Home ARC Tunnel FTA: NJ owes ARC millions and interest

FTA: NJ owes ARC millions and interest

by Benjamin Kabak

A schematic of the ARC Tunnel's Manhattan terminal. (Click to enlarge)

In a 52-page decision released on Friday, the Federal Transit Administration has determined that New Jersey must repay all of the $271 million the state had spent on the ARC Tunnel project before Gov. Chris Christie canceled the project this fall. Furthermore, if the state fails to pay the money soon, the FTA will begin to charge interest on amounts due at a steep rate. To fight this ruling, Gov. Christie, who has already spent close to $1 million on legal fees, could appeal the ruling in federal court.

Both The Record and The Times reported on the ruling this past weekend, and I’ve embedded the document along with a letter from Ray LaHood, the Secretary of Transportation, below. The ruling explores why New Jersey is legally obligated to return the funds and is appealable. The federal courts would have jurisdiction over the matter. Essentially, though, this move raises the stakes in the fight over what was to be the country’s largest public works project.

Patrick McGeehan from The Times had more:

In a letter to New Jersey’s senators and representatives in Congress, Ray LaHood, the transportation secretary, warned that his department had “many tools under the Debt Collection Act to recoup the lost federal taxpayer funds, including withholding future state funding from a wide variety of sources.” But “in consideration of the current economic challenges burdening New Jersey,” Mr. LaHood added, he hoped to “develop a workable payment schedule” and avoid having to resort to those collection methods.

Mr. LaHood should not expect to find a check in the mail any time soon. Mr. Christie, who was in Massachusetts on Friday to speak at Harvard University, declared in January that “we are not paying the money back.” Kevin Roberts, a spokesman for Mr. Christie, said the governor’s staff would “review the decision before determining next steps moving forward.” One option is to sue the department to try to stop it from seeking to collect, but Mr. Roberts would not say if a lawsuit was being considered.

In the meantime, interest on the debt will pile up quickly. The federal government currently charges interest at a rate of 1 percent a year, which in this case amounts to more than $50,000 a week.

According to LaHood’s letter to Senator Frank Lautenberg, the crux of the matter concerns Christie’s representations to the FTA in previous years. Despite rising cost estimates in early 2010, the Governor pledged full support for the ARC Tunnel in meetings with LaHood in February, March and April of last year. Six months later, the project was off, and LaHood could not convince Christie to change his mind, and LaHood took a hard line against Christie in the letter.

“Any notion that the potential for cost growth constituted new and emergent information when the Governor made his decision is simply not accurate,” he wrote.

For now, the FTA is still willing to work with New Jersey to make the repayment process as painless as possible, but Washington’s patience is limited. “In consideration of the current economic challenges burdening New Jersey and all other states, I am not pursuing these collection methods at this time in the hope that we and the state of New Jersey can develop a workable payment schedule,” the secretary said.

Despite taking a hard line, LaHood bemoaned the fate of the ARC Tunnel, and right now, its legacy is one of a legal fight that isn’t over yet. “The purpose of my efforts,” LaHood said of his meetings this past fall, “was to avoid the very circumstances in which we now find ourselves: no jobs, no congestion relief, and an enduring debt whereby New Jersey must return $271 million to the Nation’s taxpayers.”

After the jump, read the letter and FTA decision.

ARC Money FTA Ruling

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23 comments

Bolwerk May 2, 2011 - 12:51 pm

Sad really, but I’m not really sure there’s much to say that hasn’t been said before; no jobs, no congestion relief, and an enduring debt kind of says it all. I guess it’s always funny to see how selective so-called conservative “fiscal responsibility” is in the responsibility department.

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NattyB May 3, 2011 - 11:54 am

But, we’re getting a megamall!

Sure, nobody goes to malls anymore, and the idea of some massive destination mall doesn’t make sense, but, who cares! It’ll create jobs and . . . uhh multiplier effect.

Surely a mall is way more fiscally responsible then improving transit conditions for the millions of people who commute to NYC.

***

Yah, this is all messed up. Christie gets more credit for being a giant a–hole. He actually got good press for that. Even my conservative friends were like, “we just don’t have the money for ARC,” even though, it’d make money in the middle-long run. I wonder where all those fiscal conservatives now, now that the taxpayers are financing what the private sector/free market was and is unwilling to finance. What a bunch of tools. This stuff has real impact on people and a f–ing disaster of a mall over a 25 year planned and needed transportation project is just insane.

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Bolwerk May 3, 2011 - 6:16 pm

I don’t know about that “nobody goes” idea. Regardless, malls actually may have some near-future promise when it comes to drawing crowds. The types of places that are going to be most hurt by $5+ gas are the smaller commercial lots that have to be driven to individually, usually smaller stores, minor markets, local drugstores, anything kind of small like this, but also fast food places. McDonald’s, for instance, very often sits alone in a postwar commercial motor strip.* Compare to a mall with medium-end stores that carry most of what people need on a shopping excursion, or at least allow many trips to be combined into one.

* And McDonald’s growth internationally is masking something of a decline in North America, I’m told.

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John Ruppert May 5, 2011 - 5:42 pm

This mall is still in “the middle of nowhere”. There’s no residential neighborhood within walking distance of it. This is a complete waste. I cannot believe that we cut cut cut to education, police, etc, but we fork out over a billion dollars for a mall…what is this conservative movement?

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Bolwerk May 6, 2011 - 1:16 am

Yes, I was not trying to say that isn’t stupid. I was just saying, economically, malls might have some future economic promise. That wasn’t intended to excuse their terrible social effects.

“This conservative movement” is celebrating stupidity and waste, like it always has.

Eric F. May 2, 2011 - 1:15 pm

Wow, they are really serious about getting this money back. Maybe NJ can cancel the Portal Bridge project, the Elizabeth station rehab, the order for double decker cars and use those funds to pay back the feds.

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BBnet3000 May 2, 2011 - 3:26 pm

Or the widening of the GCP

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Eric F. May 2, 2011 - 3:38 pm

Or a new high school in Camden. If NJ will ever pay this ridiculous bill, the money will come from the transit budget. It’s not obvious to me that hatred against a guy with an “R” next to his name really justifies that from a policy perspective.

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E. Aron May 2, 2011 - 3:58 pm

The purpose of the funding was to have it allocated to FTA New Starts Program (see page 8 of the decision). New Starts initiatives include approved heavy rail, light rail, or commuter rail, as well as ferry and bus services. He who pays the piper calls the tune, after all. Christie made it clear he would not use the money for any of the above. NJ therefore lost all legal rights to that money, regardless of the letter next to the Governor’s name. Want to keep the money for roads? Too bad.

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Eric F. May 2, 2011 - 4:52 pm

Is that how public policy usually works out in your experience? The government will allocate $ from something you don’t like instead of from something you do like? You must be an inveterate optimist. This money won’t be “repaid”, but if it were to be it’ll be from the transit budget. It’s moot anyway, as NJ will never ever cut a check for this and it’s silly to analyze this as anything more than pique against Christie. The issue will likely fester beyond the term of LaHood and/or Christie and get resolved in the next administration, or perhaps sooner as a special gift to Menendex around the time of his next election. If anyone is really expecting NJ to hand over one of those big Publisher’s Clearinghouse checks to LaHood and to take the money out of some road projects to do so (!), I’d get ready for some major dissapointment.

Bolwerk May 2, 2011 - 5:06 pm

I don’t know about that. NJ received $72B in 2009 federal spending. If that is about what it gets annually, I don’t reckon it would be too hard to find $300M (or about 0.4%) to confiscate if the feds are able to collect against even a fraction of that spending. I don’t know exactly how such collections work, but I would guess it comes out of spending that isn’t for entitlements.

Eric F. May 2, 2011 - 5:36 pm

Actually, what will probably happen is that Christie will realize that he really should have built the ARC tunnel. He’ll tearfully admit the same in a televised meeting with LaHood. There, he will break down, hand over the money to LaHood and cry quietly into LaHood’s shoulder. Christie will do his best to gather himself up, and announce that he has realized the err of his ways. The money repaid will come from a special income tax assessment on members of his own family and from anyone who voted Repuiblican in two or more consecutive elections. Further, NJ will begin the process of tearing up all limited access roadways and replacing the same with hemp-powered light rail cars manufactured on a former collectivized agricultural site in Cuba. Finally, he will announce his own immediate resignation to work on the crews demolishing I-287 to build the Pertrh Amboy -Mahwah leg of the new light rail system.

Bolwerk May 2, 2011 - 7:13 pm

I gather you’re being sarcastic, but I don’t see what you’re getting at. The idea that NJ can steal from the feds, cool as it is if they manage, just doesn’t seem viable. I don’t really see how it could even be turned into a partisan issue, given how quiet both parties are staying about it (and it’s not like LaHood ever left the GOP). What’s telling about both parties staying rather mute is it implies the outcome is a given and most national politicos in either party anticipate only negative repercussions if they speak up.* My guess is either that either they’ll settle or the feds actually will confiscate if Christie doesn’t back down – but you may be right that everybody involved would prefer an election cycle to finish first.

* That is, Demokrats don’t want to insult nominal swing state NJ, Republikans want balance their newfound fiscal “responsibility” against offending a rising star.

NattyB May 3, 2011 - 12:03 pm

You wrote: “The government will allocate $ from something you don’t like instead of from something you do like?”

The money was allocated well before Chris Christie came to town.

The State of New Jersey signed a binding contract accepting the funds with certain strings attached.

So to repeat, this was free money so long as NJ lived up to its end of the bargain. And Christie was warned repeatedly he’d have to return the money if he cancelled the project.

***

you wrote: if anyone is really expecting NJ to hand over one of those big Publisher’s Clearinghouse checks to LaHood and to take the money out of some road projects to do so (!), I’d get ready for some major disapointment.”

The Fed’s don’t need a check. They’ll have a legally valid judgement. You go to Bank of America and show them the judgment and they give you the cash. Happens all the time with little fish. Sure, there are procedural points that NJ can appeal and delay, but, those are just leverage points for NJ to reach some sort of settlement. But, if NJ continues to play hardball, then, the Fed’s will go that route.

Nathanael May 4, 2011 - 11:42 pm

Pique? Christie acted with pique, he gets what he asked for.

I hope the Feds are checking to see whether he can be prosecuted criminally for his deliberate breach of contract.

Edward May 2, 2011 - 3:41 pm

The Grand Central Parkway is in NJ? Damn, no wonder I keep getting lost looking for LaGuardia Airport (not to mention Shea Stadium, which I can’t find anywhere lately…)

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petey May 2, 2011 - 3:58 pm

perhaps GSP?

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Edward May 2, 2011 - 5:16 pm

Actually, it’s the Turnpike that’s being widened, and a much needed project, especially with all the trucks delivering goods to North Jersey and NYC. It’d be nice if we got all our goods via rail, but NYC isn’t much of a rail town anymore (freight-wise, that is; passenger service is excellent).

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Larry Littlefield May 2, 2011 - 5:06 pm

If nothing else, this will make NY think twice about cancelling East Side Access and the Second Avenue Subway.

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Alon Levy May 2, 2011 - 9:33 pm

Is SAS being canceled?

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Bolwerk May 3, 2011 - 2:36 am

According to Larry, Phase 1 is all we get!

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Alon Levy May 3, 2011 - 4:23 am

Well, future phases don’t have federal funding yet, so New York can cancel them for free regardless of what the feds do to Jersey.

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Bolwerk May 3, 2011 - 11:02 am

Yeah, but I think his usual argument is that increasing entitlement costs mean most capital funding stops sometime in the next decade.

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