Transportation infrastructure rides into final year of IIJA with record spending expected

American Road & Transportation Builders Association

Spending on transportation infrastructure projects is projected to hit a fresh record next year as the U.S. enters the final year of the $1.2 trillion Infrastructure Investment and Jobs Act.

The five-year bill that was a signature achievement of the Biden administration injected a record level of federal funds into U.S. infrastructure ranging from highways to broadband, lead pipe replacement and airports. The core of the bill was nearly $500 billion for traditional surface transportation modes like highways and bridges.

While spending will remain strong, more uncertain is how the political environment will shape the transportation sector next year and beyond. Congress will tackle the next surface transportation reauthorization, one of the most heavily-lobbied bills for transportation advocates. The Trump administration, since taking office in January, has shown a heavy hand on federal infrastructure funding, including withholding funds from projects it dislikes, such as the California bullet train and the New York MTA's congestion pricing program.

The question for infrastructure finance professionals is whether that volatility and executive control around federal project funding continues next year and even beyond the current administration.

In what could be more of a bipartisan effort, lawmakers are expected to approve streamlined permitting in an effort to expedite projects and lower costs.

Entering the fifth year of the IIJA, it's clear that inflation significantly reduced the purchasing power of the massive bill. States and cities faced higher project costs, higher interest rates and often fewer bids as labor constrained the market.

"There's no question A, we have spent a ton of money, but the question is B, did the taxpayer receive what they might have anticipated? And the answer is definitely no, they did not," said Anirban Basu with the Sage Policy Group and chief economist for Associated Builders and Contractors. "A lot of the money was eaten up simply by bureaucracy and by inflation and now that money has largely been spent and the authorization ends next year."

With the IIJA expiring Sept. 30, 2026, Congress will be crafting the next surface transportation measure, which will start in the House Transportation & Infrastructure Committee. Advocates are urging lawmakers to increase funding to account for inflation, said Alison Premo Black, chief economist at the American Road & Transportation Builders Association.

"Our recommendation is that Congress at least looks at increasing funding for the surface transportation program to account for some of the inflation we've seen over these last four or five years and restore at least the purchasing power of the first year of the bill," Black said.

Inflation appears to have moderated but price pressures remain, Black said. The complexity of some projects adds to the costs, she said. "And in some areas there are labor pressures; trying to attract workers can vary significantly by region," she added.

The House T&I committee aims to mark up the bill early next year and pass it by the spring. In the Senate, Republican Sens. Shelley Moore Capito, W. Va., chair of the Environment and Public Works Committee, and Ted Cruz of Texas, chair of the Committee on Commerce, Science, and Transportation, will oversee the legislation.

House T&I Chair Rep. Sam Graves, R-Mo., has said the focus will be a return to "traditional" projects like highways and bridges. The bill is expected to mark a return to formula funding sent to the states and fewer of the discretionary grant programs that garnered much of the attention in the IIJA.

"This is going to be the most important highway bill that we have seen since 1956," Graves said in November. "And the reason is, never has the need been so great but the resources so small."

Graves is pushing for a new user fee to support the insolvent Highway Trust Fund in the form of a national fee on electric and hybrid vehicles. Toll advocates and influential lobbyists like the American Association of State Highway and Transportation Officials are urging Congress to raise or eliminate the existing $30 billion cap on private activity bonds, which has nearly been reached. The ceiling was doubled, from $15 billion, as part of the IIJA.

PABs are a popular financing tool for public-private partnerships, which the administration is expected to highlight in the next bill. Basu said he expects the administration to try to leverage up to $1.5 trillion of private capital through the use of P3s. Transportation Secretary Sean Duffy has said he would like to see more U.S. capital invested in public transportation infrastructure, and a U.S. Department of Transportation advisory board is urging the administration to use more P3s.

The increased use of P3s was also a focus of the first Trump administration, but it ended up not moving forward as the administration was ultimately unable to pass an infrastructure bill.

The Trump administration may seek to push more responsibility for infrastructure investment onto states and cities, many of which face budget deficits, said Basu, who warned that P3s can bring risks to local governments.

"These P3 deals are very scary if you're an elected official and asked to give up revenue for 75 years," he said. "We need to have a significant training program for mayors, county executives, and other government organizations to have them think about P3s and how to negotiate with the private sector."

Looking ahead at the spending side, the U.S. transportation construction market is expected to grow nearly 3% to a record $209.1 billion in 2026, according to ARTBA. Bridge and tunnel work is expected to increase more than 2%, the group said.

Transportation construction market activity is expected to increase or be steady in two-thirds of the states, ARTBA said. Some of the largest markets expected to show growth are California, New Jersey, North Carolina, New York, Illinois, Georgia, and Virginia.

"This resurgent outlook follows a relatively flat 2025 where steady federal investment, healthy state budgets, and an increase in contract awards and construction backlogs yielded an expected $203.5 billion total value of transportation construction activity, up from $203 billion in 2024," ARTBA said in a December market outlook.

"We're expecting a very steady strong market that's showing some growth across all modes," said Black. "Particularly we do expect things to rebound in the transit market," she said. "Things have been tough for the transit market since COVID, and we expect that to grow as well as bridge investment — we've seen a number of major bridge investments that are really going to start hitting the construction phase over the next few years."

The IIJA allocated $5.3 billion a year in formula funds to fix or replace bridges across the country. Of the $21.2 billion available through fiscal 2025, states have committed $13.2 billion, or 62% of available funds, ARTBA said. The remaining 38%, or $8 billion of already released bridge funds and the $5.3 billion yet to come during the last year of the current law will support additional bridge improvements and market activity.

Public highway and street work is expected to grow by a "more modest" 1%, Black said. "We saw very, very robust growth after the IIJA was passed, but at the end of the bill, it's not uncommon for the market to start to level off a bit," she said. "But it's still a record."

The year ahead will also be a key one for prominent rail projects across the country, including the California high-speed train, which is battling the Trump administration in court over federal support. The privately operated rail projects owned by Fortress-backed Brightline also face crucial timelines in the coming months. Brightline West's future depends heavily on whether it receives a $6 billion federal railroad loan and Brightline Florida will need to secure additional equity and riders to avoid default on its debt.