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MANHATTAN (CN) — A federal funding freeze for the construction of the Hudson Tunnel appears doomed to thaw based on oral arguments before the Second Circuit on Tuesday.
During a hearing that stretched on far longer than the 10 minutes of allotted time, attorneys for the U.S. Department of Transportation (DOT) tried to convince the three-judge panel the funding freeze was not arbitrary and the agency would face “irreparable harm” if forced to cough up promised funds for the project.
The Gateway Program, which began construction in 2023, was intended to allow more high-speed rail service and help reduce congestion in northern New Jersey.
The $16 billion project includes rehabilitating the North River Tunnel from New Jersey into Manhattan, building a new Hudson Tunnel into Manhattan from the Palisades and constructing new rail bridges. It was originally scheduled for completion by 2035.
However, the Trump administration put a freeze on funds pledged by DOT last September, claiming the contracts were under review for potential violations of the federal ban on diversity, equity and inclusion initiatives.
Last month, New York and New Jersey sued the U.S. Department of Transportation to restore funding to the project, calling the funding freeze political retribution and a violation of the Administrative Procedure Act.
Ruling in favor of the states, U.S. District Judge Jeannette Vargas ordered the Trump administration to restore the roughly $200 million in federal funding that had been pledged for the project, writing that “the public interest would be harmed by a delay in a critical infrastructure project.”
The Trump administration moved to stay the Joe Biden appointee’s order, arguing the government would suffer “irreparable harm” if forced to turn over $205 million in funds with no way to recover the funds if the federal government prevailed in court.
On Tuesday, an attorney representing New York and New Jersey argued the freeze in funding was a decision to gain policy leverage but that the policy decision was unclear, and thus arbitrary and capricious.
“If you have the burden of meeting irreparable harm, you need to say something about what that policy leverage would be,” said Jeremy Feigenbaum of the New Jersey Attorney General’s Office. “Neither in briefing, nor at the podium, nor in the record are there any other representations from the Department of Transportation about what policy leverage they are looking for.”
Representing the feds, Assistant U.S. Attorney Tara Schwartz had trouble parsing how much of the prospective federal funding involved grants and how much involved loans guaranteed by New York and New Jersey.
“It is your burden to show irreparable harm,” stressed Senior U.S. Circuit Judge Reena Raggi, a George W. Bush appointee, noting the absence of a breakdown of exactly how much money the federal government versus state governments would be on the hook for.
U.S. Circuit Judge Myrna Perez, a Biden appointee, also noted it would be a “less cataclysmic risk” of irreparable harm if most of the money were in the form of loans. “You can’t tell us how much of it is grants and how much of it is loans, and the ability to not get that money back depends upon that number,” she said.
U.S. Circuit Judge Sarah Merriam, another Biden appointee, had similar concerns about the breakdown of funding.
The legal wrangling over how much money the federal government should pay toward the project began during the first Trump administration. In 2023, President Joe Biden ordered more than $6 billion in federal funding to help construction. But after Trump regained the White House last year, the project again landed in limbo, with the president using it as a bargaining chip on federal budget issues.
Last month, Trump reportedly offered to free up funding if Dulles International Airport and New York City’s Penn Station were renamed after him.
The legal fight not only has added uncertainty to the project’s future, but it also could add $1 billion to the final price tag, some say.
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