In states such as Maryland, the role diversity, equity, and inclusion-like policies embedded in federal contract requirements are playing in discouraging development has come into focus as efforts begin to rebuild the Francis Scott Key Bridge.

Nationwide, and in the country’s most populous blue cities, builders have expressed concern over a slew of labor, environmental, and safety mandates instituted under Democrats, which they argue have suppressed the ability of companies to operate competitively. These include a 2022 order creating project labor union requirements, requirements on “prevailing wages,” and a 2024 rule listing two chemicals known as PFAS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act.

“You do have that confluence of kind of interest groups, so that we need union labor, the architects have to have a certain minority component. And environmental concerns — are there spaces that we can’t build, or do you need to do a huge study to make sure that there’s some sort of plan, because there’s a five-eyed caterpillar that lives within the range?” said Wayne Winegarden, senior fellow of business & economics at the Pacific Research Institute.

“All of those types of regulations absolutely decrease the efficiency of what’s happening, cause delays, drive up costs,” he added.

Washington, DC: The epicenter of the regulatory framework

The 2024 rule expanding requirements around PFAS, or “forever chemicals,” was spearheaded by the Biden-era Environmental Protection Agency before trickling down to affect billions of dollars in development and thousands of workers.

The CERCLA regulations, backed by liberals, have put a stranglehold not just on small businesses, but also on the “big, sophisticated contractors” looking to get involved in major infrastructure projects, as they have broadened the costly liabilities they could face, according to the Associated General Contractors of America.

“That liability is what’s going to prevent contractors from bidding on major infrastructure projects where there might be PFAs contamination,” said AGC Regulatory Counsel Spencer Phillips, whose organization represents over 33,000 firms in the construction industry. “Members have told us that they’re declining a bid on those types of projects, particularly airport projects, because PFAs contamination is pretty ubiquitous.”

“Even if a contractor doesn’t know that there’s PFAs on their site, it was totally by happenstance,” Phillips added, “all of a sudden, the contractor is on the hook for the entire dollar figure for the cleanup and remediation.”

The Biden administration’s prevailing wage rule has also raised concerns that snaking requirements backed by Big Labor are throttling the industry. Projected to affect $217 billion in federally assisted construction spending annually for more than a million workers, the rule requires companies to pay wages equivalent to those paid to at least 30% of workers in a particular locality instead of the previously required 50%.

The rule added “really complicated compliance requirements to construction work that was historically not covered by the Davis-Bacon Act,” Phillips argued. He said he believes smaller and traditionally nonfederal contractors lack the resources to navigate payroll and record-keeping requirements associated with the regulation.

Phillips suggested the prevailing wage rule acts as a deterrent for smaller firms to pursue certain contracts, which could reduce the quality of projects because it shrinks the applicant pool and the competitiveness of the bid process. The bigger the pool of applicants or eligible contractors is, “the better bids you’ll get, the better work you’ll get,” he said.

Prevailing wage regulations have sparked extensive debate in New York City, the country’s largest metropolis, and contributed to criticism that they have contributed to the Big Apple’s housing affordability crisis. 

Residents faced a housing crisis of record proportions as construction ground to a halt over the summer, largely due to the end of crucial tax incentives for developers, the renewal of which was blocked by liberals partly because of concerns that they needed an update to expand prevailing wage regulations.

The renewal of the state’s 421-a property tax exemption for the construction of affordable housing in 2022 was opposed by Democratic City Comptroller Brad Lander and Big Labor groups. They advocated a replacement measure that mandated prevailing wage laws apply to projects built under the tax exemption, which was previously exempt from such requirements. 

The new 485-x tax provision has not yet proven effective in motivating New York City developers, leading to stalled projects and fewer affordable options as the city faces a vacancy rate of 1.4%, the lowest since 1968.

Regulations filter down to the states

By November 2024, former President Joe Biden’s marquee 2021 Infrastructure Investment and Jobs Act awarded $568 billion in federal funding to over 66,000 projects across the country, with a catch: most projects awarded IIJA funding must comply with various federal regulations, including the prevailing wage rule and requirements set by the Disadvantaged Business Enterprise program. The Transportation Department program requires recipients of DOT funds to award 10% of federally assisted contracts to DBEs, defined as firms at least 51% owned by women or minorities.

States such as Maryland have added additional regulations on top of the federal diversity requirements for many infrastructure projects, with critics arguing they have contributed to delays on multiple high-level developments. DBE requirements, currently being battled in court, have affected contracts involving projects ranging from the Golden State’s high-speed rail project and the Francis Scott Key Bridge in Baltimore to the Brent Spence Bridge Project, all of which have faced delays and escalating costs.

The $3.6 billion Brent Spence Bridge recently faced a lawsuit alleging that the project’s lead contractor reneged on an agreement to use a more diverse set of subcontractors, as 9%, or around $320 million of the construction project’s funds, was set to go to DBEs.

“We appreciate the need to attract new people into this industry,” said Brian Turmail, who leads strategic initiatives at AGC. “But for 50 years, at some level or another, public owners, at the state and local level, sometimes at the federal level, have been putting in place, sort of set aside for minority firms, and they haven’t measurably increased the percentage of minority ownership of construction firms in this country. So we found that they don’t actually work. They don’t meet their policy objective while needlessly raising the cost of projects.”

Turmail pointed to the Brent Spence Bridge’s paralyzed development as a prime example of regulations, including permitting requirements, impeding progress. The plan was first proposed in 2004. A decade later, taxpayers had spent more than $100 million on plans for a new bridge, years before the project was given the federal green light to proceed with construction in 2022. A design was unveiled earlier this year, with construction projected to begin in 2026 after environmental advocates sued the project last year, alleging that health and environmental effects were overlooked. 

“We’ve created a permitting process that essentially it’s like a bad case that shoots in ladders,” Turmail said. “Anytime you fail one step of the process, you almost have to go back to the start. And not only can you fail the federal level, but the process is designed to make it really easy for special interest parties to get involved, litigate, and send the project back to square one.”

The permitting process in some of the country’s largest blue cities has been similarly accused of preventing construction on housing and other priorities.

The process of getting building permits in Los Angeles can run one to two years, while the number issued is down 18.5% since 2022, according to the Pacific Research Institute. On the other side of the spectrum, the permitting process in Republican-run cities, such as Dallas, often takes less than three months.

One recent example in Los Angeles showcased the obstacles contractors often face: Developer Cityview became one of only six large apartment developments under construction in the nation’s second most populous city after going through a three-year process to get approval, according to CoStar. The project survived an environmental appeal, required a legal settlement, and ultimately advanced only after qualifying for streamlined review under state law.

Overall, the cost of building new multifamily housing is 2.3 times higher in California than in Texas, according to a RAND analysis. Stringent energy efficiency standards add around 7% to construction costs, according to Cal Matters, while government-subsidized apartment projects that are often mandated to pay union-level wages carry labor expenses accounting for up to 35% of the total difference in costs between California and Texas.

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Gov. Gavin Newsom (D-CA) eased some CEQA standards to help Los Angeles rebuild after the fires in January. However, he has faced criticism over his rationale for allowing such regulations to restrict development elsewhere.

“Certainly, any type of moves like that is helpful,” Winegarden said. “But is it enough? Is the question, and right now, no, it’s not.”