The Gateway Development Commission filed a breach-of-contract lawsuit in the U.S. Court of Federal Claims on Feb. 2, seeking to force the release of more than $205 million in federal funds it says are already owed for the Hudson Tunnel Project, the rail construction effort at the heart of the broader Gateway Program between New Jersey and New York. The commission warned that if more federal money is not released by Feb. 6, it will have to pause construction, a move it says would immediately cost nearly 1,000 jobs.
The Hudson Tunnel Project is one of the most important rail infrastructure efforts in the region. It is designed to build a new two-track tunnel under the Hudson River and rehabilitate the existing North River Tunnel, which has carried rail traffic since 1910 and remains a major source of delays and vulnerability along the Northeast Corridor. Project leaders say the goal is to reduce chronic disruptions, add redundancy to one of the country’s busiest passenger rail links, and finally allow long-delayed repairs to aging infrastructure that remains critical for trains traveling into and out of New York Penn Station.
In its complaint, the commission argues that the federal government breached multiple signed grant and loan agreements by withholding reimbursements and disbursements for eligible project costs. According to the filing, the U.S. Department of Transportation and related federal entities have paused payments since late September 2025, even though the agreements require specific findings, notices, and opportunities to cure before funds can be withheld. GDC says the government now owes $205,275,358 in past-due and near-term reimbursements tied to work that has already been performed.
The lawsuit also seeks additional damages the commission says it would face if work has to stop, including the costs of demobilizing crews, securing construction sites, storing equipment, and possibly terminating contracts. GDC asked the court to move quickly and approve an expedited schedule to resolve the payment dispute through summary judgment.
At the center of the case is a major federal funding package assembled in 2024, including a Full Funding Grant Agreement under the Capital Investment Grants program, a Federal-State Partnership grant, a RAISE grant, and Railroad Rehabilitation and Improvement Financing, or RRIF, loans. The complaint says those agreements make up the core of the project’s financing, with federal grants serving as the dominant source of funding. It also references three RRIF loan agreements involving project partners including New York State, NJ Transit, and the Port Authority of New York and New Jersey.
GDC says the Department of Transportation tied the payment freeze to a review of the project’s compliance with Disadvantaged Business Enterprise, or DBE, requirements and related contracting rules. DBE programs are federally required initiatives intended to ensure that small businesses owned by socially and economically disadvantaged individuals have a fair opportunity to compete for DOT-assisted contracts. According to the complaint, DOT requested information in early October 2025 about how the project’s DBE program was being administered and whether race or sex played a role in contract awards. GDC says it responded with documentation and program revisions and has continued trying to satisfy each federal request as the review dragged on. The commission argues that even if DOT had concerns, it still did not have lawful grounds to suspend contractually required payments the way it did.
The commission says it used available cash and credit to keep work moving while federal reimbursements were frozen, but told its board on Jan. 27 that it had run out of available sources and would need to order a pause by Feb. 6 if the money was not restored. GDC says an immediate stoppage would wipe out nearly 1,000 jobs and could threaten far more if the delay continues. It also argues that a prolonged pause would raise project costs and increase the danger posed by continued reliance on the aging North River Tunnel, which remains a critical single point of failure for regional rail service.
In statements released with the lawsuit, New York Gov. Kathy Hochul called the tunnel project essential and accused the administration of illegally withholding committed funding in a politically motivated move. Gov. Mikie Sherrill said New Jersey was taking action to hold the Trump administration accountable for breaching its contract and to protect jobs and economic opportunity in the state. Senate Majority Leader Chuck Schumer described Gateway as “the most important infrastructure project in the country,” while GDC CEO Tom Prendergast said the commission’s goal is to restore the flow of money and avoid a halt to construction.
The Court of Federal Claims will now decide whether it has jurisdiction and whether the payment freeze violated the agreements the commission says are binding. In the immediate term, the central question is whether federal reimbursements resume fast enough to avoid a work stoppage. For commuters across North Jersey and the wider region, the case is about more than a contract dispute. It is about whether one of the country’s most important rail modernization projects can keep moving, or whether the region will remain dependent on a century-old tunnel that continues to be one of the system’s biggest vulnerabilities.