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View of construction underway for the Gateway Program’s Hudson River Tunnels, New York, NY, at Hudson Yards, Oct. 6, 2025.
Photo by Anthony Behar/Sipa USA
The Trump administration must release over $200 million in funds for the Gateway Tunnel rail project after a federal appeals court declined on Thursday to overrule a lower court’s Feb. 6 decision compelling it to let the money flow for two weeks.
The Second Circuit Court of Appeals referred the federal government’s appeal of U.S. District Court Judge Jeannette Vargas’s decision that it must temporarily release funds it has withheld from the project since October to a motions panel on Feb. 12.
The higher court’s decision to refer the appeal to another panel of Second Circuit judges, rather than ruling itself, means Vargas’ decision last Friday will automatically go into effect. The feds are expected to be compelled to release the funds tomorrow, and the motions panel is not expected to convene until the week of Feb. 23, at the earliest.
It was initially expected that the money would begin flowing on Monday, but Vargas temporarily stayed her initial ruling until 5 p.m. on Thursday to allow the appeals court a chance to weigh the feds’ request.
The Gateway Development Commission, which is leading the project, took a victory lap over the court’s move on Thursday evening.
“This is good news for the Hudson Tunnel Project, and we anticipate receiving the $205 million in reimbursement funds from the federal government,” GDC said in a statement. “While this is a positive step, we need consistent, reliable access to the Hudson Tunnel Project’s federal funding moving forward. GDC continues to pursue all avenues to regain access to all the federal funds for this urgent project, including our lawsuit.”
The White House did not respond to a request for comment.
Gateway Tunnel work can resume once the money rolls in again
Once the feds begin sending the money to GDC, construction on the $16 billion undertaking can resume. Work on the new two-tube rail tunnel, which will connect Penn Station with New Jersey underneath the Hudson River and replace a 116-year-old decaying passage, halted last Friday when the GDC was no longer able to pay for it without promised federal reimbursements.
Vargas’ Feb. 6 ruling came after the New York and New Jersey Attorneys General Letitia James and Jenifer Davenport brought a joint suit on Feb. 4. In their legal action, they argued that the pause in construction brought on by the funding freeze would inflict irreparable harm on both states.
They argue that the immediate harms caused by the project’s work stoppage include the loss of 1,000 construction jobs and the ballooning cost of keeping the dormant work sites safe. In the long term, continuing to use the decaying rail tunnel runs the risk that it could shut down and paralyze travel between New York and New Jersey and throughout the northeast.
Additionally, they argued that the move was illegal, contending it was motivated by President Trump’s desire for political retribution against Congressional Democrats rather than any purported compliance issues.
The feds, meanwhile, have claimed that the states do not have the legal standing to sue over the funding freeze because they were not parties on the contract inked between them and GDC. Furthermore, they’ve argued a GDC suit seeking to unfreeze the funds is enough to get relief.
Trump’s Department of Transportation initially withheld the funds pending an agency review of the GDC’s contracts with minority-and-women-owned businesses to ensure they were in-line with new federal rules. GDC officials have said they have answered all of USDOT’s questions regarding its contracting in letters sent late last year.
While the ruling allows funds to flow until late February, the states and the GDC will still be left without enough funding to finish the project once the expected $200 million runs out, unless Vargas compels the federal government to release all of its initially promised funding.
The states have asked Vargas to extend her order requiring the federal government to temporarily fund the project until March 6, which it suggested is when a decision should be made on the case in court filings. The federal government has asked for “any further briefing in this matter [to] be postponed,” until a decision on GDC’s suit comes, which is expected on March 12.
Vargas has not responded to the parties’ requests.
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Isabella Gallo & Ethan Stark-Miller
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