May 3 (Bloomberg) -- New Jersey Governor Chris Christie said he won’t return $271 million in federal funds for a canceled commuter-rail tunnel to New York, a decision that may cost the state $52,000 a week in interest.
The Federal Transit Administration began adding the fee to the bill April 29, after Transportation Secretary Ray LaHood rejected a state appeal to keep the money, according to a person familiar with the details who wasn’t authorized to speak on the record. At the 1 percent government rate on overdue debt, the cost could add up to $2.71 million a year.
“That is not money that should be paid back to the federal government,” Christie, 48, a Republican, told reporters in Trenton yesterday. “This is about whether that money will stay in New Jersey and be used for road projects in this state, or the federal government so it can go to another state.”
LaHood’s decision marks the second time since March that Christie’s administration has been warned the state may face unanticipated costs. Advocates for inner-city schools have petitioned the state’s highest court to order Christie to restore $1.6 billion cut from education budgets.
Michael Drewniak, Christie’s spokesman, declined to comment when asked what the state’s next step may be.
LaHood rejected Christie’s assertion that New Jersey was justified in canceling the project because of the risk of cost overruns. The money went to New Jersey Transit for planning, design and construction, according to LaHood.
The federal government can withhold future funds intended for the state to recoup the $271 million, LaHood said April 29.
‘Broke the Terms’
“The taxpayers, acting through FTA, committed more than a billion to NJT in exchange for which NJT was committed to build a defined transit improvement for the benefit of the American people,” LaHood said in a letter to U.S. Senator Frank Lautenberg, a New Jersey Democrat. “New Jersey broke the terms of the contract.”
New Jersey has accumulated $803,000 in legal fees from the Washington firm of Patton Boggs LLP in the fight over the tunnel money, said Paul Wyckoff, a spokesman for New Jersey Transit.
Moody’s Investors Service on April 27 downgraded by one step its rating on New Jersey’s general-obligation debt to Aa3, fourth-highest, amid concerns that fixed costs may rise to as much as 30 percent of the state budget and crowd out other expenses. Only California and Illinois have lower ratings.
Lautenberg and U.S. Senator Robert Menendez, a New Jersey Democrat, said Christie’s decision to hire the law firm to challenge the decision was “unfortunate.”
“The state’s outside lawyers pursued an all-or-nothing approach, which brings substantial risk to New Jersey’s taxpayers,” the two said April 29 in a joint statement. “Given the high stakes involved in this matter, we hope the state’s approach is ultimately successful.”
The Transportation Department declined to comment, Olivia Alair, a spokeswoman, said yesterday in an e-mail.
In February, Amtrak proposed to replace the project killed by Christie with a similar initiative to build two rail tunnels under the Hudson River between New Jersey and New York. At the time, the governor said New Jersey might contribute money to the $13.5 billion effort if the federal government and the state of New York shared the expense.
“The players at DOT are going to say, ‘We can’t do this if you don’t pay up,’” said Mortimer Downey, deputy secretary of transportation under President Bill Clinton and now a senior adviser to Parsons Brinckerhoff Inc., a New York-based design, engineering and construction-management firm.
“I think the DOT at this point may be hard pressed to say that such a deal could happen without paying up the $271” million, Downey said in a telephone interview.
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