Inflation Eats Infrastructure Bill

In addition to restoring allegedly crumbling highways and transit lines, the 2021 infrastructure bill was supposed to provide tens of billions of dollars for building new infrastructure. Now it appears that inflation will eat away most of the new money provided by the bill, leaving highway and transit agencies with no real increase in funding.

A city in Massachusetts reports that the price of asphalt has increased by 37 percent.

According to Jim Tyman, CEO of the American Association of State Highway and Transportation Officials, inflation in construction costs is “wiping out that increase [in funding] from the federal government that [state officials] were so excited about earlier in the year.” As a result, the increased dollars from the bill “are essentially evaporating.”

Last month, I observed that many transit projects were experiencing huge cost overruns. Most of those overruns took place before the infrastructure bill, but they along with inflation-related costs are likely to consume most of the funds for transit projects, meaning the bill is not likely to fund any projects that aren’t already under construction.

Is this irony or just political idiocy? Democrats were persuaded by Modern Monetary Theory that they could spend all they wanted on COVID relief funds, infrastructure, and anything else without having to worry about the effects of spending on inflation. Now I suspect if you asked people whether they would be willing to give up the $2,000 in COVID funds they received in 2020 and 2021 in order to avoid having to pay more than $5 a gallon for gasoline and other inflated costs today, most would say “yes.” Similarly, many transportation agencies would be better off today if Congress hadn’t passed the infrastructure bill and COVID relief programs.

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About The Antiplanner

The Antiplanner is a forester and economist with more than fifty years of experience critiquing government land-use and transportation plans.

4 Responses to Inflation Eats Infrastructure Bill

  1. rovingbroker says:

    Positive Feedback Loop.

  2. kx1781 says:

    One has to wonder if how this will affect ongoing projects that have already had considerable trouble with cost overruns.

    Within a year or two, could we see some of these troubled projects like Honolulu’s elevated line or Metro Transit’s new southwest LRT seeing their construction paused because of a lack of funds? Or maybe they’ll put on hold indefinitely building last part of the line to save money?

  3. Paul says:

    I don’t condone the stimulus funds, but don’t forget that inflation is a world wide phenomena and not just due to any one government policy. Would world inflation be this bad without the war in Ukraine? Also, the Republican tax cuts and deficit spending are also similar to stimulus funds and may well have increased inflation.

  4. LogiRush says:

    A few years ago, the Antiplanner predicted that increased infrastructure funding would cause construction cost inflation. I think it was in a formal report that was the basis for the post. Do you have a link to that post?

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