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NJ to Pay $95M for Scrapped Tunnel

Thursday, October 6, 2011

More items for Program/Project Management

Payback may be hell, but some people finesse it better than others.

Take New Jersey Gov. Chris Christie.

The popular Republican has engineered a settlement by which the state will repay the federal government $95 million for a Hudson River tunnel project that Christie scrapped a year ago.

State of New Jersey

Gov. Chris Christie noted that New Jersey settled for a “fraction” of the federal government’s demand.

Many hailed Christie as a fiscally righteous hero for killing the nine-mile Access to the Region’s Core (ARC) Tunnel, a project that he said could have dumped billions of dollars in cost overruns on New Jersey’s residents.

The problem: The federal government had already sunk $271 million into the project—and it wanted the money back.

Cash, Transit Requirements

After a year of negotiations, the U.S. Department of Transportation and New Jersey Transit have agreed that the state will repay $95 million over five years.

In addition, the settlement requires that New Jersey spend more than $128 million in federal Congestion Mitigation and Air Quality (CMAQ) Improvement Program funds on transit-related projects approved by DOT. The funds may not be used for other projects.

State and federal officials approved the plan Friday (Sept. 30); NJ Transit unanimously approved it this week.

‘Puts Taxpayers First’

In a prepared statement, Christie touted the agreement as a clear victory, saying it “puts the interests of New Jersey taxpayers first by substantially reducing the federal government’s original demand.”

He noted that the repayment sum “represents a fraction of the federal government’s initial claim.”

The transit agency will repay the $95 million from its capital fund, Paul Wyckoff, chief of Government and External Affairs, told the Asbury Park-Press. However, NJ Transit also expects to get back $143 million of the $160 million it paid for insurance on the project over eight years.

“There is money, including an insurance refund from the tunnel project self-insurance,” Wyckoff told the newspaper. “We bought it up front to save money, and we got a refund for the vast majority of it.”

Recovering those premiums involved months of wrangling with “the worldwide consortium of firms that underwrote ARC’s considerable risks,” reported northjersey.com. “In the end, officials said, the insurers were convinced that it was in their best interest to close a deal and keep good relations with the state.”

Out of Pocket

On the other hand, New Jersey has also spent $1.2 million on lawyers to fight the repayment request over the last year, the Park-Press reported. State taxpayers are also unlikely to recoup hundreds of millions of dollars spent on preliminary engineering, legal and other costs, said northjersey.com.

Last year, U.S. Transportation Secretary Ray LaHood called Christie’s decision to scuttle the project “particularly disappointing” and warned of “profound consequences” for New Jersey, New York “and the nation as a whole.”

DOT

DOT Secretary Ray LaHood warned that scrapping the project would kill jobs and increase congestion in the Northeast.

This week, LaHood said the settlement would allow DOT “to recover all of the $51 million in New Starts money provided to New Jersey for the ARC Project, so that those funds can be made available to other communities for public transit projects.”

In addition, the federal treasury will recoup about half of the funds it provided to New Jersey under the American Recovery and Reinvestment (Stimulus) Act, he said.

In a statement, LaHood thanked New Jersey’s senators, Frank Lautenberg and Robert Menendez, for helping to broker a repayment agreement that is “good for the taxpayers of New Jersey, but also helps to improve infrastructure in the state,”

He added: “I thank the governor and his legal team for reaching this agreement.”