The recent $20 billion funding agreement for the long-stalled Gateway Hudson River tunnel will benefit the New York and New Jersey regional economies, according to Moody's Investors Service.

The agreement among the federal government, New York and New Jersey promises to double train capacity between New Jersey and Manhattan if it comes to fruition. The federal government, including the Department of Transportation and Amtrak, has agreed to fund 50% of the program with the remainder to be shared equally by the two states. Stakeholders will also create a development corporation housed within the Port Authority of New York and New Jersey to identify financing options and oversee the tunnel construction management.

"Although the program is in the early planning stages, the funding agreement signals growing political momentum for two new tunnels, which will run under the Hudson River and provide significant regional economic benefits," said Moody's analyst Baye B. Larsen in a Nov. 24 report.

Construction of the new tunnel would begin in the 2022 fiscal year based on Amtrak's preliminary timeline and conclude in 2024, according to Moody's. Larsen noted that allocating the costs and identifying specific funding sources will be a challenge, but will be helped by a long planning horizon.

To contribute its roughly $5 billion commitment toward the tunnel project, New Jersey will have to adjust its budget structurally to take on new project costs after exhausting its current transportation funding resources, according to Moody's. The state will need to identify new revenues or significantly cut costs to issue debt through its Transportation Trust Fund Authority.

Larsen added that New York "has significant competing transportation commitments" and with current borrowing plans will be nearing its debt limit in the next several years. Amtrak could also be challenged to contribute to the project because it depends on support through annual budget appropriations from Congress. The Port Authority may also be asked to contribute to the funding.

"While the tunnel will add substantial costs to a region already paying for significant infrastructure investments, it provides a vital commuter link for a regional economy with a $1.4 trillion GDP," said Larsen. "Given the current tunnel usage, the investment will have strong economic returns and can be spread over a large passenger and taxpayer base."

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