The rollout of the Infrastructure and Investment and Jobs Act will dominate the infrastructure sector next year as states and cities position themselves to take advantage of the $1.1 trillion package that the White House touts as a once-in-a-generation investment in the nation’s roads, bridges, broadband and transit.
But risks loom, industry experts warn.
Chief headwinds are rising construction costs and uncertainties around aligning with the U.S. Department of Transportation’s guidance for the IIJA's dozens of new programs and existing formula programs.
Some say that despite the size of the IIJA, the new money going to traditional assets like roads and bridges will disappoint.
And despite IIJA provisions that are friendly to public-private partnerships, the P3 sector is not likely to grow significantly in 2022, experts said.
Muni supply is projected to grow to a possible record high as issuers supported by federal funds come to market. Federal money should also boost the credit outlook, muni analysts said.
The federal funds won’t flow for several months, but states and local governments are prepping to-do lists and bulking up grant-writing departments, experts said.
“You’re going to start seeing projects moving from thinking to actual planning and getting ready to break ground late next year or early 2023,” said Lawrence Slade, chief executive officer of the Global Infrastructure Investor Association, which promotes private investment in infrastructure. “Our major hope is we see the plug removed and start seeing projects moving forward,” he said. “But it’s going to take time to get mobilized.”
Private investment into U.S. infrastructure may inch forward with the IIJA’s boost in private activity bonds and new P3 analysis requirements. Broadband, energy, light rail, ports and possibly airports are among the sectors that are poised for private investment, Slade said.
“The big thing for us is what we can do to help states start delivering for everyone in the country,” Slade said. “We’ve reached out to folks like the National Governors Association, the [U.S. DOT's] Build America Bureau and other state organizations to see how we can all work together,” he said. “It’s really that focus on how we can work with the state operations to move into delivery.”
States are heading into the new year still waiting for full FY22 transportation appropriation – the current continuing resolution expires in mid-February – as well as guidance on the IIJA’s programs, said Joung Lee, deputy director and chief policy officer of the American Association of State Highway and Transportation Officials.
“The state DOT members really have their sights on delivering on the promise of the IIJA,” Lee said. “It’s going to be an all-year effort,” Lee added. “It’s the largest investment any of us have seen, and the second part is it really puts a spotlight on workforce needs.”
The DOT has said it needs to staff up as it grows to a $140 billion agency from a $90 billion agency. States and cities will need to bulk up grant and infrastructure departments. And the construction industry's labor shortage is at “crisis” levels, according to the Home Builder Institute, which estimated in November that the industry needs more than two million more workers over the next three years just to keep up with the housing sector.
AASHTO is working with the DOT to “strengthen the workforce pipeline,” Lee said. “You can’t just flip the switch on workforce needs.”
Meanwhile, ongoing supply chain issues and other factors could keep costs up, making projects more expensive. The construction industry could face cost growth of up to 7% next year, according to JLL Construction Group.
The IIJA includes provisions that may drive up labor costs, including Buy America provisions and prevailing wage standards.
“The infrastructure law is, in a way, a kind of stimulus program,” said Robert Poole, co-founder and director of transportation policy at Reason Foundation. “It’s going to put a lot more money into some number of projects at a time when there are construction labor shortages in most of the country. The cost of labor is going to be bid up higher by the extra money, so to the extent there will be more projects, they’re going to be more expensive.”
AASHTO is also concerned about some of the law’s regulatory restrictions for labor and material and is talking with the DOT and executive branch about its concerns, Lee said.
“We very much support Buy America, but also the tighter those restrictions get, the longer it will take to deliver on key policy goals,” Lee said. “If it becomes too inflexible, it will really slow down delivering the infrastructure bill.”
Overall, Poole said, he’s “not optimistic” about the impact of the IIJA, particularly when it comes to roads and bridges.
“This bill is not going to do as much as most people think in terms of making America’s roads and bridges better,” he said.
The Biden administration is “really trying hard to not have highway capacity be expanded,” Poole said, because of environmental harm caused by gas and diesel-fueled vehicles, a goal that he called short-sighted.
“That’s certainly true today, but it’s a problem that’s going to be less and less as time goes on,” he said, as electric vehicles take over. “Over the next three or four decades, it may eventually disappear.”
Some states are already saying the IIJA money won’t go as far as hoped. Alabama, for example, will see what a state DOT spokesperson called a “modest increase” of $160 million a year in new funding for roads and bridges, according to local reports. Tennessee’s interim Commissioner of Transportation said the IIJA will bring about $185 million more to the state for the next five years, and is “not the windfall I think a lot of people think,” according to local reports.
The DOT will begin releasing IIJA guidance over the next several months. Money will flow first with the formula programs and later with the discretionary grant programs.
It will be a year of navigating the administration's goals for federally supported infrastructure, hiring the right people, analyzing costs and figuring out which infrastructure projects are "shovel-worthy."
“The infrastructure bill implementation is not about a short-term play about how many construction jobs can we create, but a much longer-term play in terms of bringing back multi-decade infrastructure, supporting quality, and really making sure that the benefits are going to last for generations to come,” Lee said.
