The declaration came after the massive storm battered the US east coast, flooding lower Manhattan and leaving a half million people in New York City without power.
"The New York City subway system is 108 years old, but it has never faced a disaster as devastating as what we experienced last night (Monday)," said Joseph Lhota, chairman of the Metropolitan Transportation Authority (MTA).
"Hurricane Sandy wreaked havoc on our entire transportation system, in every borough and county of the region. It has brought down trees, ripped out power and inundated tunnels, rail yards and bus depots," he said.
Sandy, the Atlantic Ocean superstorm now termed a post-tropical cyclone packing maximum sustained winds of 65 miles (105 kilometres) per hour, down from 75 mph earlier, was centered about 90 miles west of Philadelphia at 5am local time Tuesday (4pm Tuesday in Bangkok), according to the Maryland-based Hydrometeorological Prediction Center.
The storm was moving west-northwest at 15 mph, and was expected to weaken steadily over the next two days and move north into western New York state later. The cyclone will reach Canada on Wednesday local time.
Due to the disruptions caused by Sandy, airlines are flying about 12,500 fewer trips than they had planned in the 48 hours ending Tuesday, according to FlightAware, a Houston-based tracking company, and mass transit stopped in New York, parts of New Jersey, Boston, Philadelphia and Washington.
The New York Stock Exchange, the Nasdaq and the futures markets in Chicago were closed Monday and Tuesday, along with federal government offices and the entire Amtrak rail network on the eastern seaboard.
Surging seawater forced ashore by superstorm Sandy flooded seven New York subway tunnels and six bus garages in the worst disaster in the history of city transport, the network's chief said Tuesday.
A blaze swept through more than 50 homes in the New York City borough of Queens on Tuesday in the wake of Hurricane Sandy, firefighters said.
The New York Fire Department said on its Twitter page that more than 50 homes had been "completely destroyed" by the six-alarm blaze. The fire department could not immediately be reached for further comment.
A backup generator failed at a New York City hospital Monday night, forcing it to move out more than 200 patients, including 20 babies from neonatal intensive care.
Dozens of ambulances lined up around the block outside New York University Tisch Hospital as doctors and nurses began the slow process of evacuation. They started with the sickest and youngest. Some were on respirators operating on battery power.
The floodwaters from superstorm Sandy have broken a levee in northern New Jersey, threatening three nearby towns and prompting rescue teams to take to boats, police said early Tuesday.
Ralph Verdi, the police chief of Little Ferry, New Jersey, told CNN the waters had risen by four to six feet (1.2 to 1.8 meters) in some areas, as rescuers pulled residents from second-story windows to safety.
"It's been an extremely difficult night. The power's still out. We're doing the best we can," he told CNN. "Our town is in real trouble right now."
The New Jersey State Police confirmed on its Twitter page that the levee in the town of Moonachie, near Little Ferry, had broken, without providing further details. Local emergency management officials could not immediately be reached.
Sixteen deaths were reported in New Jersey, New York, Maryland, North Carolina, West Virginia, Pennsylvania and Connecticut, according to the Associated Press. Some of the victims were killed by falling trees; at least one death was attributed to the storm in Canada. The storm was blamed for 69 deaths in the Caribbean.