Booming business investment, strong wage growth, and near-record low unemployment. State education spending is receiving healthy increases due to higher revenues. I could go on about the indicators of a strong economy.
Unfortunately though, state infrastructure projects do not seem to be reaping the benefits of the boom.
The Cyclical Side of Costs
States across the country are struggling to meet infrastructure needs. From California to New Hampshire, high material costs are giving states budget issues.
One side of the problem comes from the economy itself. Investment has been increasing in both the private and public sectors as revenues grow. Materials are in high demand as a result, and their prices are feeling the pressure. Construction material prices are rising with demand, with diesel prices up 27% and asphalt-paving mixtures up 11.6%, according to the Bureau of Labor Statistics.
Strong wage growth also makes labor costlier. With job openings outnumbering the unemployed, employers (including states) are boosting wages to attract workers, adding yet another price pressure.
Unfortunately, these are what employers have to deal with in a strong economy, and state infrastructure projects are no exception.
The Tariff Side of Costs
The other side of higher costs is not a result of cyclical economics. The costs of steel-mill products are up 18.2%, according to the Bureau of Labor Statistics. These are largely due to the Trump administration’s 25% steel tariffs. This is frustrating for state development agencies since this is not an inevitable cost of a strong economy.
The tariffs also create uncertainty in prices. Tariff threats can make it difficult to know what price to bid on months in advance of the project. Uncertainty like this helps add to project costs as bids may go higher to cover the risk.
Ohio provides an example of the struggle. Their Department of Transportation spent 19.1% more for steel back in September from a year earlier. Part of this can be attributed to the same high demand other materials face, but analysts attribute a significant portion to the pricier domestic steel being purchased as a result of tariffs.
The Resulting Struggle
These cyclical and tariff costs combined are weighing on states. According to the Wall Street Journal, Dover, N.H., has flood control improvements on the docket, but the project came in $1.5 million over their $3.3 million budget. They are likely going to have to pass up other projects to under take the needed improvements.
Missouri is another example. In Kansas City, voters approved higher property and sales taxes in order to fund street car repairs. The city is expecting the $250 million price tag to increase as a result of the tariffs, so the taxes will cover the added costs.
A Little Bit of Irony
For a president who campaigned partly on a national infrastructure plan, it is a little ironic that his policies are giving states added difficulty with their current developments.
Obviously, the tariffs are not the whole story. The strong economy plays a large part in the cost pressures too. However, developers are citing steel tariffs as a cause for higher steel prices. The president may be wise to look more into the long term effects of his tariff policies in the future.