CPI and School Funding

Not everyone reads the comment section of blogs.  I want make a post related to recent comments.  It’s good to have things out here on the “front page.”

 

First some context.  Colorado public schools receive automatic increases in funding each year in the amount of inflation (based on Denver-Boulder-Greeley consumer price index – CPI) plus one percent through 2010 and inflation thereafter.  If Amendment 59 passes, the automatic increases go away.

 

In a recent comment on my last blog post, this was pointed out … “funding has outpaced inflation and growth for many years now.”

 

The comment went on to say, “Why can the district not manage its expenses better?”

 

This implies that a school district manages expenses poorly if costs increase faster than inflation plus one percent.  To make that leap in logic one has to assume that inflation plus one percent is a good proxy for a school district’s expenses.  That is an extremely big leap in logic.  I find this type of leap lazy at best and very frustrating.  I expect more of people who pay close attention to school issues.

 

In my frustration, I became lazy myself.  I made assertions without being precise.  I am learning the lesson again to let my frustration subside before I post comments.

 

So, let me back up and be more precise.

 

Here is a central point.  CPI and the expenses of a school district simply are not the same things.  It is silly to suggest that they are analogous.  I will explain.

 

The CPI is calculated by looking at changes in prices of a “typical” person’s “basket of goods.”  The commenter rightly points out that this basket of goods includes food and beverages, housing, apparel, transportation, medical care, recreation, education and communication and other goods and services.

 

Put another way, CPI or inflation, tells us how much we can buy with a dollar today compared to a dollar yesterday?  Or, how many more dollars will it take to buy a typical basket of goods this year compared to last?

 

CPI is a relevant measure for individuals receiving a paycheck.  It is a measure of how well our paycheck is keeping up with the things we buy.

 

In the case of Colorado public schools the CPI is simply a methodology to determine funding.  CPI has little or not relationship to a school district’s expenses.  Why?  Here is another central point.   The things that a typical school district buys are not the same things that a typical person buys.

 

Thus, the ways in which housing, health care and energy are calculated for the CPI are irrelevant to calculating the typical expenses of a school district including our school district.

 

This is a more precise way to make my original assertion.

 

Let me provide some examples.  According to the Colorado Office of State Planning and Budgeting 35% of the CPI is determined by rental costs of shelter (housing).  Other housing costs include fuel and bedroom furniture.  Housing costs included in CPI are not analogous  to the costs of maintaining a school building.  For instance, some people might employ custodians and grounds keepers to maintain their homes.  But most of us can’t afford a full time custodian.  Not surprisingly, custodians and grounds keepers are not included in the CPI index.  But who can imagine keeping up a school – or several schools – without custodians?

 

How about health care?  Again, remember that CPI looks at the world through the lens of a typical individual – not an employer or an institution such as school districts.  When it comes to medical care, CPI attempts to determine the out of pocket medical expenses that individuals experience.  As the Bureau of Labor Statistics sight points out the weights in the CPI do not include employer-paid health insurance premiums. 

 

The SVVSD and other employers buy health insurance premiums.  St. Vrain is doing a reasonably good job holding premiums in check.  But, the district is having a similar experience as most employers.  Health care insurance premiums have been going up faster than inflation.  And, thus, premiums are going up faster than the rate of school funding increases.

 

Energy is the same.  It is difficult if not impossible to compare the energy (e.g. gasoline, heating one’s home) costs of an individual to the energy costs that a school district must manage.  For instance, how many households manage a fleet of buses?

 

 Another factor to consider.  Over time, the CPI is adjusted to account for changes in people’s buying habits.  For instance, if gas prices go up an individual might decide to take fewer leisure trips.  If this becomes a pattern for the typical consumer the weight given to gasoline in the CPI might be reduced.

 

Our school district already has eliminated many, if not most, leisure trips (field trips) from its budget.  Those are paid for by PTOs.  A school district may have fewer "substitutes" – to use the economists' term – than a typical individual.

 

In fact, energy is another area in which St. Vrain has been aggressive to manage and reduce costs.   I am sure that there are more efficiencies to be found with energy and other areas of the district.  Our operations and management team is doing a good job.  Unfortunately, some of the ways in which we’re reducing costs is by skimping on maintenance.  Some people call that penny wise and pound foolish – I do.  And that’s one reason why the mill levy override is so important.

 

One last point that I made in the comment section.  The CPI reflects productivity gains in the economy.  One of the reasons it stays low is that businesses become are able to produce goods more cheaply.  This is done primarily by reducing the number of people it takes to do a job.  Schools are a people driven business and are not able to achieve these types of productivity gains.

 

I gave the example of a bank increasing by 3 times its number of customer accounts with essentially the same number of employees.  But, who would recommend that kindergarten classes be increased from 25 to 75 to achieve a similar productivity gain?

 

What’s the point?  The typical school district buys far more labor than the typical individual.  One more reason why the CPI is not a relevant measure of a school district’s expenses.

 

And that’s the bottom line:  The CPI is not designed as a measure for a school district’s expenses.  To assert that CPI is a good proxy for school district expenses is the same as saying that apples are a good proxy for oatmeal because both contain fiber (although apples may be a better substitute for oatmeal than the CPI is for a district’s expenses).

 

To assert that a school district manages expenses poorly based on district expenses increasing more than CPI can only be done if a person makes no effort to understand the numbers.  It may be true or it may not.  That’s the point.  One can’t judge because CPI and a typical district’s expenses are tangentially related at best.  Schools and people buy different things.

 

I wish life was so simple that we could do a quick Google search, cut and paste a few “fact” pages and presto we have “proof.”  Life isn’t that simple.  It usually takes some time and some effort to understand numbers.

 

That is the source of the frustration that was part of my comments.  I am sorry I let those frustrations get the best of me, that I inflicted these frustrations on the readers of this blog, and that I rushed to make a comment without taking the time to be more precise.  I take ownership of that mistake.

 

But here’s the deal.  It becomes wearisome to respond to an incessant stream of comments using numbers taken out of context or without making any effort to understand how they work (e.g. this CPI exchange) or numbers that conflate bond and mill levy dollars as if they can be used interchangeably (e.g. exchange around standards and poors).  These are tactics that may be useful – even accepted – in a political campaign but they do not contribute to adding meaning to a subject nor constructively move the conversation forward.

 

I am reminded that I must be more precise.  I certainly value accuracy and recent comments have challenged me to be more precise.  I welcome that challenge.

 

But consider this.  Accuracy and truthfulness are close cousins and both are extremely important, but they are not the same.  One can be accurate but not truthful if the accuracy takes no account of context.  I hope that we all can strive for truthfulness.

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One Response to “CPI and School Funding”

  1. Brad Jolly Says:

    John, you are right. Accuracy and truthfulness are NOT the same thing. Accuracy is, however, a prerequisite for truthfulness.
    Your post betrays a mindset that district employees are entitled to above-inflation compensation increases. For example, you take it as a given that the district must absorb increased health premiums.
    The next three paragraphs outline a conversation that is long overdue with the union.
    Thanks to Amendment 23, we in public education are in the unique position of being guaranteed funding increases that go up faster than the CPI. Most of our fellow citizens have no such guarantee, nor are they even guaranteed that their compensation will even keep up with inflation.
    However, we know that your expenses increase. We are willing to pass along the CPI portion of our increased funding to you, because that reflects how your expenses go. The increased PERA contributions mandated by the state already guaranteed to eat a chunk of the total compensation increase we can offer you, but PERA dollars are for your benefit.
    That leaves us with “X” dollars for additional compensation increases. Please let us know how you want us to allot that money between salary increases, health care premiums and other costs.

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