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What Impact will the Biden Infrastructure Plan Have on the California Construction Industry?

By April 28, 2021April 29th, 2021No Comments
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President Joseph Biden’s long-awaited infrastructure plan is finally coming into focus.  If approved, this plan will have a significant impact on the construction industry.

In early April, President Biden unveiled his American Jobs Plan, a $2.65 trillion dollar plan, including an ambiguous goal of upgrading the nation’s infrastructure.  This Plan comes after years of consistent reporting that our country’s infrastructure continues to crumble.  The White House claims that the United States ranks 13th in the world in overall infrastructure, despite being the most prosperous nation on earth.

What are the Highlights of the President’s Plan?

Here are the highlights of the plan, as it pertains to the construction industry:

Housing, Schools, Water and Broadband: $650 billion. This includes $213 billion for affordable housing, $111 billion for clean drinking water programs, $100 billion for public schools, $100 billion for high-speed broadband networks, $40 billion for public housing, $18 billion for Veterans Affairs hospitals, $16 billion to remediate wells and abandoned mines, and $12 billion for community colleges.

Transportation Infrastructure: $621 billion, including $174 billion on electrical vehicle stations, electrical bus fleets, and replacing the federal government’s fleet of diesel vehicles with electrical vehicles, $115 billion to fix roads and bridges, $85 billion to modernize transit systems, and $80 billion for rail improvements, $50 billion to safeguard critical infrastructure, $20 billion for airports and $17 billion for ports and waterways.

Senior Housing and Housing for the Disabled: $400 billion. This would include expanding a Medicaid program to make services available and boost pay for care workers.

Research, Development and Manufacturing: $300 billion. This includes $180 billion on research and development with a focus on clean energy, reducing emissions, and climate change research, and $50 billion toward semiconductor research and manufacturing.

How Will the Program Be Funded?

To offset the nearly $2.7 trillion of new proposals, the American Jobs Plan includes a number of tax increases on corporations. The plan would raise the corporate rate, raise the minimum tax rate on the foreign income of U.S. corporations, and impose a new corporate minimum tax, among other changes.  Experts estimate the repayment period at 10-15 years, although the White House claims a 10-year repayment period.

What Impact Will This Plan have on the Existing Construction Industry? 

If fully implemented, the Biden Plan will create significant new demand in the construction industry.  This will be felt particularly hard in California, in which a robust construction sector has already been expanding through the Pandemic, fueled largely by pre-existing projects, bond revenue, and private sector real estate market gains.

Acute labor shortages existed in the California construction market before the Pandemic, particularly in the skilled and trained subcontractor arena.  The supply of trained workers has not kept up with demand, as organized labor has struggled to find qualified applicants to join programs and non-union training programs have likewise struggled to gain a footing in union-friendly California.  Labor shortages could put a significant crimp on how the construction industry handles these sizable federal dollars.

Additionally, supply-chain disruption with construction materials is likely to increase.  The industry has already seen material price fluctuations and delays, beginning during the international tariff battles with the previous administration over steel and miscellaneous metals.  Most recently, the industry has been impacted by the cost and availability of lumber.  These problems are likely to only get worse with an anticipated infusion of billions of dollars in federal money into our State for infrastructure spending.  This will likely cascade into longer lead times for specialized items and anticipated project delays.

Owner procurement and delivery will also be impacted.  During the Pandemic, public owners struggled to procure and deliver public works projects.  Everything from qualified construction managers to oversee construction, to building inspectors to approve projects, to purchasing agents to process payment applications, the owner-side had difficulty meeting the challenges of seeing a construction project from beginning to end.  As the Pandemic ends, will owners have a deep enough bench to handle this influx of work and deliver timely projects on budget?

Lastly, work for federal infrastructure dollars will also be competing with existing California work.  Our State still has billions in anticipated COVID-19 relief dollars to spend, particularly for our schools, with billions more anticipated should an upcoming school bond measure pass on the 2022 ballot.  In the City of Los Angeles, Mayor Eric Garcetti has pledged $1 billion to build housing for the homeless alone.  Can the industry successfully juggle all of these competing interests?

While there are nearly 300,000 licensed contractors in the State of California, not all of those contractors are qualified to perform complicated infrastructure work.  Factor that in with additional strains on the industry due to competing construction needs and the system may be strained.  The industry must be prepared to meet the challenge of how to adequately service all of these needs while remaining accountable to the applicable stakeholders for the proper use of taxpayer funds.

For more information on this please contact Principal Attorney Colin McCarthy, ckmccarthy@lanak-hanna.com.

The information contained in this post has been prepared by Lanak & Hanna, P.C. for educational and informational purposes only. It does not constitute legal advice, nor does it substitute for legal advice.

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