USDOT Pulls Out of Gateway Program As Hudson Tunnel Cost Balloons to $13B

July 7, 2017

The U.S. Department of Transportation on June 30 abruptly withdrew from its membership in the Gateway Program Development Corporation, a joint venture between USDOT, Amtrak, and the state governments of New York and New Jersey to organize a collection of Northeast Corridor improvements in those states.

The timing of USDOT’s withdrawal is probably connected with the release this week of a draft environmental impact statement for the largest piece of Gateway – a new twin-tube tunnel below the Hudson River for use by Amtrak and New Jersey Transit trains. The draft EIS contains the first public cost estimate for the tunnel – $11.1 billion, plus a related $1.8 billion rehab of the existing tunnel once the new tunnel opens – that in turn pushes the cost of the total Gateway program close to $30 billion.

(See also this recent ETW article, “What Is the Gateway Program?”)

The Obama Administration struck a not-legally-binding handshake deal with New York and New Jersey political leaders in November 2015 promising that the Department of Transportation and Amtrak (which is largely financially dependent on federal subsidies) would pay at least half of the cost of the entire Gateway program via grants (real money, not loans) if New York and New Jersey collectively would pick up the other half (some of which would be through borrowing from the federal government).

However, the Obama Administration did not identify any specific grant programs at the time, and the cost of the entire Gateway program dwarfs existing discretionary programs that are currently funded or authorized by Congress.

The Obama Administration later decided to enter the first two projects under the Gateway umbrella – the Portal North Bridge and the Hudson Tunnel – into the Federal Transit Administration’s Capital Investment Grant (CIG) program, probably because it was the biggest discretionary grant program that could conceivably be used for the purpose. But even that program was authorized by the FAST Act at $2.3 billion per year, a total which has to meet mass transit capital needs across the nation, not just in New York and New Jersey. (See sidebar showing upcoming CIG grant requests, here.)

Meanwhile, in a development that was certainly not foreseen when the Obama Administration put the bridge and tunnel into the CIG program pipeline, the Trump Administration is proposing to wind down that program, and is refusing to request any money through the program for new projects (starting with the North Portal Bridge and a few others that could be ready to receive appropriations in 2018).

But there really isn’t any place in the federal budget where the Gateway program fits neatly, for one big reason.

Is it mass transit, or is it railroad? The entire constitutional, legal, regulatory and financial framework for a federal role in mass transit is fundamentally different than the one used for railroads. The entire federal role in the railroad sector hinges on the Commerce Clause of the Constitution. Congress has the power to regulate interstate commerce, and started to regulate the railroad industry with the Interstate Commerce Act of 1887.

Mass transit, on the other hand, has always been assumed to be inherently local and thus outside the scope of the Commerce Clause. The federal role in mass transit is justified by the General Welfare Clause and the Spending Clause of the Constitution, neither of which grants regulatory power (which is why federal regulation of mass transit safety only comes via conditions in grant agreements or withholding of money).

This is why there are separate administrations within the Department of Transportation for rail and for transit, and it is part of the reason why committee jurisdiction on Capitol Hill is fragmented as well. And this in turn helps explain why there are separate funding streams and grant programs for rail and transit.

The dividing line obviously gets blurry when commuter rail is discussed. Commuter rail often crosses state lines, and even when it doesn’t, commuter rail systems often use tracks owned by freight railroads, both of which make it more railroad than transit system on a legal basis, even when it is functionally a mass transit system. (FRA and FTA recently had to give out $197 million in positive train control (PTC) grants to commuter railroads jointly – FTA had the money but FRA had the jurisdiction.)

And the unusual nature of Amtrak adds a further layer of confusion. The private railroads in the Northeastern U.S. all went bankrupt in the late 1960s and early 1970s (while the Interstate Commerce Commission was still regulating their routes and rates). The interstate passenger operations were turned over to Amtrak in 1970, but the physical infrastructure of those railroads was then taken over by the federal government directly. Amtrak was allowed to buy the Northeast Corridor in 1976, and the rest of the old railroad lines – both freight and commuter – became Conrail, a federally-owned corporation. The Northeast Rail Service Act of 1981 allowed Conrail to get rid of its commuter rail services, and Conrail’s commuter operations in the Garden State were turned over to New Jersey Transit (which was previously bus-only) in 1983.

Amtrak and NJ Transit are both descendants of the Penn Central Railroad and they both operate passenger trains through the North River Tunnels (the dashed white line on the map below), which were built by the Pennsylvania Railroad between 1904 and 1908. Amtrak owns the existing tunnels, which were flooded with salt water by Almost-Hurricane Sandy and which now need full rehabilitation in the coming years.

The centerpiece of the Gateway Program is a new twin tunnel proposed to be built under the Hudson that would also carry both New Jersey Transit and Amtrak trains (the solid red line on the map above). Upon completion, the new tunnels would allow the existing tunnels to be shut down one at a time for full rehabilitation.

(This project is not the same as the ARC tunnel project killed by Governor Chris Christie in 2010. The ARC tunnel would not have been accessible to Amtrak trains and would not have connected to Penn Station. So even if Christie had not killed the ARC tunnel and if that tunnel were in full operation today, Amtrak would still be calling for a new tunnel for its own trains to allow the old tunnels to be rehabilitated.)

Amtrak, being clearly interstate in nature, receives its oversight and funding through the Federal Railroad Administration. FRA also regulates New Jersey Transit’s operational safety, but NJT gets some federal capital funding through the FTA formula grant programs.

This brings us back to the question: is the Gateway Program primarily about facilitating the national railroad network, or is it primarily about moving passengers between New York and New Jersey? Since Amtrak owns the existing tunnel and would own the new tunnel, it would seem to be a predominantly Amtrak/national program.

With the exception of the FY 2009-2010 period under President Obama, the FRA has never had a significant grant-making footprint for anyone except Amtrak (which is owned by the federal government). FTA, on the other hand, has always been primarily a grant-making organization. So instead of asking for more money for Gateway through the annual Amtrak appropriation for Northeast Corridor capital costs and debt service, the Obama Administration decided to fund the first Gateway project (North Portal Bridge) exclusively through FTA, and to put the bulk of the federal commitment for the much more expensive new tunnel through FTA as well.

(The clearest manifestation of the rail-transit divide is that the lead agency on the new tunnel’s draft EIS is FRA, which has no money for discretionary grant programs, but the previous Administration identified the tunnel for FTA funding.)

That FTA CIG program is competitive, and systems have to compete against each other for a limited amount of current and future funding. This is the reason cited by USDOT for its withdrawal from the Gateway Board of Trustees – that it is a conflict of interest for USDOT to be both the applicant for a competitive grant and the judge of who gets the grants.

USDOT is on other local project boards (NYC Penn Station and DC Union Station redevelopment), but after conflict-of-interest questions were raised, Congress passed a law specifically authorizing USDOT participation on those boards. No such legal authorization yet exists for the Gateway Program.

But looking at the big picture, relying on the FTA CIG program for Northeast Corridor infrastructure seems to be a roundabout way to go, for these reasons:

  1. Amtrak owns most of the physical infrastructure (right-of-way, track, signaling, power catenary, stations, etc) of the NEC, particularly between New York and D.C.
  2. The federal government owns Amtrak. (See this 2015 Supreme Court decision for clarification.)
  3. As long as #1 and #2 are true, isn’t the maintenance of the physical infrastructure of the NEC a special area of federal responsibility?

It seems unwieldy to use grant programs designed for aid to locally-owned transit agencies to pay for needed upgrades to infrastructure owned by a subsidiary of the federal government itself.

The total Gateway Program price tag is now approaching $30 billion – a huge amount of money that is over 20 times last year’s total Amtrak appropriation and 13 times the annual authorized level for the FTA CIG account. If Congress wants to deal with Gateway in a responsible way, special legislation authorizing the program and identifying a funding stream that won’t overwhelm existing competitive grant programs seems to be a preferable way to go.

Hudson Tunnel Draft E.I.S. Excerpt




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