Trump Froze Grants for a $16.04 Billion Rail Tunnel Over Democrats; a Judge Ruled It Unlawful

Public Money Against Democrats

On September 30, 2025, the eve of a government shutdown, the Transportation Department (DOT) suspended federal funding for the Gateway tunnel project.¹ On October 15, President Donald Trump used a different word, naming Senator Chuck Schumer: "It's billions and billions of dollars that Schumer has worked 20 years to get. It's terminated."²¹ He said he personally terminated the funding "because the Democrats are so foolish", according to Judge Jeannette A. Vargas's June 29, 2026 opinion, which also quotes him saying there was no funding "because it’s up to me".¹

His department had suspended funding without finding a grant violation; the freeze stopped construction and increased costs borne by New York and New Jersey.¹ Vargas, of the Southern District of New York, ruled the grant suspension unlawful and barred the department from relying on it again.¹

The $16.04 billion project pairs new rail tunnels between New Jersey and New York with rehabilitation of the 116-year-old North River Tunnel.¹³ It was not terminated: the Gateway Development Commission (GDC) resumed construction after federal payments were restored.³

Borrowing to Keep Construction Alive

The freeze cost money before it stopped work: GDC used its other funds and credit to keep building while federal payments were frozen. On January 27, 2026, it announced that those resources were exhausted and that construction would pause by February 6 unless federal payments resumed.¹⁴

New York, New Jersey and Amtrak each funded one-third of GDC's operating budget.¹ Vargas found that GDC had fully drawn down its line of credit and that its higher interest payments increased the states' contributions.¹ Freeze-related legal and administrative expenses rose too; due in large part to those expenses and the self-financing, the budget grew from $56.382 million in fiscal 2025 to $77.567 million in fiscal 2026.¹

The states had money in the project already: New Jersey had invested nearly $500 million and New York at least $49 million.¹

Work Stopped, Then Had to Restart

Stop-work orders suspended active construction on February 6, 2026, the day Vargas granted the states emergency relief.¹ On February 24, GDC announced that construction was resuming that week and that nearly 1,000 jobs affected by the pause would be restored.³ Vargas found that fully remobilizing the construction sites took several weeks and compounded delays to the project schedule, and noted that abandoned active construction sites posed public health and safety risks requiring state funding for security and maintenance.¹

Future work stalled too: GDC said on February 24 that two major contract procurements would stay on hold until it regained access to all $15 billion in paused federal grants and loans.³ The work was meant to relieve chronic delays for hundreds of thousands of daily riders and protect against failures of the old North River Tunnel.³¹ GDC kept its 2035 target for opening the new tunnel, Mass Transit reported in July.⁵

The Defense, the Ruling and Its Limits

DOT's strongest justification was that public money should not support discriminatory contracting.¹ The department had changed its Disadvantaged Business Enterprise rules to remove certain race- and sex-based presumptions and said it needed to review Gateway's compliance.¹ On December 1, DOT alleged that GDC had treated contractors as disadvantaged businesses based on their owners' race or sex without the required certification review, and offered to resume payments if GDC accepted its conditions in writing.¹ GDC supplied the requested certification on December 8 and denied awarding contracts unlawfully based on race, sex, ethnicity or national origin. After receiving no response, it followed up on January 8, confirming that no prime contractors had received contracts as disadvantaged businesses and that all DBE subcontractors had been properly certified; DOT still did not respond.¹

The stated review never produced a determination that GDC had violated federal law.¹ Vargas held that DOT had to find noncompliance and determine that no corrective conditions could fix it before withholding payments, and give GDC a chance to challenge the action.¹ DOT skipped those steps, violating Sections 200.339 and 200.342 of the Uniform Grant Guidance.¹

In court the government developed no argument that the freeze complied with those rules and lost the chance to make one; Vargas wrote that "Defendants do not dispute that the suspension of federal grants flagrantly violates federal law".¹ It argued instead that only the Court of Federal Claims could hear the payment dispute and that a temporary freeze during a review was too preliminary to review.¹ Vargas rejected both arguments for the grants: the states were challenging an unlawful agency policy, and the freeze already had concrete legal and financial consequences.¹ The states could not sue in the Court of Federal Claims, because they were not parties to GDC's contracts, and she refused to leave them with no court.¹

The government did win dismissal of the loan claims for lack of jurisdiction: the grant rules did not cover the loans, and the states identified no other law that their suspension violated.¹ Her judgment covers three GDC grants and the September 30 freeze, not funding decisions made for other reasons.¹

Where It Stands, and the Charge

As of October 10, 2026, the project was moving forward: GDC announced on October 8 that its first tunnel boring machine had begun mining in New Jersey on schedule.⁶ In September, the government withdrew its appeal from February's emergency order.⁷⁸ It had separately appealed the final judgment, and the appeals court's September 17 order set its opening brief due November 30.⁹¹⁰¹¹

The site's Funding Threats article covers the wider campaign: ABC News reported that Trump threatened to use the shutdown to cut funding to Democratic-run states and cities.¹²

Trump's department withheld grants without finding a violation, stopped construction and shifted financing and administrative costs onto public budgets; a federal judge ruled that suspension unlawful.¹ Using a public rail project to punish political opponents is an abuse of presidential power.¹ It belongs in an impeachment case because the President claimed the punishment himself, while workers and the public bore the costs.¹³