Somewhere inside the Thurgood Marshall U.S. Courthouse in lower Manhattan, a three-judge panel of the U.S. Court of Appeals for the Second Circuit is deciding whether the federal government can retroactively kill an operating state transit program. That is not a rhetorical flourish. It is, quite literally, the question in front of the court. New York's Central Business District Tolling Program has been running since January 5, 2025. Gantries are up. Tolls are collected. Buses are moving faster. Roughly $15 billion in MTA bonds are already sold against the revenue. And the Trump administration is still trying to unwind the federal environmental clearance that made the whole thing legal — a legal maneuver that legal scholars and NEPA practitioners identified as without precedent on a launched infrastructure project.
The district court told the administration no. The appeal is now pending. And the ruling, whenever it comes, will do more than settle New York's fight. It will draw the outer limits of federal authority over every state road pricing program in the country.
How the Program Got Its Federal Blessing in the First Place
To understand the fight, you have to understand the paperwork. Congestion pricing was authorized by Albany in the 2019 New York Traffic Mobility Act, which handed the MTA's Triborough Bridge and Tunnel Authority the job of designing and running the toll. That should, in theory, have been a state matter. But several approach roads inside the tolling zone have historically received federal highway aid, and that federal nexus dragged the program into the orbit of the National Environmental Policy Act.
Four Years, Thousands of Pages, One FONSI
The Federal Highway Administration spent roughly four years reviewing the program. The environmental assessment ran to thousands of pages and covered traffic diversion to the Bronx and New Jersey, air quality in environmental-justice communities near the George Washington Bridge and the Cross Bronx Expressway, noise impacts, and construction emissions. In June 2023, FHWA issued a Finding of No Significant Impact — a FONSI, in the acronym-soaked language of federal environmental law. That was the legal green light. Without it, the tolls could not have turned on.
By the time the gantries went live in January 2025, the MTA had already spent roughly $600 million on physical infrastructure — the gantries themselves, E-ZPass readers, license plate cameras, the back-office reconciliation systems — and had issued bond anticipation notes secured against future toll revenue. For the mechanics of how the toll itself works, the original explainer still holds up.
A First-of-Its-Kind Program Meets a First-of-Its-Kind Legal Attack
The peak passenger-car toll landed at $9.00 via E-ZPass, and America's first urban congestion pricing system was born. Then, roughly two weeks after the January 20, 2025 inauguration, the new Trump-era Department of Transportation and FHWA announced they would revoke the FONSI — retroactively withdrawing federal environmental clearance from an already-operating program.
Legal scholars and NEPA practitioners identified no prior example of a federal agency attempting to revoke a completed FONSI after a project entered operation — making the Trump DOT's move genuinely without precedent in the modern history of federal environmental review. That novelty is the entire legal story.
The Federal Government's Legal Theory
It is worth stating the administration's argument honestly before explaining why the district court rejected it, because the case is more interesting when both sides are taken seriously.
Residual Supervisory Authority
The Trump DOT's core theory is that FHWA retains a kind of ongoing residual authority over projects on federally aided roads, even after a NEPA review is complete. Under this reading, a FONSI is not truly final; it is more like a provisional determination that the agency can revisit if it concludes the underlying environmental assessment was flawed or if post-launch conditions differ from what was analyzed. The administration argued that real-world traffic and diversion patterns after January 2025 diverged enough from the 2023 modeling to justify reopening the record.
Why Legal Scholars Called It a Novel Power Grab
Legal scholars at NYU Law and Columbia Law flagged the obvious problem: if FHWA can withdraw a completed FONSI at will, every future administration gets effective veto power over any state transportation project that ever touched federal environmental review. That is not how NEPA has been understood since it passed in 1970, and it is not how the Congressional Research Service has historically read federal highway oversight authority under 23 U.S.C., which has generally been treated as prospective — governing future funding decisions — rather than retroactive.
The MTA and New York State sued within days in the Southern District of New York. The case moved fast because the stakes were unavoidable: a $15 billion bond program was riding on the outcome.
The March 2026 District Court Ruling
In March 2026, the SDNY handed the MTA a comprehensive win. The ruling was narrow enough to survive appellate scrutiny and broad enough to matter.
A Final Agency Action Is Final
The court's first move was to treat the 2023 FONSI as what it plainly is: a final agency action under the Administrative Procedure Act. Once an agency completes a NEPA determination and a project moves into construction and operation on the strength of it, the agency does not get to undo the determination simply because a new administration disagrees with the underlying policy choice. The APA requires a reasoned, non-arbitrary basis for any reversal — and a change in political leadership is not, by itself, that basis.
Arbitrary and Capricious Under §706
The court applied the familiar "arbitrary and capricious" standard from 5 U.S.C. §706 and found the Trump DOT's rationale failed it. The record did not show a genuine, substantiated finding that post-launch conditions differed materially from the 2023 analysis. What it showed instead was a policy reversal dressed up in technical language. The court also concluded that FHWA and DOT had exceeded their statutory authority in attempting the retroactive withdrawal in the first place — there is no explicit provision in the federal highway statutes that authorizes clawing back a completed FONSI.
The Injunction and the Reaction
The court enjoined the revocation. The federal environmental clearance remains in effect, and the tolls keep running. Governor Hochul and MTA Chair Janno Lieber called it a landmark ruling. The Eno Center for Transportation, in a widely circulated analysis, called it "a template for defending future state-level pricing programs against federal reversal." For readers who want the political context around that ruling and how the year-one results factored into it, the year-one and court-ruling piece is the place to start.
What the Second Circuit Is Actually Being Asked
The Trump DOT filed its notice of appeal in spring 2026, bringing the case to the U.S. Court of Appeals for the Second Circuit, which covers New York, Connecticut, and Vermont and is one of the most influential appellate courts in the country on administrative and regulatory law. As of late summer 2026, no ruling has been issued. Oral argument has been heard. The panel is deliberating.
The Three Live Questions
The federal government's appellate briefs boil down to three questions:
- Whether FHWA retains ongoing supervisory authority over projects on federally aided roads even after NEPA review is complete
- Whether the district court improperly second-guessed the agency's technical judgment about changed post-launch environmental conditions
- Whether separation-of-powers principles limit a court's ability to compel a federal agency to maintain an environmental determination indefinitely
Each of those is a serious question. The first is essentially about the temporal scope of NEPA. The second is about the deference courts owe agency fact-finding. The third is about the outer limits of judicial power over the executive branch.
The Loper Bright Wildcard
Hovering over all of this is Loper Light Enterprises v. Raimondo, the 2024 Supreme Court decision that overturned Chevron deference. Under Chevron, courts had for four decades generally deferred to a federal agency's reasonable interpretation of an ambiguous statute it administered. Loper Bright ended that presumption. Courts now decide the meaning of federal statutes for themselves.
This cuts both ways in the congestion pricing appeal. It weakens the DOT's argument that FHWA's reading of its own NEPA and highway-aid authority deserves judicial deference — the panel does not have to accept the agency's expansive self-conception. But it also complicates the district court's analysis, because the SDNY was itself interpreting the scope of federal statutory authority without the old Chevron guardrails. Both sides will cite Loper Bright. Neither can be sure how the panel will apply it.
The $15 Billion Bond Program — The Real Underreported Stake
The reason this appeal matters more than a typical administrative-law dispute is that the toll revenue is not abstract. It is already collateralizing a specific, identifiable capital program that is under construction or on order today.
What the Bonds Are Actually Funding
The MTA's congestion-pricing-backed bond program is funding the entire next phase of New York's transit capital investment:
- Second Avenue Subway Phase 2 — the long-awaited Q train extension from 96th Street to 125th Street in East Harlem, with new stations at 106th, 116th, and 125th Streets, serving one of Manhattan's densest and most transit-underserved neighborhoods; estimated cost $6–7 billion
- CBTC signal modernization on the Lexington Avenue 4/5/6 line — the most crowded subway corridor in North America — adding capacity without laying a single new track
- New R211 open-gangway subway cars from Kawasaki, replacing aging R46 stock with wider doors, walk-through articulation, and better wheelchair access
- Dozens of station accessibility and elevator retrofits, advancing the commitments New York made under the FTA All Stations Accessibility Program
- Bus depot electrification infrastructure for the zero-emission bus transition — the workforce and operational challenges of which are unpacked in the zero-emission buses workforce-readiness gap
The Revenue Mechanics
The statutory revenue split sends 80 percent of net toll revenues to the MTA, 7.5 percent to the Port Authority, and 12.5 percent to NYSDOT. Year-one gross revenue landed around $550 million, running roughly $45–55 million a month, against operating costs of about $100 million a year. The MTA's bond covenants are structured around a projected steady-state revenue of at least $1 billion annually — a level the agency expects to reach as traffic patterns stabilize in years two and three of operation. Year-one gross revenue of roughly $550 million, against approximately $100 million in annual operating costs, puts the program meaningfully ahead of its own first-year projections. Traffic entries into the CBD are down about 23 million for the year, roughly 63,000 fewer vehicles a day at peak, with in-zone travel delays down about 25 percent — the full numbers are in the year-one results post. What is not comfortable is the legal uncertainty sitting on top of all of it.
The Three Scenarios and Their Consequences
The possible endings are worth spelling out because they lead to very different worlds for transit finance.
Scenario A — The Second Circuit Reverses
If the panel reverses the district court, the program does not shut off the next morning. The case would go back to the SDNY for further proceedings, and both sides would immediately seek stays pending further appeal. But the capital-funding crisis would be immediate. The revenue stream that secures those bonds would be under an existential legal cloud. Credit-rating agencies would open reviews. The cost of any new MTA borrowing would climb. Every major project in the pipeline — the Second Avenue Subway extension, CBTC signal modernization, the R211 car order, station accessibility retrofits, bus depot electrification — would face funding questions.
Scenario B — The Second Circuit Affirms
If the panel affirms, the SDNY ruling becomes controlling Second Circuit law. That eliminates the most immediate federal legal threat and gives the MTA a durable precedent to point to. The Trump administration could still petition the Supreme Court for review, but cert grants are rare, and the case would be a heavy lift on procedural grounds alone. Affirmance would also give other cities — San Francisco, Seattle, Boston, Los Angeles — a concrete template for defending their own future road pricing programs.
Scenario C — Congress Acts
The wildcard is legislative. Congress could theoretically pass a statute either explicitly withdrawing federal approval for the program or conditioning federal highway aid on its termination. The political obstacles are real — New York's congressional delegation would fight hard, and the transit-funding coalitions in the Build America 250 reauthorization debate have generally held together — but a targeted rider on a must-pass bill is not unimaginable. This is the scenario most closely tied to the broader fiscal fights described in the transit fiscal cliff coverage.
Why Other Cities Are Watching
This appeal is a New York case, but the ruling will echo far beyond the Hudson.
The Cities in the Wings
San Francisco has studied a downtown congestion charge that would require NEPA review of its federally aided approach corridors. Seattle has explored variable pricing on the SR-99 corridor, where federal highway funds are deeply embedded. Boston has looked at cordon pricing tied to Silver Line investment, again touching federally aided infrastructure. Los Angeles has serious internal analysis on a Westside pricing zone that would almost certainly trigger NEPA. Each of these programs would almost certainly need federal NEPA clearance, because each would touch federally aided roads or federally funded transit infrastructure. If the Second Circuit endorses the Trump DOT's FONSI-revocation theory, every one of those programs becomes a much harder political and financial sell. No city will bond against a revenue stream that a future administration can nullify with a memo.
A Genuinely Novel Federal Power
Every state DOT or transit agency planning a federally aided project — from Sound Transit's East Link expansion to Brightline West — is building on the assumption that completed NEPA approvals are durable. The Congressional Research Service has long treated federal highway oversight authority under 23 U.S.C. as prospective in nature — governing future funding decisions, project approvals, and design standards, rather than reaching back to unwind completed determinations. The Trump DOT's position asks the Second Circuit to reinterpret that authority as substantially retroactive. That is a genuinely novel legal theory, and the appellate court's willingness to entertain it will be a signal with consequences well beyond New York.
What to Watch For
The Second Circuit could rule any week now. When it does, three things are worth reading closely.
First, watch how narrowly or broadly the panel writes. A narrow ruling tied to the specific factual record of the FONSI revocation is a very different precedent than a sweeping pronouncement about the scope of FHWA authority. Second, watch for any signal on Loper Bright — the first appellate applications of the post-Chevron landscape to infrastructure and environmental cases will shape administrative law for a generation. Third, watch the MTA's bond desk. Rating agencies will move within days of the ruling, and any repricing of the outstanding congestion-pricing-backed debt will tell you, in basis points, what the market thinks the ruling really means.
Congestion pricing was always going to be a legal test case. That is the price of being first. What was less obvious in January 2025 is that the test would come this fast, at this altitude, on this novel a theory. The Second Circuit's answer will not just decide whether New York's tolls keep running. It will decide whether American cities can plan multi-decade transit investments on the assumption that a completed federal approval actually stays completed. That is the real stake, and it is why this appeal — quiet, technical, and unglamorous — is the most consequential transit case in the country right now.