By Jenni Bergal
Stateline, an initiative of The Pew Charitable Trusts, provides daily reports and analysis on state policy trends. Read more at Stateline.org.
When Ohio’s transportation authorities received tenders for the next stage of Interstate 75 north of Cincinnati in the spring, they experienced a rude awakening.
Inflation had pushed the cost of the mega-project about $100 million above the $171 million estimated by state engineers. Officials decided to redesign the project, break it up into smaller phases and ban it again, delaying construction until the fall of 2023.
Transportation officials in Ohio will receive nearly $2 billion over five years from the federal $1.2 trillion bipartisan infrastructure bill. But so far, the money they’ve received has been “largely eaten up by inflation,” said Ohio Department of Transportation spokesman Matt Bruning. “It didn’t cost everything, but we’re pretty close to a net total of zero because of that.”
Across the country, many transportation companies, who will receive about $350 billion in additional funding for road and bridge projects over five years from the 2021 Infrastructure Act, are telling a similar story.
States have seen a 20% to 40% increase in project costs, depending on region and material, said Susan Howard, director of policy and government relations at the American Association of State Highway and Transportation Officials.
“You have to settle for less or use that money on projects you already have planned instead of the dream projects you didn’t realize,” Howard said.
For example, the cost of asphalt increased more than 20% in October 2022 compared to October 2021, according to the Associated General Contractors of America, a construction industry trade group.
Concrete costs increased by 14% during this period and metal structures for bridges increased by more than 23% during this period.
“Road construction is almost a perfect storm for inflation,” said David Ditch, a transportation policy analyst at The Heritage Foundation, a conservative think tank based in Washington, DC.
According to Ditch, construction is energy-intensive and will be hit hard when fuel prices shoot up dramatically, as they did in the first half of 2022. Builders need fuel to move and operate heavy equipment, and asphalt is petroleum based.
Ditch said at this point that inflation is not enough to completely use up all expenditures of the federal infrastructure act. “But we have no idea what’s going to happen with that in the next few years,” he said.
Transportation officials say supply chain disruptions are also increasing the time it takes to procure and deliver materials and equipment. And the high demand for skilled road workers means they can command higher wages, according to Ditch.
In Maine, state transportation officials turned down bids for seven road or bridge construction projects this year because the cost far exceeded officials’ estimates. They had planned to spend $28 million on the projects; The low bids were $50 million.
A bid for a bridge replacement outside of Bangor was nearly double the agency’s budget, according to Maine Department of Transportation spokesman Paul Merrill.
“The seven projects that we could not justify awarding this year will have to be postponed for at least a year,” he said, noting that some will be split into smaller contracts.
Merrill said his agency first looked at a “charged bidding environment” for construction projects starting in 2019. COVID-19, supply chain issues and now inflation have all played important roles.
“When you’re in sticker shock like that with all these issues, including inflation, we have to be careful with the money we spend,” he said. “I don’t know anyone who is planning to spend $20,000 on a kitchen remodel who doesn’t think twice about signing off when a contractor’s lowest price is $40,000.”
Alison Black, senior vice president and chief economist for the American Road & Transportation Builders Association, said states are moving forward with construction plans despite the additional costs. In fiscal 2022, around $53.5 billion in federal infrastructure funding was allocated to more than 29,000 projects, according to her group.
Black noted that if a state bids on a freeway project this year, with high inflation, it could still take several years to build. “As inflation hopefully eases down in the future, that will help,” she said.
But even if inflation falls dramatically, some experts say the damage has already been done and may continue.
“It’s still eating away slowly but surely,” said Jeff Davis, senior fellow at the Eno Center for Transportation, a Washington, DC-based nonprofit that analyzes policy. “Even if there are lower numbers, this could eat up the entire spending increase from spending [infrastructure law].”
Howard of the State Transportation Officials Group stressed that the extra federal money still makes a big difference. “If we didn’t have these additional resources, states would be in a much bigger world of damage,” she said.
Ohio Transportation Official Bruning said his agency is grateful to be getting additional funding from the Infrastructure Act. It’s also received a boost from a state fuel tax hike of 10.5 cents a gallon that went into effect in July 2019.
But inflation added an element of uncertainty to the financing picture over the next several years.
“It can get worse. It can get better,” he said.
