A federal judge permanently barred the U.S. Department of Transportation from withholding grant funding for the Gateway Hudson Tunnel Project, ruling June 29 that the Trump administration violated federal regulations governing the suspension of already obligated infrastructure grants. U.S. District Judge Jeannette A. Vargas entered a final ruling for New York and New Jersey, vacating the September 2025 funding suspension and permanently ordering USDOT to rely on this action prospectively.
The ruling turns the temporary restraining order issued in February into a final judgment on the merits.
Vargas concluded that the states properly challenged the stay under the Administrative Procedure Act, while dismissing claims involving separate loan agreements for railroad rehabilitation and improvement financing for lack of jurisdiction.
“Defendants do not dispute that the suspension of federal grants flagrantly violates federal law,” Vargas wrote. “The Court rejects the idea that States have no remedy in this situation.”
The administration argued that the dispute belonged exclusively to the US Court of Federal Claims because it arose out of Gateway’s grant agreements. Vargas rejected that position, writing that “the Tucker Act is not a lock designed to bar plaintiffs from any gate,” and concluded that the states challenged USDOT’s compliance with federal grant regulations, not the terms of the Gateway funding agreements.
The court wrote that the Uniform Grant Guide governs when federal agencies can suspend grant payments. Vargas wrote that the Uniform Grant Guidance allows agencies to withhold grant payments only after first determining that a recipient failed to comply with applicable law. It also found that the regulations require that beneficiaries have an opportunity to challenge the action before payments are suspended.
Instead, he wrote, “The September 30 suspension waived the right to withhold payment without any finding that GDC had violated the law.” The court also found that USDOT failed to provide an opportunity to challenge the suspension required by federal grant regulations before withholding payments.
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Brian Turmail, vice president of partnerships and industry image for the Associated General Contractors of America, said in an email that the ruling “should help clarify and add certainty to the federal funding process for vital infrastructure work.”
If the decision ultimately stands, he said, it will help future administrations understand “the safeguards that are in place once funding has been awarded,” making it easier for contractors to “commit to building complex megaprojects.”
Building through litigation
Describing the fallout from the funding freeze, the court wrote that the project had reached “the cusp of a suspension-induced work stoppage that would have eliminated hundreds of jobs, left active construction sites abandoned and wreaked havoc on the project’s schedule and budgets.”
Gateway temporarily halted construction in February before Vargas issued a temporary restraining order to reinstate federal reimbursements. ENR later reported that the outage cost the project millions of dollars in site safety and maintenance, delayed procurement of the Hudson River Tunnel and New Jersey surface alignment contracts, and compressed construction sequencing after work resumed.
The opinion also recounts President Donald Trump’s public statements that he had decided to suspend funding for Gateway “because the Democrats are so stupid,” while the USDOT kept the suspension tied to its review of the project’s compliance with revised disadvantaged business enterprise requirements.
In a joint statement, New York Gov. Kathy Hochul, New Jersey Gov. Mikie Sherrill, New York Attorney General Letitia James and New Jersey Attorney General Jennifer Davenport said they were “grateful that a federal court has once again agreed that the Trump Administration’s decision to freeze billions of dollars in grants for the Gateway Tunnel Project is blatantly illegal.”
Gateway Development Commission Executive Vice President Catherine Rinaldi called the Hudson Tunnel project “the most urgent passenger rail project in the country,” and said it remained on schedule and on budget before federal funding was frozen.
In an email to ENR, he said the commission has made significant progress since funding resumed in February and “will continue to work with our federal partners to maintain access to funding so we can keep workers on the job and this nationally important project moving forward.”
A spokesman for the U.S. Department of Transportation reiterated the department’s earlier statement that it is committed to ensuring taxpayer dollars are spent responsibly and is considering its legal options. At press time, the administration had not announced whether it would appeal.
Vargas described the roughly $16.04 billion Hudson Tunnel project as “the largest federal investment in any rail transportation project in modern history.”
