Hudson River Tunnel Cost Estimate Lowered by $1.4 Billion, Sponsors Say They Will Cap Annual CIG Draw at $600M

The sponsors of the proposed Hudson River Tunnel replacement project on August 23 announced that they have submitted a revised financial plan to the Federal Transit Administration that lowers the cost of the project by $1.4 billion. According to the Federal Transit Administration’s way of estimating costs (which includes financing costs), as reported in their November 2018 rating of the project, total capital cost was $13.7 billion, and the reduction in the new funding plan would take the cost down to $12.3 billion.

The project sponsors said in their announcement that they were taking that cost reduction entirely out of the request for annual appropriations from the federal Capital Investment Grant (CIG) program. The last plan had a total appropriations request of $6.8 billion, and the new plan lowers that to $5.3 billion. This would lower the CIG share of total capital costs from 49 percent to 43 percent of the total. In addition, project sponsors announced that they were putting a ceiling on the annual appropriation they would request from the program – no more than $600 million in any one year. (See below for perspective on this.) The non-federal share would remain at what project sponsors say is $5.5 billion. (We are waiting to see the full funding plan so we can perhaps translate their numbers into the numbers that FTA uses.)

However, even as the amount of federal CIG appropriations requested drops, the amount of funding that project sponsors say Amtrak has committed to the project has risen from $704 million to $1.282 billion, and since the federal government currently appropriates $650 million per year to Amtrak to help defray their capital expenses in the Northeast Corridor, determining how much of these fungible Amtrak capital dollars going towards the tunnel come from federal appropriations is an art, not a science.

Project sponsors hope that the new funding plan can get the FTA to change its overall rating of the project from the current “medium-low” rating to at least “medium” so that the tunnel project will become legally eligible for federal funding under the CIG program. Their letter said that they then intend to apply to FTA for an “early systems work agreement” (ESWA)

ESWAs are authorized under 49 U.S.C. §5309(k)(3) and allow project sponsors to spend federal funds before a final full funding grant agreement (FFGA) has been negotiated and signed, if the NEPA record of decision is complete and if “the Secretary finds there is reason to believe – (i) a full funding grant agreement for the project will be made; and (ii) the terms of the work agreement will promote ultimate completion of the project more rapidly and at less cost.” (With this Administration, and its demonstrated attitude towards this project, those are two big “ifs”.)

ESWAs have rarely been used in recent years. The last time FTA entered into an ESWA was in 2009, for the proposed Access to the Region’s Core tunnel under the Hudson River. That project collapsed when the Governor of New Jersey pulled the plug, after ground had been broken and federal money appropriated and spent, and legal action had to be threatened to try and get New Jersey to pay back some of the money spent under the ESWA. It is fascinating that the ARC tunnel (a.) basically scared FTA off from making any more ESWAs and (b.) is, basically, the reason the proposal for the new Hudson River Tunnel exists under its current form – after the governor killed ARC, Sen. Frank Lautenberg (D-NJ) regrouped and got a similar tunnel for New Jersey Transit use proposed under Amtrak’s aegis instead of the Garden State, as part of the larger “Gateway” program of Amtrak projects.

To show just how large an annual $600 million per year draw on the CIG program (for up to nine years in a row) would be, we looked back at the history of the program. Partial records are available on the FTA website going back to 1996. The following table shows the total amount of funding for new starts (lately which includes core capacity and small starts), the largest annual project allocation, and how much of the annual program total was represented by the largest allocation. In two years, two projects tied with identical allocations. Dollar amounts are in millions, and the table excludes the supplementary 2009 funding added by the ARRA stimulus law (this is the regular program only).

Year Total Program Largest Project Allocation Pct. Of Total
FY96 700.5 128.6 Portland/Westside 18%
FY97 814.3 137.0 Portland/Westside 17%
FY98 800.0 63.4 Portland/Westside 8%
FY99 902.8 70.0 (tie) Hudson-Bergen MOS-1 and Salt Lake City South 8%
FY00 961.9 97.1 Hudson-Bergen MOS-1 10%
FY01 1,087.1 119.9 Hudson-Bergen MOS-1 11%
FY02 1,136.4 139.6 Hudson-Bergen MOS-1 12%
FY03 1,214.4 100.0 SF BART to Airport 8%
FY04 1,328.3 100.0 (tie) BART to Airport and Hudson-Bergen MOS-2 8%
FY05 1,157.7 99.2 Hudson-Bergen MOS-1 9%
FY06 1,246.2 333.2 LIRR East Side Access 27%
FY07 1,569.1 210.7 LIRR East Side Access 13%
FY08 1,569.1 210.7 LIRR East Side Access 13%
FY09 1,577.6 274.9 NYC 2nd Avenue Subway 17%
FY10 2,000.0 202.5 LIRR East Side Access 10%
FY11 1,580.8 215.0 LIRR East Side Access 14%
FY12 1,955.0 203.4 LIRR East Side Access 10%
FY13 1,836.5 236.3 Honolulu 13%
FY14 2,125.4 250.0 Honolulu 12%
FY15 2,148.0 250.0 Honolulu 12%
FY16 2,177.0 250.0 Honolulu 11%
FY17 2,530.5 243.7 Honolulu 10%
FY18 2,644.9 150.0 Cambridge MA 6%
FY19 2,552.7 150.0 Cambridge MA 6%

The table shows that the largest annual new starts allocation during this time period was $333 million, in 2006, for the Long Island Rail Road East Side Access program, and that allocation was an unusually high 27 percent of the program total that year. The average (mean) high allocation over this period has been $176 million, which has been an average of 12 percent of annual program totals.

It is also worth pointing out that the three projects that have had the biggest draws on the program during this time – LIRR East Side Access, NYC Second Avenue Subway Phase 1, and Honolulu – are also the three “problem children” in the CIG portfolio with the biggest delays and cost overruns. Putting Second Avenue to the side (it had some delays and significant cost overruns, but Phase 1 is now open and running well), East Side Access is now ten years late and nearly $7 billion over budget, and the Honolulu project had construction suspended partway through, with FTA holding on to $744 million of the appropriated money until a rescue plan is finalized.

In both those instances, federal funding for the projects went ahead, possibly before the projects were ready to be funded, because of strong political pressure from Congress – Al D’Amato (R-NY) was chairman of the Senate Banking Committee in the late 1990s and got the first East Side money (a $353 million earmark) in the 1998 TEA21 law, and Daniel Inouye (D-HI) was chairman of the Senate Appropriations Committee when the Honolulu project was approved and when it got its first tranche of funding.

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