Spotlight Special Issue: The ARC Decision

Yesterday, Governor Chris Christie put an enormous dent in New Jersey's economic future. Access to the Region's Core, a new tunnel to connect NJ TRANSIT's existing train network to a new terminal at Herald Square in Manhattan, would have enabled New Jersey's prosperity for generations to come by doubling NJ TRANSIT's capacity into the region's economic hub, significantly cutting train commute times to Midtown, increasing the reliability of service, reducing traffic and greenhouse gas emissions, creating construction and long-term jobs, driving economic growth in the right places, and boosting home values. But the $8.7 billion project, like all major infrastructure projects, could have gone over budget, and Gov. Christie flatly refused that New Jersey assume any responsibility for any potential cost overruns.

Never mind that the cost overruns — if they occurred — were likely to be in the range of $2 billion — not the $3 billion to $5 billion repeatedly cited by Christie without supporting evidence or documentation.

Never mind that, in its negotiation with New Jersey, the federal government proposed that up to $1.2 billion in cost overruns be split three ways between the federal government, the Port Authority and New Jersey.

Never mind that NJ TRANSIT and the FTA found ways to reduce the project's construction costs by up to $700 million by postponing elements of the project that were not necessary on opening day.

Never mind that the federal government offered New Jersey a federal loan at an unbeatable interest rate, and one that wouldn't require repayment until six years after the first draw-down of the loan, at which point New Jersey would be starting to reap the economic and tax benefits of the project.

Never mind that a partnership with private investors could have limited or eliminated New Jersey's exposure to cost overruns.

Never mind that the federal government does not require a cash commitment to cover potential cost overruns — only that a project has identified a non-federal funding stream that could be called upon to cover contingency costs.

Gov. Christie's assertion that he couldn't move forward with the project because he couldn't "make payroll" is disingenuous at best. By the time cost overruns materialized, if they materialized at all, it would be in the latter half of this decade, after Gov. Christie's tenure and after the project had begun to boost New Jersey's economy. In fact, the only immediate impact is that New Jersey will now have to repay $350 million to the federal government for work already completed.

All the arguments in the world about the benefits of the project, the unparalleled return on investment for New Jersey and the unforgivable loss of $6 billion in federal and Port Authority funding, did not move Christie one inch. If New Jersey was on the hook for a dollar more than the $2.7 billion already committed to the project, the project was going to get canned.

Of course, Gov. Christie's request for someone else to assume the risk of overruns — the federal government, presumably, or the Port Authority — is entirely unfair. It is, after all, NJ TRANSIT, a New Jersey agency, that is building the project. A financing scheme that saddled anyone other than New Jersey with the responsibility for cost overruns would have created obvious disincentives for the state to keep construction costs down, and obvious incentives for any future state-sponsored and federally backed infrastructure projects to underestimate construction costs.

But, as my mother wisely says, "Let bygones be bygones." ARC remains a vital — and shovel-ready — project that New Jersey, New York and the Northeast sorely need. If New Jersey won't build it, the federal government should step up to the plate, turn ARC into a federal project (possibly with the Port Authority as a local sponsor) and build it. They could then lease back out to New Jersey the right to use the tunnel, most likely at a higher cost to New Jersey in the long run. Gubernatorial candidates in Florida and Wisconsin have pledged to return high-speed rail grants to the federal government claiming their states can't afford their shares. If they do, we know of a shovel-ready project in the Garden State that could quickly make use of those funds.

Cynics might say that Christie knew all along that his proposal to have someone else cover potential cost overruns would never fly, and therefore that New Jersey's contribution to ARC would conveniently be available to fund the state's road-building fund, which is nearly insolvent. A more generous interpretation of the last six weeks is that Christie had nothing to lose by asking others to shoulder the risk of cost overruns, so he went for it. Whatever Christie's true reasoning, the cancellation of ARC is a great loss to the state of New Jersey, the region and the Northeast Corridor. Here's hoping this project will come back, and soon.