The US Northeast’s gateway to P3s

An agreement between the federal government and the states of New York and New Jersey to equally split the costs of two new Hudson River tunnels that would connect the two states is the latest milestone for a long-stalled project which has finally picked up speed in recent months.

The Gateway Project is considered a big deal, not just because of its hefty $20 billion price tag, but also because it would be replacing a 105-year old tunnel that is already operating at capacity and was severely damaged after Superstorm Sandy hit the region in 2012.

It’s also a big deal because all sides have agreed to create an entity, the Gateway Development Corporation, which would operate under the auspices of the Port Authority of New York and New Jersey, an idea initially proposed by New York Senator Charles Schumer in August.

“My view is that they are creating a vehicle to do this project, which is a mega project, as well as potentially a whole pipeline of projects in the region, expanding the Port Authority’s footprint,” Michael Likosky, a principal and head of infrastructure at 32 Advisors told Infrastructure Investor.

“I think the market has been wrong about these governors,” Likosky said referring to Andrew Cuomo and Chris Christie, the governors of New York and New Jersey, whom he’s advised for a number of years, as well as Schumer and New Jersey Senator Cory Booker, all the main political figures involved in pushing the Gateway Project forward.

“These governors have been very proactive and very welcoming of P3s [public-private partnerships]. The real issue has been that there has been a higher bar in New York and New Jersey for doing P3s than there is in high-volume, high-velocity states like Texas and Florida.”

Another fascinating aspect of the project is that it puts the infrastructure in place for a Northeast high-speed rail system, according to Likosky.

The project would entail constructing two new tunnels to parallel the existing train system operated by Amtrak, the national passenger rail company, and would add 25 train slots during peak hours. It is a critical infrastructure project since it is also a vital part of Amtrak’s 457-mile long Northeast Corridor, which spans eight states and the District of Columbia.

According to the agreement announced on November 12, the Gateway Development Corporation, which would be established and chaired by the Port Authority, would have a four-member board representing New York, New Jersey, the US Department of Transportation (USDOT) and Amtrak.

The new entity will develop a financing plan, identifying and maximising federal grant opportunities in collaboration with USDOT. It will also pursue low interest loans from the Railroad Rehabilitation & Improvement Financing and the Transportation Infrastructure Finance and Innovation Act programmes.

In addition to reaching a funding agreement, the governors and the two US senators will be exploring the option of public-private partnerships to procure the project.

Like other bi-state projects, one of the sticking points that has prevented it from moving forward is political bickering over which state should pay for it. But since August, when Senator Schumer proposed an entity that would bring together all the key stakeholders, momentum has built steadily with US Secretary of Transportation Anthony Foxx calling for a meeting with the two governors, followed by Cuomo’s and Christie’s joint request that the federal government assume 50 percent of the cost.

“My view, having done this deep advisory with all these folks, is that this can be a high-velocity, high-volume region but the market has to step up,” Likosky remarked. “These governors would love to do P3s but the onus is on the market to tell them what these look like and to convince them that they make sense.”