A judge on Monday set aside the Transportation Department's suspension of $16 billion in federal funding for the Hudson Tunnel Project, ruling the freeze violated federal law.

The decision by Judge Jeannette Vargas in the Southern District of New York removes the legal basis for the current funding freeze.

The judge's 59-page ruling holds that the Transportation Department's September 2025 funding freeze was unlawful because it failed to comply with the procedures governing federal grant suspensions. The administration could still seek to suspend or terminate funding if it follows the applicable legal requirements or succeeds in overturning the decision on appeal.

The Department of Transportation said it remains "committed to ensuring hardworking taxpayer dollars are being spent responsibly," a spokesperson told The Wall Street Journal.

The Trump administration said last year it would not distribute the funds while it reviewed whether the project complied with federal nondiscrimination requirements and included diversity, equity, and inclusion policies.

But Vargas noted that President Donald Trump had indicated in interviews that there were political reasons for stopping the tunnel project, which Senate Minority Leader Chuck Schumer, D-N.Y., had long championed.

"We're cutting a $20 billion project that Schumer fought for 15 years to get, and I'm cutting the project," Vargas quoted Trump as saying in October. "The project is gonna be dead. It's just pretty much dead right now."

The project would supplement the two 116-year-old single-track tubes under the Hudson River between Manhattan and New Jersey. Schumer has called it the most critical infrastructure project in the United States.

The Gateway Development Commission, the project manager overseeing the rail tunnel construction, said in January it would be forced to cancel work on the project without the funds. About $12 billion in funding for the project comes in the form of federal grants, and $4 billion comes from federal loans to be repaid by New York and New Jersey and by the Port Authority of New York and New Jersey.

The states of New York and New Jersey jointly sued the Trump administration in federal court in Manhattan, seeking an emergency order to end the suspension.

On Feb. 6, the day work was scheduled to stop, Vargas granted a temporary restraining order. The Trump administration opposed that order and continued to press its jurisdictional arguments, but Vargas wrote that the administration focused on jurisdictional arguments rather than defending the legality of the funding suspension.

In her opinion Monday, Vargas said the Trump administration failed to show the suspension of the funds was lawful.

"Defendants make no attempt to justify their actions as consistent with the governing federal regulations," Vargas said.

The ruling prevents the administration from continuing to rely on the September 2025 funding freeze but does not, on its face, preclude the Transportation Department from pursuing a new suspension through a process that complies with federal law.

In a joint statement Monday, New York Gov. Kathy Hochul, New York Attorney General Letitia James, New Jersey Gov. Mikie Sherrill, and New Jersey Attorney General Jennifer Davenport, all Democrats, hailed the ruling.

"We are grateful that a federal court has once again agreed that the Trump Administration's decision to freeze billions of dollars in grants for the Gateway Tunnel Project is flagrantly unlawful," they said.

"This is the most important infrastructure project in the nation, and thanks to our litigation, 1,000 people are back on the job and construction continues every day. This victory sends a clear message: The Trump Administration's attempt to halt Gateway funding will not stand."