Regional News

It’s Official: ARC Tunnel Is Dead

New Jersey Gov. Chris ­Christie Wednesday ended an $8.7 billion mass-transit tunnel project and rejected U.S. Secretary of Transportation Ray LaHood’s financing suggestions that would have addressed potential cost overruns on the nation’s largest public transportation project.

Christie said New Jersey cannot afford to take on cost overruns that the federal government estimates to be between $1.1 billion and $4 billion. The project, called the Access to the Region’s Core, would also require the state to spend $775 million to construct the new Portal Bridge South, a part of the ARC project.

The ARC tunnel would have linked New Jersey to Manhattan and doubled New Jersey Transit’s capacity under the Hudson River. It would have created 6,000 construction jobs and 44,000 permanent jobs.

“I do this with no sense of happiness at all, but I do this with an absolute sense of resolve and commitment to the promises that I made to the people of the state and what I believe is responsible conduct of the chief executive of the state,” Christie said during a press conference. “And so we move on from here. I have instructed [NJTransit] to continue the orderly wind-down and closing of this project. This decision is final. There is no opportunity for reconsideration of this decision on my part. I am done. We are moving on.”

New Jersey’s obligation towards the project was $2.7 billion, along with $775 million for the new Portal Bridge. The federal government and the Port Authority of New York and New Jersey also pledged $3 billion each.

New Jersey will have to repay the Federal Transit Administration $350 million that it has spent on the project, according to ­LaHood.

The New Jersey Transportation Trust Fund Authority sells bonds to help finance NJTransit infrastructure needs. It is not clear if any TTFA bonds would need to be redeemed due to the project’s demise. NJTransit deferred all questions regarding the ARC tunnel to Christie’s office. The administration did not respond to a request regarding any possible bond redemptions related to the project’s cancellation.

From fiscal 2008 through fiscal 2011, NJTransit allocated $586.8 million from its annual capital budgets to the ARC, including $158.2 million this year, $193 million in fiscal 2010, $137 million in fiscal 2009, and $98.6 million in fiscal 2008.

NJTransit’s capital budget is financed with TTFA borrowing and federal funds.

To help tackle New Jersey’s exposure to potential cost overruns of up to $4 billion, LaHood had recommended several options, including a possible public-private-partnership, to help reduce costs. The U.S. Department of Transportation also offered a low-cost, 35-year Railroad Rehabilitation and Improvement Financing loan and increased its $3 billion contribution towards the project by $358 million.

“I am extremely disappointed in Gov. Christie’s decision to abandon the ARC tunnel project, which is a devastating blow to thousands of workers, millions of commuters and the state’s economic future,” LaHood said. “The governor’s decision to stop work on this project means commuters — who would have saved 45 minutes each day thanks to the ARC tunnel — will instead see no end to traffic congestion and ever-longer wait times on train platforms. Our DOT team has worked hard over the last several weeks to present Gov. Christie with workable solutions to bring the ARC tunnel to life.”

Christie initially terminated the project on Oct. 7, but LaHood persuaded the Republican governor to review the tunnel project further. After nearly three weeks of discussions with the federal government, including a final meeting on Sunday with LaHood and deputy secretary John Porcari, Christie Wednesday said that the federal government’s recommendations would still leave New Jersey taxpayers on the hook for $1 billion to $4 billion of potential cost overruns.

LaHood offered a 35-year RRIF loan, “at very advantageous interest rates” according to a U.S. DOT fact sheet on ARC tunnel financing suggestions. The tunnel and the new Portal Bridge replacement would have been strong candidates for RRIF financing, the fact sheet said.

“RRIF was also presented as an option for the backstop financing required if the cost of the ARC project had grown beyond FTA’s $9.7 billion estimate,” the fact sheet said. “In this sense, a RRIF loan for cost-escalation contingencies would have functioned much like a letter of credit, that would be called upon only if needed.”

For Christie, a loan isn’t enough. New Jersey has $30 billion of outstanding bonds and the governor is reluctant to add more debt onto the state’s books.

The RRIF loan “is just another way of issuing debt. Except that you borrow the money from the federal government instead of NJTransit or the state of New Jersey issuing bonds,” Christie said during the press conference. “Regardless of the terms that would be offered, in the end the taxpayers of New Jersey would be on the hook for every nickel of the cost overruns … No way does that option diminish the burden on the taxpayers. No way does it allow anyone else to help share the burden with us.”

Another strategy was to use a P3 model for the construction of the tunnel, with a private developer financing the costs and potential cost overruns shifting onto the private sector. New Jersey and the DOT had been approached by a number of firms with initial interest in working on the ARC project.

Christie said a possible private-sector contribution of $1.85 billion would still require New Jersey residents to pick up the tab through additional fees and costs “to be able to make that a viable alternative,” he said. Proponents of the ARC tunnel said New Jersey will miss out on the tunnel’s economic gains.

“I think it is the most regrettable decision I’ve ever encountered in my entire professional career which now extends over 35 years,” said Martin Robins, senior policy fellow at the Alan M. Voorhees Transportation Center at Rutgers University. “It’s hard to imagine the amount of lost opportunity that will occur as a result of this decision. It will stifle the destiny of northeastern New Jersey as a place that could grow around its rail system, which has been one of its greatest assets.”



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