Part 2 of 6: Politicians Wrangle as Costs Climb

Written by David Peter Alan, Contributing Editor
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The original Access to the Region’s Core (ARC) Project started with a semblance of consensus but ended its 15-year life in controversy. Its replacement, Gateway, was proposed in February 2011, and has been surrounded by controversy for the entire eight years of its life, so far. The politicians and planners who are pushing the program consider it inevitable, just as they considered the now-defunct ARC Project inevitable almost until the day it was killed in 2010.

Some local advocates still view Gateway as controversial; even overpriced, and they say it contains undesirable features. One thing almost everyone knows about Gateway is that it is expensive; far more expensive than the former ARC project, which was canceled in large measure because it would have cost too much. In this article, we will examine the Gateway Program and its components, the cost of building them, what transit riders can expect if the project is built, and prospects for obtaining the necessary funding.

Gateway was unveiled at a press conference given by Sen. Frank Lautenberg (D-N.J.) and Amtrak President Joseph Boardman (both of whom are deceased) at the Hilton Gateway Hotel, across the street from Penn Station Newark. The event took place Feb. 7, 2011; four months to the day after New Jersey Gov. Chris Christie, a Republican, killed the ARC Project officially, not counting efforts by Transportation Secretary Ray LaHood and FTA Administrator Peter Rogoff to offer more favorable loan terms as an incentive to convince Christie to change his mind and move forward with the project. Nobody from the Christie Administration or from New Jersey Transit (NJT) participated in the Gateway kickoff event.

Gateway is not a single project, but a number of projects aggregated into a “program.” Therefore, the organization formed to promote it is the Gateway Program Development Corp., a New Jersey corporation with politically appointed members representing New Jersey, New York and Amtrak, as well as the U.S. Department of Transportation (USDOT) originally. It was incorporated in November 2016 through the efforts of the Port Authority of New York and New Jersey. The Gateway Board did not meet until Jan. 12, 2017, and the representative appointed by the USDOT left when that agency ceased its participation June 29, 2017. This is understandable, since the other Gateway member agencies are asking USDOT agencies for funds. Jeff Davis of the Eno Center for Transportation reported on www.enotrans.org: “This withdrawal puts official as well as symbolic distance between USDOT and the Gateway Corporation, a hybrid New York – New Jersey – Amtrak – USDOT entity established last year to develop a $24 billion-plus of rail projects in New York and New Jersey.”

There are nine projects that comprise the Gateway Program, and we will concentrate on three of the most controversial and most expensive ones later in this series. Those are the Hudson Tunnel Project, replacements for Portal Bridge and the proposed Penn South Station for NJT.

The westernmost component would include platform and pedestrian circulation improvements at Penn Station Newark. Moving east from Newark toward New York, the next project is addition of a fourth track at Harrison, N.J. Sawtooth Bridge, which carries NEC tracks over NJT Morris & Essex Lines tracks to Hoboken just before SWIFT Interlocking (also known as the “Kearny Connection”, which connects the two lines), would be replaced, and the line would be expanded from the current two tracks to four. The portion of the railroad going east, the High Line, would be rebuilt and expanded to four tracks.

The current Portal Bridge over the Hackensack River would be replaced with two new bridges: a two-track high-level fixed bridge designed Portal North and allocated to resiliency, and another two-track fixed bridge designated Portal South and allocated to additional capacity. Secaucus Junction Station would be expanded with additional tracks on the outside of the existing station boundaries, and a loop track known as the “Bergen Loop” would be added so trains from NJT’s Main-Bergen and Pascack Valley Lines could go directly into New York City. Currently, these trains terminate at Hoboken.

The Hudson Tunnel Project, designated for resiliency, would build two new tunnels under the river. After those tunnels are completed, the existing tunnels would be repaired, resulting in four tunnels (and four tracks). The changes at Penn Station are designated for increased capacity. There would be expansion into Penn South; a proposed station under 30th Street for most NJT trains, and an optional project for future expansion of new tracks eastward under Seventh Avenue. Planning would also continue for a facility for the proposed high-speed rail line that Amtrak hopes to build in the future.

Some advocates have questioned the need for a four-track main line all the way from Newark to New York. NJT MidTOWN Direct trains to New York Penn Station on the Morris & Essex, Montclair and Gladstone Lines do not enter Amtrak’s Northeast Corridor (NEC) until SWIFT Interlocking, just west of the existing Portal Bridge. Therefore, it is unclear that additional capacity is required on the High Line west of Swift, especially since there are no stops between Newark and Secaucus. The purported need for separate and new tracks at Secaucus Junction has been questioned, and the Bergen Loop, which would connect the lower level and the upper level at the station itself, has drawn fire as unnecessary.

Secaucus Junction currently serves as a transfer point. The upper level is on the NEC and goes to Penn Station New York, while the lower level is on the line to Hoboken, historically part of the Erie Railroad. Rockland County, N.Y., representatives have claimed that they need the loop to give them easy access to New York, while other advocates question whether the short trains on those lines should be given valuable peak-hour slots at Penn Station, when riders can get there now by transferring at Secaucus.

Advocates have also questioned the cost-effectiveness, and even the basic utility, of two Portal Bridges as proposed, building two new tunnels before repairing the existing ones, and adding the proposed Penn South station. Funding for the Gateway Program is a major issue, and some advocates do not see how there could be enough money available from all sources to build all of Gateway as currently planned. When the program was unveiled in 2011, the projected cost was $14.5 billion, the high end of estimates for the ARC Project, but including replacements for Portal Bridge. It was expected at the time that all of it would be completed in 14 years. By 2015, New York Gov. Andrew Cuomo and Christie told the Obama Administration that the projected cost for the Hudson Tunnel project was $20 billion, and requested that the federal government pay 50%.

New York Gov. Andrew Cuomo

On June 30, 2017, Jeff Davis of the Eno Transportation Center reported that the projected cost had risen to more than $24 billion and provided a project-by-project breakdown. He said that Phase I (Portal North Bridge, the new Trans-Hudson Tunnel, rehabbing the existing tunnel and Sawtooth Bridge replacement) would cost $10.7 billion. Phase 2 (Moynihan/Penn Station including the Penn South annex, Portal South Bridge, Secaucus South annex, Bergen Loop construction and the Newark-Secaucus embankment) would cost $11.2 billion. This adds up to $21.9 billion, plus 10% overage (contingency), for a total cost estimate of $24.1 billion.

One month later, the cost of new tunnels and repair of the existing tunnels, without any other elements of the program, had risen to $12.9 billion, according to the Executive Summary (at S-10) of the Draft Environmental Impact Statement (DEIS) for the Hudson Tunnel project. Davis’s own report on July 7 estimated the cost of the entire Gateway Program at $29.4 billion, which includes Phase 1 at $15.6 billion, Phase 2 at $11.2 billion, and $2.6 billion. Previous estimates pegged the cost for the tunnel portions of the program at $7-$10 billion, but recent estimates remain in the $30 billion range, a number that appears far beyond what could be found from any combination of known funding sources.

It’s unclear where that money could come from. The capital budgets at NJT and the New York Metropolitan Transportation Authority (MTA) are not taking on the cost of the Gateway projects. The Port Authority has committed $2.75 billion, but only for debt service. That amount is the cap for their contribution, and their commitment document states that they will take no further financial responsibility for the project. Local members of Congress and other politicians are campaigning hard for additional funding for the various Gateway projects, but even with grants in the hundreds of millions of dollars, the funding available so far comprises only a fraction of the full cost.

So where will the rest of the money come from? No more than half of it will come from the USDOT. In a letter to the Gateway Trustees sent June 29, 2018, Acting FTA Administrator K. Jane Williams said that the total federal contribution to any project, which includes all grants and loans, cannot exceed 50% of the entire cost and cannot count as part of the “local” share. This means that the “local share” must comprise a majority of the overall cost. That could include money from either or both of the states concerned, the Port Authority, or anybody else. It cannot include USDOT sources, though, and that includes the proceeds from loans as well as grants.

There may be an exception to that rule. In the new statute, enacted at the end of January to break the impasse that cause the recent federal shutdown, loans from federal sources that will be paid back from local sources may count as local funding. Even if the Railroad Rehabilitation and Improvement Financing (RRIF) loans that would be used for the Hudson Tunnel Project were legally permissible, there may still not be enough local money available to get approval from the FTA in a competitive process that rates each project on its own merits.

Gateway proponents claim that the Obama Administration had promised to pay half the cost of the complete program, but it does not appear that there was any such promise that can be legally enforced. Nobody has yet been able to produce a written understanding to that effect, and even Gateway’s strongest proponents claim that the alleged Obama-era “deal” was “on a handshake.”

There is an old saying in contract law: “A verbal contract is not worth the paper upon which it’s not written.” Even with its questionable grammar, that maxim makes sense. Government grantors like the FTA dole out their contributions on the basis of a Record of Decision (ROD), followed by a Full-Funding Grant Agreement (FFGA) that sets out the conditions that apply to the grant and makes it clear to the recipient that local funding sources will need to pay the entire amounts of any cost overruns.

It is well known that President Trump is not transit-friendly, and that he is feuding with Senate Minority Leader Charles Schumer (D-N.Y.). While politics always rears its head in funding decisions, especially about controversial projects, the FTA has a good reason for limiting the federal share of the pot. Many other transit systems are looking for grants, too. Gateway would take up 62% of the past five years’ average funding for New Starts grants nationally ($1.63 billion) in 2020, 67% in 2021 and 58% in 2022, according to New York transit advocate Joseph M. Clift’s analysis of the project’s proposed draw-down of its $6.8 billion grant. If Gateway were to get so much, there would be little left for Los Angeles, San Francisco, Seattle, Denver, Chicago, New Orleans and a number of other cities. Even if the Democrats should sweep the elections in November 2020 and win the authority to appropriate transportation grants, there would still not be enough money available to give every city that is also a Democratic stronghold every dollar it wants for its own transit system.

Clift told this writer about a more realistic proposal that he had studied. He ran the financial numbers with the assumption that the Gateway Program would receive 25% of the entire draw for New Starts grants, rather the 58% to 67% that project sponsors propose—still far more than any other project has ever received. Under that analysis, the midpoint of grant funding would not occur until 2028, rather than 2022, as Gateway proponents currently propose, and grant funding would be complete in 2035, not 2030. According to Clift, extending the grant funding period for those extra years would add $1.0 to $1.5 billion to the financing costs, which are already projected to be about $2.5 billion in the official Gateway projection. This would require project sponsors to find an additional $2.8 to $3.1 billion in construction financing to build the project on its currently proposed schedule.

Davis mentioned another unpleasant political reality in his Nov. 26, 2018 issue of Eno Transportation Week: “The fact that there is more than $600 million in core capacity money just sitting around is a historical aberration and can be solely attributed to Rep. Rodney Frelinghuysen (R-N.J.), the outgoing Chairman of the House Appropriations Committee, trying to stockpile money that will eventually be spent on the Portal North Bridge replacement, part of the mammoth Gateway Program of passenger rail upgrades in New York and New Jersey. Portal North, which should be the next core capacity project in line to get a grant agreement, wants an eventual federal CIG (Capital Investment Grant) share of $772 million for the project.”

This amount has risen to $811 million. Frelinghyuysen is gone; the last member of a political dynasty that stretched back more than 200 years. He retired, rather than face the impending sweep of New Jersey’s Congressional delegation by Democrats, including in his district.

Davis went on to say: “The New Starts pipeline represents about 15 years’ worth of average annual appropriations,” and questioned the legality of promising funding so far into the future under the Anti-Deficiency Act, 31 U.S.C. §1341, which has prohibited promising money beyond existing appropriations since the 1870s, and calls for criminal penalties. “If CIG Full Funding Grant Agreements actually made legally binding promises of future federal funding, the FTA employee who signed the agreement could go to jail,” Davis said.

Even without these criminal penalties, the federal government cannot be held to funds committed too far into the future, as Davis noted: “If Congress decides to stop funding FFGAs halfway through construction, the local transit agency has no legal recourse. The grant agreements clearly spell that out in legalese. Nevertheless, the transit agency would be in a world of financial pain were such a thing to happen—agencies are allowed to spend their own money in advance in anticipation of eventual federal reimbursement, and the political consequences of such a thing happening have always been enough for Congress to keep annual funding for the installments of signed FFGAs more or less on schedule.”

To make matters worse for Gateway, the Trump Administration considers it a “local” project, not one of national importance. In a report from March 11 by Mark Niquette for Bloomberg News entitled Trump’s Budget Lacks Money for Critical NYC-Area Gateway Work, Deputy Transportation Secretary Jeffrey Rosen was quoted as saying that the 2020 budget does not earmark any money for Gateway: “Those transit projects are local responsibilities, and elected officials from New York and New Jersey are the ones accountable for them … Those are projects that those communities themselves have thus far chosen not to fund.”

Jeffrey Rosen

To make matters even worse, the FTA released ratings March 15 for infrastructure projects throughout the U.S. Those ratings determine what funding sources are available to any given project. The agency rated the Hudson Tunnel project “medium-low,” which gives the project the same rating the FTA gave it months ago. FTA guidelines mandate that projects with a medium-low rating are ineligible for Capital Investment Grants

Gateway proponents and the federal government both have colorable arguments. The tunnels between New York and New Jersey have implications for interstate commerce, which is a federal responsibility under the Commerce Clause of the U.S. Constitution. The tunnels carry Amtrak riders from New York and points north like Boston and New Haven to other points south of New Jersey, among them Philadelphia, Baltimore and Washington, D.C. Some trains that use the tunnels go to places as far away as Miami, Chicago and New Orleans. On the other hand, the vast majority of passengers who go through the existing tunnels (and new ones, if they are built) ride on NJT trains to or from local destinations in New Jersey. In fall 2017, 88% of rail riders who crossed under the Hudson River did so it on NJT trains; even more—95%—during peak-commuting hours, which is the only time that additional capacity into New York City is needed.

According to the Bloomberg report, Rosen also raised the issue of the projects’ potential ineligibility for federal grants. “There is no reason for the federal government to have those projects jump the line and receive massive federal subsidies for projects that presently are ineligible and lack realistic plans and commitments,” he said, probably referring to the current plan that would have a majority of funding come from federal sources, a violation of FTA policy.

In response to our inquiries to Amtrak and the Gateway Program Development Corp., Amtrak spokesperson Craig Schulz spoke for both and told Railway Age on March 25: “The current financial plan for both Portal Bridge and the Hudson Tunnel Project calls for less than 50% federal funding commitments (49.4% Portal North Bridge; 44% Hudson Tunnel).” He did not address Penn South or any other Gateway Program components, saying, “Any cost estimates for the rest of the projects that comprise the Gateway Program are conceptual only.” Schulz denied that there has been any cost increase, adding: “The two projects that have full, non-conceptual cost estimates have not changed. Portal North Bridge and the Hudson Tunnel Projects are estimate to cost $1.6 billion and $12.7 billion respectively ($11.1 for the new tunnel, $1.6 for rehab of existing NRT (North River Tunnels).”

Schulz also provided a breakdown of the steps Gateway plans to take to raise the needed funds, stating:

“Detailed financial plans have been submitted to the FTA for consideration. Portal North Bridge Project includes up to $600 million from the State of New Jersey through NJ Economic Development Agency bonds. More than $5.5 billion has been committed by the States of NY and NJ and the Port Authority for the Hudson Tunnel Project. Amtrak has built the first two sections of a concrete casing on the west side of Manhattan using $235 million in Sandy-Relief funds, contributed $35 million toward Preliminary Engineering of the Hudson Tunnel Project and is funding the NEPA [National Environmental Policy Act] work led by NJT on behalf of the Gateway Partners. Amtrak is also committed to funding the intercity share of the Portal North Bridge and Hudson Tunnel Projects. The balance is from federal grants and appropriations.”

It appears that what Schulz described depends on the feds for more than they would be willing to contribute. While he did not specifically address any aspects of Gateway besides Portal North, the Hudson Tunnel Project and a concrete casing, there are other aspects to the overall project that we will address in future articles in this series. Schulz mentioned roughly $6.4 billion of the entire project, which is far broader in scope than only the Portal North and Hudson Tunnel Projects. This is only slightly more than 20% of the long-running estimate of $30 billion for the entire cost of the combined projects, and even a smaller percentage of the latest estimate of $33 billion, according a March 18 Star-Ledger editorial.

So, for the advocates, the watchword is affordability, and the mandate is to eliminate waste, in an effort to bring the cost down to a sufficiently low level that local and federal funds can contribute enough to build the projects that are actually necessary. We will explore that effort later in this series.

In theory, at least, Amtrak and Gateway agree. Schultz also told Railway Age: “There is no cost increase. The two projects that have full, non-conceptual cost estimates have not changed.” While that may be true in the short term, these are long-term projects, variations on projects that were originally proposed in the mid-1990s. Costs increase over time, and the original Access to the Region’s Core (ARC) Project was canceled in 2010 primarily because it had become too expensive. Gateway proponents have left financing costs in their estimates. As any project is built in the future, the bills will be paid in year-of-expenditure (YOE) dollars, which are “future dollars” for calculating costs. Dollars to be paid in the future have a lower value than today’s dollars, so costs will inevitably rise. That is one reason why cost estimates for the entire Gateway program have increased over the years. Schulz said, “The costs will only increase with delay,” and advocates agree.

Schulz said that Gateway managers are taking steps to reduce costs: “We continue to pursue the best value-for-money procurement strategy to contain and reduce costs—for example, working closely with the private sector on where to conduct [tunnel] borings to get the best possible information for the Hudson Tunnel Project , and using the on-time, on-budget early work on Portal North to reduce our contingency costs for the project in the latest financial plan submitted to the federal government.”

These are the sort of best practices that usually make sense. How much money they can actually save, as a percentage of the overall cost of the entire set of Gateway projects, remains to be seen. There is also inherent risk in pursuing early work on Portal North . There was similar early work on ARC, which was later canceled, a rare event in the history of federal transit grants. New Jersey was required to give some of the money advanced on the project back to federal authorities, and eventually there was a settlement. If Gateway projects are similarly not built, the feds could demand their money back. A similar scenario is now being played out over the California High-Speed Rail project.

The “About” section of the Gateway website, www.gatewayprogram.org, proclaims: “The Gateway Program is the most urgent infrastructure program in America.” Not everybody shares that view, because it appears highly unlikely that any combination of funding sources will contribute enough money to build all of it. President Trump, a Republican, announced in his budget proposal on March 12, 2019 that there would be no money earmarked for Gateway. Elected leaders in New York and New Jersey, almost all Democrats, have denounced Trump’s budget generally and specifically about Gateway, but Congress always has its say about the federal budget. The same day, officials from Gateway, Amtrak, NJ Transit, the Port Authority and other local representatives met with the four U.S. Senators from New Jersey and New York to campaign for funds for the entire Gateway Program.

Despite their efforts, the estimated $30 billion to $33 billion cost of the entire Gateway Program still appears out of reach, and about half of that would be used to build the Hudson Tunnel Project. As a comparison with Europe, it was reported on March 12 that 15 billion Euros have been secured for a rail tunnel under the Baltic Sea between Tallinn, the capital of Estonia, and Helsinki, the capital of Finland. One Euro is worth $1.13 U.S., so the current funding level for the tunnel is $16.95 billion U.S., or 56.5% of the current estimated cost for the entire Gateway Program. The cities are 51 air miles apart; the rail tunnel should be slightly longer. The Gateway Hudson Tunnels would be significantly shorter; 13,500 feet, or 2.6 miles long, so the Baltic Sea tunnel would cost slightly more than half the estimated cost of the Gateway tunnels—for a tunnel about 20 times as long.

Schulz said that Gateway Development Corp. is becoming a “bi-state commission” so it can receive “accept federal, state and local grants and build-out staff and budget.” He did not say that the restructured GDC would own enough assets to manage the project, repay RRIF or any other loans, and pay any deficiencies if there should be any cost overruns. If GDC does not have enough money on its own account for these purposes, someone else would need to guarantee funding, or the FTA’s failing grades from this year will not improve. (In other words, they would not be able to jam on that RRIF!)

In the meantime, the Hudson Tunnel Project is being examined closely. The momentum for the project at its original scope may be dissipating. With potential success of the method for repairing the Canarsie Tunnels on the L-train line of the New York City subway system, a counter-momentum in favor of this less-invasive fix is growing. April 2019 may be remembered as the month when the tide began to turn. Some New York officials are asking: Is it really necessary to build two new tunnels before repairing the existing ones, especially when money is so scarce? Gateway officials are resisting change, but they are also beginning to ask questions. We will look at the Hudson Tunnel Project, including its history and its cost, in the next article in this series.

David Peter Alan is Chair of the Lackawanna Coalition, an independent non-profit organization that advocates for better service on the Morris & Essex (M&E) and Montclair-Boonton rail lines operated by New Jersey Transit, as well as on connecting transportation. The Coalition, founded in 1979, is one of the nation’s oldest rail advocacy organizations. In New Jersey, Alan is a long-time member and/or board member of the NJ Transit Senior Citizens and Disabled Residents Transportation Advisory Committee and Essex County Transportation Advisory Board. Nationally, he belongs to the Rail Users’ Network (RUN). Admitted to the New Jersey and New York Bars in 1981, he is a member of the U.S. Supreme Court Bar and a Registered Patent Attorney specializing in intellectual property and business law. Alan holds a B.S. in Biology from Massachusetts Institute of Technology (1970); M.S. in Management Science (M.B.A.) from M.I.T. Sloan School of Management (1971); M.Phil. from Columbia University (1976); and a J.D. from Rutgers Law School (1981).

OTHER ARTICLES IN THIS SERIES

PART 1 OF 6: An ARC With No Covenant

Categories: Commuter/Regional, High Performance, Intercity, Passenger Tags: , , , ,