We have made the case for some time that nation’s aging infrastructure is in critical need of modernization. Now, that process has taken another step forward.
The $1.2 trillion agreement announced on Thursday, while it still faces hurdles, would increase long-run productivity in the economy, lift living standards and has the potential to lift the growth of the economy above the current long-run trend rate of 1.8%.
The nation’s middle market businesses have been calling for this to happen. In our recent RSM US Middle Market Business Index survey of American middle market executives, a strong majority of executives said that the state of America’s infrastructure was holding back the nation’s economy, their local economies and the growth of their organizations.
Thursday’s announcement validates their increasing confidence that the problem will be addressed; 64% said in our recent MMBI survey that they believe meaningful action will take place in the next three years that will result in tangible infrastructure enhancements.
Given the uncommon level of consensus in the survey, the bipartisan agreement, forged by a group of 12 senators and President Biden, represents an encouraging next step in repairing critical infrastructure.
Each year, American states and territories spend roughly $170 billion on infrastructure investments. The new spending called for in the plan, in addition to the congressional baseline established under law, would result in roughly $2.56 trillion in infrastructure investment. That figure would be the largest modernization of U.S. infrastructure since the Eisenhower-Kennedy-Johnson era of 1950s and 1960s.
In fact, on an inflation-adjusted basis, the proposal would be slightly larger in raw dollar terms, though the American economy is far larger now, than the legislation that President Eisenhower signed into law in 1956.
A look at the proposal, which is most likely going to change in congressional negotiations, suggests that the focus in this package is mostly on what we would refer to as “Big I,” or traditional hard infrastructure projects, with $312 billion in new spending on those priorities.
Another $266 billion would fall under what we would refer to as “Little I,” or non-traditional infrastructure projects like broadband, power infrastructure, environmental remediation and resilience.
While there is no current information on how this project will be paid for, what part of it will be paid for or what part of it will be financed, there is $20 billion allocated under the current working agreement dedicated to infrastructure finance.