NY-NJ Should Put Up or Shut Up

New York Governor Andrew Cuomo is upset that the Trump administration doesn't want to fund new tunnels under the Hudson River. Cuomo sent an angry letter to Trump earlier this week accusing the president of being prejudiced against New York and New Jersey because they didn't vote for him. Cuomo claims the tunnels should be federally funded because "the Northeast is home to 17 percent of the entire population and contributes 20 percent to the national domestic product." 

But gross domestic product and regional populations aren't among the criteria Congress established for federal funding of transit infrastructure. Instead, one of the most important criteria that the Department of Transportation is required to use is whether the project is "supported by an acceptable degree of local financial commitment." Based on the lack of local support, the Federal Transit Administration's 2020 New Starts funding recommendations gave the project a "medium-low" rating, and under federal law, that makes it ineligible for funding. Not counting some very small projects (such as the downtown Los Angeles streetcar), the only other project to get a medium-low rating was the Portal North Bridge, which is also part of the Hudson Gateway megaproject.

Cuomo argues that Trump has ignored "the financial commitments made by New York and New Jersey." The FTA's profile of the project reveals just what those commitments are.

First, the states are asking the federal government to put up $6.7 billion, or 49 percent of the projected $13.6 billion cost. Second, they want the federal government to make them a loan of $2.3 billion that will be "repaid with PANYNJ [Port Authority of New York and New Jersey] funds." Third, they want another federal loan of $2.0 billion that will be "repaid with project revenues." These two loans total to 32 percent of the projected costs.

Another billion dollars (7%) is supposed to come from "unspecified private capital sources" who will be "repaid with project revenues." Further, $1.4 billion (10%) would come from "GDC funds" derived from "project revenues." GDC is the Gateway Development Corporation, which consists of Amtrak, New Jersey Transit, the Port Authority, and the U.S. Department of Transportation. It currently earns no revenues of its own, so it will have a hard time paying $1.6 billion in construction costs. Finally, $178 million, or 1.3 percent of the total, would come from the Port Authority of New York and New Jersey.

In short, New York and New Jersey are nobly committing themselves to cover 1.3 percent of the cost of the project, while they are relying on the federal government to fund a mere 81 percent. Of course, some of that would be loans, but the states may not be obligated to repay those loans unless the project earns sufficient revenues to do so. The private capital sources who are supposed to put up 7 percent are almost purely imaginary, and even if they existed they would demand that they be repaid out of project revenues before the federal government. But before repaying anyone, these mythical project revenues are supposed to cover another 12 percent of the cost.

Pardon me if I sound naive, but what project revenues are we talking about? Amtrak, New Jersey Transit, and the Port Authority are all money-losing operations. Amtrak claims to make money in the Northeast Corridor, but that's only because it ignores depreciation and the corridor's $51 billion infrastructure backlog, only part of which is the Hudson Tunnels. New Jersey Transit trains don't even earn enough fares to cover 60 percent of their operating costs, much less any to pay for maintenance or capital costs.

In other words, Cuomo is asking Trump to have federal taxpayers pay nearly all the up-front costs and to take nearly all the risks of this project. What if self-driving buses put New Jersey Transit and Amtrak out of business -- or at least reduce their ridership enough that they have no surplus revenues to repay federal loans? What if many of the firms now located in Manhattan realize that the subway system is never going to be repaired and decide to move away? Who is going to pay for the inevitable cost overruns? New York and New Jersey are clearly trying to get these tunnels while putting up as little of their own money as possible.

The FTA has long had a policy that applicants for transit capital funds must put up half the cost in matching funds, and federal loans don't count as matching funds. Following this policy, it rated the Hudson Tunnels "medium low." Congress made the rules, so Cuomo is complaining to the wrong party when he writes Trump, as the Department of Transportation just followed Congressional direction when it gave the project a medium-low rating. If anything, the DOT was generous: the project really deserves a "low" rating.