Decades of Pain Ahead for NJ Transit Riders Subsidizing Tunnel

(Bloomberg) -- Governor Chris Christie canceled a Hudson River rail tunnel in 2010, saying he didn’t want to burden New Jersey taxpayers with cost overruns. Now, less than a month from leaving office, he wants commuters to pay up for the replacement.

While New York Governor Andrew Cuomo would tap the state budget to cover his share of a new $12.7 billion tube to Manhattan, Christie has proposed saddling New Jersey Transit rail passengers with a surcharge through at least 2038. The governors have pledged $5.5 billion and are counting on federal grants to cover the rest.

How the states finance what U.S. Senator Charles Schumer, a New York Democrat, calls the nation’s most pressing infrastructure project will influence their fiscal health for decades, as the metropolitan region’s job growth relies on commuter access. New Jersey, with the second-lowest credit rating and the worst-funded pension system among U.S. states, is banking on revenue from trips via its sole train link, a decaying century-old tunnel vulnerable to floods and beset by power failures.

“Any time you tie a revenue source to a specific project that’s vulnerable, you’re running a risk,” said Howard Cure, director of municipal-bond research for Manhattan-based Evercore Wealth Management LLC, whose $7 billion under management includes New Jersey debt.

Scuttled Tunnel

The tunnel that Christie canceled in 2010, known as Access to the Region’s Core, was scheduled to be near completion by now, offering more than double the current peak-morning capacity, faster trips and fewer transfers. Christie, weighing an ill-fated presidential run and courting national Republicans who abhor states’ reliance on federal money, said the design was flawed and New Jerseyans would be on a “never-ending hook.”

"I don’t know where that money would have come from,” Christie said in Atlantic City in April. “It would have come from increased taxes or hugely increased fares on New Jersey Transit.”

Since Christie killed the tunnel, commuters have grown increasingly frustrated with having to pay more for inadequate seating and unreliable service. Two NJ Transit fare increases by the Christie administration have failed to keep pace with maintenance and equipment needs. The railroad, once a national model, has logged the most accidents and safety fines among its peers, and the second-highest number of major breakdowns, federal data show.

Mass-transportation fares have climbed 36 percent during Christie’s eight years in office, while his administration cut New Jersey Transit’s state budget subsidy 90 percent and shifted $3.44 billion in capital funding to cover day-to-day operating costs.

“That’s a cardinal sin in the world of budgeting,” said Cure, the municipal-bond manager.

Vague Promises

For more than a year, lawmakers have been investigating the agency’s finances, safety and hiring practices. The railroad itself canceled more than 60 runs in July, and 35 alone on an October holiday, because of an engineer shortage. Most bedeviling to commuters, the Northeast Corridor tracks and New York Pennsylvania Station are owned by Amtrak, whose maintenance failures routinely disrupt New Jersey Transit trains.

Amtrak’s Gateway plan, the ARC replacement project that Christie is backing, won President Barack Obama’s pledge of billions for half the cost. Republican Donald Trump, though, hasn’t followed through, and he has yet to release details of what he said would be $1 trillion in spending on the nation’s infrastructure.

A senior U.S. Transportation Department official, speaking to Bloomberg on condition of anonymity while Cuomo and Christie’s pitch is under agency review, warned that the states are prematurely counting on $5.5 billion in loan commitments via the Railroad Rehabilitation and Improvement Financing program.

“There isn’t a Plan B,” Richard Bagger, chairman of the Gateway Program Development Corporation, told reporters in New York on Dec. 21. “It has to be a federal-local partnership and we are confident that it will be.”

Tenuous Tube

Even if funding comes through, the tunnel’s earliest projected opening is in 2025, and every day until then is a bet that the existing North River tunnel will hold out. In 2014, Joe Boardman, Amtrak’s then-president and chief executive, said the link at most had 20 years of service left. Amtrak says the link is safe, though age and corrosive salts deposited by Hurricane Sandy floodwater are deteriorating interior concrete and copper wiring.

“It just goes to show you what a reckless soon-to-be ex-governor we had in Christie -- that he could kill Hudson River tunnels with more federal subsidies years ago because he wanted to make it a partisan issue for his presidential campaign,” said Henri Meriluoto, a 48-year-old mid-level bank manager who commutes to Manhattan from Morristown. “I’m more upset about what Christie did in killing that ARC tunnel than I am about paying more per trip, because we must get this tunnel built as soon as possible.”

Under Christie’s plan, New York City round-trip riders would pay a $1.80 surcharge starting in 2020, rising to $3.40 in 2028 and $4.40 in 2038, according to highlights released by Christie on Dec. 14. A round trip currently costs commuters $14.90 from Summit and $24 from Trenton, according to Bloomberg calculations of the monthly fare divided by 20 typical workdays.

The increases would raise $1.9 billion to pay off a Railroad Rehabilitation and Improvement Finance loan that Christie is counting on. Trustees figured on a 4.1 percent interest rate on a 35-year loan, with no passenger loss or growth.

“They include a slight buffer above the actual debt-service cost to give comfort to the lender,” Frank Sacr, Gateway’s interim finance director, told reporters in New York on Dec. 21. “If there’s some delay or some other issue, there’s enough money to pay for the loan in its entirety."

New Jersey Transit spokeswoman Nancy Snyder in an email declined to comment on other aspects of the financing proposal, saying  “it would be premature to discuss specific technical details” during the transportation department review.

Governor-elect Phil Murphy, a Democrat who takes office in January, called New Jersey Transit a “national disgrace” during a news conference Dec. 20 in Secaucus. His pick for transportation commissioner, Diane Gutierrez-Scaccetti, said the agency will need more revenue, though she stopped short of calling for a fare increase, saying she must study the finances.

At Penn Station on Dec. 20, 58-year-old Anil Bhutia, an information technology consultant commuting from Princeton, said higher fares are acceptable so long as service is better. That day, though, he had 45-minute delays in the morning and evening.

“I’m still mad the governor canceled that plan years ago,” Bhutia said. “We’d be close to having the tunnels built by now.”

To contact the reporters on this story: Elise Young in Trenton at eyoung30@bloomberg.net, Henry Goldman in New York at hgoldman@bloomberg.net.

To contact the editors responsible for this story: Flynn McRoberts at fmcroberts1@bloomberg.net, Michael Shepard at mshepard7@bloomberg.net, Stacie Sherman, Stephen Merelman

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