Biden Promises Future Tunnel Funding Without Actually Making Grants

Politicians holding big public events in association with funding grant announcements for high-profile projects are as old as funding grants themselves. Politically, the grant announcement is usually more important than the actual completion of the project (since, with large projects, there is a good chance that none of the politicians involved with getting the grant will still be in office when the project is completed).

But it is unusual for a high-profile politician to hold a large public event to celebrate a project when they aren’t yet able to deliver the money. And that is what President Biden did this week for major rail tunnel projects in Baltimore and in New York City.

On Monday (January 3o), the President went to Baltimore and held a news event near the 7,700-foot Baltimore and Potomac Tunnel that carries what is now Amtrak’s tracks under the city. That tunnel will turn 150 years old on June 29 of this year and is the biggest bottleneck on the Northeast Corridor between New York and D.C. It has a curve with a top speed rating of 30 miles per hour. It has the steepest grade south of Philadelphia. It limits car height to 16 feet 3 inches, and the tracks are so close together that it limits maximum train width as well.

There is no question that the tunnel needs replacing, and Amtrak has plans to replace the existing tunnel with a new, twin-tube Frederick Douglass Tunnel that makes a much gentler curve under the city. That new tunnel project is expected to cost $6 billion.

In his speech, Biden accurately described the problems associated with the existing tunnel, and then said “And through the Infrastructure Law, we’re going to be investing over $4 billion to replace the existing Baltimore and Potomac Tunnel.”

But the Department of Transportation didn’t announce any grant funding for the tunnel this week, or this year, or last year.

Does the infrastructure law (the Infrastructure Investment and Jobs Act, or IIJA) have the money? Yes. In particular, the IIJA provided an appropriation of up to $24 billion for “Federal-State Partnership for Intercity Passenger Rail” program grants to be spent on the Northeast Corridor. But that program was slow to get off the ground. The first $9 billion of Northeast Corridor funding has been made available for application (the NOFO is here), but applications aren’t due until March 27, 2023, and the Baltimore tunnel cannot, legally, be guaranteed to get all or any of its money in the first round, before all the applications are in.

So: someday, if and when USDOT actually announces a grant to fund the Baltimore tunnel project, we get to have this week’s press event all over again, except this time, the President will have one of those five-foot-long oversize checks with him. And then we will get to have another event just like it at the groundbreaking ceremony some months after that, except with shovels and hard hats.

The New York City event the following day was less misleading than the Baltimore event, yet also more misleading. Unlike in Baltimore, President Biden actually had a grant announcement to make in New York – $292 million to pour a massive amount of concrete under 11th Avenue on the West Side to preserve 1400 feet of underground train right-of-way from the weight of new real estate development going on overhead. The concrete casing is necessary in case anyone ever decides to expand rail service in that direction.

The concrete casing grant was announced as part of the first round of “mega project” funding under the IIJA (we had the project list a month ago, but the Administration faced a statutory 30-day delay before they could make their own announcement of the project list).

President Biden’s remarks yesterday mentioned the casing but were mostly about the tunnel itself, a part of the larger “Gateway” program of passenger rail improvements in Greater NYC, particularly the proposed new Hudson River Tunnel from New Jersey to Penn Station, the showpiece of Gateway.

Preserving the right-of-way is a necessary prerequisite for the proposed new tunnel.  But it is, legally and practically, a separate project. And, funding-wise, the concrete casing is a drop in the bucket – a $610 million total project cost, of which the federal megaproject grant announced this week is 48 percent. The new tunnel itself will cost 23 times that much ($14 billion).

What makes President Biden’s remarks yesterday a tad disingenuous is that the sponsors of the new tunnel itself actually applied for funding for the tunnel during this round of megaproject money and were denied, in part because the career staff at USDOT determined that the tunnel project will not be cost-effective.

As part of their required notification to Congress of the first round of megaproject selections late last month, USDOT also sent the Hill a five-page spreadsheet listing every application received last year and summarizing the staff evaluation and ratings of the projects. A total of 138 projects met the legal eligibility requirements (nature of project sponsors, project size and purpose, etc). Of those, ten were given INFRA grants instead of megaproject grants. Of the other 128, a total of 29 were recommended for funding. (Nine of those actually received megaproject grants.)

The other 99 projects were not recommended for funding, and it was almost always because because the staff determined that they had not met at least one of the statutory requirements set down in 49 U.S.C. §6701.

The Hudson River Tunnel sponsors applied for funding last year, asking for $897 million in megaproject funding towards a total project cost of $14.1 billion, but the tunnel was one of those 99 projects that got rejected. The USDOT career staff said that the application was deficient in three of the statutory requirements:

  • Inadequate non-federal funding. The law requires megaproject applicants to have “1 or more stable and dependable sources of [non-federal] funding and financing…to construct, operate and maintain the project, and…to cover cost increases.” The USDOT staff determined that the Hudson Tunnel project did not meet this requirement.
  • Lack of institutional capacity. The law requires megaproject applicants to have “sufficient legal, financial, and technical capacity to carry out the project.” The USDOT staff determined that the Hudson Tunnel project did not meet this requirement.
  • Not cost-effective. The law requires megaproject applicants to “be cost-effective.” The USDOT staff determined that the Hudson Tunnel project did not meet this requirement.

Following are screen captures from the document sent by DOT to Capitol Hill last month:

A project sponsor can take steps from year to year to strengthen applications by shoring up the non-federal funding, or by adding institutional expertise. But historically, it has been very difficult for project sponsors to reverse a determination of “not cost-effective” without substantially overhauling the finances of the project.

This does not mean that the tunnel won’t get funded, only that the megaproject program may be a bad fit for it, since the megaproject program has a very clear cost-effectiveness requirement. The megaproject language in 49 U.S.C. §6701 says that the Secretary may “only” fund a project if he determines that “the project will be cost-effective.”

But that requirement is specific to the megaprojects program. In the Federal-State Partnership for Intercity Passenger Rail program, in 49 U.S.C. §24911, there is no cost-effectiveness requirement whatsoever for grants for projects on the Northeast Corridor. The only thing needed to get a grant are an eligible sponsor and location (and Amtrak and the NEC qualify), that the project has to be on the Northeast Corridor Project Inventory, and that, in this case, Amtrak and NJ Transit have to be in compliance with the operating cost-share requirements set by the Northeast Corridor Commission. Cost-effectiveness, institutional capacity, and stable non-federal funding are not requirements.

(For projects not on the NEC as part of this program, there is a requirement that the Secretary “take into account” cost-benefit analysis, along with six other factors, but not on the NEC.)

Hudson Tunnel project sponsors had been applying for a $5.6 billion grant from the Federal Transit Administration as part of the program that funds new subway and light rail projects, but the fact that Gateway is an Amtrak program always made this a weird fit, and the tunnel has had problems meeting the cost-effectiveness and local financial commitment requirements of that program as well. The $24 billion NEC set-aside in the Partnership for IPR program was tailor-made to fund the tunnel (and the Baltimore tunnel as well) and has the guaranteed money to fund both – someday.

But none of those grants have been announced yet, which means we will have to have replays of this week’s events all over again when there is some real, tangible news to be announced.

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