May CPI down 1.2% — a negative contingency budget cap for 2010-11?
Wednesday, June 17th, 2009 at 10:33 am by Robert Lowry
This morning the federal Bureau of Labor Statistics reported that the national Consumer Price Index for all urban consumers (the CPI-U) is down by 1.2 percent from a year ago.
The CPI-U is the figure used to compute the school district contingency budget cap. It would also be used to compute a property tax cap under Governor Paterson’s proposal.
If current trends hold, schools could face a flat or even negative cap for 2010-11.
By law, the contingency budget cap isset at the lesser of “(i) the result obtained when 120 percent is multiplied by the percentage increase in the consumer price index, rounded to two decimal places; or (ii) 4 percent.”
The term “Consumer Price Index” is defined in the same law as the average of the national CPI, as determined by the federal Labor Department, for the 12 months preceding January 1st of the current year. In other words, the figure for computing the 2010-11 cap would be the average monthly change over the 2009 calendar year.
So far, for the first five months of 2009, the average monthly CPI change is minus 0.4 percent, suggesting that the contingency budget cap for 2010-11 could be 120 percent of that figure — minus 0.48 percent.
Since the law says that 120 percent is to be multiplied by the “percentage increase” in the CPI, one might argue that a negative average should be ignored and the cap should be set at zero. That’s not much comfort, however, especially not with expected jumps in pension costs.
All this points to the fallacies of the current cap calculation.
First, reflecting economic conditions from as much as 18 months before the start of the school year, it has often been “out of sync” with current circumstances.
This year for example, schools have the benefit of a 4 percent cap, due to the high inflation that prevailed through much of 2008, and especially over the summer months one year ago. Sometimes the cap has also been much below what a more timely measure would provide. That could be the case for the coming year.
More fundamentally though, schools simply don’t buy the same goods and services as consumers.
Typically, 70 percent or more of school costs go to personnel. The Bureau of Labor Statistics also publishes a quarterly “Employment Cost Index” which measures change in total employee compensation costs for civilian workers nationwide. It rose by an average of 3 percent over 2008, and by 2.1 percent in the first quarter of 2009, compared to the year before.
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June 17th, 2009 at 10:53 pm
Bob,
The bigger problem is that school boards agree to COLAs before they know what the rate of inflation is. They agree to them years in advance. You can’t fix that by making the Consumer Price Index calculation more current. More importantly, school boards agree to COLAs without any conditional language rolling back the size of increases under certain trigger events. This conditional language is used in some other states and routinely used by some school districts within them. Educators and school board members know they can’t predict the economic future, yet they continue to act as if they can–or as if it doesn’t matter that they can’t.
June 18th, 2009 at 9:00 am
Just for the record, Mr. Moore is not a school superintendent. I don’t point that out to disparage his comments (he has made others on this blog) — I wouldn’t approve them for posting if I thought they had no value. But given our sponsorship, other readers might presume any comment author on our blog is a superintendent, and wonder which district he or she serves.