The Financial Foolishness of Christie’s ARC Gambit

Two weekends ago, construction on New Jersey's most important transit project was called to a temporary stop by Governor Chris Christie. He declared a thirty-day review period for the ARC tunnel project, which would build a new rail tunnel below the Hudson and double commuter rail capacity from New Jersey. Many worry the review is just a prelude to axing the $8.7 billion project altogether and using the money saved to patch up New Jersey's Transportation Trust Fund for a couple of years.

Advocates are now mobilizing to save ARC. People who live, work, or attend school in New Jersey can send a letter to the Christie administration through the Tri-State Transportation Campaign's "We Need ARC" petition.

Currently, only a single pair of century-old tunnels carry New Jersey Transit trains into Penn Station, and with NJ Transit ridership more than quadrupling since the 1980s, those tunnels are at capacity. "Every two minutes, a train enters Midtown Manhattan from New Jersey," said Juliette Michaelson of the Regional Plan Association. "That capacity cannot increase."

Without a new tunnel, commuter rail in New Jersey simply cannot expand. If ARC is built, however, it would be expected to carry 100,000 more commuters into Midtown, more than doubling capacity. Estimates suggest 22,000 cars would be taken off the road as a result. "It's a game-changer," said Michaelson.

Christie's decision to halt all work on the project for thirty days has put the project in grave peril.

Ostensibly, the reason for the construction delay is to investigate cost overruns. However, at a hearing of the State Assembly's Transportation Committee this Monday, NJ Transit Executive Director Jim Weinstein admitted that the administration had discussed using the funds committed to ARC to patch up the state's Transportation Trust Fund, which funds both transit and roads and is on pace to go bankrupt next year. That's a sign that the delay isn't for an audit, but, in the words of the New Jersey Star Ledger, "a trial balloon to test the reaction to killing the project."

If Christie decides to sacrifice ARC to keep the TTF afloat, it might solve one political headache for him, but not for long. "Back of the envelope, we're talking two years, three years tops," estimated Zoe Baldwin, the New Jersey advocate for the Tri-State Transportation Campaign. "It's political pain-avoidance."

Michaelson agreed that ARC funds would only finance TTF for two or three years. "Can he keep his hands off the cookie jar of money that previous governors have set aside for ARC?" she asked.

Baldwin suggested that instead, Christie look at raising the state's gas tax, which is the third-lowest in the country and hasn't budged for 21 years. "We've raised all kinds of other fees and taxes, she said, but the gas tax and other transportation fees have been untouchable." That's led to a years-long crisis in transportation funding for the state.

If Christie decides to kill ARC, that could be it for the project for decades. Currently, the cost of the project is split three ways. The federal government is contributing $3 billion, its largest contribution ever to a transit project. The Port Authority is paying another $3 billion. New Jersey would commit the rest, currently estimated at $2.7 billion. "The chances of the stars aligning again the get all three entities to pony up, it's unlikely," said Baldwin. That same agreement, she added, means that Christie's decision is likely to be all-or-nothing for ARC. A renegotiation of the terms would be difficult.

The fiscal irresponsibility of killing ARC for a one-time infusion of cash becomes clear once you dive deeper into the numbers. To begin with, the operating revenue ARC would bring in is projected to outweigh its operating costs. It would turn a profit, once it's built.

Moreover, the economic impact of providing more access to New York City far outweighs the project's price tag. An RPA study from July looked at recent rail expansions in New Jersey and found that ARC would raise New Jersey property values by a total of $18 billion. A projected $50 billion in wages would come back to the state from high-paying Manhattan, said Baldwin.

This influx of wealth would, of course, be taxed. A report by NJ Transit [PDF] estimated that in 2025, ARC would add almost $100 million in taxes a year to New Jersey's balance sheet. On top of that, RPA estimated that ARC would generate $345 million a year in local property taxes.

The amount of economic activity generated for the state would be even higher. "The economic future of the state rests on being able to keep on getting more and more people who live in New Jersey working in Manhattan," said Michaelson.

So what's next for ARC? Ultimately, the decision is up to Christie, but there are a few things to watch for before he makes his move. Baldwin pointed to a move by the Democrat-controlled legislature to condition certain TTF approvals on a long-term plan for the fund from Christie. Baldwin said that the governor's reaction to the legislature could give a better sense of where his mind is.

Michaelson said that a strong statement by New Jersey's business community could change the political dynamic. "I'm looking for the business community to come out and say we need this tunnel," she said. "I feel like their voice has been lost in the mix."