Real-term Investment in Infrastructure has Declined in the United States

Nowadays, we may not give much thought to the internet connection we take for granted. But in the woodlands of Vermont, stringing up fibre-optic cable is far from straightforward. To connect some of the homes that are located a mile back from the road, a lot of money and tree-pruning must be done. Moreover, replacing outdated electricity poles with new ones can take up to two years in isolated areas. The local broadband group in the north-east of Vermont managed to give high-speed internet access to around 2500 homes in 2023. Without the waiting time, this number could have been as high as 7000.

 When President Joe Biden signed a colossal infrastructure programmed into law two years ago, it was seen as a momentous chance to revamp American bridges, roads for EVs, and the power grid and communication technology, garnering headlines for its $1.2 trillion investments, which amounted to around 5% of GDP. However, the reality is disappointing - instead of the expected increase, actual infrastructure expenditure has decreased by more than 10% in real terms since the legislation was ratified (see chart).

 The below image from The Economist shows a representation of the world's population. It provides a visual insight into how many people are living in different parts of the globe.

 It can take a while for grand-scale projects to get going, as there are delays between Congress allocating the money, federal authorities distributing the funds, and local and state officials spending it. Anyone who has ever done a home renovation knows that building projects almost always take longer than expected. Most of the bigger outlays will take place in the last year of the five-year infrastructure bill. Former transportation official John Porcari, who worked in both the Biden and Obama administrations, draws a distinction with the stimulus packages of 2009 in the wake of the global financial crisis. He states that "the primary purpose then was to get people back to work, but with the infrastructure law, the primary objective is the projects – replacing what our parents and grandparents constructed and paid for."

 The inflation in the construction sector has been a major issue as it has caused further delays. One of the largest parts of the infrastructure package was a 50% increase in highway funding to a total of $350bn over five years, however the prices of highway construction skyrocketed, completely wiping out the additional funding. According to Santiago Ferrer of BCG, a consulting firm, this can cause either no bidders due to the low price estimates or a revision of the cost estimates which causes further delays.

 The infrastructure law, due to its "Buy America" rules and other additional requirements such as promoting racial equity, environmental sustainability, and fair wages, has caused delays. According to D.J. Gribbin, a consultant and former general counsel in the Transportation Department, the administration wishes to make progress, but some of its requirements impede rapid advancement. Furthermore, the law includes over 100 competitive grant programmes, which necessitate the development of new application systems and compliance procedures, making them difficult to establish and operate. As a result, some state and local officials are not even attempting to apply for the funds.

 When implementing infrastructure initiatives in the US, the legal structure is not the only factor to consider. A shift in state spending is often seen due to the influx of federal funds, allowing for state tax cuts. This recent trend has been enabled in part through large amounts of federal money.

 The American federal system is a complex task of coordination. As an example, the federal government needed to determine the amounts of broadband spending that each state needed. Therefore, detailed maps of internet coverage across the country were developed. Finally, it was this summer when the allocations were revealed. Now, the states have to devise their own systems to disburse the funds and keep track of the progress. According to Shirley Bloomfield, head of an association consisting of 850 independent telecoms companies, "It has been an array of states in various stages and demands."

 Obtaining permits is an issue that many are familiar with. The Biden administration has created a specific plan to expedite the approval of infrastructure and clean-energy projects. However, the Environmental Protection Agency (EPA) has granted states more authority to obstruct infrastructure activities due to concerns about water quality. According to Ken Simonson of the Associated General Contractors of America, "the administration's process for granting permits is at best, mixed." In September, regulators in South Dakota denied a $3.5bn carbon-dioxide pipeline that was intended to extend across five states, which was a disappointment for those who desire to see America take advantage of its carbon emissions.

 Despite the difficulties, certain positive developments can be seen. The construction of a rail tunnel underneath the Hudson River between Manhattan and New Jersey, with a cost of $16bn, began on 3rd November. Additionally, a $4bn extension of a bridge uniting Kentucky and Ohio is planned to commence in 2021. The White House has declared that backing has been granted for more than 40,000 undertakings across America. Additionally, inflation may be finally starting to subside since the beginning of the year, with construction costs mostly remaining static.

 Some people are of the belief that the infrastructure law could yield other benefits. In order to process all the applications for grants and the financial backing, the federal government requested that the states set up infrastructure coordinators, which would make for better planning in regards to water, roads, energy and beyond. Mr. Ferrer stated, "It's a major shift from the way the states have operated for the last century. It has been tough and not straightforward for them, but it is a better approach to take."

 It is necessary to remember the recent past: for a number of years, American presidents had been unable to pass any noteworthy infrastructure bills. Consequently, Donald Trump's promises of "infrastructure week" during his presidency became a laughingstock. In light of this, Adie Tomer, an infrastructure specialist with the Brookings Institution, stated that the Biden administration's actions are similar to "an athlete preparing for the match". He further added that "It takes time to do this correctly, but they are making progress."

 Kurt Gruendling of Waitsfield and Champlain Valley Telecom in rural Vermont has a keen interest in the potential of greater funding for high-speed internet access for his 15,000 customers. He is aware that the latest round of federal funding for broadband will be the largest yet, at $42.5bn across the US, which may cause shortages of personnel and equipment. Despite the slow start to America's infrastructure project, these would be desirable problems to have.

 Our weekly subscriber-only Checks and Balance newsletter keeps you up to date on the latest in American politics. You can read additional content on the upcoming 2024 elections here and track changes in Joe Biden's approval rating.