Federal Judge Permanently Bars Trump Administration from Freezing Hudson Tunnel Funding

What the Judge Decided

U.S. District Judge Jeannette Vargas of the Southern District of New York issued a 59-page ruling on June 29 permanently barring the Trump administration from suspending federal funding for the Gateway Development Commission's Hudson River rail tunnel project.

Vargas found the Department of Transportation's September 30, 2025 funding freeze violated the Administrative Procedure Act. Specifically, she concluded the suspension was arbitrary and capricious—the legal standard for overturning executive agency action.

The ruling extends a temporary restraining order Vargas had issued in February, which forced the government to resume payments after construction funding ran dry roughly five months into the freeze.

The Government's Stated Reason Didn't Hold

The DOT announced the September 2025 pause as a compliance review, claiming it needed to investigate whether the project's hiring practices violated the administration's prohibition on diversity, equity, and inclusion programs.

Vargas wasn't buying it. She cited Trump's own words as evidence the freeze was politically motivated, not regulatory. In October 2025, Trump said publicly: "We're cutting a $20 billion project that Schumer fought for 15 years to get, and I'm cutting the project. The project is gonna be dead. It's just pretty much dead right now."

Senator Chuck Schumer, the Democratic minority leader from New York, had championed the Gateway project for years. The judge found Trump's statements indicated he personally decided to terminate funding "because the Democrats are so foolish—what they've done to the country."

Vargas wrote that the government "practically concede[d] that the suspension of the [Gateway Development Commission] grants decision was unlawful" by leaning almost entirely on jurisdictional arguments rather than defending the merits of the freeze.

Real-World Damage Already Done

The funding freeze triggered a construction shutdown and the brief layoff of roughly 1,000 workers across New York and New Jersey in February, according to reporting by The New York Times.

Catherine Rinaldi, executive vice president of the Gateway Development Commission, stated the project "was on schedule and on budget" before the federal government stopped issuing reimbursements.

The tunnels the project aims to supplement are 116 years old and currently operate as single-track lines under the Hudson River. That's the existing infrastructure carrying Amtrak and NJ Transit passengers between Manhattan and New Jersey every day.

The Government's Defense

The DOT declined to engage substantively with the merits. Its primary argument was jurisdictional: it claimed New York and New Jersey lacked standing to sue in federal district court, arguing the Tucker Act required the dispute to go through the U.S. Court of Federal Claims instead.

Vargas rejected that argument. She found the states had standing and that they demonstrated "actual, concrete, and particularized harm" from the suspension.

A DOT spokesperson told Courthouse News the agency "remains committed to ensuring hardworking taxpayer dollars are being spent responsibly and do not fund unconstitutional, discriminatory contracting practices." The department did not say whether it intends to appeal.

The Legitimate Concern Worth Acknowledging

The administration's DEI concern is not manufactured from thin air. Congress and executive agencies have real authority to enforce nondiscrimination laws in federally funded contracts, and a legitimate review of contracting practices on a $16 billion project is within the government's purview. If hiring or contracting on the Gateway project had actually favored certain groups over others in violation of federal law, pausing funding pending a review would be defensible.

The administration's public statements from Trump made it difficult for the court to treat this as a routine compliance review. A genuine compliance review and a political freeze can look identical on paper.

What Comes Next

New York and New Jersey originally filed their joint lawsuit in Manhattan federal court after funding dried up. The Gateway Development Commission is also pursuing a separate lawsuit against the DOT for monetary damages caused by the forced construction shutdown, according to The New York Times. That damages case remains unresolved.

The DOT has not announced whether it will appeal Vargas's permanent injunction. That decision will determine whether this ruling holds or whether the administration takes another shot at freezing the project through the appellate courts.