Lessons from the IIJA: Inflation and Federal Infrastructure Legislation

There is still more than a year and a half of spending remaining on the Infrastructure Investment and Jobs Act (IIJA), but it is already time to start considering what comes after. On Capitol Hill, hearings are already underway to start crafting the next major surface transportation bill. Debates over what the IIJA got right, and what it got wrong, are already underway as well.

The IIJA will generate substantial post-mortem debate for many reasons, including its historic scale, its unique timing as both long-awaited infrastructure legislation and a post-pandemic jobs program, and the degree to which it deviated from past federal infrastructure legislation. The IIJA was a big change to federal infrastructure policy, and the performance of the IIJA is impossible to separate from the debate over what comes next.

A few years in, it is impossible to make any evaluation of the IIJA without inflation taking center stage. The IIJA coincided with a once-in-a-generation bout of cost inflation in the infrastructure development and construction sectors that far outpaced much of the rest of the economy. Construction costs today are so inflated compared to pre-pandemic trends that it is unclear how the industry will recover, and the trend looks much worse for the large infrastructure projects targeted by some of the most important IIJA grant programs. Construction cost inflation will undoubtedly overshadow the IIJA’s legacy, and could arguably consume the IIJA itself – by some metrics, U.S. infrastructure investment has even declined in real terms despite the nominal spending boost from the IIJA.

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