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Trump to New Jersey: Drop Dead

On Friday, the Trump administration finally, firmly derailed a two-year-old plan to relieve Amtrak’s busiest, most profitable, and most vulnerable stretch of track, the corroded tunnel that connects New York City to New Jersey. In a letter sent late Friday, the Trump DOT used its strongest language yet to emphasize that it was not on board with an Obama-era agreement to split with the states the cost of a new rail tunnel under the Hudson River, the centerpiece of a slate of Amtrak repairs known as the Gateway Project. “There is no such agreement,” deputy administrator K. Jane Williams wrote to project planners in a letter published by Crain’s New York Business.

The timing suggests New York and New Jersey might be forced to reimagine the Northeast’s largest construction project as some kind of public-private partnership under the Trump infrastructure plan, whose promise the president touted after Amtrak Train 501 crashed last month in Washington, killing three. A Department of Transportation spokesperson told Crain’s that the tunnel might be subject to a new Trumpian funding formula that aims to replace federal grants with money from private investors, capping federal funding at 20 percent of project cost. The prospect is certain to drive up the costs of what is per mile one of the most expensive rail projects on earth and add delays to an improvement schedule that officials say has little room for error.

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The existing tunnel, which moves 80,000 people a day into the heart of New York City, effectively serving as the only rail link between the city and all points south, has been quietly rotting since Superstorm Sandy dunked its tracks and wiring in salt water in 2012. Repairing the tunnel—which officials say is inevitable—will require cutting service by 75 percent, a huge blow to the city’s economy that could be felt at the national level.

A backup tunnel project was funded by the 2009 stimulus but famously canceled by New Jersey Gov. Chris Christie, who shifted his state’s contribution into road repairs. At the end of 2015, Christie and New York Gov. Andrew Cuomo reached an accord with Obama DOT head Anthony Foxx to share the cost of the new tunnel, with the federal government paying 50 percent.

That commitment has been in doubt since Trump’s proposed budget gutted funding for Amtrak and infrastructure programs. But throughout the year and as late as October, local leaders expressed confidence that the president understood the importance of the tunnel.

That may have been wishful thinking.

The first sign of trouble came in July, when the U.S. DOT representative resigned from the board of the Gateway Program Development Corporation, the body in charge of the project, signaling that Gateway would receive no special treatment in Washington. Then two weeks ago, the DOT suggested that low-interest federal loans like those that come from the RRIF (Railroad Rehabilitation & Improvement Financing) program constituted Washington paying for the project—obscuring an Econ 101 distinction between funding and financing. Now, the entire framework appears to be kaput.

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It’s bad timing for New York, where reporting by the New York Times has put a spotlight on the institutionalized corruption in the city’s public works projects. The story by Brian Rosenthal shows why projects undertaken by Cuomo’s Metropolitan Transportation Authority can cost seven times as much as similar endeavors in other global cities. Gateway is not an MTA project, but it would be subject to many of the same pressures from consultants, contractors, and labor groups, and the price tag of the tunnel has already nearly doubled from initial estimates, to $12.7 billion. The waste and graft also provide ammunition to those who argue that it’s time to reduce the public sector’s role in creating infrastructure, though public-private partnerships usually cost more, not less, than fully public projects, because public financing in the United States is unusually cheap.

It’s also bad timing for New Jersey, whose commuters are most dependent on the link. The indebted Garden State has never really explained how it would foot the tab for the tunnel or the other Gateway components, which, including various improvements in New Jersey and New York, are now expected to cost nearly $30 billion. The more the project financing is altered to depend on user fees (in this case, ticket prices on Amtrak and New Jersey Transit), the higher the cost to New Jersey residents.

But it would be very good news for infrastructure investors, for whom Gateway could become a blue-chip project: Essential to build, with a dedicating funding stream in the form of ticket prices, and at virtually no risk of going underused. The losers in such a situation would be the two states’ taxpayers, who would wind up paying a vastly overinflated bill for a project that would easily have met the bar for funding from Washington in normal times.

Finally, regardless of Washington’s contribution, whatever private investment works its way into Gateway funding will inflate the project’s costs, since equity investors will expect a better return on investment than bond buyers would. The difficult question with this and other pending infrastructure projects has not been where to borrow money, but how to pay it back.

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Look no further than Providence, Rhode Island, where the cost of replacing the city’s interstate highway interchange has risen from $226 million to $343 million. One reason? With Trump administration guidelines in mind, the state redesigned the project to include a private partner, which commands 15 percent interest on a $45 million loan.

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