Inflation adjustment for Ohio budget advocates
Budget season is nigh! Within weeks, Gov. DeWine will propose his two-year Executive Budget to the Ohio House of Representatives. It’s his opportunity to affirm his commitment to the diverse communities of Ohio and ensure that our collective resources are used for the shared prosperity of all — and not the enrichment of the wealthy few. It’s also our opportunity to tell the governor and state legislators what our communities need, whether it’s upgrading our broadband network, improving our state parks, or helping more families afford high quality child care. To do that, we have to understand how our state policymakers have funded things over time.
This year, it is particularly important that advocates and others paying attention to the budget cycle consider the impact of inflation on proposed budget appropriations figures. In the past two years, inflation rates climbed to their highest levels in decades. In June of 2022, year-over-year inflation in the U.S. rose to 9.1%, the highest it has been since 1981. This means that nominal figures—dollar amounts before inflation adjustment—will be inadequate when comparing this year’s budget proposal to previous years. (If your eyes are already starting to glaze over: hang in there! We'll use examples and keep it as straightforward as possible.)
This is not necessarily a new phenomenon — the graph below shows that inflation adjustment is a must to understand Ohio’s historical state expenditures — but it is especially important over the past biennium. That is why in this post we give you the tools you need to properly evaluate figures from upcoming budget proposals.
To make an apples-to-apples comparison of past budget figures and this year’s propositions we recommend using a pre-pandemic (remember those days?) base consumer price index (CPI). You will need to adjust proposed budget figures to reflect the reduction in the value of money. In the example below we use the average CPI of Fiscal Year (FY) 2019 as a base.
You can find monthly CPIs online at the U.S. Bureau of Labor Statistics website and use that to get July to June fiscal year averages — or you can just use the figures provided below. (We use CPI figures for all urban consumers for all items.) These data only cover up to December 2022. For the coming months we use forecasts from the quarterly Survey of Professional Forecasters. They provide forecasted inflation figures that you can use to calculate quarterly CPI averages—or you can just use the figures provided below. (We use the 2022 fourth quarter forecast.) Finally, you will need historical data on state expenditures, which you can find at the Ohio Legislative Service Commission website. Below we use state expenditures from state sources beyond just the General Revenue Fund, as an example, but you could apply the same calculation to any specific line item.
Calculating funding over time
Now let’s go over how you would do the calculation by using an example. The table below has nominal figures for total state expenditures going back to 2019. For illustrative purposes we are using fictitious numbers for the upcoming biennium (FY 2024-25). From these figures it appears that there was a significant jump in state expenditures in FY 2022 and FY 2023 and that there will continue to be a moderate increase in expenditures for the coming years. However, once we divide nominal figures by the CPI’s growth (which is one plus the change in CPI since 2019 divided by the base CPI), the figures tell a different story.
What appears to have been an increase in expenditures in FY 2022 was actually a 2.6% cut and during FY 2023, state policymakers only increased total expenditures by 2.1%. Based on expected spending this fiscal year, the state will spend less in this current biennium than in the previous two years! And, in our imaginary scenario, the upcoming biennium will result in a steady decline in state support for shared services we all depend on to make Ohio great: schools, child care, public health.
Inflation adjustment matters! We need to keep Gov. DeWine and state legislators honest this budget cycle — the people of Ohio depend on it. If you want more information on how the budget cycle works take a look at our Budget 101. Our Proactive Revenue Agenda has tax policy ideas on how to ensure that our collective resources are used for the broadest possible benefit. Finally, if you would like a prepackaged spreadsheet with all the data and formulas you will need, follow this link, and don’t hesitate to send us an email if you have any questions.