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Construction Report

Hanging in the Balance

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MCN Editor Beth Gainer The coronavirus pandemic has spread throughout the U.S., leaving the future of the nation’s infrastructure uncertain.

Until recently, U.S. infrastructure projects were abundant. According to Alex Carrick, chief economist of Cincinnati, Ohio-based ConstructConnect, infrastructure activity was relatively healthy, from airport construction to what he calls “megaprojects”; that is, construction projects that cost $1 billion or more each. Carrick states that 2019 saw 35 megaproject starts nationwide, 15 percent of all U.S. construction starts.

Then came COVID-19.

“Nobody saw this [coming] whatsoever; it had consequences that nobody could really have anticipated,” he says, adding that the coronavirus will weaken infrastructure spending.

The pandemic has unleashed immense doubt on public works projects. “As the economy continues to slow down, I think we need to understand the role uncertainty plays here,” says Philip Bell, president of the Steel Manufacturers Association in Washington, D.C. “As we move forward and the coronavirus continues to be front and center in people’s minds, that’s going to create a level of uncertainty that might dampen that investment in the future, both for public and for private infrastructure projects.”

Bell believes that funding for infrastructure is unpredictable. “I think that the likelihood [of new infrastructure] right now is to be determined, and I think it’s going to be an uphill battle for a couple of reasons,” he says. “We don’t know if there’s the political will to do this, or the funding to do this.”
“For example, the Senate resumed this week and an aid package was not even on their agenda,” he continues. “The House will be coming back soon, and there is talk of putting together a COVID-19-related aid package, but the question is, will infrastructure investment be part of it? And I think what’s really important about this is that for many, many years infrastructure investment has been a non-partisan issue, and I can’t think of a better time for us to invest in our nation’s infrastructure.”

Carrick is less optimistic about the future of U.S. infrastructure programs. “I find it hard to see where there’s going to be the kind of money that’s available for an infrastructure program,” he says. “This year the [country’s] deficit is going to approach $4 trillion. There’s never been any deficit like that before.” He adds that the priority spend during the COVID-19 crisis has been in other areas, such as income supplements and providing financial aid to companies – especially small businesses.

Pre-COVID-19, airport construction was healthy. Not so anymore, according to Carrick. “A major infrastructure construction [sector] that was very bullish before this crisis was airports. There was a huge number of airport projects on the books. Almost every international airport in the country had a program that would involve billions of dollars of spending,” he says. “But are people going to travel? Is it going to be justified?”

“There’s certainly a human inclination to talk things up and so on, and people talk about V-shaped recoveries,” he continues, “but if you just think about the logic of this, it’s hard to see how this really will happen quickly because there isn’t a vaccine yet.”

Ken Simonson, chief economist of the Associated General Contractors of America in Arlington, Va., concurs about infrastructure spending. During a ConstructConnect webinar titled Economic Impact of COVID-19 and Construction on May 7, Simonson observed, “In some cases, a state or local government will say, ‘We had to allot unbudgeted expenditures, we have a balanced budget requirement, our revenue is way down, so we’re going to put off building that new library or school that we had in our capital budget for next year.’ So by and large, I think construction will be a lot slower coming back than the rest of the economy.”

COVID-19 has significantly affected how people work and commute, and this, in turn, affects infrastructure projects. “Nobody knows what the pattern is going to be on the other side of this pandemic,” Carrick says, adding that because people are now more used to working from home, they may not commute as much as they used to pre-pandemic. “There’s likely to be an increasing move out of high-density areas into the suburbs, but it’s not clear that commuter patterns – and that means roads and rapid transit projects – are going to be anything as strong as they were [before the coronavirus].”

One area of spending shows promise, however – the digital infrastructure. Thanks to people now working remotely, this type of infrastructure is in demand. “The one area that really should be pushed is telecommunications, which have proven their worth many times over,” says Carrick. “How lucky is it that these services like [Microsoft] Teams and Zoom have come into their own almost exactly at the time where they’d most be needed?”

He adds that 5G is an investment, one that China is already making. “They’re going to build hundreds of thousands of 5G base stations and tens of thousands of racks for data centers. They’re talking about spending money on infrastructure that will help telecommunications and biotechnology and those kinds of things rather than the other kind of infrastructure that they’ve done in the past. That’s what we should be doing as well.”

Scott Hazelton, director of the construction practice at IHS Markit, Andover, Mass., agrees, saying, “If you’re really clever, you would not just go and pave small roads and fix the bridges. You would think about 5G connection to rural areas, so people can actually do telecommuting and telelearning.” Bell concurs. “Think about expanding broadband and telecommunication to rural areas,” he says, adding that this should be done immediately.

A Jump Start
Now is the time to invest in infrastructure programs, according to Hazelton and Bell. “Recessions and the need to get people to work again is a great catalyst for infrastructure,” says Hazelton. Bell believes that investing in traditional infrastructure is one answer to the current economic crisis. “Currently, there are over 33 million people who have applied for unemployment benefits, so when you’re looking at something that can jump-start the economy, I think it’s time for Congress to look at realistic and viable options,” he says. “Infrastructure investment is not a bailout. It is a way of creating jobs for unemployed Americans who will help rebuild and take us into this new normal that we’re going to face.”

“I think that if Congress would look at infrastructure investment in terms of its criticality and its job creation benefits, this should be a no-brainer,” adds Bell, who emphasizes there’s a dire need for construction upgrades and repairs and “if there’s a way to weave it into COVID-19 stimulus spending, I don’t know why we wouldn’t do it. Think about the shape of the roads, the bridges and highways we use and how important they are to keep the wheels of commerce turning.”

Annie Stefanec, director of external communications and public affairs of the Steel Manufacturers Association agrees with Bell that infrastructure must start immediately, as it is essential to a healthy economy. “Any infrastructure spending we have offers paychecks, and what comes out of paychecks is tax revenue, so when we get people back to work and getting those paychecks, federal and state governments ultimately start generating revenue again, kickstarting the economy and getting us back to normal,” she says. “It’s important to have infrastructure spending so we can get back to finding a way to create revenue.”

Businesses that contribute to construction are invaluable, according to Bell. “Construction and steelmaking are considered essential industries necessary for our nation’s critical infrastructure,” he says, “so mills have been able to operate, and construction projects have been able to take place. For large-scale construction projects, most of the approvals – regulatory and financial – and funding for all of that, that was decided last year, way in advance of the COVID-19 outbreak.”

Bell exudes confidence in the steel industry’s ability to deliver materials to meet the needs of upcoming projects. “As steel producers, we provide the raw material for the structural steel – the rebar, the plate and so on for these projects,” he says. “If you look at the shape of our economy, almost all aspects of our infrastructure need improving, and I think it’s important that the focus be on jobs and projects that can really give a quick return on investment and employ American people.”

Bell is also clear about the importance of investing in infrastructure, in particular, through using American-made goods. “The domestic steel industry has all of the necessary capacity available to supply the steel that’s needed for a massive infrastructure investment program,” he says. “And this is across all product lines in all regions of the country, so if this is done, we don’t have to worry about steel shortages, and I would certainly hope that any federal spending would have strong Buy American requirements and melted and poured provisions.”

The road toward infrastructure is not a smooth one. The best way to get through the sluggish economy, it seems, is through tenacity.

“There are plenty of people who have the capability to work within the steel industry supply chain,” Bell says. “To work in our industry, you just have to be willing to work hard, you have to have a can-do attitude, and an entrepreneurial spirit. Investment creates jobs; it is long overdue, and it will help us create the new normal.” ?

Groups Push for Infrastructure Investment

As the U.S. Congress and the administration consider additional measures to keep Americans afloat during the COVID-19 pandemic, a collection of 70 trade organizations is pushing for a major infrastructure bill to stimulate the economy.

Groups including the American Iron and Steel Association, Steel Manufacturers Association, National Association of Steel Construction, Aluminum Association and National Association of Manufacturers wrote President Donald Trump pushing for inclusion of infrastructure investment in a coming bill.

“There are few public sector actions that can deliver the same level of short- and long-term ‘economic shot in the arm’ as transportation infrastructure investment. Increased highway, bridge, public transportation and safety program funding will support direct job creation and retention. This will put in place capital assets that enhance supply chain efficiency and access to jobs, services, materials and markets for decades,” the letter said.

The signers noted federal investment will be particularly necessary now, given the likely hit to state and local transportation budgets as a result of the pandemic and its effect on tax collections.

The group cited the rare level of bipartisan support that exists for greater infrastructure investment, with both parties recognizing the need for additional spending to get the nation’s grids up from the current unacceptable levels in many places. Repeated studies from the nation’s civil engineers give the country’s infrastructure poor or failing marks in virtually every category.
“In fact, failing to deliver an infrastructure investment would not only be a missed opportunity, but could lead to declines in transportation improvement efforts that could be felt for years to come,” the letter writers said.

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