Home ARC Tunnel New Jersey disputing Fed’s ARC money assessment

New Jersey disputing Fed’s ARC money assessment

by Benjamin Kabak

The Federal Transit Administration, as I reported earlier this week, is demanding $271 million in ARC Tunnel money in the wake of Gov. Chris Christie’s decision to cancel the project, and New Jersey isn’t happy with the request. Right now, the state and its elected officials are looking at two possible outs. On the one hand, New Jersey’s federal representatives are looking to reduce the amount owed. “We have to talk to the FTA to mitigate that amount,” Senator Robert Menendez said. “We find that the governor made a decision, and we’re told to go and fix it. We’ll do the best we can.”

On the other hand, the state will authorize New Jersey Transit to file suit against the feds. New Jersey, reports Jason Method, “plans to argue that the federal government is using selective enforcement in attempting to recoup the money.” Said a Christie spokesman, “The governor will fight to make sure that New Jersey and its taxpayers are treated fairly by the federal government on this issue.”

In requesting payment, the FTA cited Section 5309(g)(3)(B)(iv) of Title 49 of the U.S. Code. That law governs FTA grants and reads, “If an applicant does not carry out the project for reasons within the control of the applicant, the applicant shall repay all Government payments made under the work agreement plus reasonable interest and penalty charges the Secretary establishes in the agreement.” If a suit is filed, the feds will argue that since New Jersey agreed to cover cost overruns, Christie’s decision to cancel the project due to concerns over cost is “within the control of the applicant.” Clearly, this drama is far from over.

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14 comments

Edward December 1, 2010 - 12:21 pm

If the Gov thought canceling the project was best for NJ finances, so be it. But he has to work with the feds in good faith, and if the project cancellation calls for refunding monies already spent, he has to comply.

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ant6n December 1, 2010 - 12:26 pm

“The governor will fight to make sure that New Jersey and its taxpayers are treated fairly by the federal government on this issue.”

I think the feds should make sure the taxpayers of the rest of the country are treated fairly – getting millions in their tax monies for a project that just gets canceled don’t sound fair to me.

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Eric F. December 1, 2010 - 12:53 pm

You should read the linked article.

“The state plans to argue that the federal government has not forced other states or local governments to pay back money when projects have been canceled, the source said.

In one example, state officials contend that the federal government has not insisted that it be paid back for the Renaissance Square project in Rochester, a bus terminal development that was canceled in August 2009.”

Do you think the feds are going after all instances of this sort of thing, or just one they can pin on a prominent guy from the other party?

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Bolwerk December 1, 2010 - 1:35 pm

In all “fairness,” it’s New Jersey’s tax money. New Jersey sends several billion more to the feds than it gets back, and things like ARC only dent the total.

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Alon Levy December 1, 2010 - 5:48 pm

That’s convenient for other states, too. California is contributing around $40 billion to the federal government more than it gets back. D’ya think it would still be bankrupt if it got all this money back?

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Bolwerk December 2, 2010 - 4:42 pm

Unless the contribution is paid back by the feds in the form of bailout money, probably. CA still run by idiots. I think right-wing bogeymen about tax and spend liberals and their union buddies are practically self-fulfilling prophesies nowadays. How else do you explain the political intractability? Fox News goons can point to NYC’s Byzantine government and homosex-tolerating culture to get a horde of cretins with sub-normal IQs to vote against their own interests, while all the unions here need to do is paint those who demand more sensible use of public resources as teabagger-esque to make people vote to keep the status quo in place.

NJ might be the most screwed over state per capita, however. I always find it a little amusing to hear people in the region complaining about federal financing of projects on the grounds that their tax dollars are being wasted on them. It seems to me that it means we’re getting a bit more of our own money back.

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Eric F. December 1, 2010 - 12:58 pm

Also, I’d take issue with this part:

“If a suit is filed, the feds will argue that since New Jersey agreed to cover cost overruns, Christie’s decision to cancel the project due to concerns over cost is “within the control of the applicant.””

I don’t agree. The state’s decision was likely premised on overruns being not above a reasonable level. In the actual case, overruns were themselves getting to the poi8nt where they exceeded initial cost estimates. We are talking about a case where NJ scrimped and clawed to get a billion or so from tolls through a drwan-out process with its own pain, where the state is constitutionally prohibited from using income or sales tax money for the project, yet we are supposed to blithely assume it has billions for cost overruns on a tunnel. It can’t possibly be the case that NJ would have to fund any possible overrun. What if the overrun was $1 trillion? You have to read reasonableness into a contract.

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Benjamin Kabak December 1, 2010 - 1:00 pm

It had to agree to fund any possible cost overrun with the recognition that if it had to cancel the project, it would have to pay back federal dollars. Why do you think that’s so unfair? Seems perfectly reasonable to me.

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Eric F. December 1, 2010 - 1:25 pm

I’m thinking that the legal eagle representing NJ will argue that the cost overrun provision is intended to ensure that NJ’s management of the project is competent, by assigning the risk of avoidable overruns to NJ. In this case, the overruns were not the result of poor project management, as the project barely even started, but rather due to cost inflation or some other factor or factors that is/are not “within the control of the applicant”. Further, I’d argue that the agreement to cover overruns is itself subject to legal impossibility, in that sure NJ could cover some reasonable level of overrun, but not overruns that themselves swamp the entire project budget.

I’d actually think that while the selective enforcement angle is very clear shows what’s really going on here, it’s probably not a very strong legal argument. It just happens to be a very good argument as a general matter as to why the feds should get a life on this one and do something constructive like getting a cheaper redesign going, which Bloomberg helpfully pointed them to a couple of weeks ago.

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Alon Levy December 1, 2010 - 5:49 pm

The decision to build a cavern was made by New Jersey. That’s what caused the cost overruns.

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Bolwerk December 1, 2010 - 1:38 pm

I admit to only paying cursory attention, mostly via this blog and whatever I see on Google News, but where is the NJ state legislature in all this? Does no one in it at least have an opinion?

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TheLUrker December 1, 2010 - 1:54 pm

They’re useless and powerless — unless they somehow manage to pass a veto-proof bill to force continuation of the ARC.

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Eric F. December 1, 2010 - 2:59 pm

That would be one heck of a bill, as it would presumably have to raise billions in taxes and appropriate the same toward the unaccounted for project budget. Good luck with that. Personally, I wouldn’t mind adding a quarter to the gas tax in order to get a new Hudson tunnel built, but I don’t have to run for election anywhere.

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Gary December 2, 2010 - 1:25 am

If New Jersey is resting their argument on the fact that the federal government hasn’t gone after other states in the past, that’s pretty weak. Just because they haven’t done so – and I’m not conceding that point – doesn’t mean they can’t or shouldn’t do so, going forward. Fiscal responsibility – isn’t that what we want from our federal government?

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