years, both Democratic and Republican governors and legislatures have borrowed against future revenues to pay for current projects because they were unwilling to make the politically difficult decision to raise the gas tax or other revenues. As a result, all existing taxes and fees will simply go to pay off debt for the next 30 years.

Christie, who has also ruled out raising the gas tax, needs to find a way to make up for some or all of the $1.6 billion in state funding for transportation capital projects or curtail expected road maintenance projects.

It is that prospect that has longtime mass transit advocates up in arms.

Short-Term Solutions

“It would be completely foolish, short-sighted and hollow political expediency to give back $3 billion in federal money and to give up on a mass transit project that is critical to our state’s economy just because the governor has boxed himself into a corner and cannot come up with any other short-term solution on how to fix the bankrupt Transportation Trust Fund,” said Robins. “And make no mistake about it — this would be strictly short-term. Even at a reduced level of funding for TTF, we would be back in the same place in two years looking for a long-term solution.”

While mass-transit advocates and some legislators argue that a gas tax increase is inevitable, Christie has adamantly pledged not to raise any tax and has said he will fund transportation capital projects next year directly out of the state budget, but he already is facing a built-in budget gap similar to last year’s, when he was forced to cut almost $2 billion in state aid to schools and municipalities and property tax relief programs.

The possibility that Christie might divert money from the ARC tunnel project to fund the Transportation Trust Fund was raised by critics almost immediately after the Christie administration’s disclosure on September 11 that it was putting the brakes on all new work on the ARC project for 30 days in the wake of a Federal Transit Administration audit that questioned whether New Jersey Transit had sufficient controls in place to prevent cost overruns.

Nine days later, under questioning by the Assembly Transportation Committee,
New Jersey Transit Executive Director James Weinstein acknowledged that there have been “discussions” within the Christie administration, but “no decision” on whether it would make sense to cancel the ARC mass transit tunnel and to use money that would have been spent there to replenish the Transportation Trust Fund.

Losing the Tunnel

Canceling the ARC tunnel, the first rail tunnel to be built under the Hudson River in 90 years, would wipe out a project that promises to double morning rush-hour rail commuter capacity from New Jersey to New York from 23 to 48 trains. “The economic benefits from this project would be enormous, particularly for Bergen County,” said Wright, whose Regional Plan Association issued a report earlier this month asserting that the tunnel would add $18 billion to home values along the affected rail lines.

Eliminating the tunnel project would also mean giving up a $3 billion grant for new projects from the federal Department of Transportation that would most likely go to other states, but Christie told the Star-Ledger “I don’t care how much federal money is involved, I’m not taking a flier on a project that I don’t know how to pay every nickel for.”

Christie said his 30-day moratorium is motivated principally by the realization that the ARC tunnel project could go over budget and that the New Jersey state government would be on the hook for any cost overruns.

But the fact that the end of Christie’s 30-day suspension of work on the tunnel virtually coincides with the timing of his promised announcement of a solution for the Transportation Trust Fund has fueled the anxiety not only of mass-transit advocates, but of building trades union leaders desperate for the 6,000 construction jobs the project will provide and of New Jersey Democratic U.S. Senators Frank Lautenberg and Robert Menendez, who fought hard for the project.

Lautenberg yesterday again questioned Christie’s motives, asserting that the governor has refused to allow New Jersey Transit officials to meet with their Federal Transit Administration counterparts to finalize a cost estimate, which is the last stage before the signing of a “Full Funding Grant Agreement” that would obligate both the federal and state governments to the tunnel project.

“If the point of the 30 day pause in construction of the tunnel was to determine the project’s final costs, the state’s actions over the last two weeks make no sense.” Lautenberg said in a press release. “If the Governor wants to know what the final costs of the project will be, he must stop blocking NJ Transit’s professional staff from working with their Federal counterparts to crunch the numbers.”

Running Over Budget

Christie has suggested that the tunnel project could go as much as $2 billion to $5 billion over budget, and while his estimate may be on the high side, Wright acknowledged that large transportation infrastructure projects average a 30 percent overrun – which would come out to $2.9 billion in this case. “If the tunnel is built with just a 10 percent overrun and comes in under $10 billion, that would be good,” said Wright, who noted that the bill for any overrun would come five or six years from now.

But while mass transit advocates remain committed to the tunnel, Christie is evidently considering whether the state’s share of the tunnel dollars would be better spent through the Transportation Trust Fund on projects throughout the state, especially in the face of threatened cost overruns. Weinstein, the New Jersey Transit executive director, and state Transportation Commissioner Jim Simpson have both stressed publicly that Christie will make the ultimate decision.

Open to Debate

Just how much money could be reallocated from a canceled ARC tunnel project to replenish the Transportation Trust Fund, which runs out of money for new projects in July, is still a matter of debate, possibly even within the Christie administration, which did not comment yesterday on projections by Robins, Wright and others.

Experts agree that the $1.25 billion committed by the New Jersey Turnpike Authority to the project could be redirected by a vote of the authority’s board of directors, which the Christie administration effectively controls. However, the Turnpike Authority’s share of the tunnel funding comes from the dedication of toll revenues, and $660 million of that amount is not supposed to be allocated to the project until the last five years of construction, scheduled for Fiscal Years 2013 to 2017.

Whether the Christie administration would be willing to borrow against future toll revenue to pay for Transportation Trust Fund projects for the upcoming budget year or two budget years is an open question, particularly in light of Christie’s criticism of past governors for borrowing against future gas tax and sales tax revenues and motor vehicle fees to pay for past Transportation Trust Fund spending. In any case, the New Jersey Turnpike Authority fund is the easiest large pool of money that can be accessed from the ARC project.

A smaller amount that could be redirected to Transportation Trust Fund projects if the ARC project is canceled is the $100 million a year in federal transportation aid to New Jersey that Corzine pledged to fund the ARC project for the next decade. If the ARC project is canceled, presumably that money would be automatically available for other projects.

A $3 Billion Loss

Senators Lautenberg and Menendez and mass transit experts agree that New Jersey would lose the $3 billion in federal project money dedicated to the ARC tunnel if the project is canceled, and Christie administration officials did not dispute that analysis in legislative hearings earlier this month.

The $3 billion that the Port Authority of New York and New Jersey has dedicated to the ARC project is another question. Port Authority projects generally represent tradeoffs between the governors of the two states, New York and New Jersey, and the ARC tunnel funding is regarded as the “New Jersey project” to counterbalance Port Authority money being spent to redevelop the World Trade Center site that was destroyed in the September 11, 2001, terrorist attack.

“The governor probably just assumes he can redirect that money, but he would have to negotiate that with New York’s governor, presumably Cuomo after the November election, and we have a history of the Port Authority being tied up for years by battles between two strong-willed governors going back to Christie Whitman and George Pataki in the 1990s,” Wright noted.

Furthermore, Wright pointed out, any funding from the Port Authority must be spent within the Port Authority district, which is defined as that area falling within 25 miles of the Statue of Liberty.

Some experts have suggested that Christie may be using the 30-day delay to attempt to renegotiate funding arrangements for the tunnel. Lautenberg’s staff last year released an email written last spring by David Kuhn, a New Jersey Department of Transportation official, suggesting that New Jersey should not bear so much of the financial responsibility for an ARC tunnel project that is so important not only to the regional economy, but to the nation. Other critics have suggested that New York, which benefits from the project as much as New Jersey, should be bearing an equal share of the cost burden directly, and not just by signing off on the $3 billion Port Authority contribution.

Under Cover

“Now that the governor is out there on the 30-day delay, he needs to get some guarantees to improve the project to give himself cover if he agrees to move forward,” one political insider said. “Maybe that’s an agreement by New York, the federal government or some other entity to help cover any cost overruns, or maybe it’s an improvement in the project itself that includes a promise or guarantee that the tunnel would eventually go through to Grand Central Station. But he’s going to need to get something to justify going forward after raising all of these red flags about the cost.”

Mass transit advocates hope that Christie’s goal is simply to renegotiate the tunnel deal, rather than to kill it in order to get the Transportation Trust Fund past the 2011 legislative elections.

“The ARC tunnel would provide enough capacity to cover 25 years of growth, and it would be a tremendous engine for growth in North Jersey. It would create jobs and increase housing values,” said Wright. “We can’t afford not to do this project.”

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