Increase in Construction Costs Could Reduce IIJA Funding

May 1, 2024
Many factors contributed to the inflation

The bipartisan Infrastructure Investment and Jobs Act (IIJA) includes $673.8 billion in transportation funding for roads, bridges, transit, airports, ports, and rail. Of the 673.8 billion, the largest share is for highway construction.

The Bureau of Transportation Statistics looked at two different scenarios with rising highway construction costs.

In the first scenario, it is assumed that construction costs continue to rise at their current rate using an annual growth from the last two years (2021, 2022) called the High Inflation Scenario.

In this scenario, only $224.2 billion can be bought with the 379.3 billion allotted for highway. This means only 60% of what could have been bought in 2021 when the IIJA was signed can be bought over the five years from 2022 through 2026. That is a 40% reduction.

The second scenario, the Modest Inflation Scenario, assumes a more modest growth in construction costs equal to the average annual growth in 2019 and 2021.

In this scenario, $260.5 billion can be bought with the 379.3 billion allocated for highways due to increased highway construction costs. This is 16% more than what could be bought if highway construction costs continue to rise at their current higher rate but still only 69% of what could have been bought when the IIJA was signed. This means a 31% reduction in what could have been constructed in 2021 when highway construction cost less.

What can be bought today with IIJA funds is significantly less than the dedicated amount due to recent increases in construction costs.

Highway construction costs rose 26% in 2022. That is significantly more than the previous all-time annual increase of 20% in 2005.

The most recent data through the third quarter of 2023 show continued growth with construction costs rising 25% from the first quarter of 2022 to the first quarter of 2023 and 5% from the first to third quarter of 2022.

In addition, the cost of crude oil going up, and supply chain issues due to COVID-19 contributed to the rise in highway construction costs.


Source: BTS

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