PennDOT: Inflation Could Limit Infrastructure Funding
According to recent reports, officials from the Pennsylvania Department of Transportation have expressed concern that inflation and material shortages will limit the impact and benefits of funding from the bipartisan infrastructure law. Problems affecting these projects include cost and availability of construction materials, rising fuel costs and the availability of workers.
Cheryl Moon-Sirianni, a District Executive for PennDOT, told The Pittsburgh Post-Gazette that low bids for contracts have been coming in 10% to 20% higher than the department anticipated.
“It’s very disappointing,” Moon-Sirianni said. “We were very excited when this money became available because it would allow us to do a lot of work that we know needs to be done.
“It’s extremely frustrating. If you’re letting $300 million in projects out for bids and they come in 10% higher than expected, that’s $30 million of projects you can’t do.”
“We’re seeing higher costs, supply chain issues, and our contractors are also having problems getting laborers and especially night work laborers,” added Christina Gibbs, spokeswoman for PennDOT’s District 10. “We’re working through the challenges as best as we can to keep projects moving forward at this time. I don’t currently have an exact percentage of bid increases, but we are definitely seeing an increase in costs.”
Inflation could put severe limits on the benefits of infrastructure funding increase, PennDOT officials say https://t.co/kEmImOsS15— Pittsburgh Post-Gazette (@PittsburghPG) May 30, 2022
PennDOT Director of Project Delivery Christine Spangler added that bids across the state are averaging about 4.7% higher than expected, but that’s after the department made adjustments for inflation at the beginning of the year, making the overall impact actually even higher.
While lack of materials hasn’t delayed projects yet, contractors have reportedly had to be flexible and switch to other aspects of a job when they can’t get material or products they need in. Additionally, crews willing to work overnight or make late deliveries of concrete and asphalt are becoming harder to find across the state.
“That’s something we’re struggling with,” Moon-Sirianni said. “The workforce is struggling right now. If people can work during the day, they’re going to work in the daytime.”
Pittsburgh officials also faced obstacles when deciding on the construction material of the replacement bridge for the Fern Hollow Bridge, which collapsed in January. Construction began on the new bridge last month with the pouring of concrete for the first caissons to support two sets of columns that look like double capital Ts.
Moon-Sirianni said at the time that that a shortage of steel “absolutely” played a role in choosing precast concrete, with specialty steel potentially adding 18 months to two years to construction. “It would have taken substantially longer to get steel and even longer to get specialty steel,” she said.
Robert Latham, Executive Vice President of Associated Pennsylvania Contractors, told reporters that procedural changes at the department could help reduce the impact of inflation, including allowing low bidders to order materials earlier rather than waiting at least 30 days for the authorization.
“That way, they can go ahead and lock in prices as soon as possible because they can go up a lot on a weekly basis,” he said.
Spangler said that the state reviews those requests on a contract-by-contract basis.
The increase on petroleum costs also has hit the asphalt industry, due to the reliance on the fuel to produce and deliver the product. According to reports, the over cost for a ton of liquid asphalt has increased from about $450 last year to $738 this year.
“Everything related to our construction industry is going up,” said Vince Tutino, President of The Lindy Group. “Right now, I don’t see an end in sight.”
Additionally, Tutino noted that there is a severe shortage of truck drivers, with his company regularly having about 20% of its trucks sit idle due to a lack of drivers. He also estimated that inflation would use up about 20% of the infrastructure funding.
Similar Concerns in TX
Pennsylvania is not alone— the Texas Department of Transportation announced that its road infrastructure projects are also being impacted by construction material shortages and cost increases, causing delays and driving up project expenses.
“Due to recent circumstances affected by world events, there has been significant volatility in the market for various construction materials,” wrote TxDOT Director, Construction Division, Duane Milligan in a memorandum in April.
“We have seen the availability of some materials become very limited or the material lead time has increased significantly. We have also seen significant increases (over 100% in some cases) in some material prices.”
According to the agency’s project tracker, TxDOT is working on more than 15,700 projects totaling $157 billion. About half of the projects are reportedly underway or scheduled to start soon. Factors like rising petroleum costs, COVID-related shutdowns, increase for material demand and a worker shortage are all driving up prices for road-building materials like steel and concrete.
A TxDOT spokesperson told reporters that it was too soon to say how inflation and material shortages could affect the timing or cost of the I-35 Capital Express project, a plan to widen the interstate by adding additional lanes. The current estimated cost of the expansion is $5.7 billion with $4.9 billion of that paying for the central portion from Ben White Boulevard to U.S. Highway 290 East.
Requiring some 30 acres of land through Austin, and the median sales prices of a home in the area reportedly topping $600,000, land acquisition will likely drive up these costs as well.
Two light-rail projects in the city, including a downtown subway, have been pushed to cost over $10 billion due to inflation and other design changes, which is a 40% increase over initial estimates. While an expansion in tunnel length also drove up costs, officials also noted that costs increased due to construction material inflation and real estate.
Simonson added that while more steel-making capacity is coming online over the next year or so, a shortage of construction workers could also complicate both projects.
Rising Material Costs
According to a recent analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data by the Associated Builders and Contractors, construction input prices are up 23.7% higher from a year ago—a slight decrease from March, which reported 24.4% higher from a year ago and 39.1% higher from February 2020. Nonresidential input prices are dropped 1% from March, reporting 24.0% higher prices year-over-year.
In looking to the 11 subcategories of construction materials, the association reported that input prices were up in 10 of them for the month. Softwood lumber was the only category in which prices decreased, falling 17.7% for the month and down 5.5% from last year. The largest price increases were in natural gas (16.9%) and unprocessed energy materials (10.3%).
“There are some economists who believe that inflation has peaked,” said ABC Chief Economist Anirban Basu. “Even if that were true, stakeholders should not expect dramatic declines in inflation in the near term given an array of factors placing upward pressure on prices: the Russia-Ukraine war, COVID-19, a shrunken labor force, elevated transportation costs and abundant demand for goods. Today’s PPI release indicates that producers continue to ask for and receive elevated prices for their limited production. These high input prices will continue to circulate through the economy as production continues, whether in the form of manufactured goods, buildings or infrastructure.”
Other products rising more than 1% in March include: fabricated structural metal products (2.0%); iron and steel (1.2%); steel mill products (2.4%); nonferrous wire and cable (1.3%); concrete products (1.8%); and crude petroleum (4.5%).
“According to ABC’s Construction Confidence Index, many contractors report that demand for their services remains sufficiently robust for them to pass along the bulk of their cost increases to project owners,” said Basu. “But at some point, the economy could weaken to the point that purchasers of construction services become less willing to pay elevated prices.
“The Federal Reserve is now in the middle of what will likely prove a lengthy monetary tightening process, and higher borrowing costs are rendering project starts less likely, all things being equal. That said, certain segments are likely to power through this dynamic, should it happen. That includes public construction, given the recent passage and ongoing implementation of a large-scale American infrastructure package. It should be noted that recent inflation has reduced the return taxpayers will get per dollar spent on infrastructure.”
In looking at the price index specifically, AGC notes the following increases year-over-year:
AGC officials went on to note in its report that the best way to keep costs from rising was to allow contractors to buy materials from the widest possible range of suppliers. In addition, officials suggested the elimination of measures that artificially inflate the cost of products.