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Article07 May 2019

Infrastructure Spend a Key for Pandemic Recovery

May 7, 2020 – Government investment in infrastructure is thought to be a reliable policy tool to help improve the economy.  Even before the COVID-19 crisis, the  need for an infrastructure bill in the U.S. was one of the few things that enjoyed bipartisan support, although the parties differed on the size and timing of the spending. Federal highway budget legislation, which occurs roughly every four to seven years, sets and generally raises the federal budget for highway spending outlays.

The last infrastructure spending bill passed in the U.S. was the Fixing America’s Surface Transportation Act, or FAST Act, which was approved in 2015 and authorized ~$305 billion of federal highway and other transportation-related spending split over five years. This bill expires in 2020 but given this is a presidential election year, we expect the bill to receive a one-year extension before a new bill is considered. The good news is that we think that a comprehensive infrastructure bill in 2021 could help propel beaten-down state and local economies.

While the federal government only provides about one-quarter of highway spending, the passing of a federal infrastructure bill sends an important signal to state legislators and gives states the confidence to start long-term projects. This not only ensures increased employment but the new infrastructure gives states a competitive advantage in attracting new industry. State and local funding make up the majority of the spending, which they collect through state tax receipts, particularly gas taxes.

Five U.S. states (NY, CA, FL, TX & PA), which make up 40% of all infrastructure spend in the country have also been hit particularly hard by the COVID-19 pandemic and could experience lower than expected sales tax receipts. However, stimulus funding directed at state and local governments could make up for the shortfall and help to provided needed jobs over time to their constituents.

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Economic Recovery

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