State and local capital investment—a major component of U.S. infrastructure spending—has grown as a share of state and local spending over the past two years by the largest amount since 1979, according to Eric Van Nostrand, assistant secretary for economic policy at the Treasury Department. Even though infrastructure investment typically falls as a share of the economy at the beginning of economic recoveries, the United States has bucked that trend during this recovery.

Since most federal infrastructure funding flows through state and local governments, one way to gauge overall infrastructure spending is to consider state and local gross investment in equipment and structures. In the 1970s and early 1980s, funding devoted to capital investment fell sharply before stagnating and drifting downwards over the decades that followed, says Van Nostrand. During the COVID-19 pandemic, state and local capital investment fell in lockstep with broader economic output.

But during the first year of the recovery, that investment did not keep pace with the sharp rebound in economic activity and fell sharply as a share of the economy. Since the BIL passed, though, state and local capital investment has rebounded and returned to pre-pandemic levels. The two-year increase in state and local capital investment as a share of state and local spending—1.6 percentage points—is the largest since 1979.

Before the BIL, the decline in infrastructure investment was broad. Forty-two states saw declining infrastructure investment as a share of their economies. Two years later, it’s clear that BIL funding is concentrated in the areas that need it most. The American Society of Civil Engineers grades states on the quality of their infrastructure across several dimensions including roads, bridges, water and public transit. Overall infrastructure grades for U.S. states range from C+ to D. Looking at BIL funding per capita for states at each grade level, states with lower overall grades are receiving more funding per capita.

While pre-pandemic infrastructure investment tended to be higher in states with higher household incomes, BIL investments show the opposite pattern: Lower income states are tending to capture more infrastructure investment.

It is still too early to assess the full economic benefits of the BIL. Much of its impact on productivity growth will materialize only in the long term. However, there is much reason to be encouraged by the trends observed so far.

Who can argue with investments to improve transportation infrastructure, modernize the electric grid, expand access to high-speed internet, clean up legacy pollution, replace lead pipes, and build a clean energy economy? “Buy America” requirements should ensure the domestic manufacturing of construction materials and incentivize domestic production of EV charging stations, fiber optic cable for high-speed internet, and water infrastructure parts.

In the short run, researchers have projected that the law will support hundreds of thousands of jobs, primarily in construction and manufacturing. In the long run, the law should enhance productivity and deliver broad-based economic growth.

Thank you, President Biden and Congress.