Nov. 3 (Bloomberg) -- Governor Chris Christie cut off New Jersey from $5 billion in New York-based salaries and diminished its future role in the world’s second-largest regional economy, according to government data and former state Commerce Commissioner Gil Medina, by ending construction of a Hudson River rail tunnel he said taxpayers couldn’t afford.
The first-term Republican canceled the $9.8 billion tunnel, the country’s largest federally supported infrastructure project, on Oct. 27. New Jersey, which already faces a $10.5 billion budget deficit next year, couldn’t accept a “blank check” on cost overruns that might exceed $5 billion, said Christie, 48.
Christie’s move means the state will have to repay the U.S. government $350 million already spent on the project, forgo $3 billion in additional federal aid and lose the 3,000 construction-worker openings the tunnel was projected to generate for the next decade. Canceling the tunnel will also cost New York and New Jersey 44,000 jobs and $4 billion in additional income that would have come through economic growth, according to a 2008 study by New Jersey Transit.
“This tunnel project is vital to the long-term health of the region and to New Jersey,” Medina, executive managing director for real-estate firm Cushman & Wakefield, said in a Nov. 1 telephone interview from his Secaucus office. “We have to allow for an efficient flow of people, goods and materials through the region.”
New Jersey residents supported Christie’s decision to kill the tunnel 51 percent to 39 percent, according to a Rutgers-Eagleton poll by New-Brunswick-based Eagleton Center for Public Interest Polling of 885 registered voters. The survey was carried out after Christie said Oct. 7 he would halt project funding. Among New York commuters, 52 percent said they disagreed with the decision, according to the poll.
The most direct impact from the cancellation will be felt by homeowners near rail lines who would have gained swifter access to Manhattan, said Sean Maher, associate economist at West Chester, Pennsylvania-based Moody’s Analytics.
“That’s one of the main sources of demand for real estate in northern New Jersey, as a bedroom community,” Maher said. “That will most likely slow the area’s population growth even further -- and it’s already slow. It also reduces property values.”
Home prices in communities such as Montclair that are served by New Jersey Transit rail lines offering direct access to Manhattan’s Penn Station rose an average of 6 percent last year, said Jeffrey Otteau, president of the Otteau Valuation Group Inc. in East Brunswick. The increase came even as real-estate prices statewide declined by 2 percent, he said.
$18 Billion Increase
The Regional Plan Association, a New York research group that supported the tunnel, said home values within 2 miles (3.2 kilometers) of train stations on lines running into the project would have increased by $18 billion, generating $375 million in additional property-tax collections each year.
“Rail access increases demand and it increases prices,” Otteau said in a telephone interview. “If you build this project, it’s reasonable those communities expand.”
About 373,000 New Jersey residents already earn paychecks in New York, according to the New York State Department of Taxation and Finance. The typical New Jersey commuter was paid $205,000 in 2007, the last year for which New York has statistics.
Christie told reporters today in Trenton that he’s receiving more inquiries from businesses in other states expressing interest in coming to New Jersey since he closed a deficit of $10.7 billion without raising taxes. He said he’s hopeful about an economic recovery and thinks the state is better off trying to create its own jobs.
The economic forecast for the tunnel amounted to “a speculative number of jobs based upon the premise that you’d have to borrow billions of dollars just to meet that payroll,” Christie said in Trenton. “At what cost?”
Completion of the so-called ARC tunnel, for Access to the Region’s Core, would have added capacity for 25,000 additional daily commuters, according to the Federal Transit Administration. That equates to $5 billion in earnings, based on the 2007 salary averages. The New York region’s $1.3 trillion economy is the world’s second-largest, behind Tokyo, and ranks 15th among countries, Medina said.
New Jersey Economy
New Jersey’s economy, with 3.8 million jobs, has grown to exceed New York City’s 3.7 million during the past 60 years, said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick. That means an additional link to the city is not as vital as it was, he said,
Others say New Jersey, which already has $37.7 billion in outstanding debt and another $100 billion in unfunded pension and retiree health benefits, can do without the tunnel.
New Jersey commuters will still be able to reach New York City’s most lucrative jobs in the financial sector through existing lines served by the Port Authority of New York & New Jersey’s PATH train line, particularly if firms locate in office space under construction at the World Trade Center site in Lower Manhattan, Hughes said. New Jersey Transit trains currently reach Penn Station through two century-old tubes.
At $10.9 billion, the midpoint estimate provided by the U.S. Department of Transportation last month, the scrapped project would cost almost $440,000 for each of the 25,000 commuters it added to the transit system, said Gus Milano, executive vice president of closely held Hartz Mountain Industries.
“Does that make sense? I don’t think so,” said Milano, whose firm owns 38 million square feet of commercial and multifamily property centered near the New Jersey entrance to the proposed tunnel.
New Jersey’s share of the latest $9.8 billion cost of the project was to be $3.3 billion, including $1.25 billion in bonds backed by New Jersey Turnpike Authority tolls, according to the Federal Transit Administration. Beyond that, the state was scheduled to be responsible for all costs beyond the $9.8 billion -- a bill Christie said on Nov. 1 could reach $8 billion to $10 billion.
“Is it the best use of our resources when the state is effectively bankrupt? No,” said Milano. A North Bergen, New Jersey, building Hartz owned was among the 13 properties New Jersey Transit acquired through condemnation for the tunnel project, state records show.
“If we redeploy the resources, we could improve the business climate,” Milano said. “If we can reduce the state budget and reduce taxes, industry will come to the state.”
The tunnel cancellation isn’t the first time Christie has scaled back construction. He has also taken a knife to New Jersey’s $12.5 billion school-building program.
During the governor’s first nine months in office, construction spending by the state Schools Development Authority totaled $210 million, compared with $483 million during the first nine months of 2009, according to the agency’s latest monthly financial report.
At the same time, construction jobs involved in the program have dropped to 672 from 1,570 a year earlier, according to the authority report.
Back at the canceled railroad tunnel’s New Jersey entrance, the mood has darkened at construction-union halls, such as Teamsters Local 560 in Union City, as the job outlook has worsened.
Workers who’ve been winding down assignments on the $1.6 billion Meadowlands football stadium were counting on the tunnel to provide continued employment, said Tony Valdner, president of the 4,000-member local.
“I was looking at from 60 to 80 trucks a day on that job,” he said. “It’s a long-term thing.”
Employment in the state’s heavy construction industry is at an annual average of 15,400, the lowest since 1996, according to state Department of Labor records. Construction employment is projected to remain below 2008 levels through 2020, even if the ARC Tunnel were built, Nancy Mantell, director of Rutgers Economic Advisory Service, said at a seminar on the New Jersey economy today.
Building the tunnel would have generated as much as $9 billion in additional economic activity in New Jersey, New York and Connecticut during construction, including about $4 billion in wages, according to data filed with federal regulators. Work on the project also would have generated $1.5 billion in local, state and federal taxes, the environmental impact statement said.
“These are jobs that were anticipated were going to be constructed and worked on from 2011 through 2016,” Robert Briant Jr., chief executive officer of the 1,000-member Utility and Transportation Contractors Association, said. “It’s work that will not be replaced.”
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