Good News for Gateway, Implications for Reauthorization Bill

Was there a better way to get here?

This week was a good one for the Gateway Development Commission and the sorely needed Gateway tunnel project. On Monday, siding with the states of New York and New Jersey, a Federal judge declared that DOT’s suspension of Gateway project funds last Fall was illegal, vacated the suspension, and barred the Federal government from relying on that suspension going forward.

But it begs the question: if this kind of thing is already plainly illegal, and has been found to be illegal in several different contexts, why does it keep happening and what can we do to stop it? More on that in a minute...

There’s lots to read in Judge Jeannette Vargas’ 59-page order, and there’s a lot of legal nuance around standing, third-party contract beneficiaries, the interaction of several Federal statutes, which court has jurisdiction to hear which claims, along with a bunch of case law, and some procedural steps to the appellate court, too. But I’ll save you the trouble. The Trump Administration lost its emergency fight in the Second Circuit, then lost the merits fight in Judge Vargas’s court below. The Trump DOT can still appeal, but unless it gets a stay, DOT has to comply now.

Vargas’ ruling strongly reinforces a long-standing principle, one I’ve been fairly shouting to the rafters about for a year and a half: once Congress has appropriated funds and an agency has lawfully awarded or obligated those funds under a grant agreement, a new Administration generally can’t freeze, cancel, or redirect them merely because it dislikes the policy, the project, the recipient, or the prior Administration’s priorities. It has to point to actual statutory authority, the grant terms, recipient noncompliance, or follow the Impoundment Control Act/rescission process. And if the Administration wants to change the programmatic direction wholesale, the normal answer is, “go to Congress.”

Image: Gateway Development Commission

First, Judge Vargas had to dispose of the Federal government’s arguments based on standing, which contended that New York and New Jersey didn’t have the standing to sue...only Gateway Development did. She ruled that DOT had entered into three Gateway grant agreements — including the $6.88 billion FTA Capital Investment Grant and a $3.79 billion Federal-State Partnership grant, funded through the Investment in Infrastructure and Jobs Act (IIJA) — and that the States were challenging DOT’s failure to follow binding grant regulations, and not just making a contract claim for money. That cleared the way for the States to make their claim and for Vargas’ court to play a role.

The court then held that DOT couldn’t simply “skip right to payment suspension” without a finding that Gateway had violated the law, and that grantees must get an opportunity to object and challenge the action. Vargas’ bottom-line order this week declared the September 30 suspension “contrary to law” as to the GDC grants, vacated it, and barred the government from relying on it going forward. (You can read her entire decision by clicking here.)

That fits a broader pattern. The Government Accountability Office, or GAO, reached a similar conclusion on NEVI, another IIJA program: FHWA’s pause on approved state EV infrastructure plans was treated as withholding appropriated funds, and GAO concluded DOT wasn’t authorized to withhold those funds and had to continue carrying out the statutory program.

GAO pointed out, as I have for months, that DOT could have proposed rescission or legislation for Congress to consider. More generally, GAO’s view of the Impoundment Control Act is that the President has no unilateral authority to impound funds; rescission requires the ICA process, and absent congressional action the funds must be made available. GAO happens to be where disputes are heard over the Impoundment Control Act.

Earlier this year, the First Circuit Court of Appeals issued a broader funding-freeze ruling upholding much of the injunction against the Administration’s categorical freeze of federal financial assistance, agreeing that the states were likely to show that the Russell Vought-led Office of Management Budget acted arbitrarily and capriciously by freezing obligated funds immediately and categorically without considering recipients’ reliance interests.

So, before the comments section below lights up, let’s acknowledge some things. Not every delay is automatically illegal. Agencies can still police fraud, enforce grant terms, disallow unallowable costs, impose conditions after a real, honest-to-goodness noncompliance finding, or terminate where the statute and grant terms allow it.

Current grant rules allow termination under specified circumstances, including pursuant to award terms and “to the extent authorized by law.” But, crucially, those provisions must be clearly stated and the agency still has to follow process. Also, remedies can get jurisdictionally messy: in Gateway, the court handled the grant-suspension claim under the Administrative Procedures Act but dismissed the States’ RRIF loan claims because they looked more like contract/Tucker Act claims for the Court of Federal Claims.

Yes, any Administration can review, audit, and enforce. But it can’t use “review” as a pretext to nullify Congress’s appropriations or lawfully awarded grants. For grants already awarded and obligated under IIJA, especially where recipients are performing and there is no actual noncompliance finding, a politically driven freeze is on very weak legal ground.

And make no mistake: this was clearly pretextual. Judge Vargas only had to point at a few choice quotes from President Trump lambasting Gateway because it was “Chuck Schumer’s project.”

A New York District Court, the Federal First Circuit, and the GAO have all found that this kind of conduct is already illegal. So why, then, did Sen. Ed Markey have to join 15 Democratic colleagues in writing a letter to Senate Appropriators saying that any new surface transportation bill has to come with explicit legal barriers to these kinds of shenanigans? Why is it even necessary?

Well, the question is really whether existing law is enough to prevent damage before a court can clean it up. And what we’ve learned over the past year and a half or so is that as it stands today the law is too convoluted, expensive, and time-consuming to be genuinely helpful. Worse, a lot of the protections aren’t really in law, but in regulations. If you want it to stick, those regulations have to be given the full force of law.

Markey’s letter lays out the premise. It says DOT has “recklessly and often illegally” paused or canceled infrastructure funding, then he says Congress can’t trust a new bill if the Administration is “actively failing to implement the laws already in place.” Markey and his colleagues then ask that the next surface bill include protections for existing and future grant funding against political interference.

I wholeheartedly agree.

Here’s what Congress can do in the next surface bill that existing law doesn’t do cleanly or quickly enough.

First, Congress can codify the specific rule: once a covered transportation grant is awarded or obligated, DOT may not pause, suspend, terminate, withhold, delay reimbursement, or impose new post-award conditions unless it makes an individualized written finding of material noncompliance under the statute, the grant agreement, or existing grant regulations. Gateway court’s ruling depended heavily on current Uniform Grant Guidance rules — 2 C.F.R. 200.339 and 200.342 — which requires a noncompliance finding and an opportunity to object before payment suspension or termination. If Vought’s OMB decides to re-write the rule...?

Second, Congress can speed the remedy. Existing protections under the Administrative Procedures Act and the Impoundment Control Act work, but only after someone sues, survives jurisdictional arguments, proves harm, and gets relief, racking up billable hours and a pile of uncertainty along the way. The Gateway court found DOT skipped directly to payment suspension without any finding that GDC violated the law and then vacated the suspension. But that came after months of uncertainty, threatened work stoppages, and litigation. Workers were briefly laid off. The law may eventually win, but projects can still bleed money and time while the Administration runs out the clock.

Third, Congress can close remedial and jurisdictional gaps. The First Circuit funding-freeze case (again, here’s a link to that opinion for you to read) is useful but also shows the mess: the court agreed the states were likely to succeed on their APA theory because OMB directed an immediate categorical freeze without considering reliance interests, but it also vacated part of the injunction that directly ordered payments because of Tucker Act/claims-court concerns. I purposely didn’t try to simplify that for you, because that’s exactly the kind of procedural thicket Congress needs to simplify by creating an express cause of action, venue, expedited review, and a clear remedy.

Fourth, Congress can make the Impoundment Control Act point explicit inside the transportation statute itself. GAO’s NEVI decision is already very strong: DOT wasn’t authorized to withhold NEVI funds and, if it wanted changes, it had to propose rescission or legislation for Congress to consider. But an Administration willing to ignore GAO or play games with “programmatic review” can still impose delay. A surface bill could say: no funds may be withheld, deferred, paused, or delayed for policy-review reasons except through the ICA or a project-specific statutory process.

We don’t need another law to establish that nakedly political grant freezes are unlawful. What we may need, though, is another law to make the illegality harder to disguise, faster to challenge, and more costly to attempt. For my Congressional friends who may be reading this, it might go like this:

Congress should use the surface-transportation reauthorization process to “prohibit DOT from suspending, terminating, delaying, withholding, or imposing new post-award conditions on any previously awarded or obligated transportation grant except upon an individualized written finding of material noncompliance, with notice to the recipient and Congress, an opportunity to cure and appeal, expedited judicial review, and a presumption of irreparable harm for unauthorized withholding. No change in Administration policy, political affiliation of the recipient jurisdiction, or disagreement with the purpose of a lawfully awarded project shall constitute grounds for withholding funds.”

Just paste it in. You’re welcome.