Biden’s Incredible Shrink Infrastructure Plan
In North Carolina, for example, despite the influx of money from the federal government, state officials will only add new projects to their long-term infrastructure plans if they replace existing ones.
« Whether [inflation] doesn’t slow down, we’re just going to end up reducing the capacity to do more infrastructure,” said Robert Scaer, CEO of global engineering firm Gannett Fleming. “We are going to spend a lot more money on fewer projects. … The purchasing power of [the infrastructure law] is absolutely diluted.
Materials prices were already on the rise even before inflation reached levels not seen in decades in May – for example, the price of steel doubled in the year before Biden signed the investment and employment in infrastructure in November 2021. is back near its peak.
Since the bill was passed, the price of diesel fuel, needed to transport stone from quarries, which will eventually be turned into concrete and asphalt, has increased by about $2 a gallon, an increase of more than 50 %. And the workers – if you can find them and keep them – are demanding higher wages.
Sen. John Barrasso (R-Wyo.), who until recently led Republicans on the Senate Environment and Public Works Committee, told POLITICO that people in his state are feeling the pinch.
« I heard in Wyoming that they think they’re going to be able to do a lot more than they could now under Joe Biden’s inflation, which is a real problem for them, » Barrasso said. « Roads, bridges, airports, water projects. »
Democrats counter that despite the impact of inflation, the investment is still historic and people are thrilled with the cash injection.
« It was a once-in-a-generation resource boost, » Sen said. Ben Cardin of Maryland. “It certainly won’t go as far as we would like, but we meet every year. So we adapt as we go.
Still, Cardin said Congress may have to increase appropriations to account for the loss in purchasing power — something Democrats may not have the power to do, if the midterm elections go as planned.
Inflation pinch projects already
Already, cities and states that have planned to use the new federal dollars are seeing the costs of their planned infrastructure projects skyrocket, which could limit how far they can stretch their new federal dollars once they arrive.
A one-mile road reconstruction project in Lansing, Michigan; a $1 million paving project near Dayton, Ohio; and the reconstruction of an interstate interchange in metro Atlanta are among countless infrastructure projects facing delays due to rising costs.
The largest highway project underway in the city of Raleigh, North Carolina – originally a $31 million effort to widen sidewalks, add separate bike lanes and improve transit infrastructure on a 2.3-mile stretch of road – has seen costs rise 70% since 2017 and has had to delay construction by almost a year.
« We’re definitely seeing higher rates of inflation than what we typically see, » said Chad Cantrell, project manager for the Raleigh Works. But for the Raleigh project, the main cost driver is not concrete, fuel or even labor, but real estate. The project plans to widen the road’s right-of-way from 90 feet, in some places, to 126 feet, and « the real estate market has exploded in Raleigh, driving real estate costs much higher than anyone would have expected » . Cantrell said.
The project, which was to be built entirely with city money, will now have to access federal funds, triggering an application process that is expected to add 10 months to the process and add additional costs to comply with federal labor laws and inspection regimes.
Transport Secretary Pete Buttigieg sought to play down inflation fears last month, telling reporters that given the five-year term of the law, there is still plenty of time for inflation to be brought under control. before the money runs out.
“One of the benefits we have for us is that it’s a long-term vision that includes plans to start construction almost immediately and things that will continue for years to come,” said Buttigieg. « The crunch we’re seeing today is not what you would see over the five-year life of this funding, let alone the longer life of the construction projects themselves. »
And White House infrastructure czar Mitch Landrieu recently told reporters that while « no one will be affected by rising prices » right now, the infrastructure act is a long-term investment, not a stimulus. on time, and that its investments in the supply chain and other areas will reduce costs.
But the Congressional Budget Office predicted last month that inflation will remain high next year and diesel prices are likely to stay high through the end of 2022. And while economists and pundits have theories different on the causes of the labor shortage, it was caused by low wages, or complications from the long Covid, or low immigration – no one knows when it will end.
The politics of inflation
Meanwhile, Republicans are using inflation as a political line of attack and voters are receptive. Polls show that inflation is the top concern for Americans heading into the midterms, and they trust Republicans over Democrats to tackle it by a margin of 19 percentage points.
« The president’s policies that are fueling inflation and creating more red tape for infrastructure projects are making the situation worse, » Rep. Sam Graves of Missouri, the top Republican on the House Transportation and Infrastructure Committee, in a statement to POLITICO. He cited a study by the Eno Center for Transportation that found that if inflation continued at or near current rates, it « will have absorbed all of the IIJA’s increased spending. »
“This has a real cost felt by businesses and families in every corner of our country,” Graves said.
Still, President of the Environment and Public Works Senate Tom Carper (D-Del.) Told POLITICO in late May that he was « in fact, for the first time in a while, encouraged by what’s going to happen to inflation, » specifically citing recent Federal Reserve decisions, which he said had previously been « AWOL when it comes to fighting inflation.
Either way, costs continue to rise, forcing construction and engineering companies to scramble to redo estimates. In some cases, companies are inserting clauses into contracts allowing them to exceed price estimates where costs have skyrocketed, ultimately shifting financial exposure to state transportation departments and local project sponsors. They try to avoid delays by purchasing materials well before they’re ready, and in some cases before the scope of the project is fully defined, to avoid slowing things down because some type of pipe or part will not be available for months.
Scaer said Gannett Fleming had to revise the airport and transit project cost estimates they made two years ago to add escalation clauses allowing costs to rise by up to 8 % per year. And on a smaller wastewater treatment project, the cost of steel pipes could drive up the price by 50%.
« It’s a significant effect on our customers — I mean, they have an operating budget, » Scaer said. “It puts the project in jeopardy, period. These cities have only a limited capacity to be able to undertake projects.
These escalations are inserted into existing contracts. On new contracts, Gannett Fleming now asks clients to reassess costs every six months.
« What we’re seeing are submitted contractor estimates that are higher than DOT engineers’ estimates, and DOT doesn’t award work and then re-offer, » a construction industry representative said. construction who spoke anonymously to give his frank opinion. « It really soured the relationship between DOT and the contractors and caused delays in the project. »
But it is the states that bear the additional risk, as contractors build inflation into their contracts. “The risk is not on the entrepreneur; it’s up to the state,” North Carolina DOT chief operating officer Joey Hopkins said in an interview. He said state DOTs need to revise old project estimates to account for the skyrocketing cost of diesel and other inputs.
“We have to look at things in different ways and repackage projects — bundle smaller projects together in some cases, or split larger projects and scale them down,” Hopkins said. In some cases, the state DOT had to resubmit projects because its engineers’ estimates were too low and it received no bids at that price, only to find that the price was unrealistic.
Industry groups have pointed to the fact that state DOTs have not fully absorbed the enormity of inflation that is occurring and are surprised at the high cost of the offers they are receiving, as private companies try to pass on the risk of cost to States.
« It doesn’t appear that state DOTs take inflation into account in most states when making their offers, » said Michele Stanley, vice president of government and regulatory affairs at National Stone, Sand & Gravel. Association. . « So their budgets clearly don’t go that far, and they weren’t prepared for that. » Stanley said his members see many commercial projects cut short because sponsors realize they just don’t have the budget for them.
But state DOTs are spreading. In a just-released draft of North Carolina’s plan for transportation improvement projects over the next 10 years, the state’s DOT warned that it would only consider new projects s they were replacing existing projects. More than 800 projects are listed as eligible for swaps, totaling $38 billion.