Even the grandest infrastructure plans are not immune to current economic realities.
High inflation, serious labor shortages and supply chain delays are confronting local governments as they look to earmark federal pandemic relief money for key infrastructure projects.
In Venice, Florida, Linda Senne is running into challenges with shortages of PVC and other pipes as well as getting labor-challenged contractors to bid on projects as the gulf coast city tries to upgrade its water infrastructure.
“The two biggest issues are supply chain and the labor market. Lately it has been difficult to get contractors to bid or quote because of the labor shortage. In addition, they may be reluctant to hold their bid prices due to the uncertainty of the supply chain,” said Senne, who is finance director for the city of Venice. “Currently there is a short supply of PVC and HDPE pipe for utility projects. Any petroleum based product is subject to fluctuations in pricing.”
Two thousand miles across the country in Wyoming, Malea Brown, CFO for the city of Laramie, is also seeing the impacts of inflation.
“In recent months, the city is experiencing bids coming in significantly over projections,” Brown said.
She said a new water tank that is part of water infrastructure improvements the Wyoming city is eyeing for its $5.6 million share of American Rescue Plan Act and other funding saw bids come in $6 million over the projected $15 million cost of the project.
Brown said the city is taking a look at how to deal with the higher costs and has scaled back other infrastructure projects. She said the city is also wrestling with supply chain problems and their impacts on construction projects.
“Big equipment like dump trucks are taking over a year to receive,” she said.
The problematic dynamic is playing out across the U.S. as local governments spend their allocations from the $1.9 trillion COVID relief bill which includes money they can spend on equipment and infrastructure projects such as water treatment plants, sewer and wastewater systems.
The federal rescue act allocated $350 billion to states, localities and tribal governments for infrastructure projects.
Localities across the country are also prepping for more spending from the $1.2 trillion infrastructure approved by Congress and President Joe Biden last year. The bill includes money for railroads, mass transit, bridge repairs as well as broadband and wireless infrastructure and renewable energy.
Infrastructure needs have been a top priority for state and local governments with concerns about aging bridges, water and sewer systems and the need for new or improved roads and transit systems.
Biden has made infrastructure a top agenda item.
But now those infrastructure efforts wrestle with high inflation, labor shortages that cut across industries and supply chain stumbling blocks that will slow projects and make them more significantly expensive. That will impact state and local budgets when the economy already posted negative GDP growth (-1.4%) in the first quarter.
The complications confront contractors facing labor shortages and their own sets of higher costs and constituents who might feel the impacts of project delays and increased spending.
“We believe that some potential long-term impacts include the possibility for construction companies with high level debt and low cash reserves may face liquidity crisis, our contractors will seek to terminate or renegotiate contracts, and that small contractors may fail,” said Renee Smith, grants manager for the city of Cheyenne.
Smith said inflationary and logistics challenges could impact construction processes for the Wyoming city, from bidding to completion. She said there is potential for “construction claims because of the material delays.”
Cheyenne received $12.2 million in ARPA funds. The city has used some of that money to acquire a motel to house homeless persons and for three new fire stations. The city’s infrastructure priorities include a bridge replacement, street repairs and sewer upgrades.
Smith said the city is looking to apply for a number of grants programs under the federal infrastructure bill.
“We are also looking at FEMA grants for flood mitigation assistance and hazardous mitigation project grants to continue the work we are already doing with previous FEMA grants. The city is also interested in pursuing grants for water conservation projects through the EPA,” Grant said. “We are in the early stages of prioritizing these projects, but we are anticipating applying for projects that make the most sense for Cheyenne.”
Water signs
In Florida, the city of Venice is slated to use $2.4 million from the federal pandemic package for water infrastructure improvements, Senne said.
That includes utilizing federal money for a $5.2 million effort to replace aging switchgear equipment and to install a new emergency generator at a water treatment plant, said Javier Vargas, city utilities director for Venice. Vargas said some of the key machinery and generators at the plant are 28 years old and in need of replacement.
The Florida city has plenty of company in putting its infrastructure focus on water and wastewater and repairing or replacing aging systems, said Teryn Zmuda, chief economist with the National Association of Counties.
She said water and wastewater are among top spending areas for local infrastructure projects funded by federal measures. Zmuda said the federal money helps with large scale, long-term water improvements that also might cut across county, city and regional lines.
“They are big projects,” she said.
Road and street improvements are also a high priority for local governments. Counties maintain 44% of the country’s roads and 38% of its bridges, according to NACO.
But like with the rest of the economy, localities’ infrastructure plans are feeling the brunt of high inflation, labor shortages and supply chain troubles.
“Over the past two years we have seen overall construction cost increases of 15% to 20% per year. This increase includes the cost of labor and materials. We have seen a particularly large spike in cost on petroleum-based projects such as asphalt and plastic pipe,” said Tom Points, senior director of public works for the city of Nampa in Idaho.
The growing Idaho jurisdiction near Boise received $17.5 million from the pandemic relief bill, according to a city spokesperson. Nampa’s infrastructure priorities include $10.4 million for water projects including replacing aging lines and wastewater equipment.
But like officials in other jurisdictions, Points also said the Idaho city is also facing supply chain delays.
“Some of our projects are delayed by several months as we wait for materials deliveries,” he said.Supply chain shortages and equipment delays are confronting local agencies — including police and fire departments across the country.
Those could continue and worsen with the impacts of new COVID shutdowns in China (including ports and manufacturing plants) and U.S. sanctions against Russian minerals, energy and fertilizer exports over the invasion of Ukraine.
‘Not immune’
Inflation also continues to trouble the economy from consumers at grocery stores to the major infrastructure projects across the country.The U.S. Bureau of Labor Statistics reported an inflation rate of 8.3% for April compared to a year ago. That includes a 43.6% rise in gasoline prices, 13.2% increase in new cars and trucks, a 33.3% hike in air fares and an 80.5% jump in fuel oil prices.Inflation rates are at their highest levels since 1981 including record highs for gasoline nationally and in states such as Oregon, Maryland, Florida and Ohio.
“We are not immune to the inflation and supply chain issues throughout our country. Vehicle and equipment replacement orders are taking significantly longer to fulfill due to supply shortages,” said Lori Curtis Luther, city manager for the city of Beloit in southern Wisconsin.
“Inflation and labor availability has been challenging in seeking competitive bids for projects. We are seeing delays in procuring many items, including street and traffic light poles,” she said.
Beloit received $15.2 million in ARPA funds. Luther said the city’s infrastructure priority list includes a $46 million upgrade to an aging water pollution control facility.
The city also wants to buy a new hybrid electric bus and electric lawnmowers via $690,000 and $123,000 grants.
Other jurisdictions, including in Florida, Oregon and other states, have seen delays in procuring vehicles for police and fire departments as well as key materials and equipment for construction projects.
Those issues are also making contractors skittish to bid on projects. Those who are bidding are submitting higher costs because of inflation concerns.
“Bids are coming in higher than anticipated, as vendors remain nervous about locking in prices. We are especially seeing increased costs in asphalt. Supply chain issues are causing months of delays. We’ve seen delays with work at the treatment plant due to delayed delivery on some key items. It has pushed the project back months,” said Kristina Mainwaring, public information officer for the city of Klamath Falls.
The southern Oregon city is scheduled to receive $4.8 million from ARPA with its top infrastructure priorities including a $43 million upgrade to a water treatment plant and $12 million for a runway reconstruction at the local airport.
Mainwaring said labor shortages are also hindering local infrastructure projects.
Zmuda said local governments (including public schools) lost 1.4 million jobs when the economy hemorrhaged 22 million jobs at the start of the pandemic. Local governments are still down 600,000 jobs from pre-COVID levels, Zmuda said.
She said half of those jobs are at schools but the other half are in other local government functions including public works, street repairs and water and sewer systems.
Trucking companies, construction contractors and engineering firms are also struggling to hire and retain workers impacting project timetable as well as their ability to bid. Local governments have until the end of 2024 to allocate their ARPA money and 2026 to get those programs going.
Money and wisdom
Fiscal conservatives blame the high levels of central bank and government spending during the pandemic — including via COVID relief and infrastructure measures — as contributing to high inflation rates. Fiscal watch dogs also worry about how some of the waves of federal money is being spent at the state and local levels.
“There’s a ton of money out there,” said Tom Schatz, president of Citizens Against Government Waste.
Schatz worries about expansive spending programs and some state and local governments straying away from focusing on pandemic relief and needed infrastructure repairs.
He points to local governments using pandemic and infrastructure money for nature centers, high school sports fields, tennis courts and arts festivals.
Schatz also worries about spending programs having ‘use it or lose it’ ties to federal funding and a predisposition that more government spending is the primary solution to many economic and societal challenges.
“If spending money solved problems, we’d be the smartest country in the world,” he said.
