The long-discussed transformation of the Farley Post Office to a grand train station is a step closer to reality after yesterday's announcement that the federal and state governments and Amtrak have agreed on how to go forward.

The agreement, announced by Gov. David A. Paterson and Sen. Charles Schumer, allows for planning, design and discussions on funding of the $1.1 billion project to proceed.

The project would move Amtrak's traffic across Eighth Avenue from Penn Station to a new station named for the late U.S. Sen. Daniel Patrick Moynihan (D-N.Y.), who championed its use as a mass transit hub.

Penn Station would remain the terminus for Long Island Rail Road and New Jersey Transit traffic, though the regional carriers' passengers would be able to reach their trains from the Moynihan Station via a tunnel.

"It's a win-win-win," Schumer said. "It's a win most importantly because of the big transportation mess, with Penn Station over capacity and old. You'll have a much better, cleaner transportation into the Penn Station complex."

Funding for the project has yet to be determined, though Schumer said he intends to secure stimulus money earmarked for rail projects to defray some of the cost.

The federal, state and city governments, along with Amtrak and the Port Authority, will share the cost of the project, which Schumer said could begin construction in a year.

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"New York City is the linchpin of Amtrak's service network in the northeastern United States, and I welcome this long-term partnership with Amtrak to preserve and enhance the role of rail in New York State and across the region," Paterson said in a statement released by his office.

As part of the agreement, which will be put into a memorandum of understanding, Amtrak will receive a portion of proceeds from a series of retail shops in the new train station, Schumer said.

Amtrak chief executive Joe Boardman said the deal will allow the railroad to expand its terminal capacity.

"The building of Moynihan Station will provide the grand entrance that this great city deserves," he said.