Authors: Zachary Green, Senior Consultant (Email) and Mary Tchamkina, Senior Consultant (Email)
President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law on November 15, 2021. With a total cost of approximately $1.2 trillion, the bill represents a once-in-a-generation infusion of funds into the nation’s infrastructure by providing an additional $550 billion over baseline funding levels for transportation, water, power, resiliency, broadband, and pollution management. The potential is exciting, but there is also a realization that communities will need to be prepared and proactive in their pursuit of funding to ensure that their residents benefit the most. As the various federal agencies prepare to disburse these monies to states and their sub-grantees, we’re sharing four steps communities can take now to help ensure funding opportunities are available to them.
Much has been written about the contents of the IIJA and those that will benefit from it including pieces published by public sector and municipal government associations, and the media more broadly. The passage of this bill represents a victory for industry representatives that have advocated to make a strong case for the need for this historic investment. We encourage readers to leverage this quickly developing library of content to understand what is relevant for them and have included links to several below:
Federal departments and agencies are working on apportioning funding through formula allocations to states and discretionary grant programs based on eligibility and merit. The Department of Transportation has also produced a thorough breakdown of how it is planning to funnel its funding to individual states as has the Environmental Protection Agency.
Given the many components of the infrastructure bill, communities may naturally begin to silo tasks across their different functions to begin to pursue funding opportunities and ensure resourcing for application processes (where necessary). However, Raftelis recommends a stepwise and ultimately coordinated approach to maximize funding.
Communities may benefit from thinking carefully about how they can maximize benefits for constituents in total rather than having isolated teams pursue funding for individual priority projects. On some level, standard municipal procedures such as Mayoral and City Council approval requirements will dictate collaborative decision making, but the nature of the IIJA suggest that a deeper joint effort may be justified earlier in the process of determining which opportunities to pursue. We recommend a four-step approach to ensure opportunities through the IIJA are maximized (Figure1):
Four-Step Approach to IIJA Funding Preparation
This graphic illustrates Raftelis’ recommended four-step approach to preparing for IIJA funding opportunities as illustrated for five hypothetical projects that utilize multiple funding sources and involve a broad set of municipal stakeholders.
Even in the absence of abundant funding opportunities, communities can struggle to prioritize infrastructure investments. Competing needs chasing limited or earmarked funds, politicization of decision making, project management staffing limitations, and imperfect data among other challenges can inhibit optimal investments in assets. Before sound investments can proceed, each function should take the time to review their infrastructure needs and evaluate to eliminate subjectivity wherever possible. To prioritize investments a set of criteria must be established that helps inform which investments are most important. Utility asset management techniques provide some insight into what those criteria might be and how to approach this task of ranking infrastructure projects as follows:
As part of this planning and prioritization exercise communities should be open to both the rapid advance of technology and climate change considerations, which are shifting not only investment alternatives, but also funding opportunities and customer service expectations. Previous infrastructure considerations may have been less inclined to prioritize smart meter technologies, energy recovery from wastewater biosolids, permeable pavers, or solar sidewalk lights, but these are a few examples of increasingly common investments that could be funded by the IIJA. Even systems that are currently providing fundamentally reliable service to residents and businesses may find that service level expectations, emissions considerations, or resiliency initiatives reveal funding and investment opportunities that were not on the radar the last time their capital plan was revisited comprehensively.
Each community’s functions operate with varying levels of asset management sophistication and data availability as they tackle the business of infrastructure planning and prioritization. Nevertheless, with the above-baseline IIJA money making itself available over the next five to 10 years, now is an excellent time to take a step back and ensure capital improvement plans are as clear as possible using the best currently available information. The overarching goal for each separate public service function should be to establish service reliability and sustainability by eventually pursuing capital investing that is increasingly proactive about elevating service levels rather than consistently reactive to failing assets that become a frustration for constituents.
Once each of a community’s functions have put together a prioritized infrastructure investment plan it is necessary to determine how each project can and should be funded. Through the IIJA some communities will be able to tackle projects that their own tax and rate revenues could not otherwise have funded, and for many the money will help tackle a backlog of fundamental needs. Prioritized capital plans, however, should not initially carve out the IIJA opportunities as separate from the overall plan, as it is likely that many of the largest projects will proceed through a combination of federal, state, and existing local baseline funding.
The biggest winner of additional funding appears to be the transportation sector, with more than half of the above-baseline IIJA funding ($284 billion of $550 billion total) being directed toward roads, rail, bridges, and programs that support surface infrastructure planning. The electricity and broadband sectors are both receiving an additional infusion of approximately $65 billion each. Natural resources also represent a strong focus of the bill, with about $55 billion being directed toward the water sector, $21 billion added to address pollution, and $47 billion allocated to resiliency initiatives. Major investments addressing climate change are expected to be even larger in the Build Back Better reconciliation package that recently passed the House.
The text of the IIJA bill refers to resiliency of the power grid, water infrastructure, roads, railways, freight transportation, and the nation’s overall resiliency to extreme weather events, flooding, and natural disasters. But perhaps more remarkable than the actual $47 billion figure is the recognition by the federal government that resiliency is a new type of infrastructure investment in the age of a changing climate, and that it cuts across all parts of the economy.
Many of these funding sources represent an opportunity for collaboration among local governments and utilities to bring projects to scale and uncover synergistic savings.
There are some obvious overlapping opportunities in the IIJA that demand municipal or even intermunicipal coordination to truly maximize the opportunity to improve the lives of residents locally or regionally. With significant opportunities in transportation, resiliency, and several other functions with conduit assets often installed along transportation corridors, the IIJA presents synergistic opportunities for funding and savings.
Consider a community whose planned road rehabilitation schedule is not coordinated with water, sewer, stormwater, power, brownfield, or broadband investments. Further, now layered on top of the need to coordinate these many physically overlapping assets, are emissions and resiliency considerations, which may present opportunities to fund elements such as bike lanes, high-speed rail, electric vehicle charging stations, permeable pavers, vegetation, or seawall hardening. A community should always seek to ensure that it rips up the street as infrequently as possible and accomplishes as much as possible in that right of way during the period of disruption. This is not only less disruptive for the community’s economy but also likely presents funding synergies that avoid duplication of costs such as paving, which can hit, for example, the water utility that needs to put in new distribution lines, and the public works departments responsible for the road itself at different times without coordination.
When coordinated planning is done well, it presents a communication opportunity for all municipal government stakeholders to demonstrate that they are pursuing benefits for customers across services. Such communications are most effective when they can highlight the impact to household and businesses bottom lines.
While annual budget appropriations can sometimes face more scrutiny and garner more attention than long-term plans rife with uncertainty, increasingly federal agencies that dole out funds, such as those available through the IIJA, are interested in seeing longer-term cash flow modeling. Typically, when asking for financial modeling, the goal of those attempting to ensure that federal tax dollars are spent wisely, is to see evidence that the funded community has a plan to ensure a combination of regulatory compliance, financing, affordability, and solvency through the project lifecycle. These financial models can also help to generate outputs that aid in decision-making and build confidence in local decision makers within and outside of government, both of which ultimately help unlock not just federal but local dollars.
Both residents and the political leaders accountable to them want to see evidence of how new investments will impact local taxes and utility rates. The first three steps highlighted here to maximize IIJA funding (plan, fund, coordinate) takes care of a lot of the key steps for generating financial model inputs for your community. Raftelis is often asked to assist with the fourth step, which is to measure, refine, and engage.
We help clients synthesize the resulting capital funding information from the first three steps of this process, with other model components such as financing options, operations and maintenance data, fiscal policies, debt service requirements, intermunicipal transfers, growth assumptions, and other elements to generate a complete and customized forecasting tool that projects impacts to constituents. These models can include individual or multiple municipal or regional functions and include functionality to allow for dynamic comparisons of a range of planning scenarios to help refine your IIJA funding pursuit and ultimately secure important investments for your community.
Finally, each community must engage in appropriate forums to ensure federal and state level decision-makers are aware of local investment and funding opportunities. A community may have a well informed plan, but cannot expect to receive funding if they don’t put forth the effort to attend meetings and reach out to those in position to allocate funds or award grants at other levels of government. Raftelis communication experts often support clients in the development of materials and communication strategies to help sound plans turn into funded investments.
