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POLICY RECOMMENDATIONS Fiscal Health
Policy Recommendation 1:
States can consider how capital projects can retain the value of federal funds in the face of rising inflation.
States should carefully review their current list of approved projects and only move forward with the most critical. To move forward with a project at this point just because it was funded in the last budget only adds artificial cost to the project but also increases the inflationary pressure on all projects and government operations.”
The Fiscal Health Subcommittee approved this recommendation, citing various projects which may be delayed or cancelled because inflation is making them much more expensive and well beyond initial scopes. Action is needed to preserve the value of committed federal funds. The committee recognizes that this issue is of bipartisan concern and will affect many communities.
According to the Bureau of Labor Statistics, the U.S. inflation rate was 6.8%1 at the end of 2021, the highest since 1982.2 Policymakers are concerned the rising costs of goods and a slowed pace of capital investment caused by workforce shortages will erode the value of federal dollars received through the American Rescue Plan Act and Infrastructure Investment and Jobs Act.
Early estimates indicate that, contingent on the rate of inflation, between $19.8 billion-$30.9 billion of the value of the Infrastructure Investment and Jobs Act will dissolve due to higher highway construction costs alone.3 Additionally, historical trends indicate that the cost of construction increases at a faster pace than regular consumer inflation. Should highway cost inflation average higher than 7% per fiscal year, the entirety of federal funds from the Infrastructure Investment and Jobs Act will lose its value.4
State Examples
The board of directors for the Des Moines (Iowa) International Airport will consider breaking construction of a new terminal into phases to combat rising prices and remain within budget.5
North Carolina’s Department of Transportation announced improvement projects over the next 10 years will have to either improve or replace existing projects to be considered for approval. If planning organizations identify new projects that better meet the needs of their communities, they can propose project swaps.6
Additional Resources
The Council of State Governments State Leader Policy Brief: Innovative Revenue Models — https://web.csg.org/csghealthystates/wp-content/uploads/sites/23/2022/05/ Healthy-States-National-Task-Force-Policy-Brief-Innovative-Revenue-Models.pdf
The Council of State Governments: States Respond to Inflationary Pressures — https://www.csg.org/2022/07/11/states-respond-to-inflationary-pressures/
Endnotes
1 U.S. Bureau of Labor Statistics. (2021, Dec. 15). Consumer prices up 6.8 percent for year ended November 2021. Retrieved September 13, 2022, from U.S. Bureau of Labor Statistics: https://www.bls.gov/opub/ted/2021/consumer-prices-up-6-8-percent-for-yearended-november-2021.htm
2 Ibid.
3 Davis, J. (2022, April 27). How Much Could Inflation Erode IIJA Buying Power? Retrieved Sept. 13, 2022, from Eno Center for Transportation: https://www.enotrans.org/article/ how-much-could-inflation-erode-iija-buying-power/
4 Ibid.
5 Norvell, K. (2022, April 5). To cut costs, Des Moines International Airport considers phased approach to its new terminal. Retrieved Sept. 13, 2022, from Des Moines Register: https://www.desmoinesregister.com/story/money/business/development/2022/04/05/ des-moines-airport-new-terminal-construction-may-gradual/7246613001/ 6 North Carolina Department of Transportaiton. (2022, May 31). Draft 10-Year Transportation Plan Up for Review. Retrieved from https://www.ncdot.gov/news/press-releases/ Pages/2022/2022-05-31-draft-stip-transportation-plan-release.aspx
