FROM: Tom Melcher, Director
School Finance Division
DATE: July 17, 2014
RE: Estimate of Referendum Cap Inflation Adjustment
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 2014 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 2014 Payable 2015 Levy Limitation and Certification Report. They will also be used to recalculate old law referendum revenue for the FY 2015 General Education Aid Entitlement Report.
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 was reset from FY 2004 to FY 2015. The standard cap is set at $1,845 for FY 2015 and be increased by the projected inflation ratio for FY 2016 and each subsequent year.
The inflation adjustment ratio for FY 2016 is currently estimated at 1.0135 (1.35 percent increase over the FY 2015 base). This estimate increases the standard cap from the baseline $1,845 to $1,869.91 for FY 2016 and will be used to calculate initial referendum levy authority this fall.
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 2015 is currently estimated at 1.97 percent. This is an increase from the estimated 1.67 percent that was used to set school district levies last year. District with an FY 2015 referendum allowance with an automatic inflation adjustment may have a small positive levy adjustment added to the district's levy authority this fall. The annual inflation adjustment for FY 2016 is currently estimated at 1.35 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 close of the fiscal year, and will be used to finalize 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. The levy this fall will adjust for final FY 2013 referendum levy authority. For a discussion of the impact on final levy adjustments for the payable 2015 levy, see the memo Final Referendum Cap Inflation Adjustment for FY 2013.
If you have further questions, please contact Jon VanOeveren at or 651-582-8375 or Bob Porter at 651-582-8851.