Filed March 17 in the U.S. Court of Federal Claims, the complaint alleges the U.S. Dept. of Transportation has withheld $58.6 million in reimbursements tied to a $3.4-billion federal full funding grant agreement (FFGA), which covers roughly 44% of the project’s capital cost under the executed full funding grant agreement.

New York Gov. Kathy Hochul called the action unlawful, saying, “Once again, New York has been forced to sue the Trump Administration to stop them from erratically shutting off billions of dollars in previously committed infrastructure funding.”

Before the suspension, DOT had reimbursed $126.9 million across 94 requests—often within days of submission. The MTA now says $52.8 million in submitted requests remain unpaid, while another $5.8 million could not be processed after DOT disabled the MTA’s access to its ECHO-Web reimbursement portal, according to the complaint.

Because the FFGA operates as a pay-as-you-go reimbursement pipeline, the dispute directly affects cash flow supporting active contracts, procurement sequencing and contractor payments.

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Active Construction Collides With Funding Disruption

Unlike many infrastructure funding disputes, Phase 2 is not in planning.

The MTA has awarded its largest tunneling contract—a $1.97-billion design-build package to Connect Plus Partners, a joint venture of Halmar International and FCC Construction—to bore 1.8 miles of twin tunnels and construct station shells between 120th and 125th streets.

“This is the largest tunneling contract the MTA has ever awarded,” MTA Chair and CEO Janno Lieber said when the contract was approved, calling it “a damn good investment.”

The contract includes rehabilitation of a 1970s-built tunnel segment, excavation of seven shafts for entrances and ancillary facilities and use of a variable-density tunnel boring machine that installs precast concrete lining as it advances, eliminating a secondary crew and improving efficiency.

Utility relocation is underway in East Harlem, with heavy civil construction expected to ramp up in 2026 and tunnel boring scheduled to begin in 2027.

The project is structured as a multi-package program, with separate contracts for tunneling, stations, systems and finishes—sequencing that depends on predictable funding flow.

According to court filings, the next major contract—covering construction of the 106th Street station structure and tunnel south of 110th Street—is scheduled for MTA board consideration at its March 26 meeting, placing immediate pressure on procurement timelines if funding uncertainty persists.

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Federal Funding Model Under Legal Pressure After Gateway Ruling

The MTA’s legal argument closely tracks the Gateway dispute, where project sponsors successfully argued that halting reimbursements under an executed federal funding agreement constituted a breach of contract, forcing payments to resume on an active construction program.

In that case, a federal judge found DOT had acted in a “ready, fire, aim” manner, failing to follow contractual procedures before suspending payments.

The case is filed in the U.S. Court of Federal Claims, signaling that the MTA is treating the dispute primarily as a contract-payment issue rather than a regulatory challenge. The court has jurisdiction over claims tied to executed agreements with the federal government, placing the focus on whether DOT’s suspension of reimbursements violates the terms of the FFGA.

That precedent is likely to shape how courts evaluate the Second Avenue case, particularly given both projects rely on FFGA structures that tie federal funding directly to construction progress.

The project’s financing reflects a layered model common to large transit expansions.

In addition to the $3.4 billion FFGA, Phase 2 relies on state and local funding sources, including congestion pricing revenue, to support remaining costs.

The FFGA is part of the federal Capital Investment Grant program, expanded under the Infrastructure Investment and Jobs Act, which accelerated funding for major transit projects nationwide.

The dispute underscores a key vulnerability in that model: even when funding is authorized and agreements are executed, delivery depends on consistent reimbursement execution.

The MTA alleges DOT’s actions—tied to broader policy reviews—have disrupted that process, forcing the agency to divert funds from other priorities to maintain progress.

A U.S. Dept. of Transportation spokesperson said the agency is “committed to ensuring hardworking taxpayer dollars are being spent responsibly” and is “considering all legal avenues,” according to statements reported by the Associated Press.

Engineering Complexity and Delivery Risk

Phase 2 has been structured to avoid the delays and cost overruns that plagued Phase 1, which opened in 2017.

MTA officials have emphasized early geotechnical investigation and utility mapping to reduce subsurface risk, along with procurement reforms that incorporated more than 30 alternative technical concepts to improve constructability and lower cost.

The project also reuses a tunnel segment constructed in the 1970s—now integrated into the 106th Street station—to reduce excavation scope and save hundreds of millions of dollars.

Ground conditions in East Harlem differ from Phase 1’s Manhattan schist, requiring pressurized tunnel boring machines, groundwater control and careful settlement management to protect adjacent utilities and structures.

Stations at 106th, 116th and 125th streets will be constructed as deep underground caverns in mixed-face conditions, using grouting, dewatering and localized ground stabilization.

Those methods are highly schedule-dependent, increasing the importance of uninterrupted contract sequencing once excavation begins.

That sequencing sensitivity extends beyond engineering into project delivery, where funding reliability becomes a controlling factor in maintaining construction momentum.

The MTA does not claim construction has stopped.

Instead, the agency says it has maintained progress through “extraordinary efforts” but warns those measures are not sustainable.

If reimbursement delays persist, the agency argues the project faces a “domino effect” of impacts, including delayed contract awards, disrupted sequencing and increased costs.

Phase 2 is expected to serve about 110,000 daily riders, relieve congestion on the Lexington Avenue line and restore subway access to East Harlem more than eight decades after the original elevated line was removed.

“This is a project that is about equity, mobility, and economic growth,” Lieber said.

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A Test Case for Active Megaproject Delivery

The case ultimately tests whether federal agencies can interrupt reimbursement flows under executed funding agreements without destabilizing active construction programs.

For a megaproject built on continuous reimbursement, the outcome will help define how resilient federal funding mechanisms are when policy disputes intersect with projects already in motion.