A new year infrastructure update: Funding and how to prepare

The work now shifts from the nation’s capital to the countless federal and state agencies that will be tasked with implementing the programs created by IIJA. Topping the list are the departments of Energy and Transportation, each of which will be challenged with structuring ways to securely distribute the funding. In some cases, funding will flow directly to the states to deploy at the state and local levels.

In 2021, the White House appointed former New Orleans mayor Mitch Landrieu as senior advisor responsible for coordinating implementation of the infrastructure program and its funding.

Governors and legislatures are already moving quickly to dust off plans that may have been shelved for years due to lack of funding. Implementation will be a long process. As the Brookings Institution notes, any new operations will require internal planning, internal and public review, hiring staff, and building knowledge resources before any services can be provided to communities.

The National Governors Association has organized information on infrastructure implementation including weekly open funding opportunities updated by the White House.

The National Association of City Transportation Officials (NACTO) noted that a majority of funding “will flow directly to state transportation departments with a significant portion reserved for new, USDOT-administered discretionary grant programs.”

About $76.6 billion will be distributed to states in a competitive grant process, according to a Federal Funds Information for States (FFIS) analysis, with local governments also eligible for many of the grant programs. FFIS reports that while much of the funding for water and broadband projects will be distributed using a formula (which will likely favor large states like Texas and California), funding for cybersecurity, rail, and safety programs will mostly be competitive.

Fitch Ratings reports that states may apply for $16 billion of federal grant funding specifically for “major projects that deliver substantial economic benefit to communities,” citing as an example that “Kentucky is expected to apply for this pool of funds to help fund the Brent Spence Bridge Project, a second bridge that would connect Cincinnati with Covington, Ky., in addition to the allocation that Kentucky will receive under the bridge formula program.”

Local counties will also be a key part of the allocation of IIJA funds. According to the National Association of Counties (NACo), counties own and operate 44% of public roads and 38% of bridges – more than any other level of government – and directly support 78% of public transit systems and 34% of airports.

“Counties can access the legislation’s transportation funds, which account for over half of its new investments, through three general ways,” NACo writes:

• “Competitively, through federal grant programs, such as RAISE and INFRA, and competitive processes run by state departments of transportation/Metropolitan Planning Organizations, like Transportation Alternatives funding
• “Suballocations based on population from state departments of transportation, such as the Surface Transportation Block Grant Program
• “Federal formulas, like transit formulas and the formula (entitlement) component of the Airport Improvement Program”

As the Brookings Institution noted in its report, all three levels of government – local, state, and federal – must be ready to hire a wide range of workers, such as budget experts, construction workers and skilled tradespeople, and conservationists and environmental engineers, and even expand their human resources teams to make all these hires. Competition for talent will be fierce.

While the CHIPS Act is generally focused on a specific industrial sector critical to nearly all other sectors of the U.S. economy and infrastructure, the climate-related policies of the IRA represent a truly historic, and also separate, infrastructure opportunity.  

Specifically, the renewable and clean energy tax incentives in the IRA have already stimulated more than $25.7 billion in new domestic manufacturing investment related to clean energy, electric vehicles (EV), and energy storage. For example:

• Solar panel manufacturer Qcells announces it will expand its Georgia manufacturing facility and build a second factory near Atlanta in what could be the largest clean energy manufacturing investment in U.S. history. 
• Georgia has also seen more than $20 billion in electric vehicle-related announcements within the year since EV maker, Rivian, announced it would build a factory in the state; and other states show similar activity to varying degrees. 

Given how early such investments are occurring relative to the August 2022 passage of the IRA, plus the fact that many of the IRA tax credits are not capped, some have estimated the value of the IRA climate provisions to be closer to $800 billion rather than the official $469 billion congressional estimate.

Other factors making the IRA truly historic are tax provisions that allow REITS and other taxpayers to sell tax credits (transfer of credits), and tax-exempt organizations, non-federal governments, and political subdivisions to apply directly for 30% or more federal rebates (direct-pay) on eligible clean energy equipment and activities. The IRA has opened up huge swaths of the U.S. economy to invest in and benefit from clean energy, energy storage, and energy efficiency measures, all under the auspices of mitigating climate change. 

For construction, clean energy, multifamily, commercial real estate, and other businesses eager to take advantage of this funding, patience appears to be the watchword for now. Unlike a stimulus bill, the IIJA legislation is intended to be a long-term approach to sorely needed repairs to America’s infrastructure, not a quick fix. For its part, the IRA is intended to have a similar effect in the energy production and use sectors. We continue to expect that the IIJA’s planned rollout and flow of funding under Landrieu’s guidance will take months to initiate and, once necessary federal guidance on the IRA has been issued, continued investment over the next decade in the energy sector should boom.

The approval of both the IIJA and IRA each opens the door to what may also be one of the largest public/private partnership programs in the nation’s history. Companies with minimal exposure to government projects, and those that have never worked with a government agency, need to prepare now. 

For the IIJA, this could include taking steps such as:

• Learning how to structure a “winning” bid when proposing on government work
• Reassessing your operations to address the government’s stringent compliance and cost reporting requirements for contractors, and potentially implementing specific technology as needed, such as specific accounting and financial systems
• Establishing a standalone government office within the organization
• Assessing and updating your company’s cybersecurity and risk management protocols so they align with the government’s robust security policies

For the IRA, this could include taking steps such as:

• Establishing Prevailing Wage and Apprenticeship protocols for IRA tax credit claims, as well as procedures for claiming “Direct-Pay” rebates in the case of tax-exempts and governments
• Understanding new Energy Community, Domestic Content and Census Tract parameters to obtain increased tax credit amounts.
• Learning how to apply for new Low Income tax credit “adders”
• Assessing whether PTC, ITC or Credit Sales provide the best returns.
• Learning about new manufacturing tax incentives in the IRA.

Now that the funding and tax incentives have been approved, please do not hesitate to reach out to us to explore ways to prepare your business for infrastructure funding and competing for projects in every region of the country.

Visit our Inside Infrastructure Resource Center for new insights and information as the implementation phase of IIJA takes shape in 2023.

Lee Peterson, JD, Senior Manager

404.847.7744