The Budget vs Inflation Rate

A person asked me if I would investigate how the budget had grown in comparison to inflation. He believed that the rate of the school budget’s growth far outpaced inflation, and this was the prime reason it was causing taxpayers pain. This type of analysis gives me a headache. Get ready to glaze over, or just jump to the bottom section. 🙂

The numbers for this exercise where obtained from the Octorara Area School District May 2012 Finance Committee Meeting report, and the 2/14/2013 Budget Process History report. Statements assume that 1 mill equals $800,000, as was stated in the Feb 11th Board Meeting. If calculated out, both methods below show spending $42,553,183.59 in 2013-14 represents flat growth.

Method 1

Actual Budget Inflation Adjustment (2006-07) Rate* Difference
2006-07 $37,216,717.00
2007-08 $38,527,872.00 $38,630,952.25 3.80% -$103,080.25
2008-09 $42,102,280.00 $38,476,428.44 -0.40% $3,625,851.56
2009-10 $44,021,839.00 $39,092,051.30 1.60% $4,929,787.70
2010-11 $46,026,385.00 $40,342,996.94 3.20% $5,683,388.06
2011-12 $45,757,576.00 $41,190,199.87 2.10% $4,567,376.13
2012-13 $46,664,375.00 $41,313,770.47 0.30% $5,350,604.53
2013-14 $47,920,581.00 $42,553,183.59 3.00% $5,367,397.41

This exercise actually starts with the 2007-08 budget, the year before the Wall Street Crash and start of the Great Recession. There are a few different ways to do this. However, no matter what the method, the numbers are all really close. In Method 1, we use a fixed reference (2006-07), and compare the Actual Budget verses the 2006-07 budget adjusted for inflation. We see the spending above 2006-07 adjusted dollars in the difference column.

Using a generous projected rate of inflation of 3%, we see an extra $5,367,397.41 in the projected 2013-14 budget, or 6.70924 mills. That would take the proposed rate down from 37.59 to 30.88. This rate is still high compared to many other districts, but can be easily defended. If spending would have been held at the 2006-07 level, and only adjusted for inflation, we would have saved taxpayers $29,421,325.14.

Method 2

Actual Budget Inflation Adjustment (Year-Over-Year) Rate* Difference
2006-07 $37,216,717.00
2007-08 $38,527,872.00 $38,630,952.25 3.80% -$103,080.25
2008-09 $42,102,280.00 $38,373,760.51 -0.40% $3,728,519.49
2009-10 $44,021,839.00 $42,775,916.48 1.60% $1,245,922.52
2010-11 $46,026,385.00 $45,430,537.85 3.20% $595,847.15
2011-12 $45,757,576.00 $46,992,939.09 2.10% -$1,235,363.09
2012-13 $46,664,375.00 $45,894,848.73 0.30% $769,526.27
2013-14 $47,920,581.00 $48,064,306.25 3.00% -$143,725.25
Total: $4,857,646.85

Under this method, the inflation is not a fixed point, and done year-over-year. It looks to be a little more forgiving, but only slightly. I also baked in a generous projected inflation rate into the calculations for the proposed 2013-14 budget, greater than the budget increase. The difference column, and any increase or decrease, is only from an inflation adjustment for the previous year. This is how politicians argue they have cut spending, at the same time they are spending more.

The total of all overs and unders, from each year, show the total increases. This shows there was added a total of $4,857,646.85 in new spending year-over-year, for the sample years. This method is really best when comparing two years back-to-back, because it skews the numbers, but I thought it was good idea to include it. The 4,857,646.85 is close to if there have been no budget growth, but then the 2013-14 budget was the same. It translates into 6.0721 mills, and would take the proposed rate down from 37.59 to 31.5179.

I want to make special note of the 2011-12 budget. If you received a copy of Dr. Newcome’s “Budget Process History” form, you would have seen the final budget reduced spending by 0.58%. That saved taxpayers $1,235,363.09 in adjusted dollars from the previous 2010-11 budget. In Method 1, we also saw the positive effects. However, the millage rate was still increased from 35.12 to 35.28 mills. Why was there no savings passed on to taxpayers?

The 2006-07 millage rate was 28.37. If the school district held spending growth to inflation taxes would have gone up, but we would only be paying 30.88 mills. If there was a commitment to cut the lesser $4,857,646.85 in year-over-year additional spending, we could reduce the rate to 31.5179 mills. These rates are still high, but then the arguments about home values, green space, and farms would have merit.

Controllable & Uncontrollable Costs

We now have our hypothetical ideal budget. Unfortunately, over the same sample period the school district had to deal with debt service, reduction of revenue for federal and state sources, Public Charter School tuition, and increases to in Retirement Fund. When we add together these numbers, provided in the budget talking points memo, we have $5,489,000.00 additional we have to deal with.

Since 2007, the school board made cuts in staff and operating costs of $4,149,500.00, and “Revenue Enhancements” of $460,940. This amounts to $4,610,440.00, and offsets the additional money we have to pay to a net increase of only $878,560.00.

Add the net increase into our hypothetical ideal budget and it adjusts to $43,431,743.59.

The difference between our adjusted ideal budget compared to the 2013-14 proposed budget is $4,488,837.41 or 5.611 mills.

Our petition asks for a tax freeze this year, and a reduction in the budget of $4,666,437.50 over 5 years.

*The Consumer Price Index (CPI-U) data provided by the U.S. Department of Labor Bureau of Labor Statistic. The CPI data covers up to January 2013.


One thought on “The Budget vs Inflation Rate

  1. Tim can we ask the school to include their savings account money when figuring the budget? I think if they are sitting on money they should not raise anything until that gets depleted, or at least try to use a small portion of it to freeze the taxes this year.

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