A new era of US infrastructure grants

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In response to the COVID-19 pandemic, the US government has spent more than $6 trillion across a variety of relief measures designed to rescue the economy. A significant portion of these funds went directly to states and businesses through formula allocations. Eligibility was predetermined, and states frequently did not even need to apply.

In contrast, for the Bipartisan Infrastructure Law—the first piece of major legislation in two years that looks beyond immediate COVID-19 relief—the US government has shifted more of its funding allocation to grant application programs. Under these programs, in which federal agencies score projects based on defined criteria and allocate funds to a subset of all submitted applicants, some projects could potentially receive the bulk of the funding, while others could go entirely unfunded. Therefore, many government leaders are exploring ways to rapidly build teams with the requisite capability and capacity to effectively apply for federal dollars beyond formula-based allocations.

This article, part of our new Reinvesting in America series, offers an overview of this emerging—and rapidly evolving—landscape as well as key considerations for state and local governments pursuing infrastructure grants.

Infrastructure 2022 and beyond: A focus on competitive funding

Of the $470 billion in new spending that will be directed toward state and local governments, $180 billion (approximately 38 percent) will be provided through a competitive grant process in which the strength of application, not formulas (such as allocation based on population size or miles of road), will likely be the determining factor for grant allocation (Exhibit 1).

Competitive grants will allow for approximately $180 billion of Bipartisan Infrastructure Law funding.

While this funding will be distributed through more than 110 programs, about 75 percent of the money at stake will flow through 20 competitive grants (Exhibit 2). These top 20 programs are run through four federal agencies—the departments of Transportation, the Interior, Agriculture, and Energy—with each retaining control over awarding funds and implementing programs. This competitive landscape is separate from the suite of formula-based programs that require states to submit detailed plans and proposals (see sidebar “State plans required for some noncompetitive grants”).

Exhibit 2

Regardless of the extent of the application—whether it be a state plan for a noncompetitive grant or a more robust proposal for a competitive grant—states may need to consider different objectives for their applications to potentially receive funding (see sidebar “Considerations for applications”). And application deadlines are looming.

Key considerations for state and local governments

With $180 billion in competitive funding coming available in the next few years under the BIL, states are entering a challenging period of applications: a few months of dedicated effort could yield significant increases in infrastructure budgets.

State and local governments have several considerations to weigh as they prepare to submit grant applications.

Choose programs

Because the field spans more than 110 competitive grant programs, state and local governments in a constrained-capital environment may aim to be selective in deciding which programs are most relevant to their goals. For example, states with major transit systems could target specific transit-funding programs, while others may gravitate toward opportunities to build out a clean-energy research hub. Still others could consider focusing on applications that could advance current projects—for example, to conduct analyses or draft plans to prepare a project for the construction phase. Federal agency decision makers could take investment as a sign of project commitment, which in turn could translate into a more impactful development effort.

Track requirements

Federal agencies are consistently releasing a steady stream of ongoing information—such as guidance, application requirements, and program deadlines—across numerous programs. States might consider increasing their capacity to efficiently scan for regular updates and adapt application planning and content accordingly, especially as states seek to ensure they are adhering to the latest guidance and making decisions based on the most accurate information available.

Establish accountability

State and local governments may want to have a clear understanding of which department (and individual) is responsible for each piece of the overall competitive grant application. States could consider defining major roles and responsibilities across the portfolio of priority grant applications. Tools could include a set of clear timelines and a map of dependencies among applications. States could then consider managing the grant application progress—and navigating potential roadblocks—by establishing a regular performance cadence; monitoring major milestones, such as upcoming deadlines; and supporting grant-writing teams throughout the process.

Link projects to program priorities

In both the legislation itself and various program guidance documents, the federal government has outlined the major priorities it seeks to fund. States could review the federal materials to build a catalog of detailed requirements and selection criteria for each program. That catalog could be used as a reference point to draft applications that draw a clearer connection between the program’s funding priorities and the associated infrastructure project’s role in achieving those priorities. To avoid creating applications that speak only to federal criteria, states could further link each project to a broad set of state-level priorities that most closely reflect the specific goals for sustainable and inclusive growth for their residents. Establishing this narrative, from the top-level federal priority to the state-specific need to the on-the-ground outcome of the individual project, could help create a persuasive argument in each application.

Focus on strengths

A strong competitive grant application typically has two key elements: a compelling narrative and a fact base to back it up. A state could draft a cross-cutting suite of themes to capture why it may be a candidate to receive competitive grant funds. For example, a state with a budding green-energy sector could aim to become a global hub with the right investments in battery manufacturing and clean hydrogen. Regardless of the chosen theme, applications could also highlight past performance—such as the completion of similar projects ahead of schedule and under budget.

Understand and convey potential impact

The overarching priorities of BIL programs—such as a vision for equitable and sustainable investments—are key considerations as states convey the potential impact of their proposed projects across both financial and nonfinancial measures. By clearly linking projects to the tangible benefits they create for residents, applications could help provide context for the funding’s potential impact. States could consider defining clear outcomes (for example, reduced traffic congestion or fewer power outages) and collecting current state data points to build a performance baseline. In addition to potentially supporting a state’s case for why a project is worthy of funding, this type of outcome-focused performance improvement tracking could also help states better measure potential project impact to support the next round of applications.

Demonstrate project readiness

Federal agencies focused on maximizing the speed of capital deployment and ROI may consider a project that is ready to break ground tomorrow compared with one that is still in early design and planning phases. States could consider demonstrating clear signs of their commitment and readiness to execute, including securing implementation partnerships; clearing preapplication requirements, such as environmental approvals; arranging for budgetary support, such as state matching funds; and creating a plan to address potential material and labor supply shortages that could impede project completion.1Navigating the labor mismatch in US logistics and supply chains,” McKinsey, December 10, 2021.

Ensure quality control

A standardized quality-control process could be another key consideration in putting together grant applications. In the private sector, such a process may encompass a few common elements: establishing stage gates for various levels of review and approvals across stakeholders, and calculating an estimated score of an application’s presumed strength against selection criteria to build a preliminary view of how competitive the application is likely to be. States could also consider bringing in external grant writers and visual designers who could add an additional degree of polish to an application before submission.

Engage the community

States could help tell the stories of their projects by incorporating voices from the communities where they’ll be built. Applications could be informed by community listening sessions and documented resident feedback, which can potentially help ensure that project design addresses those pressing concerns. Recent federal guidance for some programs, including the Multimodal Project Discretionary Grant, has made addressing equity concerns an explicit selection criterion for receiving funding.2 Incorporating local stakeholder testimonials and providing proof points for how the project will substantively address matters of equity—especially in historically underrepresented communities—could potentially simultaneously improve the project’s impact on inclusive growth and strengthen the state’s case for funding. Generating community engagement early may also help proactively build consensus with local leaders and key stakeholders, which could be helpful to all involved once the project is under way.

The BIL has the potential to be transformative for US communities and the broader American economy—but it will likely depend on state and local governments being ready to secure funds effectively. Responding to all competitive grants will likely be challenging, and some agencies may not have the capacity, capability, or desire to do so. State and local governments may consider creating a central grant application team—potentially run by a state infrastructure coordinator—to manage overall implementation of the BIL and other major federal stimulus programs.3Impact officer in chief: The state infrastructure coordinator’s role,” McKinsey, April 20, 2022. Whatever their path, governments that are well prepared to apply for major competitive grant programs have a meaningful opportunity to transform the infrastructure in their communities.

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