Inflation, supply chain crunch put pressure on Baltimore to beat federal pandemic aid deadlines

Published on: October 03, 2022 5:00 AM EDT|Updated on: October 03, 2022 2:51 PM EDT

Lumber, HVAC, screws, and steel under broken chain
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When temperatures in Baltimore climbed into the mid-90s in August — a routine occurrence for summers in the city — broken air-conditioning systems forced nearly a quarter of city libraries to temporarily close their doors.

It’s a seasonal problem that Baltimore officials are looking to tackle with a small portion of the city’s hundreds of millions of dollars in federal COVID-19 aid. Several million of the city’s $641 million in American Rescue Plan Act funding have been set aside for HVAC improvements in five city libraries.

But the high costs of project materials and supply-chain backlogs could cause delays, or even prevent the city from making repairs at all five of the targeted libraries, said Marwan Alkarajat, chief of the capital projects division in the city’s Department of General Services. Alkarajat’s division has been trying to fill three of its eight engineering positions for nearly a year, vacancies he attributes to a national labor shortage, and has also found increased costs in nearly every line item of its maintenance work.

“What stops us and limits us from doing the work is money,” Alkarajat said.

Sweltering libraries are just one symptom of years-long neglect and underinvestment in some of Baltimore’s community spaces, but economic factors well beyond the powers of City Hall could stress Mayor Brandon Scott’s plans to use federal pandemic aid to make structural improvements.

The city is under federal deadlines to budget all of its American Rescue Plan funding by the end of 2024, and to spend it by the end of 2026. As of June, the latest figures available, Baltimore had spent less than 7% of its funds. In a progress report to the U.S. Department of the Treasury in July, the office overseeing COVID-19 aid said “concerning” factors like inflation, supply chain constraints and labor shortages could hinder the city’s ability to spend all of money by federal deadlines.

Shamiah Kerney, director of the city’s Office of Recovery Programs, said in a statement weeks later that the city was hopeful that the federal government will “be open to considering an extension” in light of persistent economic challenges, which she said have been exacerbated by high demand for similar projects by local governments all over the country.

City projects on ‘a knife’s edge’

While Baltimore City is planning to draw on anticipated funding from the federal infrastructure bill passed last year to tackle major issues — such as improvements to its aging water and transportation systems — it has earmarked a large share of the city’s American Rescue Plan funds for smaller scale projects. These include efforts to expand broadband access, restore old recreation centers, eliminate widespread vacancy in the city’s old row homes and support affordable housing.

But the federal windfall has flowed into Baltimore at a time of high inflation and commodity shortages in everything from lumber to steel to computer chips. Russia’s invasion of Ukraine has added further strain to supply chains in Europe, and helped to push the U.S. price of crude oil to its highest point in more than a decade.

“It’s a huge issue, a significant issue and it’s affecting everything,” Matthew Garbark, director of the Mayor’s Office of Infrastructure Development, said of the ramifications for city projects. Still, Garbark said the city is committed to spending all of the COVID-19 funding ahead of federal deadlines, ensuring no money is left on the table.

“We may just have to rethink some of the approaches on how we do that, if these conditions continue,” he said.

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Alice Kennedy, commissioner for the city Department of Housing and Community Development, noted that constraints seem to be easing in some areas. Lumber prices, for instance, have fallen rapidly in recent months, returning to near pre-pandemic lows. Though the city’s housing department is monitoring conditions, Kennedy said she doesn’t expect persisting economic challenges to derail its slate of affordable housing investments.

In March, the Scott administration allocated $100 million, or 15% of the city’s total American Rescue Plan package, to Housing and Community Development and and other housing entities. More than half of that is going to multiple housing developments, including 170 units in Park Heights, a net-zero housing project near Lake Montebello, the second phase of the long-awaited Uplands housing project, another in O’Donnell Heights and hundreds of units in the massive Perkins Somerset Oldtown redevelopment.

Another $40 million is earmarked for a slate of projects aimed at restoring and eliminating vacant properties, while other infrastructure investments include $35 million for broadband expansions and tens of millions for improvements at recreation centers, 23 public pools and 120 playgrounds and athletic fields.

All of this comes as local governments across the country have prioritized many of the same types of projects with their federal infusions — competition that could exacerbate the challenge of meeting federal deadlines, said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute, a progressive think tank.

Konczal said global supply-chain problems have been easing and should continue to clear as manufacturing begins to catch up with demand. The recession forecast by some investors and economists would create other problems for Baltimore, but it would also calm inflation and supply chain woes, Konczal noted.

Still, it remains a difficult, unpredictable environment for local leaders to navigate. “I think it’s an incredibly volatile moment,” Konczal said, adding that he believes “the risks are all on the worse side.”

Meanwhile, major city spending projects remain on “a knife’s edge,” subject to the whims of national and global market forces, Garbark said. One twist, such as a different result from the freight rail union negotiations last month, could lead to critical disruptions.

“We’re at that point where anything could really blow us in one direction or the other,” he said.

Most of the capital improvements that Baltimore is pursuing with its federal COVID-19 aid remain in preliminary stages, but supply chain issues have already delayed the completion of one of the city’s most high profile projects: the $45 million redevelopment of historic Lexington Market. Groundbreaking took place in March 2020, just as the pandemic took off. Jon Constable of Seawall, the lead developer, said in a statement that the spike in lumber prices over the last two years was just the “canary in the coal mine” for widespread supply chain challenges, which have affected the procurement of everything from furniture to electric equipment.

Baltimore granted $5 million out of its pandemic aid package to the Lexington Market project, funds that Seawall says have covered unplanned cost increases brought by inflation and the supply-chain issues. Without the city’s grant, Seawall says, costs would have been passed along to 45 merchants planning to move into the market. Some market stalls will begin soft openings in early October, Seawall spokeswoman Katie Marshall said, while a grand opening is expected by year’s end.

Sandy Marenberg is president of a Baltimore development company contracted to build part of the city-sponsored affordable housing development in Park Heights, which will include large multi-unit complexes as well as single-family, mixed-income houses. Without the federal support, this mixed-income section couldn’t offer affordable options for lower-income families, Marenberg said.

Lumber prices may be falling, but Marenberg said it’s still challenging to acquire some project materials, including electrical panel boxes, garage doors and certain types of windows — “a lesser group but still a critical group” for completing a project.

Construction is set to begin in mid-2023. By that point, Marenberg hopes some of the supply chain problems of the last year will have abated.

“We’re thinking that a trend is starting,” he said. “On the other hand, you don’t bet the house on it.”