The move follows a March 17 lawsuit by the MTA alleging the federal government breached its Full Funding Grant Agreement by withholding $58.6 million in reimbursements after halting payments on Sept. 30, 2025.

The reversal came with conditions outlined in a letter from DOT to MTA Chair and CEO Janno Lieber, the contents of which were included in court filings. Leiber also shared its contents during an impromptu press conference with reporters ahead of the hearing. 

The agency said it had identified what it described as “troubling” evidence that contracting decisions had incorporated race- and sex-based considerations, including through diversity compliance criteria, and tied the resumption of payments to changes in how those factors are used.

The MTA, in turn, certified it has ceased using contractor diversity track records in bid evaluations for DOT-funded work and agreed to complete a reevaluation of disadvantaged business enterprise certifications with New York state partners by August 2026, according to court filings. The agency also indicated that certification outcomes could affect eligibility for federal funding on future contract work.

New York Gov. Kathy Hochul (D) said the state’s lawsuit forced the outcome. “We took the Trump Administration to court after they illegally froze funding for the Second Avenue Subway,” she said in an April 16 Facebook post. “Today, they backed down. The freeze is over.”

Despite the reversal, the court kept the case open as Judge Philip S. Hadji held oral arguments, ordering both parties to file a joint report by April 22 on whether the MTA has access to the federal reimbursement portal, the status of any payments made and each side’s position on dismissing breach-of-contract claims.

During the hearing, MTA attorney Roberta Kaplan characterized the government’s position as a “somewhat lawless” justification for withholding funds, while a Justice Dept. attorney said payment would “most likely” arrive the following week, according to the Associated Press.

The order makes clear the court is treating actual payment—and restored access to the Federal Transit Administration’s ECHO-Web system—as the threshold for resolving the dispute, rather than the government’s stated intent to pay.

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Reversal Clears Path for Construction Activity

For the MTA, the practical stakes are immediate. Lieber said the agency is proceeding with contract awards and mobilization following the federal government’s reversal.

“The billion-dollar contract approved at our March Board meeting is being awarded and contractors are mobilizing right away,” he said in a statement. “It shouldn’t have taken seven months and a lawsuit to get here, but with the federal government’s concession today on the courthouse steps, the MTA can now confidently forge ahead with Second Avenue Subway Phase 2.”

Phase 2 will extend the Q line 1.76 miles north from 96th Street into East Harlem, with new stations at 106th, 116th and 125th streets, the latter providing connections to the 4, 5 and 6 subway lines and Metro-North Railroad.

As ENR previously reported, the authority’s $1.97-billion tunneling contract with Connect Plus Partners—a joint venture of Halmar International and FCC Construction—covers twin-tunnel boring from 116th to 125th Street and excavation of the future 125th Street station, with heavy civil construction expected to ramp up this year.

The funding suspension had put pressure on the sequencing of that work and threatened the timeline for the next contract package covering the 106th Street station structure.

The April 22 status report will test whether the government’s court-day reversal translates into actual payments and restored system access—an outcome that could shape how reliably federal funding commitments are treated once construction is underway.