On Nov. 15, President Biden signed a $1.2 trillion infrastructure package—The Infrastructure Investment and Jobs Act—that provides historic funding levels to improve public works, including roads, bridges, highways, internet access and the power grid, as well as to mitigate the effects of climate change. (The bill does not include funding for social policy, which is covered under separate legislation known as “Build Back Better.”)
This is one in our series of industry-focused outlooks analyzing the impact of the infrastructure legislation.
What the $1.2 trillion Infrastructure Investment and Jobs Act means for manufacturing and energy: Overall, the legislation will have a significant positive impact for a range of industrial companies. While construction sector businesses are perhaps the clearest category that will benefit, so will companies throughout the industrial supply chain, including steel and material suppliers, engineering services firms, and more.
The expansion of broadband infrastructure will accelerate the ongoing technology revolution in manufacturing by opening up a wider variety of options for factory locations and allowing for more talent development in rural areas. More robust broadband will allow for the expansion of 5G, which decreases latency and allows companies to use data in real time. The improved reliability of 5G networks will also mean organizations can use more connected devices in their operations—a crucial aspect of manufacturers’ increasing efforts to use data in new ways to drive business operations.
Investments in road transit and rail systems will also help move goods more efficiently, increase talent mobility overall and improve the competitiveness of the U.S. supply chain, which is especially crucial in the manufacturing sector. Supply chain bottlenecks especially over the last year and a half have underscored just how important it is to streamline these networks.
The legislation’s considerable investments for rebuilding the electric grid, environmental remediation financing, and outlays for electric vehicle infrastructure expansion will undoubtedly change the energy industry on a fundamental level, as we wrote in November. The deal will further incentivize clean energy and support the overall energy transition.
Specific allotments that will directly affect manufacturing and energy:
- Roads and bridges—$110 billion
- Public transit—$39 billion
- U.S. passenger rail system—$66 billion
- Broadband internet infrastructure—$65 billion
- Electric grid—$65 billion
- Electric vehicles, buses, ferries—$7.5 billion
- Clean drinking water—$55 billion
- Airports—$25 billion
- Road safety—$11 billion
- Climate change mitigation—$28.5 billion
In the short term
Manufacturers and producers of metal, lumber and aggregate materials will see benefits from the act’s large allocation to modernize and expand passenger and freight transportation (which affects roads, bridges, airports, rail and public transit). Manufacturers and suppliers of heavy transport parts for buses, trains and related equipment will get a boost, along with industrial companies in the broadband 5G infrastructure space and manufacturers of water delivery system parts. As EV charging stations become more commonplace along highway corridors, we anticipate an accelerated lift in sales for EV manufacturers and their supplier networks.
There will also be hurdles for businesses as the impacts of the legislation come to fruition. Organizations should prepare to scale operations and capacity as needed and plan for the labor implications of doing so; companies will need to pay a premium for talent. Some hurdles will be sector specific; chemical manufacturers, for instance, will need to navigate the reinstatement of the Comprehensive Environmental Response, Compensation and Liability Act, which imposes excises taxes on such companies.
In the energy sector, we expect many companies will not experience the true impact of the bill until the second half of 2022, and it may be even longer—perhaps until 2024—until we can truly understand the impact on commodity prices. This is because of the many variables in play, including the timeline for lifting pandemic-related restrictions, the return of U.S. shale production, and OPEC increasing output. By the time the infrastructure bill’s provisions start to affect the energy sector, these other variables will likely have changed significantly.
The big picture
It’s unlikely we will see another bill like this in our lifetimes. The positive impact on Americans’ quality of life will be significant for those who haven’t had reliable access to clean drinking water and access to the internet—things many of us take for granted.
The increase in jobs via public works projects will be a boon over the next five to seven years when the funds in the bill will likely be spent. Some of the longer-term benefits to Americans’ daily lives, such as improved health outcomes and better economic opportunities for disadvantaged citizens, may be measured in generations—much like the federal highway act of 1956, which is still paying dividends.
New federal regulations around safety, fuel efficiency and emissions will likely require some industrial companies such as automotive manufacturers and suppliers to pivot. Companies will need to stay close to these regulatory factors of the bill as they could have a dramatic impacts to their business and customers.
The single greatest hurdle or challenge presented by the infrastructure bill is how its programs will be funded. The Congressional Budget Office estimates that the budget deficit will be nearly $260 billion over the next 10 years. Funding is currently expected to be paid by way of unused COVID-19 relief funds, more aggressive IRS tax reviews and new tax revenues.
Recently, there has been an uptick in domestic investment in the EV and semiconductor space. The massive infrastructure investments will help to further develop the supplier base for companies in these sectors. We hope this will encourage more domestic manufacturing investments—eventually beyond the EV and semiconductor space as well—so the United States can increase its global competitiveness.
At a high level across the entire industrial segment, the new legislation could make the transportation of goods cheaper and more efficient in the long term, which would be a win not just for manufacturing companies but also for the U.S. economy as a whole.
Here are some questions that frame the path forward for companies in the manufacturing and energy sectors:
- How does this bill further impact global supply chains? Could planned improvements affect or expedite reshoring back to the United States?
- If this package is intended to create an additional 2 million jobs, what implications does that have on an already tight labor market?
- What will the long-term impact of increased access to broadband across rural America be on the manufacturing workforce?
- Geographically, where will funds be spent and what is the priority in spending by program? Will program spending be simultaneous across several key initiatives or will some take precedence over others in the short term?
- How far will investments from the legislation go in providing the charging station infrastructure necessary to reach the Biden administration’s goal of net-zero emissions by 2050 and the aim for 50% of auto sales to be electric by 2030?
- In the energy space, how should companies assess their product portfolios and position them to evolve in this new regulatory environment?
- What diversification strategies—such as those involving renewable energy and/or cleaner fuel technology investments—might make sense for energy companies to pursue, given the incentives outlined in the bill?
Check out the tax implications of the Infrastructure Investment and Jobs Act here. And for more information on tax policy changes, see RSM’s Tax Policy Resource Center.
RSM national manufacturing sector leader Jason Alexander contributed to this article.
