By Hilary Russ and Edward Krudy
NEW YORK (Reuters) - Private money is expected to fund part of a $20 billion rail tunnel project linking New Jersey with Manhattan, according to a senior executive at the national rail network Amtrak.
Amtrak's plan to build a new two-track tunnel under the Hudson River and revamp its rail infrastructure in the region got a boost earlier this month when the federal government agreed to foot half of the bill.
New Jersey and New York are on the hook for the rest, but financial hurdles both states face suggest they could try to tap the plan's private funding option to meet their commitment or get their bi-state transportation authority to do that.
Private financing would be especially suited to the expansion and revamp of New York's Penn Station, but could also help fund tunnel construction itself, Drew Galloway, Amtrak's deputy chief of Northeast Corridor Planning and Performance, told Reuters.
"It certainly seems to lend itself to some aspect of public-private partnership involvement, particularly in station development," Galloway said about the plan, known as Gateway Program.
The project would be one of the largest in the United States using a combination of private and public money, highlighting fiscal constraints and the growing calls for the use of private capital in the renewal of the nation’s creaking infrastructure. (Graphic: http://reut.rs/1R6vQ9v)
SURCHARGES AND TOLLS
New York has several expensive projects, including funding of its subway and commuter rails, that already compete for funding while New Jersey grapples with high debt, a pension system shortfall and a sluggish economy.
The Port Authority, which owns New York City area bridges, airports, tunnels and ports, will create a new unit to run the project and that unit could form partnerships with investors.
Such partnerships, common in Europe and Canada, typically would have the private sector design, build, finance, operate and maintain parts of the project - sometimes for decades - while the public entity would retain ownership.
The Port Authority is already using public-private partnerships for a $4 billion LaGuardia Airport upgrade and a $1.5 billion revamp of a bridge linking Staten Island to New Jersey.
"There's enormous interest," said Joseph Aiello, a partner at global infrastructure investment firm Meridiam.
He said his firm was already talking to contractors about bidding on the project.
A surcharge on commuter tickets, tolls for freight traffic or facility maintenance payments are possible ways for private sector players to earn back their investments, analysts said.
Besides the new tunnel construction, the Gateway Program also envisages repairs to the existing two-track tunnel, which dates from 1910 and suffered damage from Hurricane Sandy three years ago, as well as improvements to stations, bridges and tracks.
The project will help the region handle an expected 16 percent population increase over the next 25 years, according to Andrew Lynn, director of planning and regional development at the Port Authority.
The agency says its infrastructure serves an area within a 250 mile radius, which accounts for a quarter of the U.S. gross domestic product.
The construction and repairs could take up to 20 years and the first stage - an environmental review and preliminary engineering - could begin as soon as early 2016 and take up to four years.
The states could issue tax-exempt municipal bonds, among the cheapest forms of borrowing, to cover their share of the cost.
However, private sector funding would help reduce public exposure to the risk of cost overruns, says Jorge Rodriguez, head of infrastructure debt at Deutsche Asset and Wealth Management in New York.
New Jersey in particular can ill afford such overruns, given a projected $83 billion pension funding gap and a depleted transportation fund.
Representatives for Governor Chris Christie, who canceled a similar rail tunnel project in 2010, did not reply to requests for comment.
Meanwhile New York, while not as fiscally stretched, has several big-ticket projects underway that are not yet fully funded. A spokeswoman for New York Governor Andrew Cuomo said it was "too early in the process to hypothesize" about financing the Gateway plan.
(Reporting by Hilary Russ and Edward Krudy in New York; Editing by Daniel Bases and Tomasz Janowski)