The Trump Administration’s efforts to defund the $16 billion Gateway Hudson River rail tunnel suffered setbacks in two federal courts that ruled federal funding owed should be paid.
Now the court battle switches to sparing local taxpayers from covering the costs incurred when tunnel construction was paused on Feb. 6 due to a federal funding freeze that began on Oct. 1, 2025.
Under contracts with federal agencies, any Gateway cost overruns over the $16 billion price tag are covered by New Jersey and New York, meaning state taxpayers.
On Wednesday a U.S. Department of Transportation appeal of a court order that required payment of $236 million in frozen funds to Gateway was denied by a U.S. Second Circuit Court of Appeals three-judge panel.
New Jersey Gov. Mikie Sherrill said Thursday that’s what the next court battles are about.
“The court decision yesterday (Wednesday) is not finished, what we’re fighting for is some of the damages,” she said. “There are likely millions of dollars in damages because all work stopped.”
However, there is a small window for further appeal. The USDOT could bring its case before a merits panel, which wouldn’t be heard until August or September.
Similar to New Jersey, the Gateway Development Commission’s next step in court is to recover financial damages after construction was paused in its separate breach of contract lawsuit, said Jake McNichol, a commission spokesperson.
“The judge will establish a schedule for adjudicating those claims,” he said.
Those costs include having to secure the four construction sites in New Jersey and Manhattan after construction stopped on Feb. 6, and the cost of stopping and restarting construction.
Assembly of two tunnel boring machines to begin drilling through the Palisades in North Bergen was also held up.
The commission announced it was delaying award of contracts to build the Hudson River portion of the tunnel and building two additional tracks in New Jersey. They were scheduled to be awarded in the spring. Gateway officials said construction could halt in three months without funding guarantees.
“It is possible that Governor Sherrill’s effort to recover delay costs will deter further brinkmanship, and if it does, that would be a very positive result,” said Micah Rasmussen, executive director of the Rebovich Institute for New Jersey Politics at Rider University.
“Until all of the Gateway infrastructure is fully completed and in use, it will remain a partisan football, and that’s just the unfortunate reality,” he added.
On Thursday, the U.S. Court of Claims denied a USDOT bid to dismiss Gateway’s breach of contract suit.
It dismissed six of the eight Gateway Commission’s claims because those claims for construction reimbursement were addressed under a separate suit brought by New Jersey and New York.
“We got to work right away the minute the president illegally stopped the funds,” Sherrill said. “This where we received almost immediate relief to get the fund flowing again and we’ll continue if we must. Let’s hope that’s the end of that.”
The ruling by the Court of Appeals means that construction workers can stay on the job on four Gateway projects, said New Jersey Attorney General Jennifer Davenport.
“We’re thrilled that the Second Circuit has rejected DOT’s emergency efforts to put back in its political and unlawful funding freeze of the Gateway project,” she said in a statement. “Because the injunction we secured remains in place, the project is back on track and workers are back on the job.”
Sherrill reiterated the economic benefits of the tunnel project, including a grand total of almost 100,000 jobs and $20 billion in economic benefit.
“All this fighting in court just wastes money and costs working people their jobs,” she said. “One would think this would be a priority.”
Experts said the states will likely have to keep repeating that in and out of court.
“New Jersey and New York will need to keep making the case for the nation’s most critical rail investment,” Rasmussen said. “We sometimes hear the big civil engineering projects of our golden age could not get done today, and it seems like remaining vigilant is how we put that adage to the test when it comes to Gateway.”