How do you implement an infrastructure bill? UChicago scholar discusses Biden’s plan, and what’s next

Passed in November, the $1.2 trillion infrastructure plan is the country’s largest in decades

Last November, President Joe Biden ushered in a bipartisan agreement that launched the most comprehensive infrastructure plan that United States has seen in more than half a century.

The $1.2 trillion Infrastructure Investment and Jobs Act—the largest infrastructure plan since President Dwight Eisenhower authorized the $25 billion Federal-Aid Highway Act of 1956—includes $110 billion to repair roads and bridges and support what the White House calls “major, transformational projects.”

The plan also allots $39 billion for public transit; $25 billion for airport improvements; and $17 billion for port infrastructure and waterways. In addition, it calls for spending $55 billion to expand water access and clean drinking water, and $65 billion to improve broadband internet access, particularly in rural areas.

Those are merely a few of the bigger pieces in a dizzying assemblage of projects that University of Chicago scholar Justin Marlowe has been watching closely.

A research professor and associate director of the Center for Municipal Finance at the Harris School of Public Policy, Marlowe is an expert in the world of public finance—particularly infrastructure finance. He is editor in chief of Public Budgeting & Finance, and is the author of four books and more than 100 articles, book chapters, technical reports and popular commentaries. In addition, he works as an expert witness and consultant to public, private and nonprofit organizations around the world.

In this Q&A, Marlowe discusses how COVID-19 and inflation have impacted infrastructure, as well as attempts to stretch the definition of what is considered infrastructure.

What is the status of work planned under the infrastructure program? Are we seeing shovels in the ground?

Some projects are underway. In June, the White House reported that $110 billion has been released and work has started on more than 4,000 projects. Most jurisdictions are at the point where they have identified projects for the federal money and are going out into the market, trying to hire contractors and get shovels in the ground. But that’s created a serious challenge: It’s hard to find folks to do projects. Contractors are experiencing the same tight labor market that everybody else is experiencing. We’ve even heard a few examples of jurisdictions getting exceptions to competitive contracting simply because there simply are not enough contractors to bid on so many different projects.

The sheer size of this funding is something local officials haven’t dealt with in some time. What issues, other than a tight labor market, are they navigating?

The simple answer is trying to spend a lot of money in a period of tremendous uncertainty and on a tight timeline.

Most jurisdictions have a 5- or 10- or even 20-year capital improvement plan but that was before COVID. Now, the question they’re asking themselves is how have our infrastructure needs changed? What forward-looking capital improvements will be important post-COVID? At the same time, the federal government is requiring thorough reporting and transparency on how the money is spent. But those reporting requirements remain a bit of a moving target. Questions still exist about what exactly needs to be reported and how much scrutiny that reporting will receive.

And the federal government, driven at least in part by election concerns, wants to see projects underway and completed as soon as possible, which is why the government is pushing local and state jurisdictions to spend the money quickly—by the end of fiscal 2023 or into 2024.

Another aspect of this that doesn’t get nearly enough attention is whether the state, county and local jurisdictions can use the federal dollars to upgrade their internal information technology that, in many places, dates back to 1992. They’re still using it to run things like payroll, accounts and HR systems. It’s kind of frightening. Now, with increasing demands for transparency and citizen engagement; with the need to allow employees to work from home, many of those systems are lacking.

But it’s unclear if federal infrastructure dollars can be used to upgrade those systems. Some local governments have decided to spend the money for those improvements and ask for forgiveness later; others are waiting for guidance.

How does this federally funded infrastructure work affect capital improvements already planned in local jurisdictions?

It’s a dilemma jurisdictions face whenever a bundle of money for public improvement suddenly becomes available. Often that money arrives with a clear set of directions on how it should be spent, which is the case with a sizable chunk of funds in this bill. Those projects may not be priorities for a given state or municipality.

But often those projects get built merely because that clear, robust revenue stream exists for them and completing them is relatively straightforward. Meanwhile, higher priorities don’t get done.

So, the infrastructure bill can present a multi-faceted problem—but one that I think most state and local finance folks would rather have than not. They just need to be aware of an old adage in budgeting: The really big mistakes are made when you have a lot of money to spend.

How would you assess the impact of COVID-19 on this infrastructure plan?

You can answer that from a couple perspectives: a direct response to COVID, and a vision of what a post-COVID recovery ought to look like.

We know from how the legislation was created and how the dollars were designated to be used what the clear priorities of the Biden administration are: an emphasis on bolstering public health is one. The City of Chicago’s Bureau of Public Health is a good example. It’s using COVID relief money and funding from the infrastructure legislation to build out technology systems to bolster services like epidemiological monitoring capacity to basically prepare for the next pandemic. A lot of that has been happening across the country—building up the physical infrastructure of public hospitals, clinics, that sort of thing, which were severely depleted with the Great Recession of 2008.

We also know that the Biden administration is emphasizing equity in the way the money is spent—and that means designating a lot of dollars for traditionally underserved communities and placing a priority on accountability and reporting that those dollars are flowing to those underserved communities.

Beyond that, we see that this plan reflects what the Biden administration thinks should happen as we rebuild from COVID. So, we see bolstering electric vehicle charging stations, retrofitting buildings to lower carbon footprints, a lot of building back greener, more efficient, and more sustainable.

Related to COVID impact is a belief that more people will continue working from home. That prioritizes information technology and expanding broadband access especially, again, in historically underserved communities.

What impact will inflation have on the work?

It works in both directions for states and localities. Undoubtedly it makes things more expensive, but they also can hedge and manage that a little. Think about, for instance, the federal government sending you a big lump of money to do a project that’s going to take two or three years to complete. Most state and local governments have a relatively sophisticated system in place to manage that free cash while it’s sitting around. If they’re able to put those dollars in inflation-protected Treasury Securities or something like that, then, at a minimum, they’re preserving the purchasing power of those dollars. So, it’s not a complete loss for states and localities but it does create some additional management challenges.

What is the impact of the Russia-Ukraine war?

Certainly, to the extent that it’s a driver of fuel costs, it can have an impact.

Another thing that’s somewhat under-appreciated is the way that investors all over the world—particularly in Europe and to a degree in China and other places—have close connections with Ukraine. Investors in those countries buy a lot of U.S. municipal bonds; it’s maybe 5 to 10 percent of market share. A sizable portion of that money also has made its way into gas and other utilities throughout Europe, including Ukraine. Since the war started, a lot of that investment has left Ukraine and other parts of Europe that might be affected by further Russian incursion.

So, the question now is what happens to that investment? Some think those foreign investors will seize the opportunity to redirect that investment to China, India, or other parts of the non-Western world that are emerging as safe investments. That might cause a more permanent investment shift away from the West generally and that could create uncertainty for U.S. municipal bonds.

A convoluted chain of events for sure, but an important one.

Is there anything about this plan that is somewhat unknown or under-appreciated?

One important element is the effort to expand the definition of infrastructure during the Biden administration’s attempt to pass the bigger $3.5-$4 trillion social spending bill, which I don’t think they’ve completely abandoned.

During the debate around that legislation, the Biden administration talked about "human infrastructure," which was the first time this kind of spending was framed as infrastructure. It seemed that they were trying to leverage the general support of traditional infrastructure to bolster public support for social spending. It didn’t get much traction, but now the phrase is out there. Clearly politicians want to change the language in a way that is not just semantics. And I think we’re going to see that tactic again.

That change is really, really important to public thinking about these as investments. Soon maybe we’re going to stop calling roads and bridges infrastructure and call them something else.

—This is excerpted and edited from a story first published by the Harris School of Public Policy. Read the full Q&A, including Marlowe's thoughts on the supply chain and how the infrastructure plan might look in the future.