This memo is to explain the updated estimate of the referendum cap inflation adjustment (view Estimated Cap Inflation Calculation Estimates Spreadsheet – FY 2005-2023).
These numbers are based on the June 2013 estimate of the Consumer Price Index for Urban Consumers for all items as provided by the Department of Management and Budget. Annual projected inflation is calculated using a fiscal year average of the estimated quarterly indices. The updated estimates will be used to calculate school district initial referendum levy authority and adjustments for the 2013 Payable 2014 Levy Limitation and Certification Report. They will also be used to recalculate referendum revenue for the FY 2014 General Education Aid Entitlement Report.
Based on these estimates, the inflation adjustment ratio for FY 2014 is currently estimated at 1.2580 (25.80 percent increase over the FY 2004 base). This increases the estimated standard cap to $1,627.85, which is only $1.68 lower than the estimate used to set school district levies last year (estimated standard cap of $1,629.53). This means that levy adjustments this fall will be minimal for any district with an FY 2014 referendum allowance approved by the voters that exceeds the referendum cap.
With the converted referendum allowances and caps enacted by Laws 2013, Chapter 116, the baseline for the inflation adjustment ratio for FY 2015 and later years is reset from FY 2004 to FY 2015. The standard cap is set at $1,845 for FY 2015 and will be used to calculate initial levy authority this fall. It will be increased by the projected inflation ratio for each subsequent year.
The projected inflation ratio used to calculate the alternative cap through FY 2014 is increased by one-fourth of the formula allowance increase between FY 2008 and the current revenue year. Based on the FY 2014 formula allowance of $5,302, the inflation adjustment ratio is 1.1488 (14.88 percent increase over the FY 2004 base) for FY 2014.
The alternative cap is also converted beginning FY 2015 and becomes the new baseline. For years after FY 2015, the alternative cap will be increased by one-fourth of the formula allowance increase between FY 2015 and the current revenue year. Estimates for FY 2016 and later are based on current law and assume no increase in the formula allowance in future years after FY 2015.
For school districts that passed a referendum with an automatic inflation adjustment on the ballot, FY 2009 was the first year that the automatic adjustment could be made. The annual inflation adjustment for FY 2014 is currently estimated at 1.22 percent. This is a reduction from the estimate of 2.02 percent that was used to set school district levies last year. For any district with an FY 2014 referendum allowance with an automatic inflation adjustment, a small negative levy adjustment will be added to the district's levy authority this fall. The annual inflation adjustment for FY 2015 is currently estimated at 1.67 percent which will be used to calculate initial levy authority this fall.
For each fiscal year the actual inflation adjustment ratio and annual inflation will be finalized after the fiscal year is over, and will be used to make final aid and levy calculations. The final inflation adjustment ratio is based on the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, and will be posted on the Department of Education website for each year when finalized. For FY 2012, final calculations were made last August. For a discussion of the impact on final levy adjustments for the payable 2014 levy, see the memo Final Referendum Cap Inflation Adjustment for FY 2012.
For a detailed discussion of how the operating referendum cap inflation adjustment relates to a school district's referendum ballot questions, please view memo Operating Referendum Cap Inflation Adjustment Clarification, dated August 11, 2003.