By Jim Geraghty
Thursday, May 12, 2022
New Hampshire GOP governor Chris Sununu appeared on yesterday’s Three Martini Lunch podcast and
said:
Remember, this Biden administration
has authorized all of this money to be spent. But this infrastructure money?
Not a penny has been spent yet. Not a penny has been spent — it’s all been
authorized, but there’s no dollars actually out the door. Wait until that
starts happening! And then we’re gonna have issues with steel, with oil even
further, because you need oil to make asphalt, right? With raw materials,
cement and concrete. The cost of cement has gone up three or four times. I
watch this stuff every day, because as a small state, we’re always trying to
pool together our buying power, so that we can compete with the big guys, so to
say. . . . We’re still going to feel these inflationary pressures, especially
around gas and diesel, for a long time. Truckers, just getting the product from
Bentonville, Ark., at Walmart to your Walmart in New Hampshire or whatever it
might be, that cost that trucker another 1500 bucks, just in the price increase
that happened last week. Two weeks later, he’s spending 1500 bucks more, just
to transport that product. That’s going to bring the supply chain to a halt.
The governor is correct, and as far as I can tell, only
those who work in the infrastructure-construction business are talking about
the worsening problem. First, in addition to all our other inflationary
pressures, in the coming months and years, state and local governments will
spend another $1.2 trillion on infrastructure products. This sum is separate
from the $1.9 trillion Covid-relief bill the president signed in March 2021,
the $1.5 trillion omnibus spending bill he signed in March 2022, and various
stopgap spending bills he has also signed.
Fifty states and a considerable number of localities will
be trying to start and complete $1.2 trillion in construction projects
simultaneously. What do state and local governments — or more specifically,
their contractors — purchase when they’re working on infrastructure projects?
As Sununu mentioned, concrete, steel for rebar, and asphalt, among other
products. And all these products have grown considerably more expensive in the
past two years.
The U.S. Bureau of Labor Statistics’ special
index for construction materials as a whole stood at 256.4 back in
January 2021. As of March 2022, it was at 344.3 — a 34 percent increase. The index
for concrete stood at 179.8 in January 2021, and as of March 2022, it was
at 200.3 — an 11 percent increase. The price of steel has been volatile, rising
quickly and dropping quickly at different points in 2021, but it is
still at a historically high price. And
you’ve probably noticed the high price of oil.
Other construction costs are up, too. As of April, the
cost of gypsum, used in ceiling tiles, plaster, and drywall, is up 20 percent since last year. The cost of
insulation has risen about 17 percent in a year. Paint is in such short
supply, paint manufacturers are buying back unused paint to reformulate
into new products. (Eh, not quite, this article in American
Painting Contractor is an April Fool’s Day joke. Thanks for dating the
article March 30, guys. Nonetheless, the country is indeed facing a paint shortage.)
What do you think happens when all 50 states and an
unknown but large number of localities all try to buy these products at once?
What have we learned happens when demand rises steeply but supply remains the
same? Prices skyrocket, and some consumers can’t get what they need or have to
wait longer to get their products delivered.
On top of everything else, the cost of power tools is going up, too.
Wait, we haven’t even addressed the most pressing
problem. Almost all the vehicles used in construction projects run on diesel
fuel, and the price of diesel fuel keeps reaching all-time highs. No, says
Sununu, there is no substitute:
Roughly 850,000 diesel-powered
vehicles nationwide are in use bringing supplies, materials, and workers to and
from U.S. construction sites. Earthmovers, bulldozers, bucket loaders,
backhoes, cranes, pavers, excavators, and motor graders are all essential to
building and expanding our economic infrastructure. For most of these machines,
there is simply no substitute for diesel power. No viable alternative has yet
emerged for equipment that exceeds 500 horsepower; some construction engines
produce several thousand horsepower. In the construction sector, 98 percent of
all energy use comes from diesel.
East Coast stockpiles of diesel fuel are at the lowest on
record, and some industry watchers expect rationing of it this coming
summer. How exactly are states and localities supposed to launch hundreds
of new infrastructure products during a diesel-fuel shortage?
Even if a locality can secure and afford the steel, the
concrete, the asphalt, the cost of operating all the construction equipment and
all the necessary tools, there’s still the problem of manpower. Like a lot of
other industries, the construction business is dealing with a labor
shortage. The Associated General Contractors of America recently noted
that job openings in construction hit an all-time high at the end of March,
while the industry’s unemployment rate was the lowest ever recorded for April.
There were 415,000 construction-industry job openings at the end of March, a
jump of 69,000 or 20 percent from March 2021. (The association is calling for
“an immediate expansion of work permits for foreign-born workers.”)
What does this mean? This means that the overwhelming
majority of these projects are going to run way over their initially estimated
budget and way behind their initially estimated schedule. The New York Times observed last November that,
“Cost overruns, engineering challenges and political obstacles have made it all
but impossible to complete a major, multibillion-dollar infrastructure project
in the United States on budget and on schedule over the past decade.” And that
was when inflation was still relatively normal and manageable.
You’re already seeing some public-works projects canceled
because the costs rose so quickly. In Idaho, one new highway-interchange
project and a road-resurfacing project are now delayed indefinitely: “Our goal was to start construction on the interchange this
spring, but prices on materials have compelled both parties to step back
and consider how to move forward,” state transportation project engineer Doral
Hoff said.
The much-touted bipartisan infrastructure law is a bit
like an ouroboros:
The cost of these projects is rising quickly because of the cost of the
materials, and the cost of the materials is rising quickly in part because the
infrastructure-spending bill dramatically increased the demand and amount of
money available for these projects. (The law is also an enormously complicated
endeavor; as McKinsey Consulting wrote this week, it “includes roughly 240 separate funding streams that will flow to
state and local governments either directly, in the form of grants and
program funds; or indirectly, through local constituents such as private
utilities, businesses, and individuals.”)
Maybe America really needs $1.2 trillion in new
infrastructure projects. But by attempting to get these projects started during
a period of runaway inflation, supply-chain problems, exploding diesel-fuel
costs, and a labor shortage, the Biden administration and Democrats are
ensuring that taxpayers get the minimal bang for their buck.
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