Covid-19 is Redefining Infrastructure Investments - Sachse Construction
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Covid-19 is Redefining Infrastructure Investments

Governments worldwide are facing difficult decisions about diverting funds from long-planned infrastructure projects as the novel coronavirus pandemic wreaks havoc on their budgets.

Maintaining essential projects will likely mean a greater reliance on public-private partnerships and federal aid, while restructuring some deals, according to an analysis from Jones Lang LaSalle.

“The infrastructure imperative doesn’t go away because of COVID-19. But those investments may need to be redefined,” said Barry Scribner, one of JLL’s US infrastructure advisory service leads in the report.

In Maryland, for instance, Prince George County’s effort to fund a needed school investment program hit obstacles over coronavirus concerns. “To moderate the impact on the county’s budget, we are helping structure a deal so their payments to the building contractor can be deferred until after the new schools are built,” said Scribner, JLL’s president of Department of Defense and Federal Services.

Shutdowns from the pandemic have caused a drop in traditional infrastructure funding revenue, such as sales taxes, travel-related fees and user rates, according to JLL executive vice president Brian Oakley.

That has delayed some scheduled projects, he said. The state of Missouri postponed several projects slated for May, valued at $40 million, after it lost budgeted revenue from a drop in driving-related taxes and fees, compounded by a lack of federal matching funds.

But Singapore’s transport ministry used the partial closing of the Changi Airport to expedite scheduled upgrades, shortening the project’s duration by up to a year, he added.

“Traditional public financing sources are strained at the moment and will need to be supplemented to keep projects on track,” Oakley said. “These projects are critical, so we need to be pursuing all available options, from private investment to traditional public financing and federal assistance.”

During the last recession, the US government used grants, tax credits, loans and other incentives to encourage investment in energy and transportation infrastructure projects, Oakley said, adding that a federal loan got the Port of Miami Tunnel project moving during the recession. “For shovel-ready projects, these incentives provided meaningful benefits, accelerating job growth and much-needed infrastructure improvements,” he said.

“Governments are trying to figure out what to do amid redefined priorities,” Lindsay Stowell, JLL’s executive vice president of public institutions and higher education, said in the report. “However, there seems to be broad recognition that provision of and investment in infrastructure will be essential to supporting economic recovery.”

US infrastructure, neglected since long before the pandemic, will require an estimated $7.7 trillion by 2030 just to keep pace with GDP, according to the World Economic Forum and Organisation for Economic Co-operation and Development.

More than one in three US bridges are “structurally deficient,” said Walter Kemmsies, economist and chief strategist for JLL’s US ports, airports and global infrastructure group. Congested ports and crumbling roads “make the U.S. less competitive,” he said. “When you can’t move goods quickly, that adds costs.”

The state of Georgia, which needs an estimated $200 billion for infrastructure updates, was already facing potential revenue losses after an income-tax cut passed its House of Representatives in March, said Kemmsies, a member of Georgia Gov. Brian Kemp’s economic advisory council.

“Emergency funds diverted for COVID-19 mean even tougher decisions will now need to be made,” he said. “The important question is: Are they going to make investments in the future? Or are they just going to focus on patching the hole in the raft so they don’t sink?”

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