The U.S. Department of Transportation reversed course on April 16, telling a federal court just hours before scheduled oral arguments that it had completed its review of the $7.7 billion Second Avenue subway Phase 2 project and would restore funding.
In a same-day filing in the U.S. Court of Federal Claims reviewed by ENR, government lawyers said the Metropolitan Transportation Authority can now file previously unpaid reimbursement requests and indicated they will seek dismissal of key claims once payments are made.
The move follows a March 17 lawsuit by the MTA that alleged the federal government breached its full funding grant agreement by withholding $58.6 million in refunds after it stops payments on Sept. 30, 2025.
The reversal came under conditions outlined in a DOT letter to MTA President and CEO Janno Lieber, the contents of which were included in court documents. Leiber also shared his content during an impromptu news conference with reporters before the hearing.
The agency said it had identified what it described as “worrying” evidence that hiring decisions had incorporated considerations based on race and gender, including through diversity compliance criteria, and linked the resumption of payments to changes in how those factors are used.
The MTA, in turn, certified that it has stopped using contractor diversity records in bid evaluations for DOT-funded work and agreed to complete a reevaluation of disadvantaged business firm certifications with New York State partners by August 2026, according to court documents. The agency also indicated that certification results could affect eligibility for federal funding on future contract work.
New York Gov. Kathy Hochul said the state’s lawsuit forced the result. “We took the Trump administration to court after they illegally froze funding for the Second Avenue subway,” he said in a Facebook post on April 16. “Today, they backed off. The freeze is over.”
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Despite the reversal, the court kept the case open as Judge Philip S. Hadji held oral arguments, ordering both sides to file a joint report by April 22 on whether the MTA has access to the federal reimbursement portal, the status of payments made and each side’s position on the dismissal of the breach-of-contract claims.
During the hearing, MTA attorney Roberta Kaplan characterized the government’s position as a “somewhat illegal” justification for withholding funds, while a Justice Department attorney said the payment would “very likely” come the following week, according to the Associated Press.
The order makes clear that the court is treating actual payment (and restored access to the Federal Transit Administration’s ECHO-Web system) as the threshold for resolving the dispute, rather than the government’s stated intent to pay.
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For the MTA, the practical stakes are immediate. Lieber said the agency is proceeding with contract awards and mobilization following the federal government’s rollover.
“The billion dollar contract approved at our March Board meeting is being awarded and contractors are being mobilized immediately,” he said in a statement. “It shouldn’t have taken seven months and a lawsuit to get here, but with the federal government’s concession today on the courthouse steps, the MTA can now confidently move forward with Phase 2 of the Second Avenue Subway.”
Phase 2 will extend the Q Line 1.76 miles north from 96th Street to East Harlem, with new stations at 106th, 116th, and 125th Streets, the latter providing connections to the 4, 5, and 6 subway lines and the Metro-North Railroad.
As ENR previously reported, the authority’s $1.97 billion tunneling contract with Connect Plus Partners, a joint venture between Halmar International and FCC Construction, covers the boring of two tunnels from 116th Street to 125th Street and the excavation of the future 125th Street Station, with heavy civil construction expected to ramp up this year.
The suspension of funding had put pressure on the sequencing of that work and threatened the deadline for the next contract package covering the 106th Street station structure.
The April 22 status report will test whether the government’s court day reversal translates into actual payments and access to the restored system, an outcome that could shape how reliably federal funding commitments are treated once construction begins.
