Inflation in the United States now stands at its highest level since 1982, reaching an 8.3 percent annual rate in April 2022 and peaking well into the double digits in fast-growing metro areas like Phoenix. Opinion polls show rapidly rising prices as Americans’ Number One concern and a central challenge to Joe Biden’s presidency, which he acknowledged in a White House speech this week. “I know that families all across America are hurting because of inflation,” Biden said.
Less appreciated is how inflation is undermining Biden’s $1 trillion infrastructure law. The problem is that $1 trillion today doesn’t go as far as it did yesterday—and it won’t go as far over the next five years of the law’s spending as it does today. Not getting infrastructure projects done efficiently and cost-effectively leads to higher prices down the road, delayed materials, and dearer contracts—and that goes doubly under current inflationary conditions. Before the pandemic, public-sector construction costs in America were already among the highest in the world. They’re about to get worse.
Signs of out-of-control infrastructure inflation are everywhere. The cost of Nashville International Airport’s new satellite concourse jumped by $42 million in a year. Des Moines Airport’s new terminal will likely be built in phases rather than all at once as leaders there struggle to manage costs. Michigan is scaling back local road projects, even with increasing federal support; in Lansing, the bill for rebuilding a mile of new road is now 60 percent higher than expected a year ago. Steel and concrete shortages are delaying and driving up costs for more than 15,000 road projects in Texas. In Austin, the price tag for the city’s Project Connect transit expansion has jumped by at least 40 percent since voters signed off on the proposal less than two years ago.
After delaying projects during the pandemic, rising costs are hitting public-sector construction just as agencies are turning back on the spending taps. The cost of building materials and supplies has gone up by nearly 60 percent from January 2020 to March 2022. Steel-mill products, diesel fuel, and plastic construction products saw some of the highest price increases since the pandemic. Biden’s use of pricey project-labor agreements in federal construction projects compounds the severe shortages in skilled labor—and drives up the higher wages skilled workers now command.
In fact, everything that goes into public-sector construction has a higher price tag today—labor, materials, and transportation. The National Highway Construction Cost Index’s 29 inputs nearly all point upward, rising nearly 11 percent in the year ending in the third quarter of 2021 (even before gas prices spiked). And it’s not just high prices that hurt infrastructure projects, but their volatility. Supply-chain woes sent the price of lumber soaring, then falling, then rising again over less than two years. When agencies and contractors aren’t sure what prices will be over the course of a project—let alone next month—they may delay quotes or entire projects, which adds to the final bill.
Pricey infrastructure is nothing new in the U.S. My colleague Connor Harris has shown how even simple highway upgrades in less expensive states manage to cost three times what such new construction would cost in the wealthiest parts of Europe. Meantime, America’s rail-project costs are the world’s highest. California’s high-speed rail boondoggle is now 200 percent pricier than planned, and that’s before a single train has left the station. One reason why Austin’s light-rail costs are ballooning is a doubling of tunnel length to protect views of the state capitol. Pre-pandemic, infrastructure experts were already warning of out-of-control costs and severe shortages in material and labor—and that’s before nationwide inflation and an extra $100 billion in annual infrastructure spending, thanks to Biden’s bill.
A new report from Standard & Poor’s, the ratings agency, warns that state and local agencies may have to scale back infrastructure projects because of rising inflation or find new funding sources from taxes, general funds, or more debt. Mileage may vary, too: while airports can raise parking fees, as Nashville’s has done, to pay for higher construction costs, other projects may not be able to raise much more revenue. And because federal funding usually requires a matching contribution, don’t expect the feds automatically to step in as costs rise—states and localities will likely have to look for extra dollars closer to home. Even if all currently planned projects still move forward, higher costs may limit how much new infrastructure localities can add in the years ahead.
According to estimates by the Eno Center, if construction costs rise faster than 7 percent per year, Biden’s entire infrastructure spending boost will be eaten up by inflation. Build Back Better could become Build Back Never.
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