The public infrastructure market in the United States is positioned at a crossroads as it heads into a new year characterized by both optimism and a cloud of uncertainty. As the political landscape shifts with the expected return of Donald Trump to the presidency, municipal leaders and investors are poised to navigate a landscape where ongoing projects and funding priorities hang in the balance. The passage of the Infrastructure Investment and Jobs Act (IIJA) in 2021 was seen as a landmark achievement, yet with only half of the allocated funds released, the direction taken in the coming years will significantly shape the future of American infrastructure.
With the IIJA’s funding scheduled to expire at the end of 2026, Congress is gearing up for a new surface transportation bill while grappling with the implications of a changing political administration. Republican lawmakers have demonstrated a clear preference for traditional funding approaches, moving away from the IIJA’s extensive array of competitive grant programs that constitute 30% of the legislation. Their inclination towards formula funding may stifle innovative transportation projects that were central to Biden’s vision. Notably, developments in the energy sector, particularly if Trump’s promises to lower energy prices come to fruition, could emerge as focal points of investment. However, uncertainties abound for clean-energy projects, especially if efforts to dismantle key components of the Inflation Reduction Act (IRA) gain momentum.
The prospect of public-private partnerships (P3s) may receive renewed emphasis as municipalities deplete COVID relief funds and brace for cuts in federal allocations. State and local governments may find themselves in need of innovative financing solutions amid these budgetary challenges. Concurrently, the infrastructure investment community is holding high hopes for improved deal flow in the coming year as interest rates are projected to decline after a prolonged period of weak fundraising.
An ever-present concern for municipal finance remains the future of tax-exempt bonds, a traditional cornerstone for infrastructure funding in the US. Bankers are cautiously optimistic about new-money issuance projections, anticipating a rush as municipalities rush to secure financing ahead of potential legislative headwinds. Estimates place municipal bond supply projections for 2025 between $480 billion and $745 billion, with firms like Bank of America projecting up to $375 billion in new issuances.
Johnny Hutchinson of Nixon Peabody emphasizes the urgency for issuers looking to finance projects that may be compromised by impending Congressional actions. In this dynamic environment, the IIJA continues to undergird investments, with approximately $294 billion left over for the incoming administration to allocate. Notably, despite the anticipated political shifts, Krummenacker from Moody’s forecasts that the new leadership will likely stick with established funding paths, bolstered by the interests of Republican-leaning states historically benefiting from federal assistance.
Sector-specific Insights for 2025
Looking ahead, specific sectors within public infrastructure are anticipated to thrive. The American Road and Transportation Builders Association (ARTBA) projects an 8% growth in public highway and street construction, projecting it to reach $128.4 billion by 2025. State initiatives to match federal funding allocations—through innovative tactics such as general fund transfers, bond issuances, and other tax mechanisms—remain pivotal in this upward trajectory.
However, sectors that gained prominence under Biden’s administration may encounter significant challenges. High-speed rail projects and initiatives aimed at enhancing broadband access are particularly at risk. The incoming Trump administration’s likelihood of unwinding substantial funding provisions for electric vehicle infrastructure and broadband expansion raises a red flag for stakeholders in these sectors who had hoped for continued federal support.
The Clean Energy Dilemma
As energy infrastructure increasingly captures the attention of investors, concerns about the pace of clean-energy development loom large. While the IRA has served as an incentive for clean energy investment—illustrating a remarkable 43% growth since its introduction—fears persist regarding how changes in the administration could impact these initiatives. Although it is anticipated that the IRA will not be fully repealed due to its economic benefits, the emphasis could shift towards fossil fuels, causing utilities to re-evaluate their investments in renewable energy.
According to the analysis by Macquarie, the U.S. market retains its allure for renewable energy investments despite potential administrative shifts. However, factors such as regulatory changes and fossil fuel market dynamics may create uncertainty regarding the timeline for clean power integration and the pace of fossil fuel phasing-out.
The Outlook Amid Challenges
Despite the existing headwinds, infrastructure investment continues to be propelled by pressing demands from climate-related challenges, demographic shifts, and reindustrialization trends. Cities and states, which finance a significant portion of the nation’s infrastructure, are likely to increase their borrowing in response to these needs. In this evolving environment, adaptive and proactive strategies will be imperative for successfully navigating the landscape of public infrastructure investment in the years to come, regardless of the policy landscape that emerges from Washington.