Construction in the US has weakened in recent quarters, and the overall outlook is relatively gloomy given rising inflation and the sharp tightening in monetary policy. The residential sector had been the main driver of construction activity, posting high growth in 2020-2021, but this is not expected to be sustained. However, over the coming years, infrastructure (including energy and utilities) will provide much of the growth impetus, buoyed by spending under the Infrastructure Investment and Jobs Act (IIJA). Funds from the IIJA will be spent over the next ten years, including $550 billion in new spending over the next five years. Of the total, $284 billion will be spent on improving the transportation network and the remaining $266 billion on improving core infrastructure. Some of the major allocations over the next five years include $110 billion for roads and bridges, $66 billion for railways, $73 billion for power grids, $65 billion for broadband infrastructure, and $55 billion for drinking water projects, among others.
Eight months after the IIJA was passed, funding has started to feed down to agencies, states, localities, and communities. The White House has published details of the initial allocation of funding per state and potential projects; so far funding for projects has been minor projects and no major projects have been mentioned, and much of the funding has yet to be allocated.
Dissecting where funding will be allocated is complex and has so far been opaque, many agencies and states are in the early stages of the application process for grants. Most of the funding will be distributed by five main agencies: the Departments of Transportation, Defense (The Army Corp of Engineers), the Interior, Agriculture, and Energy. There are 110 different grant programs and many of which are adapted from previous programs. 85% of the funding will be directed by competitive grants or by formula to states and localities, or directly to government agencies. $316 billion in grants will be open for application in 2022 and 54% of grants are competitive, with the remaining directed by formula. So far, the tender process has started slowly and will likely be drawn out, as projects will go through a process of evaluation and approval with largely different time scales.
It is unlikely that there will be a large increase in new projects in the pipeline as states will prioritise funding to address the backlog of repairs and projects that have been in the pipeline for years; priority will be given to projects that have been in the pipeline since pre-2010. Larger-scale projects will take more time to fund and are in the process of applying for funding. Funding is also widespread, and some ongoing projects may not benefit from significantly more input. For example, California’s High-Speed Rail Authority recently applied for $1.3 billion in grants for the $104 billion project, which has yet to be confirmed. However, the Department of Transport has designated some areas as strategically important, such as the upgradation of the North-East corridor, which has $24 billion earmarked for upgrading the network, and projects such as the Hudson River Tunnel will most likely secure funding from this program.
In the most recent release of announced funding as of 6 July 2022, it was noted that $112.4 billion will be released to 50 states in addition to the District of Colombia, Guam, and others. The largest amount of funding has been distributed to California, Texas, and New York, amounting to $9.2 billion, $8.0 billion, and $5.9 billion, respectively from 75 different grant programs. The Department of Transportation has planned to distribute the most, $76.7 billion will be distributed to all states, with $53.7 billion allocated to roads, bridges, and major projects. The Department of Defense (The Army Corp of Engineers) has the next highest allocation, equating to $13.1 billion. So far, $24.9 billion has been allocated to 4,506 projects across all states, although the bulk of grants that have been distributed have been for projects on a smaller scale.
In addition, it is important to note, as a part of the IIJA, new guidance on ‘Buy America’ shows that all federally funded projects must source all the iron, steel, manufactured products, and construction materials used in the project from US suppliers. However, there are some conditions when this does not apply: when it is not in the public interest, when the materials are not sufficiently available in the United States, or when using the materials would increase the cost of the overall project by more than 25%.
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