COMMUTER RAIL

Potential Impacts and 

Cost Estimates for the 

Cancelled Hudson 

River Tunnel Project

Report to the Chairman, Subcommittee on 

Surface Transportation and Merchant 

Marine Infrastructure, Safety, and Security, 

Committee on Commerce, Science, and 

Transportation, U.S. Senate

March 2012

GAO-12-344

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-344, a report to the 

Chairman, Subcommittee on Surface 

Transportation and Merchant Marine 

Infrastructure, Safety, and Security, 

Committee on Commerce, Science, and 

Transportation, U.S. Senate

March 2012

COMMUTER RAIL

Potential Impacts and Cost Estimates for the 

Cancelled Hudson River Tunnel Project 

Why GAO Did This Study

Studies have estimated that transit 

travel demand between New Jersey 

and Manhattan will increase by 38

percent by 2030. The Access to the 

Region’s Core commuter rail project 

was designed to help meet that rising 

demand. In October 2010, the 

governor of New Jersey, citing 

potential cost growth and the state’s 

fiscal condition, withdrew state support 

and cancelled the project. The New 

Jersey Transit (NJT) was the lead 

agency for the project, supported by 

the Port Authority of New York and 

New Jersey (Port Authority). The 

project was to be partially funded 

under the Federal Transit 

Administration’s (FTA) New Starts 

program.

GAO was asked to examine (1) what 

would have been the mobility, 

economic, and environmental benefits 

of the project according to major 

planning studies; (2) the project cost 

estimates over time; and (3) how, if at 

all, documents prepared as part of the 

New Starts process addressed 

potential cost growth for the project. 

GAO reviewed the literature and major 

project planning studies, FTA reports, 

and economic and cost estimates by 

NJT and other planning organizations. 

GAO interviewed officials from FTA, 

state and local transit agencies, and 

local planning organizations. GAO is 

making no recommendations in this 

report. 

The Department of Transportation 

provided technical comments, which 

GAO incorporated in the report.

What GAO Found

Studies estimated that the Access to the Region’s Core commuter rail project 

would have provided mobility benefits, but other benefits would either have been 

limited or are difficult to measure. According to various studies:

• The project would have helped meet the projected increase in travel demand 

and improved mobility by doubling the number of daily peak period trains, and 

significantly increasing daily trips between New Jersey and Manhattan—from 

about 174,000 without the project to 254,000 with the project by 2030—while 

reducing transfers and station crowding and improving reliability of service. 

• The project potentially would have generated economic activity in the region in 

the form of jobs and income, business activity, and increased home values, 

but many economic effects were hard to predict with certainty. For example, 

the extent to which the project would shift the location of economic activity, 

versus providing additional net economic activity, is uncertain. 

• The project was estimated to have created limited but mostly positive 

environmental effects—in particular, improved air quality—and included 

measures to mitigate negative effects such as noise and storm water runoff.

Over time, the cost estimates for the project increased from an initial estimate of 

$7.4 billion in 2006. In 2008 and 2010, FTA performed risk assessments and 

revised the cost estimate. FTA and NJT agreed upon a baseline cost estimate of 

$8.7 billion in 2009. After considering comments from NJT, which projected lower 

costs than FTA, FTA revised its estimate and issued a cost estimate of $9.8 

billion to $12.4 billion in October 2010. As of April 2010, federal sources were 

expected to fund about half the cost, with the remainder divided between New 

Jersey Turnpike funds and the Port Authority. 

Because the project was terminated before FTA and NJT entered into a full 

funding grant agreement, there was no final agreement by all the parties on the 

issue of responsibility for project cost growth. While the Secretary of 

Transportation and the governor of New Jersey held discussions on additional 

funding options, planning documents did not address the source of funding of 

potential cost growth for the project.

Map of Proposed Access to the Region’s Core Project

View GAO-12-344. For more information, 

contact David Wise at (202) 512-3834 or 

wised@gao.gov.
Page i GAO-12-344 Commuter Rail

Letter 1 

Background 3

Anticipated Benefits of ARC Project 7

Project Cost Estimates Increased Over Time and about Half the 

Planned Funding Was from Federal Sources 15

Planning Documents Did Not Determine the Source of Funding of 

Potential Cost Growth 20

Agency Comments 20

Appendix I Federal Transit Administration’s New Starts Process 22

Appendix II GAO Contact and Staff Acknowledgments 24

Tables

Table 1: Selected Cost Estimates for the ARC Project, 2006-2010 15

Table 2: Proposed Funding by Source, as of April 2010 19

Figures

Figure 1: Route of Proposed ARC Project, NJT Lines and Major 

Highways, 2009 5

Figure 2: Selected Long-term Environmental Effects of ARC 

Project 13

Figure 3: Relationship of Estimated Cost and Uncertainty During 

Project Planning and Implementation 17

Contents
Page ii GAO-12-344 Commuter Rail

Abbreviations

ARC Access to the Region’s Core

FTA Federal Transit Administration 

PATH Port Authority Trans-Hudson

Port Authority Port Authority of New York and New Jersey

NJT New Jersey Transit

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-344 Commuter Rail

United States Government Accountability Office

Washington, DC 20548

March 9, 2012

The Honorable Frank R. Lautenberg

Chairman

Subcommittee on Surface Transportation and Merchant Marine

 Infrastructure, Safety, and Security

Committee on Commerce, Science, and Transportation

United States Senate

Dear Mr. Chairman:

The Access to the Region’s Core (ARC) project was a planned commuter 

rail project designed to help address the problem of increasing travel 

demand between New Jersey and New York City. Current tunnel, bridge, 

and rail infrastructure serving this corridor is already at or near capacity; 

this increase in travel demand, fueled by population growth in the region 

west of Manhattan and employment within Manhattan, could result in 

more congestion and greater delays for commuters. The planned project 

was to connect existing rail lines, build two tunnels under the Hudson 

River, and expand New York Penn Station. However, on October 27, 

2010, the governor of New Jersey, citing potential cost growth and the 

state’s financial condition, withdrew state support and cancelled the 

project.

The New Jersey Transit (NJT) and other project sponsors began planning 

for the project in 1995, and in 2003, completed the first major planning 

study, which assessed numerous alternative solutions to the problem of 

constrained capacity and possible routes under and across the Hudson 

River. The project was further developed through the federal 

environmental impact review process, completed in 2009.1

 

1

The National Environmental Policy Act of 1969 (1) mandates consideration of 

environmental impacts before any federal action likely to significantly affect the 

environment is undertaken and (2) establishes the environmental impact process to 

identify potential environmental impacts and develop plans to mitigate negative ones.

In addition, 

both NJT and local planning organizations conducted various studies of 

the expected transportation and economic impacts of the project. Cost 

estimates were developed throughout the planning process, but the final 

estimate and funding commitments were still under discussion between 

 
 

Page 2 GAO-12-344 Commuter Rail

New Jersey and the Federal Transit Administration (FTA) when the 

project was cancelled.

As requested, this report addresses the following questions: (1) What did 

major planning studies find would have been the estimated mobility, 

economic, and environmental impacts of the ARC project? (2) What have 

been the ARC project cost estimates over time, who developed those 

estimates, and what sources of funding were identified? (3) How, if at all, 

did documents prepared as part of FTA’s New Starts funding process 

address potential cost growth for the ARC project?

To address these questions, we reviewed all major planning studies 

prepared for the project and FTA reports about the project.2

We conducted this performance audit from February 2011 through March

2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

We also 

reviewed planning and economic analyses of the project done by NJT 

and outside organizations. We examined the methodologies used by the 

studies and determined that the studies were sufficiently reliable for the 

purposes of our report. We reviewed documents from NJT and FTA that 

provided or discussed various project cost estimates. We interviewed 

officials from federal, state, and local agencies; private planning 

organizations; and academia; specifically, FTA, Amtrak, Office of the 

Governor of New Jersey, Office of the Attorney General of New Jersey, 

NJT, the Port Authority of New York and New Jersey (Port Authority), 

New York Metropolitan Transportation Council, North Jersey 

Transportation Planning Authority, Regional Plan Association, Tri-State 

Transportation Campaign, and Rutgers University. In addition, to 

determine how potential cost growth was addressed, we reviewed various 

declarations submitted in connection with NJT’s response to FTA’s 

demand for repayment of expended project funds, the general project 

agreement between NJT and the Port Authority, and FTA’s financial 

assessment of NJT’s financial plan that was submitted as part of the 

application to advance the project to its final design.

 

2

Those studies were the major investment study; draft, supplemental, and final 

environmental impact statements; and various FTA reports, such as risk assessment 

reports, financial assessments of NJT’s financial plan, and annual reports on funding 

recommendations.
 

Page 3 GAO-12-344 Commuter Rail

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. During our review, we 

suspended our work for about 6 weeks until the resolution of a dispute 

between the Department of Transportation and New Jersey concerning 

the repayment of federal funds already spent on planning the project.

Commuter demand and congestion between New Jersey and New York 

City across the Hudson River is projected to increase as the limited 

passenger rail infrastructure continues to age, highlighting the need for 

improvements to the trans-Hudson commuter rail system into Manhattan.

Planning agencies have forecasted that, fueled by population growth in 

regions west of the Hudson River and employment within Manhattan, 

demand for mass transit service crossing the Hudson River between New 

Jersey and nearby counties in New York and midtown Manhattan will 

grow by about 38 percent by 2030. This could result in more congestion 

and longer delays on existing roads, bridges, passenger rail, and other 

public transportation modes crossing the Hudson River. At the same time, 

the aging passenger rail infrastructure—comprising two single-track 

tunnels under the Hudson River leading to New York Penn Station—limits 

commuter rail capacity into Manhattan. The 100-year-old tunnels cannot 

meet the access and mobility demands of the future, given the projected 

growth in the region.

In 1995, the three major local transit agencies—NJT, the Port Authority, 

and the Metropolitan Transportation Authority3

—jointly conducted a major 

investment study4

 

3

The Port Authority operates and maintains the region’s three major airports, six bridges 

and tunnels connecting New York and New Jersey, the Port Authority Trans-Hudson 

(PATH) rapid transit system, and other transportation facilities. The Metropolitan 

Transportation Authority is the New York transit organization whose agencies are 

responsible for New York City buses and subways, the Long Island Rail Road and MetroNorth Railroad, and various bridges and tunnels.

to consider ways to improve access between midtown 

4

The intent of a major investment study is to identify and compare the costs, benefits, and 

impacts of a range of transportation alternatives to provide decision-makers with the 

information needed to implement the most appropriate solution in a transportation corridor.

Background 

Reason for the ARC 

Project
 

Page 4 GAO-12-344 Commuter Rail

Manhattan and the growing population west of the Hudson River. They 

evaluated more than 100 alternatives, including commuter railroad, bus, 

light rail, subway, automobile, and ferry. The study, completed in 2003, 

recommended three alternatives for advancement to the federal 

environment impact process. While these alternatives would have 

provided more train capacity and were expected to meet projected 

demand, they did not share all of the elements of the final ARC project. In 

the draft environmental impact statement, published in 2007, NJT 

identified the alternative that became the final ARC project. Project 

development and refinements continued until completion of the 

environmental review process and entry of the project into final design in 

2009. Figure 1 shows the new tracks, tunnel, and station that the project 

would have built. In addition, the project would have added a yard in New 

Jersey for storing trains that are not in service during the middle of the 

day, five station entrances at the New York Penn Station Expansion, and 

three elevator entrances that met the Americans with Disabilities Act 

requirements.
 

Page 5 GAO-12-344 Commuter Rail

Figure 1: Route of Proposed ARC Project, NJT Lines and Major Highways, 2009

NJT applied for federal funding for a portion of ARC costs through FTA’s 

New Starts program.5

 

5

49 U.S.C. §5309(b)(1).

 Under this program, funding is directed to public 

agencies on a largely competitive basis primarily for the construction of 

new fixed-guideway transit systems and the expansion of existing fixedguideway systems. Federal funding for the construction of New Starts

projects is committed in a full funding grant agreement, which is a 

Agencies Involved and 

Their Roles
 

Page 6 GAO-12-344 Commuter Rail

multiyear funding agreement between the federal government and a 

public agency. Although the ARC project was cancelled prior to obtaining 

a full funding grant agreement, FTA provided some federal funding for 

preliminary engineering, final design, and a portion of construction costs 

for the project. The construction funding was provided through an early 

system work agreement. Appendix I provides an overview of the New 

Starts process.

While NJT sponsored the project and would have been the prime 

operator of services on the completed project, state and local funding for 

ARC would have come from the New Jersey Turnpike Authority and the 

Port Authority. As part of the federal planning process for transportation, 

the region’s two metropolitan planning organizations—the North Jersey 

Transportation Planning Authority and the New York Metropolitan 

Transportation Council—adopted the project into their metropolitan 

transportation improvement plans, as required for federal funding.

While the New Jersey governor had affirmed support for the ARC project 

in an April 6, 2010, letter to the Secretary of Transportation, on October

27, 2010, the governor announced the cancellation of the project, citing 

potential cost growth and the state’s fiscal condition. At the time of 

cancellation, NJT had completed most of the requirements needed to 

obtain additional federal funding. In particular, NJT had completed an indepth environmental review and received FTA’s commitment of $601 

million in New Starts funds to pay for initial construction activities.6 At the 

time of cancellation, NJT was negotiating the final cost estimate of the 

project with FTA in order to obtain the full funding grant agreement. This 

agreement would have provided the commitment for the full federal share 

of funds for the project.

 

6

The $601 million was obtained through an early system work agreement between FTA 

and NJT. 

Termination of the Project
 

Page 7 GAO-12-344 Commuter Rail

According to the studies we reviewed, the ARC project would have 

provided a significant increase in rail capacity for moving commuters 

between New Jersey and New York. NJT and other planning organization 

officials said that increases in capacity were a key mobility benefit of the 

project. The tunnel would have added two train tracks under the Hudson 

River, and as a result:

• The number of trans-Hudson peak hour trains (from 7:30 a.m. to 8:30 

a.m.) would have more than doubled—from 23 to 48 trains per hour.

• The peak hour use of passenger capacity would have decreased from 

a near-capacity 95 percent to 60 percent at completion, providing 

additional capacity to accommodate future passenger growth.

• The benefits of other planned NJT rail expansions would have been 

enhanced.

With this increase in capacity, projections made as part of the project’s 

environmental study showed an anticipated increase in transit ridership 

as follows:7

• Daily trips between New Jersey and New York Penn Station would 

have increased from about 174,000 without the project to about 

254,000 (a 46 percent increase) with the project by 2030.8

• Considering the effects on other transit facilities, the project would 

have generated about 32,500 new daily transit trips across the 

Hudson by 2030.

The ARC project would have reduced the need for passengers to transfer 

between trains, meaning many riders could commute on only one train.

 

7

The ridership data presented are comparisons of the project’s effect on estimated 

ridership to the “no-build” alternative. The no-build alternative includes the effects of other

future transportation projects currently planned for the region.

8

New Jersey Transit and Federal Transit Administration, Access to the Region’s Core 

Final Environmental Impact Statement (FEIS), October 2008.

Anticipated Benefits 

of ARC Project

Regional Travel Demand 

and Mobility
 

Page 8 GAO-12-344 Commuter Rail 

Passenger transfers lengthen commuting times and avoiding transfers 

provides a benefit to riders. As a result of the ARC project, it was 

estimated that:

• Five existing NJT lines would have no longer required passengers to 

transfer trains to get to Manhattan.

• Daily passenger transfers would have declined from about 32,100 

without the project to 1,000 with the project, a 97 percent reduction, 

as estimated in the environmental study.

• Riders travelling between New Jersey and Manhattan would have 

experienced an average of 23 minutes of travel time savings per trip.

By building a second rail tunnel between New Jersey and Manhattan, the 

ARC project would have increased the overall reliability of rail service and 

added flexibility during service disruptions. A disruption of service in the 

existing NJT tunnel for any reason can result in major delays. Currently, 

one 15-minute train disruption in the existing tunnel can delay as many as 

15 other NJT and Amtrak trains.9

• Flexibility to reroute trains from one tunnel to the other, if necessary.

The ARC project would have provided:

• Continuous weekend service as new tunnels could remain open 

during tunnel maintenance. (Currently, with only one tunnel, traffic 

must be limited to perform necessary maintenance.)

• Better reliability, allowing for faster transit. Average scheduled time 

from Newark, New Jersey, to Manhattan would decrease by 5 minutes 

during peak times and 3.5 minutes off-peak.

Even with the added trans-Hudson commuters, the environmental study 

found that the new station would have reduced crowding at the adjacent 

New York Penn Station:

• Average passenger egress time from New York Penn Station would 

have decreased from 80 to 60 seconds (a 25 percent decrease).

 

9

Amtrak currently uses the existing tunnel as part of its Northeast Corridor service.
 

Page 9 GAO-12-344 Commuter Rail

• The new station would have resulted in a projected decrease in peak 

hour ridership at New York Penn Station of 37 percent—from about 

27,800 passengers without the project to 17,200 with the project in 

2030—thus alleviating crowding.

Additionally, the environmental study estimated that, in general, the 

increased rail capacity across the Hudson River would have reduced the 

amount of travel by automobile that would otherwise occur. Port Authority 

officials told us that this increased rail capacity would help ease road 

congestion for trans-Hudson commutes. Specifically, the study projected 

that by 2030:

• Daily trans-Hudson automobile trips would be reduced by about 

22,100 trips, or 4.9 percent, compared to the number of automobile 

trips without the project.

• Daily automobile vehicle miles traveled would have been reduced by 

about 590,000 miles compared to vehicle miles traveled without the 

project.

• Daily automobile vehicle hours traveled would have been reduced by 

about 22,000 hours compared to vehicle hours traveled without the 

project.

According to the environmental study, mobility may further deteriorate 

without the ARC project. The New York City region faces serious mobility 

issues and, as we have mentioned previously in this report, travel 

demand is projected to increase significantly. Environmental study 

forecasts estimated that trans-Hudson transit travel demand would rise 

from about 550,000 riders in 2005 to about 760,000 in 2030, an increase 

of about 38 percent. Without the tunnel, the environmental study 

projected that demand would not be met, and congestion and delays 

would increase. All the major trans-Hudson crossings—NJT, the Port 

Authority Trans-Hudson (PATH), and vehicular tunnels and bridges—are 

at or near capacity.10

 

10PATH is a rapid transit system between New Jersey and Manhattan operated by the 

Port Authority. 

 According to the environmental study, the increased 

demand would stress the entire transportation network, including 

roadway, bus, ferry, and commuter rail systems.
 

Page 10 GAO-12-344 Commuter Rail

However, it is difficult to precisely determine the long-term effects of not 

building the tunnel because various other agencies are building, planning, 

or exploring the possibility of transportation improvements that could 

affect overall mobility in the region. Local transportation officials cited a 

number of projects that could affect congestion and commutes in the 

region, although some are at the conceptual phase, and may or may not 

be built. Possible projects include the extension of a subway line from 

New York City to New Jersey, Amtrak’s proposal to add a train line from 

New Jersey into New York City, bridge and transit tunnel improvements, a 

new bus terminal, and improvements to help freight flows into New York. 

Thus, the overall effect of canceling the ARC project must be understood 

in the regional context, and the effect is dependent on what transpires 

with these other projects.

Studies estimated the ARC project would have generated economic 

activity in the region that would have affected jobs and personal income, 

business activity, and home values, among other things. Most of the 

economic effects were expected during the building phase of the project.

The studies we reviewed used regional economic models to measure the 

economic effects. However, the results of these models depend on larger 

economic conditions, such as the level of unemployment. The results 

cannot be regarded as certain in all economic conditions. The studies 

addressed several aspects of economic activity as follows:

• Jobs and personal income. The environmental study estimated that 

during construction the ARC project would have provided about 

59,900 jobs directly onsite and total additional employment in the 

region of about 98,300 jobs.11 The environmental study also 

suggested that over the longer term, the rail line would have required 

an estimated 410 jobs directly in transportation. Another study 

estimated that the project would generate about 5,700 constructionrelated jobs each year during the 9-year construction.12

 

11A job is defined as one year of work for one worker.

In addition, 10 

years after completion of the project, the same study estimated the 

region would gain 44,000 new jobs as a result of improved access, 

which would make the region more competitive compared to other 

12NJT, Economic Benefits of the Trans-Hudson Express Tunnel (2006).

Economic Activity
 

Page 11 GAO-12-344 Commuter Rail

regions.13

• Business activity. The ARC environmental study estimated the project 

would have produced an additional $9 billion in business activity 

during construction and $120 million per year in business activity over 

the long term.

The same study estimated that 10 years after completion, 

the project would have added almost $4 billion in personal income to 

the region, in 2006 dollars.

• Home values. Another study estimated that houses in New Jersey 

communities served by the ARC project would see an average 

increase in home value of $19,000, or 4.2 percent, resulting from 

more efficient local travel and improved access to high paying jobs in 

New York City.14

• Tax revenues. Studies also indicated that increased tax revenues 

would have resulted from the increases in economic activity from the 

ARC project. The environmental study estimated that during 

construction, $1.5 billion in federal, state, and local taxes would have 

been generated, as well as an additional $16 million annually after the 

project was completed. Another study estimated that the project would 

result in an additional $375 million each year in property taxes 

generated by local governments.15

While economic benefit would accrue to the region as a result of the 

project, the net magnitude of the benefit is unclear and would be difficult 

to assess, for several reasons. First, the closer the economy is to full 

employment, the less net effect the project would have on total economic 

activity. During the planning and development of this project, the level of 

employment dropped as a result of the recession, which should have 

increased project benefits, but given the duration of construction, 

employment levels could have varied again if the economy rebounded. 

This makes assessing the net employment benefits difficult. Second, the 

project’s effects could be limited to shifting the location of economic 

activity, rather than providing additional net benefits. If there is less local 

economic growth in New Jersey as a result of canceling the project, this 

 

13Ibid.

14Frank Hebbert, Juliette Michaelson, Andrew Turco, Jeff Zupan, The ARC Effect (New 

York, NY: Regional Plan Association, 2010).

15Ibid.
 

Page 12 GAO-12-344 Commuter Rail

growth may simply shift to another part of the region or nation. Third, the 

project’s economic impact also depends on how it was financed. Deficit 

financing—borrowing—provides an increase in the total amount of 

spending, which will have economic effects. In contrast, financing the 

project through taxes means that existing government and household 

spending to some extent is simply directed a certain way, rather than 

increasing the total amount of such spending. Analyzing the impact of the 

project in the context of these variables—the unemployment rate when 

the project is being built and project financing—was beyond the scope of 

the studies we reviewed.

The net impact on housing prices is also difficult to assess. First, the 

analyses—done several years ago—may not fully capture the effects of 

recent declines in the housing market. Second, impacts on the housing 

market throughout the metropolitan area would, to some extent, reflect 

population shifts—some house prices may go up as a consequence of 

improved access to transit, while prices in other less desirable locations 

may go down. However, shifting the location of households and business 

activity does not necessarily expand the overall economy. Also, benefits 

to homeowners and commuters from the project would significantly 

overlap, since they are to some extent the same people; that is, the 

change in a homeowner’s real estate value is the result of the 

improvement in travel time.

Finally, even though the project was cancelled, all of the anticipated 

economic activity was not necessarily lost. For example, according to Port 

Authority officials, the Port Authority redirected funds it had allocated to 

the ARC project to other projects in the region, which could increase 

employment and economic activity tied to those projects. Likewise, funds 

that New Jersey planned to allocate to the ARC project were reallocated 

to the state’s highway trust fund, which would then support economic 

activity related to highway projects. However, these highway projects 

would not necessarily be in the New York City region.
 

Page 13 GAO-12-344 Commuter Rail

The ARC environmental study estimated the project would have created 

limited, but mostly positive environmental effects. (See fig. 2.)

Figure 2: Selected Long-term Environmental Effects of ARC Project

a

Environmental justice is the fair treatment and meaningful involvement of all people regardless of 

race, color, national origin, or income with respect to the development, implementation, and 

enforcement of environmental laws, regulations, and policies.

The primary positive effect would have been a long-term reduction in air 

pollution, although it is difficult to predict how much this reduction in 

pollutants would affect the entire New York City region. Air quality effects 

Environmental Effects
 

Page 14 GAO-12-344 Commuter Rail

are of particular relevance in the development of transit projects. FTA, 

pursuant to law, includes whether a project is in an area that has not 

attained air quality standards required by the Clean Air Act as a factor in 

selecting projects for the New Starts program.16

According to the environmental study, other adverse environmental 

effects would have been short term and mitigated. Among the 

environmental effects were negative effects on air quality, mainly related 

to dust created by excavation and construction and exhaust emissions 

from equipment, noise, potential storm water runoff, vibration, potential 

soil erosion, and potential disturbance of various contaminated sites. FTA 

determined that these short-term negative effects were adequately 

addressed by mitigation plans.

According to the 

Environmental Protection Agency, the entire New York City region is out 

of compliance with certain ambient air quality standards that are designed

to protect public health. The project would reduce automobile trips and 

thereby decrease emissions that contribute to existing air quality

problems in the region and related public health problems. According to 

the Environmental Protection Agency, adverse health effects associated 

with air pollutants include increased respiratory symptoms, hospitalization 

for heart or lung disease, and premature death. Local transportation 

agency officials told us that air quality factors were important when 

considering the potential environmental effects of the ARC project. Over 

the long term, air quality would have been positively affected due to an 

estimated overall daily decrease of about 590,000 in vehicle miles 

traveled in the region and about 22,100 fewer trans-Hudson vehicle trips.

While longterm air quality effects were generally positive in nature, the 

results of these changes would be dispersed over the entire metropolitan 

area, and were too difficult to estimate for the New York region, as noted 

in the environmental study.

17

 

1649 C.F.R. §611.3(c)(1). 

17FTA issued a Record of Decision for the ARC project in 2009, signaling the project had 

satisfied National Environmental Policy Act of 1969 requirements. In it, FTA determined 

that the project’s negative effects were adequately addressed by mitigation plans.
 

Page 15 GAO-12-344 Commuter Rail

In 2003, the first cost estimates for the concept of a new commuter rail 

tunnel between New Jersey and New York—developed by NJT and other 

local agencies in the major investment study—ranged from $2.9 billion to 

$3.6 billion (in year 2000 dollars).

18

In 2006, after the sponsoring agencies selected a locally preferred 

alternative, FTA accepted $7.4 billion as the first cost estimate for the 

project. This estimate included an expanded New York Penn Station as 

well as construction, engineering, oversight, and management costs; 

operational systems; rolling stock; real estate; startup cost; and 

environmental mitigation. ARC project cost estimates increased over time 

as shown in table 1. 

These estimates were for a project 

that was largely conceptual and did not rely on significant engineering 

design work. Further, not all project costs and elements were included in 

these estimates. 

Table 1: Selected Cost Estimates for the ARC Project, 2006-2010

Estimate source

Source 

agency

Amount (dollars 

in billions) Date Comments

FTA approval for entry 

into preliminary 

engineering 

FTA $7.4 8/4/2006 Included elements, such as a tunnel to serve both the 

existing New York Penn Station and a station 

expansion that was not part of the major investment 

study alternatives. A locally preferred alternative was 

approved in early 2006.

Draft Environmental 

Impact Study

NJT $7.4 2/9/2007 Re-examined the preferred alternative as a result of 

public comments and preliminary engineering effort. 

Supplemental Draft 

Environmental Impact 

Study

NJT $7.6 3/14/2008 Modified the preferred alternative, which resulted in 

slight cost increase. 

2008 FTA Risk 

Assessment 

FTA Range of

$9.5-12.4 

8/7/2008 Established a baseline cost estimate. 

2008 FTA Risk 

Assessment Revised

FTA Range of

$8.4-12 

8/26/2008 FTA estimate considering comments from NJT. 

2008 FTA Risk 

Assessment Final

FTA $9.1 for New Start 

evaluation purposes

$8.7 accounting for 

railcar depreciation

9/3/2008 FTA estimate after discussions with NJT and 

assurances by NJT on addressing risks. 

Final Environmental 

Impact Statement

NJT $7.6 10/27/2008 Issued after 2008 FTA Risk Assessment, and was 

unchanged from earlier estimates. 

 

18In 2011 dollars, the cost estimates ranged from $3.69 billion to $4.58 billion.

Project Cost 

Estimates Increased 

Over Time and about 

Half the Planned 

Funding Was from 

Federal Sources
 

Page 16 GAO-12-344 Commuter Rail

Estimate source

Source 

agency

Amount (dollars 

in billions) Date Comments

Approval of Entry into 

Final Design

FTA $8.7 (baseline for 

the full funding grant 

agreement)

$9.2 (including 

additional cost 

through 2030)

1/27/2009 The $8.7 billion estimate includes only vehicles needed 

in opening year, and was to be used as the basis of the 

full funding grant agreement. The $9.2 billion estimate 

includes vehicles for operation through 2030.

Early System Work 

Agreement Approval 

Letter

FTA $8.7 8/14/2009 Used estimate from FTA’s 2009 approval of entry into 

final design. 

Estimate at Entry into 

Final Design

NJT $8.7 1/20/2010 Calculated an estimate similar to FTA’s 2009 approval 

of entry into final design. 

Revised Estimate at 

Final Design 

NJT $8.7 4/1/2010 Calculated an estimate similar to FTA’s 2009 approval 

of entry into final design. 

Section 5309 New 

Starts Application 

Update

NJT $8.7 4/29/2010 Calculated an estimate similar to FTA’s 2009 approval 

of entry into final design. 

2010 FTA Risk 

Assessment 

FTA $10.878 (low)

$12.232 (medium)

$13.736 (high)

8/16/2010 Risks include higher cost for design services, 

construction, and risks to stakeholders. 

NJT ARC Projected 

Cost Range

NJT $8.7 (low)

$9.5 (medium)

$10 (high)

8/17/2010 NJT response to FTA’s 2010 risk assessment. 

2010 FTA Risk 

Assessment Revised

FTA $9.775 (low)

$10.847 (medium)

$12.432 (high)

10/4/2010 FTA’s response to NJT comments. 

Source: FTA and NJT.

Note: Costs are in year of expenditure dollars. 

In general, changes in cost estimates throughout the process of planning 

and designing a transportation project are normal and may happen for a 

number of reasons.19

 

19Reasons for changes in project cost estimating can be found in GAO, Cost Estimating 

and Assessment Guide, 

First, as a project progresses from a concept on 

paper to final design and construction, a more accurate understanding of 

what a project entails may evolve. The change in cost estimates may 

reflect a more accurate understanding of what actually constitutes the 

GAO-09-3SP (Washington, D.C.: Mar. 2, 2009).

Cost Estimate Increases
 

Page 17 GAO-12-344 Commuter Rail

project. For example, according to Port Authority officials, early in the 

project they learned that there were no existing surveys of New York 

Penn Station, and they had to survey the station before detailed designs 

could be developed. As shown in figure 3, cost estimates are more 

uncertain at the beginning of a project (the range is wide), because less is 

known about its detailed design and construction requirements, and 

therefore the opportunity for change is greater.

Figure 3: Relationship of Estimated Cost and Uncertainty During Project Planning 

and Implementation

Second, costs can appear to change if they are not expressed in a 

consistent manner, that is, in constant year dollars (to eliminate any 

inflationary effects) versus year of expenditure dollars (that may mask any 

changes in real terms because of inflation). Third, project cost estimates 

are sensitive to factors such as changes to the scope of the project. In 

some cases, a sponsor may reduce the scope or add more features to 

the project as the design progresses. Uncertainty of the costs is reduced, 

as the project scope is better defined, but costs also may increase.

Fourth, cost estimates can change as risks are assessed and reassessed 

throughout project development, resulting in the amount FTA requires 

project sponsors to set aside for project contingency to increase or 

decrease. For example, FTA officials said risk factors could include 

changes in real estate costs, new information involving surface or 
 

Page 18 GAO-12-344 Commuter Rail

subsurface ground conditions and materials, or the degree of competition 

among contractors. According to FTA officials, risks like these can affect 

the cost of a project, and sponsors may never adequately address all of 

them, but at a minimum both the sponsor and FTA must be aware of what 

those risks are.

The ARC project cost estimates increased from the $7.4 billion estimate 

in 2006 for a number of reasons:

• In 2008, FTA’s cost estimates ranged from $9.5 billion to $12.4 billion, 

based on potential scenarios in its 2008 Risk Assessment, which not 

only assumed different levels of risk but also included $1.7 billion set 

aside for contingency.20

• FTA’s 2010 Risk Assessment contained the next estimated cost—as 

high as $13.7 billion—as the engineers developed a more accurate 

understanding of what the project entailed. However, NJT did not see 

costs rising to this level and projected a lower expected cost range, 

including a maximum $10 billion final cost. After considering 

comments from NJT, FTA revised the cost range to $9.8 billion to 

$12.4 billion. This estimate included a more refined cost estimate of 

potentially higher construction and other work costs. In addition, the 

contingency amount was increased due to reassessment of risks 

related to delays in awarding project contracts. 

After discussions, FTA and NJT agreed upon 

a baseline cost estimate of $8.7 billion in 2009.

Federal, state, and local sources would have funded the ARC project, as 

shown in table 2. As of April 2010, about half the estimated cost of about 

$8.7 billion would have come from federal sources with the remainder 

divided at the local and state levels between the Port Authority and the 

New Jersey Turnpike Authority. In addition to New Starts funds, New 

Jersey was planning to use certain federal highway funds that may be 

used for transit capital purposes. New Jersey planned to use part of its 

federal Congestion Mitigation and Air Quality Improvement and National 

Highway System funding for the ARC project. State and local funds 

included $3 billion from the Port Authority, which formally approved this 

 

20FTA performs an assessment of cost and schedule risk of a New Starts mega-project 

(those with $1 billion or more in capital costs) when the project enters into the preliminary 

engineering phase. For all New Starts projects, FTA performs a risk assessment before a 

project enters final design and before approving a full funding grant agreement.

Federal, State, and Local 

Funding Sources
 

Page 19 GAO-12-344 Commuter Rail

funding commitment. The state of New Jersey planned to add $1.25 

billion that was to have come from increased tolls on the New Jersey 

Turnpike.

Table 2: Proposed Funding by Source, as of April 2010

Source of funds

Total funds (dollars 

in millions)

Percentage

of total

Federal

New Starts $3,000 34.5%

Flexible federal highway funds (Congestion 

Mitigation and Air Quality Improvement 

 Program, National Highway System)

1,319 15.2

American Recovery and Reinvestment Acta 130 1.5

Total federal $4,449 51.1%

Local

Port Authority 3,000 34.5

State

New Jersey Turnpike Authority 1,250 14.4

Total project $8,699 100.0%

Source: FTA.

Note: 7otals may not add due to rounding.

a

American Recovery and Reinvestment Act of 2009, Pub L. No. 111-5.

In August 2009, FTA entered into an early system work agreement with 

NJT. This agreement, which FTA and NJT amended in 2010, made 

available about $910.3 million for certain project activities, such as tunnel 

construction contracts, property and easement acquisitions in New York, 

professional services related to the project’s final design, construction 

permits, insurance, and a contingency reserve.21

 

21The early system work agreement committed $601 million in New Starts funds, and 

authorized the use of about $179.2 million in Congestion Mitigation and Air Quality 

Improvement funds and $130 million from the American Recovery and Reinvestment Act 

of 2009. 

As of 2010, NJT 

expended about $271 million of the $910.3 million. When the project was 

cancelled, the Department of Transportation claimed that the $271 million 

in expended federal funds should be recovered by the federal 

government, and New Jersey disputed this claim. On September 30, 
 

Page 20 GAO-12-344 Commuter Rail

2011, the Department of Transportation and New Jersey agreed that New 

Jersey would return $95 million, which included $51 million in New Starts 

funds and $44 million in American Recovery and Reinvestment Act funds. 

In addition, New Jersey agreed to spend about $128 million in Congestion 

Mitigation and Air Quality Improvement funds on transit projects approved 

by the Department of Transportation. Because the project was terminated 

before FTA and NJT entered into a full funding grant agreement, there 

was no final commitment by all the parties to fully fund the project. 

The general project agreement, which was a document prepared as part 

of the New Starts process and signed by NJT and the Port Authority in 

2009, addressed potential cost growth. According to the agreement, if 

costs exceeded $8.766 billion (or if less than $3 billion was provided by 

FTA), both parties agreed to work together to obtain additional funding 

sources. According to Port Authority officials, although both parties signed 

the agreement, there was no commitment of assistance from the Port 

Authority in the event that the project experienced cost increases. Port 

Authority officials told us that the agency’s existing $3 billion commitment 

was the maximum the agency could provide to the project, given the 

constraints of their overall capital program. In the weeks preceding the 

project’s cancellation, the Secretary of Transportation and the governor of 

New Jersey held discussions on additional funding sources for the ARC 

project or a reduction in project scope. The additional funding options 

discussed included increased funding by the federal government, New 

Jersey, and the Port Authority; a federal railroad loan; or a public-private 

partnership contribution.22 Because the project was terminated before a 

full funding grant agreement was entered into between FTA and NJT, 

there was no final agreement by all the parties on the issue of 

responsibility for ARC cost growth.

The Department of Transportation reviewed a draft of this report and 

provided technical comments, which we incorporated in the report.

 

22The term “public-private partnership” refers to a scenario in which the private sector 

assumes a greater role in the planning, financing, design, construction, operation, and 

maintenance of a transportation facility compared to traditional procurement methods.

Planning Documents 

Did Not Determine 

the Source of Funding 

of Potential Cost 

Growth

Agency Comments
 

Page 21 GAO-12-344 Commuter Rail

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to interested congressional 

committees, the Secretary of Transportation, and the Administrator of the 

Federal Transit Administration. In addition, this report will be available at 

no charge on GAO’s website at http://www.gao.gov. 

If you or your staff have any questions or would like to discuss this work, 

please contact me at (202) 512-2834 or wised@gao.gov. Contact points 

for our Offices of Congressional Relations and Public Affairs may be 

found on the last page of this report. Individuals making key contributions 

to this report are listed in appendix II.

Sincerely yours, 

David J. Wise

Director, Physical Infrastructure Issues
Appendix I: Federal Transit Administration’s 

New Starts Process

Page 22 GAO-12-344 Commuter Rail

The Federal Transit Administration (FTA) provided federal funding for a 

portion of the Access to the Region’s Core costs through its New Starts 

program. Under this program, funding is directed to public agencies on a 

largely competitive basis primarily for the construction of new fixedguideway transit systems and the expansion of existing fixed-guideway 

systems.1 Federal funding for construction of New Starts projects is 

committed in a document that is called a full funding grant agreement—a 

multi-year agreement between the federal government and a public 

agency that is subject to the availability of appropriations.2

• Systems planning. Systems planning involves the continuing regional 

transportation planning process carried out by metropolitan planning 

organizations in urban areas throughout the United States. This 

process produces long-range transportation plans and shorter-range 

transportation improvement programs, along with environmental and 

other analyses.

The 

agreement establishes the terms and conditions for federal financial 

participation, including the maximum amount of New Starts funding being 

committed. To obtain this grant agreement, a project must be approved 

by FTA for final design and construction and have gone through a series 

of steps that make up the New Starts approval process. Among the 

phases of the New Starts planning and development process are: 

systems planning, alternatives analysis, preliminary engineering, and final 

design.

• Alternatives analysis. The analysis of alternatives examines the 

benefits and costs of different options, such as light rail or bus rapid 

transit, in a specific transportation corridor or in a regional sub-area. It 

concludes with the selection of a locally preferred alternative and 

adoption of that alternative into a fiscally constrained long-range 

transportation plan. The project sponsor submits the proposed project 

to FTA for evaluation so as to gain approval to enter preliminary 

engineering, the next phase of development.3

 

1

49 U.S.C. §5309(b)(1).

FTA evaluation does 

2

See Congressional Research Service, Public Transit New Starts Program: Issues and 

Options for Congress (Oct. 5, 2010). 

3

FTA’s rating process is applied at each development phase in order for the project to 

move forward. Also, for mega-projects (those with $1 billion or more in capital cost) FTA 

performs risk assessments on such projects prior to approval into preliminary engineering. 

Appendix I: Federal Transit Administration’s 

New Starts Process
Appendix I: Federal Transit Administration’s 

New Starts Process

Page 23 GAO-12-344 Commuter Rail

not include a full cost-benefit analysis, but does consider costeffectiveness and other benefits of the proposed project.

• Preliminary engineering. Preliminary engineering involves the project 

sponsor refining the project by examining the costs, benefits, and 

impacts of different design alternatives, and completing an analysis of 

environmental impacts as required by the National Environmental 

Policy Act of 1969.4

• Final design. In the project’s final design phase, the project sponsor 

prepares final construction plans and cost estimates, and, if needed, 

includes right-of-way acquisition and relocation of utilities.

Once preliminary engineering is complete, FTA 

evaluates and rates the project to determine whether it can be 

approved into final design.

After final design is complete, FTA may approve the project for a full 

funding grant agreement, at which point the project may move into the 

construction phase. In some cases, FTA may obligate some of the 

funding expected to be provided in the full funding grant agreement 

through an early system work agreement. Although not a guarantee of full 

funding, an early system work agreement provides funding so that work 

can begin before full funding is awarded.

 

4

New Starts projects must fulfill the requirements of the National Environmental Policy Act 

of 1969 because they involve a proposed major federal action significantly affecting the 

environment. FTA requires a project to have moved beyond the environmental scoping 

phase before entering preliminary engineering. National Environmental Policy Act of 1969 

scoping involves identifying the alternatives that will be examined in the environmental

documents and the significant environmental issues that arise from the proposed project. 
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 24 GAO-12-344 Commuter Rail

David J. Wise, (202) 512-2834 or wised@gao.gov

In addition to the contact named above, Teresa Spisak (Assistant 

Director), Robert Ciszewski, Alexander Lawrence, David Hooper, Hannah 

Laufe, Joshua Ormond, Amy Rosewarne, and Max Sawicky made key 

contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(542180)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (www.gao.gov). Each weekday afternoon, 

GAO posts on its website newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, 

go to www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations 

Public Affairs

Please Print on Recycled Paper.