Inflation hits state capital, infrastructure projects

Ever-increasing prices at the pump and grocery store checkout line aren’t the only places where Hoosiers can see the impact of inflation—state building projects are also feeling the budgetary strain.

Pent-up demand for delayed services and supply chains disrupted by the COVID-19 pandemic continue to drive inflation upward, reaching 8.6% over the previous year, according to U.S. Labor Department data.

Especially hard-hit sectors include construction and labor costs, pushing the prices for capital infrastructure projects above the projected costs lawmakers budgeted for in 2021.

House Speaker Todd Huston, R-Fishers, said budget writers will need to prepare for the 2023 session when inflation will put pressure on the budgets of state agencies.

“Everybody’s already coming to us. The cost of road projects is up 50% in the last three months. What we’re seeing in bids, we’re seeing state infrastructure projects, buildings (and) those types of things, through the roof,” Huston said in late May.

Indiana Law Enforcement Academy sees 22% cost increase

Many of those projects, still in the design phase, won’t have updated price tags for weeks.

But the Indiana Law Enforcement Academy was farther along in the process and offers a warning to legislators crafting the 2023 budget, with costs coming 22% over initial estimates, or $15.5 million more than the $70 million requested.

Timothy Horty, executive director of the Indiana Law Enforcement Academy, said they calculated the project’s cost in 2019 without knowledge of the economic fallout of COVID-19.

“Materials and labor costs skyrocketed and made the budget process more complicated,” Horty said.

Horty will need to make a request before the State Budget Committee on Wednesday, where state fiscal leaders will decide whether to transfer funds from discretionary accounts to cover inflated costs.

The law enforcement academy proposal would add dorm capacity for the academy, which trains officers from across the state. Rather than three pupils per room, each room will host two students with an overall capacity for 400 students.

“Those are awfully close quarters and the pandemic showed us it’s not particularly safe to put that many students in one room,” Horty said.

Additionally, the project will expand the state’s only emergency vehicle track, adding more roadway with interstate exchanges, roundabouts and other safety hazards.

“The roadway is the number one killer of law enforcement officers in this state,” Horty said. “I’m trying to get away from classroom training and move to more scenario-based training … these young men and women need this hands-on training.

“We want them to make mistakes here and not in their home communities.”

Indiana National Guard may delay projects

For government buildings, specifically, the design and approval process can take years. On average, the Indiana National Guard said it saw a 35% increase over original estimates to repair roofing on several armories.

“In the past 18 months or so, upwards of 75% of the projects the Indiana National Guard facilities program have bid have busted,” said Steven Hines, construction and facilities management officer of the Indiana National Guard. “Our estimates on re-roofing seven armories this year were accomplished in 2019 with no way of predicting the difference in today’s costs.”

He said they may postpone or cancel 20% of their projects to fund the remaining projects, a temporary fix.

“This is a solution for now, but deferring the projects increases ad hoc repairs, and can strain our annual budgets,” Hines said. “Several projects have been downsized in an effort to save when possible.

“Ultimately, the work must get done, so we continue to adjust our estimates based on today’s market variables for the future and look for alternative methods of accomplishing our mission.”

Impact yet to come for Westville, other projects

Some projects haven’t progressed far enough to see the impact of inflation, such as the Westville Correctional Facility, which the Indiana Department of Corrections said would receive a new cost estimate in the coming weeks.

In 2021, lawmakers approved $400 million for the facility, located in LaPorte County, the largest capital improvement project included in the budget.

Annie Goeller, chief communications officer of IDOC, said the full cost of the Westville project won’t be calculated until they finish the design and development phase.

Lawmakers approved a $550 million capital reserve account for state building projects, not including the above proposals. Eligible projects include: the State Archives Building, the combined campus for the School for the Deaf and the School for the Blind and Visually impaired, State Park Inns at Potato Creek and Prophetstown, cyber security infrastructure and a new Indiana State Police post and lab in Evansville.

According to Cris Johnston, director of the Indiana Office of Management and Budget, none of those projects have bids. However, he said “firms helping with those efforts are sending cautionary signals to prepare for rising costs.”

The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.

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7 thoughts on “Inflation hits state capital, infrastructure projects

  1. So we know as a state everything is going to cost more but we are rushing to give taxpayers a billion dollars, which will just lead to more inflation …

    Instead of using that money to finish all these projects, we defer them or cut corners.

    It’s as though our state legislators don’t care one whit about the future.

    1. You beat me to it by one minute but yeah, came here to say this. We spent the last session approving tax breaks based on short-term economic conditions. It’s really bad policy.

  2. So maybe we shouldn’t dole out $1 billion from State coffers. Not only would doing so diminish our ability to deliver public services and finish major capital projects, it would worsen the inflation situation by increasing consumer demand.

    1. Unlike the federal govt, Indiana doesn’t control the money supply; a dollar spent by the State was a dollar taxed by the State, not created by the Fed.

      So a budget tax cut doesn’t create general inflation; just some positive PR to soften and divide media attention away from the primary reason for the special session (abortion restrictions)

    2. Michael Hicks would disagree with you.

      “ The statistical model suggests that the extra $1.5 billion will boost inflation for Hoosiers by more than 1.5 percent and lengthen our period of price increases by a year. To be conservative, I’d reduce that a bit to account for out of state spending, affecting consumer prices elsewhere. Still, at that level, it’s not clear consumers will be better off.

      The proposed tax rebate equals about 0.4 percent of total personal income on Indiana. A 1.0 percent inflation increase on our personal consumption is over $2.5 billion. That would leave Hoosiers $1 billion in the hole. Even if my estimates are off by half, this is simply a costly gimmick with no real benefits. A very costly gimmick.”

      https://www.msn.com/en-us/money/markets/michael-hicks-yes-state-stimulus-checks-boost-inflation/ar-AAYD7SG

    3. Scott – It still has a broader impact on consumer demand, though, which has localized inflation impacts (a loaf of bread in Indianapolis doesn’t cost the same as a loaf in Los Angeles). I agree that it’s very much a distraction from the real efforts at hand, but they’re hoping to effectively pay off Hoosiers for bad policy without consideration of the fiscal impacts, both in terms of State coffers and household finances.

  3. During 1942, the national government appropriated amounts that were unprecedented to convert our economy to a machine producing war materials and all that new government money in the economy was fueling inflation and fears inflation would prevent the US from doing what it planned to do. The public largely joined in fighting inflation with price and wage controls. Here we are again, but not so desperate.

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