Part of the the future 72nd Street Station of Second Avenue Subway. (Metropolitan Transportation Authority / Patrick Cashin)

Part of the the future 72nd Street Station of Second Avenue Subway. (Metropolitan Transportation Authority / Patrick Cashin)

“It is costing the U.S. so much more than it costs other countries around the world to build rail infrastructure,” said Eric Jaffe, New York bureau chief for CityLab. Jaffe moderated a session at the ULI Tri-State Infrastructure Summit, an event held in late October by ULI’s New York, Northern New Jersey, and Westchester/Fairfield District Councils.

Transit officials can find innovative ways to bring private capital and more efficiency to their transit projects—but partnerships with private developers are often not enough. Disasters like Hurricane Sandy, which struck New York City in late October 2012, created a huge need for repairs to and expansion of the region’s transit network. Unpredictable public funding makes it difficult to capture private investment while deferred maintenance can increase costs later.

The Fight for Funding

“These continue to be difficult times to fund transportation,” said Jaffe. Transit officials struggle for resources to fund vital megaprojects like the Gateway Tunnel, a plan to dig a new tunnel for rail traffic under the Hudson River between New Jersey and Manhattan. It’s still not clear where the money will come from, and the collapse of an earlier plan to build a new rail tunnel under the Hudson cast a long shadow over the ULI Summit.

“The Gateway Tunnel is the single most important capital project in the entire national system for us. It’s really about survival,” said Drew Galloway, chief, Northeast Corridor Planning & Performance for Amtrak.

At present, Amtrak and New Jersey Transit share a single Hudson River tunnel that was badly damaged by corrosive saltwater during Hurricane Sandy. Engineers plan to keep it running for another ten years—long enough to dig the new Gateway Tunnel alongside. That will allow trains to continue to roll under the Hudson while workers tear up the damaged wiring and old tracks in the existing tunnel.

The struggle to build a rail tunnel under the Hudson River shows the challenge of paying for big, expensive projects. Even before Hurricane Sandy, transit officials planned a similar new tunnel to handle growing rail traffic, paid for with federal and state funds. The plan became a political punching bag in the era of budget cuts after the financial crisis, and it fell apart.

Construction projects like the Gateway Tunnel are also difficult because the trains run 24 hours a day, seven days a week. That means that workers often have only short periods of time between trains to get their work done. “It’s kind of like taking off your shirt and keeping your jacket on,” said Amtrak’s Galloway. In contrast, many European transit systems shut down at midnight.

Better Budgeting

Sudden funding cuts make it much more difficult to attract investors and private sector partners. But there is reason to hope that more consistent funding may be coming. In Congress, the House of Representatives—dominated by conservatives—recently passed a six-year plan to fund new transportation projects. “This would be the first time since 1995 that there is serious discussion of a long-term program,” said Joan McDonald, who until this year served as commissioner for the New York State Department of Transportation. “We’ve limped along with two-year programs and six-month extenders . . . that doesn’t give us a high comfort level.”

In the New York metropolitan area, local lawmakers also recently approved a new $29 billion capital plan for the Metropolitan Transit Authority—not far from the $32 billion proposed by agency officials. The extension of the 7 subway in Manhattan shows how large public investment upfront can attract huge amounts of private capital, as developers buy sites around, and sometimes on top of, the new transit infrastructure.

“You capture the value over a period of time—who is going to front the money?” said McDonald. “You need ‘capital P’ political will.”

Public investment upfront clears the way to attract investment from private real estate developers who see value in locating their projects next to a transit line. “We have deals where the developer pays to build a train station,” says Galloway.

Private Sector Partners Can Keep Budgets Honest

Private sector involvement can also help keep a project on budget once the planning is underway. Public officials and politicians can sometimes be optimistic in their estimates of what a project may cost. “Nobody wants to say that it’s going to be a $6 billion project—so we don’t say that it is,” said Jaffe. “This leads to cost overruns.” And cost overruns can kill a project. Part of the public argument that killed the first plan to build a new Hudson River rail tunnel centered on whether the tunnel would cost the $8 billion estimated by some officials, or $12 billion or even $14 billion.

Private sector bidders for construction work may be less likely to respond to pressure to understate the likely cost of a project, because they may be on the hook for any cost overruns. “Once you go out to bid, you find out what it’s really going to cost,” said Karen Hedlund, national public/private partnership adviser for Parsons Brinckerhoff.

A better budgeting process can also help secure the funds needed to actually build a transit project—and maintain it over time—while decision markets are still positive about the project. “There is a moment when people are willing to commit,” said Hedlund.