June 29, 2018

Today, the group of New York and New Jersey entities responsible for the Gateway Program (the $30+ billion portfolio of rail projects in those two states used by Amtrak and local transit agencies) submitted a revised plan for the first project in the portfolio and a status update on the second project (which is by far the biggest project in the portfolio, or indeed the country, at least as far as projects trying to get federal mass transit dollars goes).

Portal North Bridge. Facing a July 14 deadline for approval to advance to the next stage of the Federal Transit Administration’s Capital Investment Grant (CIG) program, New Jersey Transit another revised financial plan, which it hopes will be the final one. The plan was outlined in this cover letter to FTA but the full details are not yet available.

Under the new plan, the total project cost counted for the CIG program is $1.642 billion, of which $811 million would come from annual Congressional appropriations for the CIG program (49 percent of the total cost). The revised plan indicates that, per advice from FTA, the annual drawdown of that $811 million would not exceed $100 million per year. Another $119 million in federal highway formula funds for New Jersey under the CMAQ program would also be put towards the project (7 percent).

New Jersey would match with $600 million in bonds approved earlier this month by the state Economic Development Authority and $30 million from the state highway fund as the 20 percent state match for the CMAQ money. We can’t be sure until somebody released the full text of the funding plan, but the other $82 million it seems will come from the New Jersey Transportation Trust Fund.

(For a look at the various iterations of Portal North funding plans, see last week’s ETW article.)

The CIG program has three consecutive stages: project development, engineering, and construction. The CIG statute places a two-year limit on how long a potential project can stay in the initial, project development phase without being kicked out (or applying for an extension). The Portal North Bridge faces its two-year deadline on July 14 – just over two weeks from today.

Based on the conference call, New Jersey Transit is not applying for a deadline. Instead, they hope that the FTA will, as directed by report language in the fiscal 2018 omnibus appropriations act, “provide updated project ratings expeditiously at the request of the project sponsor” and give them a new rating of at least medium (on the five-point scale of low, medium-low, medium, medium-high, high) so that the progress can progress to the engineering phase.

Project leaders sounded confident that based on the statutory criteria, and on the way in which the career staff at FTA has evaluated projects in the past, the revised Portal North Bridge plan will get a medium-high rating on local financial commitment, which would get the project at least a medium rating overall. This confidence is based on the fact that the career staff at FTA gave the project an overall medium-high rating in February 2017. But then New Jersey decided to change its financial plan and rely more on state bonds that did not legally exist yet, so the March 2018 version was rated medium-low on local financial commitment.

John Porcari, acting Executive Director of the GDC, noted that in the new plan, 100 percent of the non-CIG portion of funding cost was fully committed. Previously, FTA gave a medium-high local financial commitment rating to the project in February 2017 when only 57 percent of its non-CIG funding was fully committed, and 100 is much better than 57 percent, so you can see the source of Porcari’s optimism.

However, even if the project enters into the engineering phase, there is still no guarantee that the Trump Administration will take the final step and sign a non-legally-binding full funding grant agreement (FFGA) promising $811 million in future appropriations towards the project – appropriations to be drawn from a program that the Trump Administration repeatedly proposes to abolish.

Hudson River Tunnel. The big news with the tunnel is a status update from the Port Authority of New York and New Jersey explaining that the Port Authority is taking over as project sponsor from the original sponsor, the Gateway Development Corporation (GDC), which is a New York – New Jersey – Amtrak joint holding entity created to oversee the tunnel, the bridge, and the rest of the Gateway projects.

Federal law (49 U.S.C. §5309(a)) says that only a “State or local governmental authority” can be a CIG project sponsor. But the Gateway Development Corporation is non-governmental – it is a nonprofit corporation charged under New Jersey private corporation code. This has been a known problem for some time, but the NY-NJ decision makers have apparently decided that it will be easier for the New York and New Jersey state legislatures to pass new laws allowing GDC to be transformed into an official joint governmental entity than it will be to convince Congress to amend §5309 to allow the existing GDC to be eligible for project sponsorship.

So the Port Authority will take over as project sponsor until such time as the Empire and Garden States can amend their laws to make GDC eligible to sponsor new start projects, at which time the Port Authority will turn sponsorship back over to the corporation.

In other tunnel news, the Federal Railroad Administration (FRA) and New Jersey Transit managed to complete the draft Final Environmental Impact Statement (FEIS) in 22 months, which is a very short time indeed for a project the large. The FEIS was completed in February 2018, and the original timetable for project sponsors called for FRA to turn the FEIS into a final Record of Decision (ROD) by March 30, 2018.

However, the ROD has not yet been forthcoming from FRA, and without a ROD, the project cannot advance from the Project Development phase to the Engineering phase of the CIG program – and the tunnel that the same July 14 deadline as the Portal North Bridge. So the Port Authority’s letter admits that “considering the ongoing review of the draft FEIS by USDOT and the Project Partners’ ongoing work, the Project Partners recognize that the Project must remain in the Project Development phase.”

The Port Authority letter reiterates that the funding commitments in the December 2017 financial plan submitted by project sponsors is still valid, including the call for New York and New Jersey collectively (possibly also including the Port Authority, which is a joint entity shared by the two) to commit $5.55 billion towards the construction cost of the project, which was half of the cost of the new tunnel under that plan (which exclude rehab of the existing tunnel from those costs).

(Ed. Note: This also assumes $5.55 billion from the §5309 CIG program, which a staggering and probably unworkable amount. Remember, above, when we mentioned that the Portal North Bridge financial plan had been revised so that the annual draw on the CIG account was no more than $100 million per year? Well, if that practice is carried over to the financial plan for the new tunnel, it will take 55 years to build. The tunnel, while a high priority, is almost certainly too big for the CIG program to pick up half of the cost.)

With regards to cost overruns – which seem to be inevitable everywhere, but particularly in New York and New Jersey – it is important to remember that once a full funding grant agreement (FFGA) is signed, the non-federal sponsors are responsible for all cost overruns. This was a big reason cited by former New Jersey Governor Chris Christie (R-NJ) in killing the ARC tunnel back in 2010, which is the reason why Jersey Transit needs the new tunnel so badly today. So this language from the Port Authority letter addressing cost overruns is of particular interest: