The federal government on Thursday agreed to release nearly $60 million in withheld funding for New York City’s Second Avenue subway extension, ending, for now, a monthslong battle that had threatened the $7 billion project.
A lawyer for the government said in a letter filed in Federal Claims Court in Washington that it would restart payments, after the Metropolitan Transportation Authority, which runs the city’s subway system, sued for breach of contract over the delayed reimbursements.
The U.S. Department of Transportation had told the M.T.A. that the funding had been held up because of a review of the authority’s race- and sex-based criteria for working with disadvantaged businesses. Sean Clayton, an acting deputy director with the Transportation Department, said on Thursday that the agency was now satisfied with New York’s adjustments to those criteria.
The M.T.A. had argued in court that it was already in compliance with the department’s policy changes, and that there was no good reason to withhold the funding.
At a hearing on Thursday before Judge Philip S. Hadji, Roberta Kaplan, a lawyer for the authority, questioned the federal government’s rationale.
She also criticized the government’s contention that it wanted to ensure the federal funds were “expended consistent with the Constitution,” noting that every new administration could have a different interpretation of the law.
“The M.T.A. had to comply, as it did, with the laws and regulations when President Biden was president, and agreed to do the same when President Trump was president,” Ms. Kaplan said. To be accused of breaking the law over the Trump administration’s interpretation, she said, “truly takes us back to kind of a Henry the Eighth world.”
Danna Almeida, a spokeswoman for the Transportation Department, said in a statement that the government was satisfied with its review, but declined to respond to the M.T.A.’s claims that it was already in compliance.
“Thanks to President Trump and Secretary Duffy, taxpayers can rest assured their hard-earned dollars will not fund unconstitutional D.E.I. initiatives,” she said.
Gov. Kathy Hochul on Thursday claimed victory on social media.
“We took the Trump Administration to court after they illegally froze funding for the Second Avenue subway,” she said. “Today, they backed down. The freeze is over.”
The resolution of the payment dispute is the latest hurdle cleared for a subway project that has been promised to New Yorkers for nearly a century.
The M.T.A. plans to extend the Q line from 96th Street and Second Avenue to 125th Street and Lexington Avenue, adding subway service to a long-overlooked stretch of Manhattan. Construction on the extension, a version of which was included in the original proposal for the subway line in the 1920s, has had many false starts.
Tunneling began in East Harlem in 1972, before the city’s fiscal crisis halted construction.
In 2007, work finally started on the first phase of the project — three new stations on the Q line along Second Avenue at 72nd, 86th and 96th Streets. The stations opened a decade later, after years of delays and cost overruns turned the stretch of track into one of the most expensive ever built.
Work on the Harlem extension was paused again in June 2024 after Ms. Hochul delayed the start of Manhattan’s congestion pricing program, which was expected to raise billions of dollars for the project.
The new work is already underway, with a tentative completion date of 2032, but Janno Lieber, the head of the M.T.A., had warned that the federal dispute could delay progress.
The Trump administration suspended the funds in October, at the same time that Mr. Trump was pressuring Chuck Schumer, the Senate minority leader and a New York Democrat, to end a government shutdown.
The M.T.A. sued in March to force the federal government to pay more than $58 million in overdue reimbursements. The authority’s board recently approved the advancement of a $1.1 billion contract related to the Second Avenue project, including excavation work at the planned 106th Street station, but the dispute put the timeline at risk.
Keeping the project on track is vital to managing construction costs and fulfilling Ms. Hochul’s plans to extend the subway line even further.
In January, she pledged to fund engineering and design work on an expansion of the Second Avenue subway westward to a new terminus at 125th and Broadway, which would add three new crosstown stops connecting to seven subway lines and several bus lines.
Stefanos Chen is a Times reporter covering New York City’s transit system.
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