Inflation takes a bite out of Biden's infrastructure ambitions

WASHINGTON — In West Virginia, a tennis court sits unfinished after more than a year, and an airport project is costing millions of dollars more than expected. In Alabama, fewer miles of road will get repaved this year after asphalt prices shot up, and the price to build a dog pound has doubled.

Across the country, surging prices for building materials, supply chain disruptions and worker shortages are leaving a raft of infrastructure projects unfinished, delayed or over budget as the White House tries to make rebuilding the country’s infrastructure one of President Joe Biden’s key selling points to voters ahead of the midterm elections.

Biden has been traveling the country holding events at ports and bridges he says will be improved with the $1.2 billion infrastructure bill that was passed last year. But rising prices and a scarcity of materials and workers mean local governments aiming to get some of those funds may get less bang for their buck, forcing them to reassess the scope of what they hope to do with the money.

“The prices are just unbelievable, so we’re now trying to figure out what we do and what we’re not going to do,” said Cal Markert, the county manager of Jefferson County, Alabama, which includes Birmingham. He said the construction bid prices coming in for projects are "shocking."

Across the economy, prices were up by 8.3 percent in April compared with a year ago, the highest rate of increase in 40 years. But inflation has hit the construction sector even harder. The cost of building materials and supplies, which rose by more than 20 percent over the last year, is up by 70 percent since the start of the coronavirus pandemic. Prices for key materials like iron, steel and softwood lumber, along with the diesel fuel used to operate trucks and construction equipment, have nearly doubled.

At the same time, builders are having to wait months to over a year for certain products and materials needed to complete projects, like fasteners, roofing material and insulation, because of supply chain disruptions and because demand is outstripping supply, builders and local officials say.

There is also a shortage of construction workers in many markets, a problem that predates the pandemic and has gotten worse as the labor market has tightened over the past year. A report by Associated Builders and Contractors, an industry trade group, found that there were 400,000 unfilled construction positions, about double the pre-pandemic level.

All those constraints come as state and local officials start to make plans for how to spend a windfall of federal dollars set to come their way.

“In the near term, we can expect that the construction delivery costs remain quite high. This is part of the broader American inflationary story,” said Anirban Basu, the chief economist of the builders trade group. “But from a public policy perspective, this is deeply problematic. Now the question becomes will the taxpayer generate a significant rate of return on their investment, given that their construction dollar doesn’t buy nearly as much as it might have one or two years ago.”

Inflation and worker shortages have become “very real challenges,” Transportation Secretary Pete Buttigieg said at a briefing with reporters last month. He said federal officials are working with project planners at the local level to help with the flow of raw materials and address worker shortages with training programs.

“Certainly that creates an additional pressure, and it’s something that we’re going to need to monitor closely and manage,” Buttigieg said.

In the longer term, administration officials say, projects funded by the bill will help lower costs for Americans by improving seaports and railway lines, expanding broadband internet and weatherizing housing.

"In the current atmosphere that we're in, I mean, nobody is not going to be affected by higher prices," said Mitch Landrieu, who is overseeing the White House's infrastructure plans. "You're going to see that across the board for a bit as a president fights every day to lower the cost of inflation."

In the meantime, however, local governments are struggling to manage the rising costs.

In Jefferson County, Markert said, infrastructure costs have gone up by 30 percent to 50 percent, forcing the county to scale back plans and delay projects until next year or beyond. The county recently took bids for a new road project, and the price of asphalt mix had increased from about $45 to $70 a ton, which would add $30,000 to the cost per mile of road, he said.

As a result, the county intends to replace just 60 miles of road rather than the 100 it had planned, pushing the remaining miles out until next year or beyond, Markert said. Other projects are also at risk of being delayed, including sewer wastewater facility upgrades, other road projects and a dog pound — the price of which has doubled, he said.

The county is studying which grants it is able to apply for under the federal infrastructure law. If the current trajectory holds, any money it receives won’t go as far as it once would have, Markert said.

“If you could have built a mile of road, now you can only build about six-tenths of a mile of road with it. So the buying power has gone down drastically,” he said.

Morgantown, West Virginia, is $10 million into a $50 million project to expand the airport’s runway and build a commercial park, and its cost has already gone up by 20 percent, Mayor Jenny Selin said. The city hopes some money from the infrastructure law will help pay for the remaining phases of the project, but the volatile prices make it difficult to budget.

“When you’re trying to complete a project and you’re applying for grants, and then you see that the grant you’re applying for isn’t going to quite cover what you need to accomplish, that’s when it gets tough,” Selin said.

On top of higher costs, supply chain disruptions have also stalled smaller-scale projects in Morgantown. The city has been waiting a year and a half for the material to refinish a neighborhood tennis court. It also had to wait months to get a material that goes under playgrounds to protect children from serious injuries if they fall, and it had to put down wood chips in the meantime.

“Is it a bump in the road? Most definitely,” Irma Esparza Diggs, the director of federal advocacy at the National League of Cities, said of the struggles cities are having with inflation and shortages. “But will city leaders figure out how to drive through it so that they deliver projects that are on time and on budget? Absolutely. Because they’ve done it before.”