The federal government dropped its appeal of a lower-court ruling that blocked an attempt to freeze funding for the $16 billion Hudson Tunnel Project, ending a multi-month legal battle over federal payments for the rail link between New York and New Jersey, according to court documents filed September 18, 2026, in the U.S. 2nd Circuit Court of Appeals.
The filing in the 2nd Circuit confirms that New York, New Jersey, and the federal government agreed to dismiss the appeal, bringing a definitive end to the administration’s efforts to withhold grant and loan money. According to reports from The Center Square, the move follows a brief August push by the Department of Justice to revive the challenge after states prevailed in district court.
Here is what you need to know about the resolution of the Gateway tunnel funding fight:
Federal Appeal Dismissal Ends Hudson Tunnel Funding Freeze
The 2nd Circuit Court of Appeals issued a mandate stating that New York, New Jersey, and the federal government agreed to dismiss the appeal over the infrastructure funds. The dispute began in October 2025 when Office of Management and Budget Director Russell Vought announced that funding for the Hudson Tunnel was under administrative review to ensure money was not flowing based on unconstitutional diversity, equity, and inclusion principles, as reported by The Center Square.
The funding suspension eventually forced construction to briefly pause in February 2026, leaving workers temporarily laid off, according to the New Jersey Monitor. Work resumed later that month after outstanding federal reimbursements were restored. In June, U.S. District Court Judge Jeannette Vargas ruled that the funding freeze flagrantly violated federal law and prohibited the Department of Transportation from blocking the money.
State Officials and Gateway Commission Respond to the Legal Victory
New Jersey Governor Mikie Sherrill stated that the legal outcome protects nearly 100,000 jobs created by the project and serves millions of commuters, according to her office.
“The Trump Administration has tried, over and over again, to illegally stop the funding for the nation’s most urgent infrastructure project,” Governor Sherrill said in a statement cited by The Center Square. “We took them to court and we won for New Jerseyans, five times.”
A lawsuit filed by New York Attorney General Letitia James and acting New Jersey Attorney General Jennifer Davenport alleged that the Department of Transportation’s decision to withhold funds was an act of political retribution against the states rather than a response to statutory noncompliance. Additionally, the Gateway Development Commission filed a legal challenge in the U.S. Court of Federal Claims seeking the release of contractually obligated grant and loan money.
Project Timeline and Scope for the Hudson River Rail Link
The Gateway Development Commission notes that approximately 70% of the project’s $16 billion budget is supported by federal grants, while New York and New Jersey split the remaining 30% local share of construction costs. The initiative involves constructing a new two-tube passenger rail tunnel beneath the Hudson River alongside the rehabilitation of the existing North River Tunnel, which has been in service since 1910.
The broader undertaking includes nearly five miles of tunnel boring as part of nine miles of new passenger rail infrastructure designed to ease a bottleneck of rail traffic for Amtrak and NJ Transit. The existing 1910 tunnel currently carries about 200,000 weekday passengers beneath the river between New Jersey and Manhattan. Current schedules target 2035 for the new tunnel to enter service, with the rehabilitation of the North River Tunnel scheduled for completion in 2038, according to Underground Infrastructure.
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