Home ARC Tunnel The ARC Tunnel death as a microcosm of a budget problem

The ARC Tunnel death as a microcosm of a budget problem

by Benjamin Kabak

When New Jersey Governor Chris Christie killed the ARC Tunnel project last week, the uproar was instantaneous. From the Washington, DC, to the halls of labor in the Garden State to the pages of newspapers across the region, Christie was condemned for this short-sighted decision that will cost New Jersey thousands of jobs, billions of dollars and better commuting options. The region will suffer; his state will suffer; workers will suffer. But what if he’s not wrong? What if he has sound reasons for questioning the viability of the project — and, in particular, its price tag — as it is now conceived?

From the basic need for better rail connections between New York and New Jersey to a profound feeling of American failure, the reactions to Christie’s decision ran the gamut this weekend. Charles Wowkanech, head of New Jersey’s AFL-CIO, summed up those thoughts as he urged his governor to reach a compromise with the feds. It’s not, he noted, a partisan issue, and the state can ill afford to lose the $600 million it has sunk into the tunnel already, let alone the promise of 45,000 construction jobs and $3 billion in federal aid. “Everyone agrees that we need a new rail tunnel under the Hudson,” Wowkanech said. “Doubling rail passenger capacity is necessary to make New Jersey and New York economically competitive, to reduce congestion on our highways and to improve the quality of the air we breathe.”

In The Times, two columnists tackled the tunnel. With more than his fair share of hyperbole, Paul Krugman spoke of great American failures: “So here’s how you should think about the decision to kill the tunnel: It’s a terrible thing in itself, but, beyond that, it’s a perfect symbol of how America has lost its way. By refusing to pay for essential investment, politicians are both perpetuating unemployment and sacrificing long-run growth. And why not? After all, this seems to be a winning electoral strategy. All vision of a better future seems to have been lost, replaced with a refusal to look beyond the narrowest, most shortsighted notion of self-interest.”

Bob Herbert offered up a more tempered assessment of Christie’s decision: “The railroad tunnel project, all set and ready to go, would have provided jobs for 6,000 construction workers, not to mention all the residual employment that accompanies such projects. What we’ll get instead, if it is not built, is the increased pollution and worsening traffic jams that result when tens of thousands of commuters who would have preferred to take the train are redirected to their automobiles…This is government policy at its pathetic worst.”

But on a purely economic level, Christie has inadvertently hit upon a problem with rail construction projects in New York City: The initial estimates appear to be woefully conservative, and the final tallies — billions higher than first projected — are leaving local governments with fewer and fewer choices. We don’t even have to look beyond the city limits of New York or the overarching topic of this blog to find a great example. When the MTA first firmed up plans for Phase 1 of the Second Ave. Subway, it’s price tag came in at $3.8 billion. Today, the federal government estimates a final cost of $4.98 billion. Someone will have to cover that extra $1.18 billion, and in a time when state and city funds are tight, if not non-existent, seeing projects through to completion has become a challenge.

These budgetary concerns aren’t limited to Second Ave. either. A look at recent MTA documents reveals that nearly every big-ticket station renovation — from South Ferry to Columbus Circle to Fulton St. — is over budget by a significant amount. In New Jersey, Christie had to pull the plug because his state simply can’t afford to cover cost overruns that could range from $2-$5 billion. He shouldn’t have canceled the project before consulting with the federal government and conducting a forensic analysis of the budget, but his decision seems reasonable from a fiscal perspective. After all, the logica goes, I can’t buy something for which I can’t afford to pay and neither can the state of New Jersey.

Later this year, MTA Inspector General Barry Kluger will be releasing a report that examines just why the MTA can’t control construction costs. Ahead of that report, Manhattan Borough President Scott Stringer has urged the MTA to, in his words, “streamline its construction management and revamp its protocols for developing budget and time estimates.” On a national level, he would like to see an infrastructure bank and peer reviews of cost estimates incorporated into the planning process for big-ticket items.

Writing for Crain’s New York today, Stringer hits upon Christie’s rationale but also why canceling ARC is akin to hiding from monsters. “Putting a halt to this project is the easy way out,” he says. “The much harder but correct path is to directly confront the problem of how to accurately estimate the costs of infrastructure megaprojects and offer solutions.” Today, no one has a good solution.

You may also like


Caelestor October 11, 2010 - 3:14 am

Does the additional cavern even need to be built? Even though it’s sort of dingy, Penn Station still has a lot of capacity. Take away 3 billion, there goes your cost overrun.

Ray October 11, 2010 - 7:11 am

I agree. Given the capacity constraints are commuter driven, we really need one new tube direct to Penn, through running operations vs. a terminal set up there, a connector for Main, Bergen and Pascack Valley line trains to access the NE corridor in BOTH directions at Secaucus, and finally, electrification of all Hoboken division lines. My wish list.

Marc Shepherd October 11, 2010 - 11:12 am

Penn as currently configured cannot handle twice the number of incoming NJ Transit trains that it handles today. The deep cavern below Macy’s might not be the best way of expanding, but SOME kind of expansion was necessary.

John October 11, 2010 - 2:54 pm

Penn tracks could open up a little in the future when the LIRR terminal at Grand Central opens. Since that will also be feeding trains into the mainline in Queens, total LIRR capacity into Manhattan will still be determined by capacity between Sunnyside and the Port Washington split just east of Woodside.

Max out the new LIRR capacity at Grand Central and — depending on what the maximum number of trains per hour through Woodside is — you might be able to free up trackage at Penn Station for NJT trains coming across the Hudson via a new tube (and if nothing else, even one new tube into Penn would — like the third tube on the Lincoln Tunnel — allow for emergency reroutes if there’s a problem with a train in one of the tubes, as well as making maintenance easier on the tunnels).

It’s definitely something worth running the numbers on, to see if one or two tunnels into Penn combined with detouring as many LIRR trains as possible into Grand Central would be a lower-cost option (albeit one that would create more overcrowding problems on the Lexington Avenue subway).

Alon Levy October 11, 2010 - 3:33 pm

Penn as currently configured cannot handle twice the number of incoming NJ Transit trains that it handles today…

…assuming the current wretched turnaround times and terminal configuration stay. But fixing those won’t generate billions in cost revenue for the consultants and contractors.

Nathanael October 12, 2010 - 7:46 am

The long-proposed connection to Grand Central from Penn would solve THAT problem, and have numerous other benefits. Grand Central has a *vast* amount of spare capacity.

paulb October 11, 2010 - 9:05 am

I think it’s a fair point, that in these projects it’s not necessarily a failure of vision, but a failure of competence and confidence in the execution.

Is another connection to just the west side, duplicating current service, such a great idea in the first place? I liked the ideas in the other story for sending this tunnel in to the new Grand Central platforms, if that’s technically possible. Well, of course anything is technically possible if you have the $$$.

And what’s Herbert talking about, “redirected to their automobiles”? As someone else said, buses are the main commuting vehicle from Jersey into NYC. That guy has got his word processor set to copy and paste.

Subutay Musluoglu October 11, 2010 - 9:25 am

If NJ’s contribution to ARC is redirected to shoring up the State Transportation Fund, which finances vehicular road and bridge reconstruction / expansion, wouldn’t that be considered a redirection to automobiles? That’s what Mr. Herbert must have meant. I’m not saying that it’s not necessary; many of NJ’s roads and bridges are not in a state of good repair, and the rail system is not equipped to handle the ridership growth that is forecasted to occur over the next 30 years and beyond. The TTF must be replenished in a practical manner that can serve all of NJ’s future transportation needs.

W. K. Lis October 11, 2010 - 9:28 am

Boston’s big dig cost between $14.6 billion and $22 billion (depending on who you ask) for something that basically replaced an existing infrastructure. The ARC Tunnel would have doubled the infrastructure capacity between New Jersey and New York City.

AlexB October 11, 2010 - 7:21 pm

The big dig did not just replace existing infrastructure. It added the Ted Williams tunnel, totally separating I90 from I93 for the first time. It built acres and acres of new parkland in the middle of a dense urban environment. It included a new busway to the airport. Was it worth that much money? That’s doubtful, but it will no doubt be remembered in a couple decades as a major benefit to Boston.

Nathanael October 12, 2010 - 7:48 am

Really? I expect in a few decades the Big Dig will be remembered as the “Tunnel to Nowhere”, being as it is mainly useful for people *avoiding* Boston. Or maybe they’ll start trying to figure out how to convert it to rail.

john b October 12, 2010 - 9:55 am

“it is mainly useful for people *avoiding* Boston”

actually isn’t that kind of the whole point? imagine how useful a tunnel connecting the lincoln and queens midtown tunnels would be? there’s no point in having cars take up valuable real estate in a major city spewing polluted air into the surrounding neighborhoods. especially when the majority of their destinations aren’t in the neighborhood.

Marc Shepherd October 11, 2010 - 11:14 am

You need to unpack two very separate problems here.

One is the tendency of transit projects to be practically always over budget.

But the other is Gov. Christie’s unwillingness to raise taxes for any reason, even though NJ’s gas tax is one of the lowest in the nation and has been stagnant for many years.

Benjamin Kabak October 11, 2010 - 11:17 am

Christie’s unwillingness to raise taxes is the reason why the state’s TTF monies are gone. That’s a legitimate gripe we can have against Christie. His unwillingness to raise taxes though isn’t why the projections for the trans-Hudson tunnel are coming in at $2-$5 billion higher than current estimates and nearly $10 billion than the project’s original 2003 price tag.

I’m only concerned with the TTF in that Christie thinks it’s a better idea to spend there than it is to spend on ARC.

john b October 11, 2010 - 11:29 am

Is this just a one time infusion of cash into the State Transportation Fund? If so taking the $2.7 billion that New Jersey would have spent on the ARC and moving it to the Transportation Fund is a one time fix akin to selling the Turnpike or dipping into the pension fund. All Christie is doing is passing the buck, he still needs to find a permanent solution to support the Transportation Fund. I really think he’s going to have no choice but to raise the gas tax in the future.

Nathanael October 12, 2010 - 7:50 am

Yep, it’s a one-time fix. Expect Christie to come up with more gimmicks rather than solving any budget problems; gimmicks and letting “someone in the future” pay for things have been standard Republican techniques since at least Ronald “magic asterisk” Reagan.

Scott E October 11, 2010 - 11:15 am

Isn’t ARC a much larger, more comprehensive project to improve “Access to the Region’s Core”? I thought the tunnel was just a piece, albeit the largest one, of the project.

The thing that puzzles me most is the unrelated Moynahan Station project. That one, and this one, seem to have been designed blind to one another. Three separate stations spanning three avenues does seem dumb to me. If Moynahan funds can be combined into ARC, then we might get somewhere…

Alon Levy October 11, 2010 - 3:35 pm

No, ARC is basically just the tunnel, and associated infrastructure allowing trains to use the tunnel with minimal changes to the current operating plan.

Basically, ARC and Moynihan are two projects that are horrific each on its own, as well as both together.

Caelestor October 11, 2010 - 4:30 pm

So Moynihan is not part of ARC? Cancel it immediately and divert the funds to the tunnel. If things get drastic, Secaucus Jtn can be put on hold for later.

NYC really does need these tunnels as backup in case something happens to the current two.

Benjamin Kabak October 11, 2010 - 4:33 pm

The amount of money currently allocated for Moynihan is just $267 million for Penn Station improvements. The $1.5 billion part is still unfunded. Diverting that money to ARC would do absolutely nothing to solve the budget problem.

Alon Levy October 11, 2010 - 4:43 pm

Backup is the least important function of a new tunnel pair: for a vastly lower cost, the current pair could be better protected. The real use of new tunnels is new capacity.

The Secaucus connection could be done much better than the loop. But something like it has to be done, because otherwise the two-track bottleneck of Portal Bridge would still constrain capacity just as much as it does today.

Mike October 11, 2010 - 1:22 pm

The distressing part of this matter is the speed with which the project was “cancelled” and the information upon which the decision was made.

Construction projects of this nature are full of uncertainty and risk. Cost “estimates” can be very subjective and change drastically for many reasons.

The information that forms the basis of the cancellation is not gospel. It’s one point of view at one point in time.

With so much on the line, this is a decision that cannot be a “knee-jerk” reaction. It requires a lot more considered evaluation than can be done in 30 days. There are almost certainly other alternatives available.

Mr. Christie’s decision to shut down the project is as arbitrary (and probably politically driven) as is his decision not to increase the gas tax.

Short-sightled, politically motivated decisions are what’s killing this country.

David M October 11, 2010 - 9:11 pm

Indeed. And the expected arithmetic: diversion of funds to be used on the tunnel for maintenance of roads. It is a head-in-the-sand approach which would likely rule out any sort of infrastructure project.

The intersection of I-95 and the Capital Beltway in Virginia cost almost $700M – for one admittedly very complex highway junction – almost 3x the states price at the beginning of construction. A zillion other examples exist.

So, I think the original post is taking Christie’s reasons too much at face value. This is not an appropriate way to deal with a common but important problem.

And the politics of the situation are way too important to be left out:

– Christie is redirecting transit spending to highway spending. That’s a terrible idea but it is not any sort of random thing for a conservative politician to be doing. For all his expressions of remorse, it fits a pattern…

– Moreover I strongly suspect he is positioning himself for national office. If I lived in NJ I’d be pretty steamed to have critical infrastructure thrown away – and hundreds of millions of dollars wasted – to impress future primary voters in Iowa, NH, and SC.

Considering the issue without this context leaves out some pretty important information.

Chris October 13, 2010 - 4:05 pm

The problem isn’t cost overruns, it’s budget underestimates. Generally these are deliberate – the project costs are lowballed to help smooth their passage through the political process. Then, once they are half done, the contractors, consultants, and transit agency bureaucrats release the true costs.

It would be easy to avoid this problem, by contracting bids for sections of the project on a fixed price basis. The reason this is not done is that the initial cost projections would be much higher and the project wouldn’t be approved in the first place.

Alon Levy October 14, 2010 - 2:38 pm

The original budgets for the New York-area projects looked in line with or higher than budgets of comparable projects nation- and worldwide. Those really seem to be overruns, rather than strategic misrepresentation.

Best industry practice is to avoid lump price contracts. According to the CEO of Madrid Metro,

No tunnelling project, including this 38 km soft ground tunnelling construction, should be contracted under a fixed lump sum contract. It was, and still is, the author’s opinion that it is scientifically impossible for any Client to provide complete geotechnical information. Even with the use of a pilot tunnel, geotechnical conditions can vary so substantially as to make the contract invalid and useless, as has occurred elsewhere. If any problem does appear, litigation or arbitration is likely, and a huge amount of time and money can be wasted in this process. According to Spanish law, it was decided that the contracts would be fixed price, but with a bill of quantities, so that any additional work could be easily priced, and agreed promptly with the contractors.

Madrid, for the record, has the world’s lowest subway construction costs: the project under discussion cost a little more $50 million per km, about one quarter as much as peer European projects and one thirtieth as much as Second Avenue Subway.


Leave a Comment