What the Biden Administration’s Stimulus Package Means for Private Infrastructure

Will planned federal spending in US infrastructure encourage private spending in tandem?

The Biden administration laid out its plan at the end of March to improve US infrastructure. The American Jobs Plan calls for a total $2tn investment which includes improvements to transportation, renewable energy, and technology. The ultimate objective is beyond basic repair and maintenance, however; it’s a roadmap for modernization, aimed in particular at competing with China and creating lasting employment. The proposal includes direct investment from the federal government, as well as tax incentives to private companies that invest in related projects.

Private investment in these infrastructure projects has been low in comparison to current federal spending, and was also much lower than the President’s proposal. Over the five years ending December 2020, Preqin Pro recorded a total of $547bn in infrastructure spending, much of which was in non-renewable oil & gas projects. Private investment in areas identified for funding by the Biden administration was about one-third of the size of Biden’s projected spending, and investments were generally made in clean energy technology and internet investments. Private capital has demonstrated far less interest in roadways and bridges, high-cost projects generally permitted for public use.

There is much in store for infrastructure, with federal plans well ahead of historical spending in this area. According to a statement from the White House, the proposal includes allocations of $115bn to improving the nation’s roadways and bridges, $100bn to expanding broadband internet access, and $100bn to modernizing the US power grid. The bill is also slated to fund upgrades in education, workforce training, clean water distribution, and affordable housing. These figures represent about 1% of annual GDP over the next eight years, according to the White House. The bill is expected to be paid by increasing the corporate tax rate from 20% to 28%, with much of the proposed spending to take the form of one-time payments.

Biden’s intervention follows a period of declining infrastructure investment in the US. For a sense of scale, non-defense investment made by the federal government between 2014 and 2018 totaled $1.53tn, according to the latest data available from the Congressional Budget Office. Over that period, this number fell an average of 2% each year. The last significant surge in government infrastructure investment was more than a decade ago, following the Obama Administration’s American Recovery and Reinvestment Act of 2009.