Inflation and “keep it simple”

One of the themes we’ve heard from the district in its presentation of materials on the bond is “keep it simple,” because “the details get complicated.” (That particular slide attributes this sentiment to the listening posts we held earlier this year, but I attended all of those listening posts, and the only person who I remember saying “keep it simple” was the school board chair.) The “keep it simple” spirit is reflected in the district’s discussion of the issue of inflation. The district’s bond FAQ says:

To delay the remaining projects in the Facilities Master Plan will be expensive.
- Construction inflation is running at 3-5%. A one-year delay would increase the total plan costs as much as $5.6M - $9.4M dollars!
- Borrowing interest rates continue to rise. A one-half percent increase in the interest rate will increase borrowing costs in excess of $11M dollars.

To get the inflation “cost,” the district has apparently just multiplied the bottom line total ($191.5 million) by possible inflation rates. Is this an accurate way to discuss the cost of inflation?

No, because inflation affects both revenues and expenditures. That’s why we don’t all sit around kicking ourselves for not having bought all our possessions in 1971—I mean, look at how much cheaper everything was!  But of course, our paychecks were much smaller, too.

The district emphasizes the risk of inflation on the expenditure side, but conveniently ignores it on the revenue side. In that same FAQ, the district asserts that the effect of the bond on the tax rate “could decrease over time as the property tax base in the District continues to grow.” At our work sessions, it was emphasized that we should feel reassured about the tax rate because our tax base will grow at a rate of 4 or 5% annually. But not all of the growth in that number is attributable to growth in the amount of taxable property; some portion of it is simply inflation at work over time.

It’s a bit disingenuous to tell residents, “Don’t worry, the tax rate won’t be as high as it looks,” without adding, “Of course, that’s partly because your home’s assessment will go up.” It’s even more disingenuous to do that while simultaneously warning them about the effect of inflation on project costs.

And will interest rates rise? I don’t pretend to know, but I know that since 2008 many dire predictions about inflation and increasing interest rates have not been borne out (though they have often served people’s political purposes). For a counterpoint on interest rates, see here, here, and here.

Will local construction inflation outpace inflation in home values to an extent that will cost us money? Will inflation be offset by possible cost savings of scaling back projects that may not be necessary? The details get complicated! Does the district’s presentation of these issues show sufficient respect for the complexity of the issue and for the voters’ intelligence? Judge for yourself.