When A Megaproject Stops Construction, Should Congress Keep Funding It?

Should Congress continue to appropriate new money for a project that local officials have put on indefinite hold? That exact debate may be imminent, regarding the Second Avenue Subway (Phase II) project in New York City.

Last November, Transportation Secretary Pete Buttigieg signed a full funding grant agreement (FFGA) promising $3.405 billion in eventual federal appropriations through the Federal Transit Administration’s Capital Investment Program for the project, to be matched with $4.294 billion in non-CIG funds (mostly New York Metropolitan Transportation Authority (MTA) local funding). Congress would have to appropriate around $497 million per year for six years to fund this promise (plus $450 million in pre-2024 federal funding). Congress later made that appropriation in fiscal 2024, and the Administration has requested the same $497 million for fiscal year 2025, which the House Appropriations Committee will consider at a bill markup next week.

But earlier this week, the MTA canceled construction activities on the project. Per Bloomberg reporting on June 18: the MTA “instructed C.A.C. Industries, Inc. to stop its work of relocating underground utilities along Second Avenue that would make way for future construction, Jamie Torres-Springer, head of MTA’s Construction & Development, told reporters on Tuesday during a press conference.”

This was caused by Governor Hochul’s abrupt decision to cancel the downtown NYC congestion pricing program, which was set to bring in $1 billion in tolls every 12 months starting June 30 – money to be securitized through the 2050s to allow the MTA to raise $15 billion in cash this year through bond issuances. That sudden $15 billion gap in the MTA’s capital program is the cause of the suspension of this and many other projects this week.

MTA had planned to break up the $7.7 billion Second Avenue project into four contracts. The first and smallest contract ($182 million) is to relocate utility lines, sidewalks, and bike paths, and reinforce buildings, ahead of tunnel digging. The contract was given to C.A.C. in December 2023. Some of the bike lane work was already underway, and more work was to accelerate this year and continue through 2027. (See this slide deck used to brief local officials on Contract 1.)

The big money, however, is in Contracts 2, 3, and 4 – design-build contracts to dig the tunnels themselves (Contract 2), to rehab the 116th Street Station and dig the box for the new 106th Street Station (Contract 3), and fit out the tunnels, stations, and systems (Contract 4). The activities under those would not all be consecutive, but would have significant timing overlap:

On April 17 of this year, the MTA put out the RFP for Contract 2 (digging the tunnel and doing some station work), and the due date for proposals was June 4. On the first page of the RFP, it says, point blank:

Award of this Contract is subject to funding availability, which requires the implementation of Congestion Pricing.

So, in addition to C.A.C. having to put tools down and walk away from ongoing bike lane relocation and utility relocation, the award for the contracts to do the big work can’t happen until the revenue hole created by the cancelation of congestion pricing is filled. And New York can’t create a new revenue source for $1 billion per year without the legislature, which isn’t scheduled to meet again until next year (they are strictly a January to early June institution).  This appears to be a problem.

The FFGA signed by the Secretary and the MTA last year contains the following “in case things go wrong” language as paragraph (e) of section 10 of the agreement:

(e) The Grantee agrees to notify the Government of any change in circumstances or commitments that adversely affect the Grantee’s plan to fund the Project Costs necessary to Complete the Project as set forth in the Financial Plan. In its notification, the Grantee shall advise the Government of what actions it has taken or plans to take to ensure adequate funding resources and shall reaffirm its commitment to the Government as set forth in Paragraph (b) of this Section 10.

We are still waiting to hear back from the Federal Transit Administration as to whether or not they have received any such notification from the MTA yet.

In the meantime, the Appropriations Committees are being asked to decide whether or not to appropriate another $497 million for the project in the fiscal 2025 Transportation Appropriations Act, which will be marked up in subcommittee next week.

Congress has already appropriated $947 million to date to the CIG program just for this project, far in excess of the $182 million awarded for Contract 1. If it is true, as the RFP says, that Contract 2 can’t be awarded in the absence of an active congestion pricing program (or the replacement of the missing $1 billion per year that the congestion pricing was going to bring into the MTA capital program), there would be no need for any new federal appropriations until after the legislature finds a new revenue stream next year, and Congress could resume appropriating money for the project in fiscal year 2026, once it is back on track.

In the meantime, the House has once again given a budget ceiling to the Transportation-Housing Subcommittee so low that that the appropriators will probably have to resort to large cuts in RAISE grants, Amtrak and other intercity rail grants, and some housing programs in order that FAA operations and market-based housing voucher renewals are maintained. Every dime that the FTA does not need to be spent in 2025 for the CIG program could certainly be spent elsewhere at DOT.

As the House Appropriations markup approaches (and as Chairman Murray just announced a Senate Appropriations markup for July), time is running out for the MTA, and the FTA, to give a full, public explanation as to the effect that the cancelation of congestion pricing has on the MTA’s ability to fund its half of the project agreement.

Instead, news keeps dripping out. In the “politicians can say whatever they want, but the people who file documents with the Securities and Exchange Commission have to be more truthful” department, on June 18 the MTA issued the prospectus for $800 million in new bridge and tunnel bonds, which contains the following warning at the bottom of page 3:

On June 5, 2024, Governor Hochul announced her intention to pause the implementation of congestion pricing (also referred to as the Central business District Tolling Program or CBDTP). The Central Business District Tolling Program was established by State legislation in 2019 to manage traffic congestion in Manhattan and provide $15 billion in capital funding for the MTA’s 2020-2024 Capital Program. Until such funding is made available, MTA will be unable to enter into contracts for a like amount of capital projects. Total projects deferred could be well in excess of $15 billion, depending on the impact of federal grant funds which require a local match. MTA may also need to offset incurred costs of the CBDTP tolling infrastructure with reductions in other capital spending.

The pause of congestion pricing may also have an adverse impact on MTA’s operating and debt service budget. MTA and/or MTA Bridges and Tunnels may have to issue bonds previously authorized for the 2020-2024 Capital Program, including obligations under the PMT Resolutions, earlier than anticipated. This earlier debt issuance could increase debt service costs during the financial plan period. In addition, MTA may have to adjust staffing levels in response to reduced capital spending. The pause in the implementation of congestion pricing is not expected to negatively impact Mobility Tax Receipts or ATA Receipts.

MTA staff expects to make a presentation at MTA’s June 26, 2024 Board meeting regarding the impact of this pause on the capital program. At the July 31, 2024 Board meeting, MTA staff expects to release the July Financial Plan which will provide a mid-year update on the operating budget for 2024-2028, including any impact from the pause of congestion pricing.

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