The ARC Tunnel: What Happened? What Happens Next?

Mark J. Magyar | October 28, 2010 | Budget
Gov. Christie rejected a series of federal proposals aimed at keeping ARC alive. His unwavering refusal raises critical public policy questions.

Governor Chris Christie’s decision yesterday to throw the switch on the ARC passenger rail tunnel brought two decades of transportation policy planning to a screeching halt.

Christie rejected a series of proposals from the federal government that included increased federal funding, a low-interest loan, public-private partnerships, and a number of suggestions to scale back the project and thus trim costs. The governor dismissed the proposals as inadequate because they he said they would still leave New Jersey taxpayers on the hook for billions in potential cost overruns.

Christie’s emphatic decision puts an end to the largest public works project in the nation, but leaves a series of critical public policy questions unanswered.

First, Christie acknowledged the state would lose the $3 billion federal New Starts grant, has wasted $250 million in state funds on the tunnel and might owe the federal government $350 million it spent on the project. But where is the rest of the $5.7 billion going?

Christie said yesterday he didn’t know. The smart money is betting the $1.25 billion in New Jersey Turnpike revenue and the $100 million a year set aside from the federal government’s annual transportation capital program will be used — as Christie’s NJ Transit Executive Director James Weinstein acknowledged discussing — to keep the Transportation Trust Fund going for the next two to three years without having to raise gas taxes or make deep cuts elsewhere in the budget.

What about the $3 billion in Port Authority money dedicated for the tunnel? “That’s New Jersey money,” Christie asserted yesterday. Undoubtedly, it will be shifted to other major projects in the Port Authority district, which falls within 25 miles of the Statue of Liberty.

One likely option is funding the rest of the reconstruction of the Bayonne Bridge to allow larger cargo ships into the port – a project that has already received $1 billion from the Port Authority. Rebuilding the Pulaski Skyway and the Goethals Bridge are also possibilities.

Amtrak and ARC?

Second, the ARC passenger rail tunnel that would have more than doubled the number of rush-hour trains from New Jersey to New York, cut commuting times by an average of 45 minutes a day and provided direct service for the Raritan Valley Line and Bergen County by 2017 is officially dead. Does that mean there will be no new rail tunnel to New York?

Christie yesterday tossed out the tantalizing possibility that New Jersey could partner with Amtrak on the new tunnel it is planning to serve high-speed trains on the Boston to Washington run. But the new Amtrak tunnel is nothing more than a proposal that has no funding and hasn’t even begun to go through years of environmental impact statement reviews, Amtrak spokesman Cliff Cole noted.

In fact, Amtrak’s “Northeast Corridor Infrastructure Master Plan” last June only included the new tunnel in concept as a “placeholder” for the tunnel that Amtrak knows it will need to build sometime in the future. The Amtrak master plan assumed that construction of the ARC tunnel would alleviate competing commuter demand on the existing system.

Could Christie and Anthony Coscia, the former New Jersey Economic Development Authority czar who is now chairing Amtrak, agree on a joint Amtrak-NJ Transit tunnel that would cut down NJ’s outlay? Sure, but the prospect of big federal dollars for such a project will be a lot less if the Republican Party, whose candidates have been calling for deep cuts or the abolition of Amtrak, takes control of the U.S. House of Representatives as expected in next week’s elections, Martin Robins, executive director emeritus of Rutgers University’s Alan M. Voorhees Transportation Policy Institute, pointed out.

On the Hook

Third, what is the likelihood that New Jersey taxpayers would have been on the hook for billions of dollars in cost overruns, which Christie said was his sole reason for killing the project?

According to Christie, the agreement with the U.S. Department of Transportation made New Jersey taxpayers liable for all cost overruns beyond the original $8.7 billion estimate.

“What the proponents of this plan are asking me to do, on behalf of the citizens of this state, is to hand them over a blank check,” he said. “I simply will not do that.”

Christie said federal Department of Transportation figures showed only a 10 percent likelihood that the project would come in at $9.77 billion (more than $1 billion over budget). They projected a 40 percent to 50 percent likelihood that ARC would come in at $11 billion to $12 billion and an 83 percent probability it would come in below $13.7 billion.

“That means there’s a 17 percent possibility it could come in more than $5 billion over budget, “ said Christie, “and nobody was offering me a deal that said, ‘don’t worry, we’ll take care of anything over $5 billion.’ ”

Even mass-transit advocates acknowledge that major projects like ARC usually come in 10 percent to 30 percent over budget (meaning $1 billion to $3 billion in this case). But management of this project was under the control of Christie’s New Jersey Transit agency, and Senate President Stephen Sweeney (D-Gloucester) sharply criticized Christie for killing the project without trying to see if he could negotiate cost controls with contractors through the state bidding process.

Viable Options

Fourth, did U.S. Transportation Secretary Ray LaHood and U.S. Senators Frank Lautenberg and Robert Menendez (D-N.J.) come up with viable options to limit or eliminate cost overruns or to reduce New Jersey’s financial exposure?

LaHood, Lautenberg and Menendez came in with a broad array of options that would have addressed some or all of the cost issues, but Christie acknowledged that he gave them no set target or percentage at which he would reconsider his October 7 decision to pull out of the project.

When LaHood and his deputy met with Christie on Sunday, LaHood offered $358 million in additional federal New Starts money, to be matched by $358 million from the Port Authority and $358 million from the State of New Jersey to cover the minimum 10 percent cost overrun. The $3.358 billion federal New Starts commitment represented the largest pledge to a single project in federal Department of Transportation history, LaHood noted. Christie rejected the offer because it would require New Jersey taxpayers to put more money into the project, and he had promised not to do so.

Christie, who praised LaHood, blamed others “above his [LaHood’s] pay grade” for not coming up with a more lucrative package. The only one above LaHood’s pay grade is President Obama.

In addition, LaHood essentially offered to write Christie a blank check from his department’s Railroad Rehabilitation and Improvement Financing program for a multi-billion-dollar loan to cover cost overruns and the $775 million Portal Bridge South leading into the new tunnel. Christie said he rejected the 35-year loan because “no matter how low the interest rate, the money would still have to be paid back by New Jersey taxpayers.”

The most intriguing proposal was initially broached publicly by Lautenberg. Last week he suggested the possibility of a public-private partnership, under which a private firm or firms would take responsibility for all or part of the project and for all of the cost overruns. The Port of Miami Tunnel and the new Capital Beltway HOT Lanes in Virginia were both built by private-public partnerships that make back their investment by charging tolls or user fees. The U.S. Department of Transportation is finalizing a similar deal for the Eagle Rail project in Denver.

Christie dismissed the concept as not worth considering “because New Jersey commuters will end up paying” for a project he feels should be paid for at least in part by the state or city of New York.

Scaling Back

Menendez initially floated the idea of scaling back the project’s cost at a rally called by New Jersey’s labor unions at the site of the “$600 million hole” in North Bergen. These proposals included deferring or eliminating construction of a new rail yard in Kearny that would have cost $230 million; delaying or eliminating some of the loop tracks that would have increased the number of commuters who gained non-stop service to New York at a savings of $506 million; cutting the number of additional rail cars to be purchased in order to save $271 million; and eliminating some of the new entrances and exits to the new rail station between Sixth and Seventh Avenues in Manhattan to save $150 million to $300 million in land acquisition costs. These proposals, taken together, would have saved more than $1.2 billion, but Christie dismissed the idea of scaling back the plan because it would reduce the benefit to New Jerseyans.

Democrats and mass-transit and environmental advocates said Christie’s decision not to accept some or all of these proposals showed that “he had already made up his mind to cancel the project to take its funding and spend it elsewhere,” as Assembly Transportation Committee Chairman John Wisniewski, the state Democratic Party chairman, put it.

Evaluating the Impact

Fifth, what is the impact of the ARC tunnel cancellation on rail commuters, property values and the state’s future economic competitiveness?

Christie acknowledged that the ARC project was “worthwhile,” although he has repeatedly questioned its relative value to New Jerseyans vs. New Yorkers.

Half of the 6,000 construction jobs would have been in New York, as would most of the 45,000 permanent jobs that would have been created according to projections by New Jersey Transit. Many of those jobs, however, would have been filled by New Jerseyans, especially if the ARC tunnel cut their commute appreciably. The Long Island Railroad is working on a rail tunnel to Grand Central Station that will speed commutes and make Long Island more attractive to New York executives, as bedroom communities in competition with North Jersey suburbs

The Regional Plan Association estimated that properties within two miles of rail stations served by ARC, including those on the Raritan Valley Line running across suburban Union, Somerset and Hunterdon counties and the lines fanning north and west through Bergen County, would have gained $18 billion in value. This would have been a direct result of faster commutes. Municipalities along those lines that were making economic redevelopment plans on the basis of increased attractiveness due to ARC are out of luck.

LaHood criticized Christie’s decision as “a devastating blow to thousands of workers, millions of commuters and the state’s economic future. The decision to stop work on this project means commuters – who would have saved 45 minutes each day because of the ARC tunnel – will instead see no end to traffic congestion and even longer wait times on train platforms.”

Who’s to Blame?

Sixth, who should get the blame for the demise of the ARC Tunnel project?

Christie repeatedly blamed previous Democratic and Republican administrations for overspending that has plunged New Jersey into a fiscal and budget crisis that is now entering its fourth year, with little sign of improvement. Christie didn’t mention it, but if Democratic and Republican administrations had been willing to raise the gas tax in order to adequately fund the Transportation Trust Fund, he would have had more fiscal flexibility when dealing with ARC.

Christie, however, has ruled out a gas tax hike. Raising New Jersey’s 14.5-cent gas tax by 15 cents to the national average – as the Democrats could have done during the lame duck session before Christie took office — would give the state $750 million more per year to spend on transportation projects, and ARC would still be moving forward, Deborah Howlett of the liberal New Jersey Policy Perspective, noted.

Christie also contends that the Corzine administration should have pushed harder to make sure that New York City and New York State helped fund the ARC project directly, rather than simply signing off on the Port Authority funding.

Republicans yesterday criticized Lautenberg and Menendez for not coming up with more federal money to cover the projected cost overruns, and the Obama administration for not sweetening its offer more than the $358 million LaHood came in with.

What is significant about the finger-pointing is that this is one of the first times in the Christie administration’s 10 months in office that an issue has divided completely along traditional partisan lines. Christie and all of the Republicans and anti-tax advocates are on one side; all of the Democrats, labor, environmentalists and liberals are on the other. The high level of partisanship in New Jersey state government, which is so different from the bipartisanship that created the Transportation Trust Fund under Governor Kean, deserves some of the blame.

National Implications

Seventh, what does Christie’s decision on the project he turned into the poster child for cost overruns and waste as “The Tunnel to Macy’s Basement” mean for the future of mass-transit projects nationally?

Christie’s decision to unilaterally kill the ARC tunnel project could be just the first in a series of decisions by Republicans running ahead or close in races for governor to kill high-speed rail projects.

On the same day that Christie was pulling the plug on ARC, the federal government was giving out an additional $900 million in grants to California for the high-speed rail line from Los Angeles to San Francisco, which could later be expanded to Sacramento and San Diego. It handed out another $800 million to Florida for its Tampa to Orlando line.

But if the GOP candidates for governor win, they have said they will cancel the projects because taxpayers in their states cannot afford to pay their designated share of the costs – the same argument made by Christie.

State governments from New Jersey to California are indisputably facing difficult budget problems and are being asked to pay a higher share on major transportation construction projects than they did when President Eisenhower built the Interstate Highway System on the grounds of national security and national interest. But it will be difficult to get a greater federal commitment to these projects if the Obama administration suffers a heavy loss of Democratic seats in Congress in an election highlighted by the emergence of the anti-government Tea Party as a political force.

Finally, does New Jersey’s $600 million “hole in the ground” in North Bergen have no use except as the site of future Democratic press conferences?

Jeff Tittel, the executive director of the New Jersey Sierra Club, asserted that the proposed Amtrak tunnel route runs virtually parallel to the ARC tunnel and that the hole” could be used as the entrance for a joint Amtrak/New Jersey Transit tunnel. Cole, the Amtrak spokesman, was checking into the possibility. If that’s the case, work could continue on the New Jersey side while Christie and Coscia hammer out their agreement – unless, of course, as Tittel and others have suggested, the real purpose of canceling the tunnel is to use the money for the Transportation Trust Fund.

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