Soaring inflation is eating away President Biden’s hallmark $1.2 trillion infrastructure law, reducing its effectiveness as construction and material costs skyrocket.
Economists say the money approved by Congress last year for overhauling the nation’s roads and bridges is worth less today because of inflation, which has pushed construction costs higher.
“In theory, the infrastructure bill should be about delivering more value for taxpayers, families and the economy,” said David Ditch, a transportation and budget analyst at the conservative Heritage Foundation. “But inflation has eaten away at that value, meaning taxpayers are getting less benefit for all that money being spent.”
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The same pocketbook issues vexing Americans and driving down Mr. Biden’s approval ratings are frustrating the infrastructure overhaul, which is the president’s biggest legislative win and one of his chief arguments for voters in November to keep Democrats in power.
State and local governments are already finding infrastructure projects running significantly over budget. In Michigan, the cost of bridge construction and repair is 40% higher this year than initially estimated by the state’s transportation department.
Much of the increase is because the raw materials needed for projects are limited as a result of the ongoing supply chain crisis.
The cost of raw materials for highway and road construction has soared by 21% over the past year, according to the American Road & Transportation Builders Association. The figure is slightly higher than the 20% increase for general construction materials and the 8.5% increase for consumer goods and services.
The prices of iron and steel have climbed by 50.3% over the past 12 months, and asphalt is up 37.5%. The price of pre-stressed concrete bridge beams is up 22.7%, and costs of concrete blocks have risen 8.7%, according to the association’s data, which is drawn from the Bureau of Labor Statistics.
“Inflation is definitely having an impact on project costs,” said Steve Hall, a senior vice president at the American Council of Engineering Companies. “We’re seeing significantly higher materials costs due to continued supply chain challenges stemming from the pandemic, although we hope this is a problem that eases over time.”
The White House declined to comment for this article, and the Department of Transportation did not respond to a request for comment.
The equipment needed for construction projects also is more expensive. The cost of heavy machinery, such as cement mixers and road pavers, has jumped 10.9% in the past year.
Spikes in energy prices also are driving up the costs associated with infrastructure. Diesel fuel prices, which most heavy construction machinery runs on, have risen 57.5%. Overall, the cost of energy needed for highway and road construction is up 53.5% in the past year.
Economists say inflation will force states and the federal government to narrow their ambitions.
“It takes time for all these levels of government to agree on what projects to fund,” Mr. Ditch said. “If inflation shows no signs of slowing, federal and state officials will be forced to cut the size and number of infrastructure projects they fund.”
Although Congress can boost infrastructure spending to account for inflation, state governments would likely face difficulties doing the same. Most infrastructure projects require some cost-sharing between the federal and state governments, which means fewer projects overall unless inflation falls dramatically.
Even without inflation driving up the costs of raw materials, Mr. Biden’s infrastructure projects would be hobbled by labor shortages. Job sites across the country face a dearth of high-skilled and low-skilled workers, fueling wage increases that also cause projects to run over budget.
On the high-skill front, a shortage of civil engineers to design and oversee projects has driven labor costs ever higher. Likewise, the construction industry is struggling to find low-skilled, manual laborers to work on infrastructure projects.
“The engineering industry has a longer-term challenge related to inflation, stemming from an ongoing and growing shortage of talent,” Mr. Hall said. “Competition for talent is pushing wages up, and when you add the increased demand for engineering services stemming from [federal infrastructure] investments, you create a ‘perfect storm’ that will definitely impact prices.”
Some economists say the labor shortage plaguing infrastructure projects and driving up costs is one of Mr. Biden’s own making. They say the infrastructure law pushed more money into the construction industry than those companies were prepared to handle.
“Usually, companies are hesitant to do a lot of hiring and training if they expect the spending increase to be temporary, which this bill is obviously,” Mr. Ditch said. “So all this did was set off a bidding war for the existing pool of workers, inflating labor costs in infrastructure.”