General contractors rejoice (mostly)! The outlook for U.S. public construction work for the balance of 2025 remains favorable, especially in heavy/highway, transit, water, and airport projects. This steady availability is underpinned by multi-year federal authorizations, a robust municipal bond market, and earmarked appropriations that continue to flow despite some design-side and financing headwinds.

At the federal level, the Bipartisan Infrastructure Law (IIJA) provides a durable funding base. The Federal Highway Administration (FHWA) has confirmed that $55.7 billion in formula program funding is authorized for FY2025, with the statute remaining active through FY2026 (FHWA, 2025a). In addition, FHWA’s “August Redistribution” process, which reallocates unused obligation authority, is expected to spur an end-of-summer surge in lettings, reinforcing the late-year bid calendar (FHWA, 2025b). Transit and airport programs mirror this momentum. The Federal Transit Administration released its FY2025 apportionments totaling about $20.5 billion, and the FAA has already begun issuing FY2025 Airport Improvement Program grants for airside and landside work (FTA, 2025; FAA, 2025a).

Spending data also reflects continued strength. The Census Bureau’s June 2025 report shows public construction rising year-over-year, with highway and street work up 4.3%, sewage and waste disposal up 11.4%, and water supply projects up 9.2% (U.S. Census Bureau, 2025). These gains are closely linked to Environmental Protection Agency allotments for State Revolving Funds (SRFs), augmented by IIJA funding that ensure sustained project pipelines in water and wastewater (EPA, 2025). Likewise, the U.S. Army Corps of Engineers’ FY2025 civil works plan is driving navigation, flood control, and levee repair projects through year-end (USACE, 2025a).

Municipal markets are further expanding capacity. Through July 2025, municipal bond issuance reached approximately $338 billion, representing a 17.8% year-over-year increase, enabling local governments to move forward on education, safety, and transportation projects (SIFMA, 2025). Meanwhile, state and local entities continue to expend American Rescue Plan Act (ARPA) funds obligated before December 2024, supporting active construction even as new ARPA awards cease (U.S. Treasury, 2025).

Macroeconomic conditions present challenges but remain manageable. The Federal Reserve has maintained policy rates in the 4.25–4.50% range, keeping borrowing costs elevated yet stable (Federal Reserve, 2025). Material costs are rising modestly, with construction input prices increasing about 2.6% year-over-year, especially for steel and electrical components (Associated Builders and Contractors [ABC], 2025). These factors add cost sensitivity but have not disrupted federally underwritten projects.

By sector, highways and bridges are likely to see heightened activity in late Q3 and Q4, coinciding with redistribution deadlines and fiscal-year close. Water and wastewater work will remain strong, supported by SRF-backed loans, which fund plant upgrades, distribution systems, and stormwater projects. Transit and rail agencies are advancing station renovations and charging infrastructure under FTA allocations, while airports are continuing to let projects tied to FAA grant cycles (FTA, 2025; FAA, 2025b). Federal civil works also remain active, with Corps districts obligating their FY2025 appropriations (USACE, 2025b).

There are, however, countervailing signals. The American Institute of Architects (AIA) reported its June Architecture Billings Index at 46.8, below the 50 threshold that signals growth, suggesting ongoing weakness in design activity (AIA, 2025). While this more directly affects privately financed projects, it may temper the pace of some vertical public building starts. Additionally, tight bid spreads and persistent labor shortages continue to delay award-to-notice-to-proceed intervals, especially in complex scopes (ABC, 2025).

For surety bond executives, the implication is a robust public works market for the remainder of 2025. Heavy/civil and utility sectors should dominate, with steady bid calendars supported by federal and municipal funding streams. The combination of fiscal-year deadlines, multi-year authorizations, and obligated federal programs ensures a “firm-to-favorable” outlook through December, despite cost and labor pressures. Ultimately, while vertical projects may face some softness, the federally backed infrastructure pipeline provides a reliable base of bonded public work opportunities.

~ C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe

References

American Institute of Architects. (2025). Architecture Billings Index, June 2025. AIA/Deltek.

Associated Builders and Contractors. (2025). Construction input prices: July 2025 report. ABC Economics.

Federal Aviation Administration. (2025a). FY2025 Airport Improvement Program (AIP) grant awards. FAA.gov.

Federal Aviation Administration. (2025b). Airport planning and capital development programs. FAA.gov.

Federal Highway Administration. (2025a). FY2025 Federal-aid Highway Program funding. U.S. Department of Transportation.

Federal Highway Administration. (2025b). Notice on redistribution of obligation authority for FY2025. U.S. Department of Transportation.

Federal Reserve. (2025). Federal Open Market Committee statement, July 2025. Board of Governors of the Federal Reserve System.

Federal Transit Administration. (2025). FY2025 apportionments and allocations. U.S. Department of Transportation.

Securities Industry and Financial Markets Association. (2025). Municipal bond issuance data, July 2025. SIFMA Research.

U.S. Army Corps of Engineers. (2025a). FY2025 civil works program: National overview. USACE.

U.S. Army Corps of Engineers. (2025b). District-level FY2025 civil works allocations. USACE.

U.S. Census Bureau. (2025). Value of construction put in place survey: June 2025. U.S. Department of Commerce.

U.S. Environmental Protection Agency. (2025). FY2025 Clean Water and Drinking Water State Revolving Fund allocations. EPA.gov.

U.S. Treasury Department. (2025). American Rescue Plan Act State and Local Fiscal Recovery Funds: Expenditure timeline guidance.