Inflation Could Hit California School Budgets Hard

Returning students walk the hallway at Hollywood High School in Los Angeles on April 27, 2021. (Rodin Eckenroth/Getty Images)

Commentary

One thing Americans need to realize is how hard inflation could hit school budgets. Bus fleets will pay higher gas and diesel prices. Much higher fertilizer prices will push up food costs in school cafeterias. And unions will demand inflation premiums on their contracts.

With inflation now running 10 percent, according to a March 15 U.S. Labor Department report, it’s going to hurt school budgets the same way it hurts the budgets of other government sections, businesses, and families.

If a recession is thrown into the mix, reducing tax revenues, then schools are going to face their biggest financial crisis since the 2008 Subprime Recession hit.

Let’s look at the Los Angeles Unified School District, the country’s second largest, with more than 600,000 students in 1,000 schools. A similar situation will exist with smaller districts.

An LAUSD spokesman told me, “On an ongoing basis, we assess our operations to ensure that we are meeting the needs of our students and families. In response to general market conditions, we reconcile any increases in costs during our annual budget process.”

A good place to check some numbers is the district’s Audited Annual Financial Report for fiscal year 2020–21, which ended on June 30, 2021. By the way, it’s commendable the LAUSD got its report done in a reasonable time, when the state of California only last month produced its similar report for the previous year.

As former state Sen. John Moorlach emphasized when I was his press secretary, these financial statements—now usually called Annual Comprehensive Financial Reports—are the crucial financial document to assess an entity’s financial situation. Budgets projections can be flexible, but an audit is not. So even though we’re now in the next fiscal year, 2022-23, these are the numbers to use for an exercise such as this.

LAUSD’s Budget

The LAUSD’s budget for fiscal 2021 was $9.8 billion. Of that, “transportation services” were $149 million, a small item in such a large budget. Still, the doubling of fuel costs could increase this number by many millions.

“Food services,” such as the “Child Nutrition: Child Care Food Program,” were $204 million. But that money comes from the U.S. Department of Agriculture. So presumably any increase in costs could come from more spending and borrowing by Congress, the amount tossed on top of the already existing $30 trillion U.S. debt.

The big item is teacher salaries and benefits. Fortunately, government accounting reforms now require such reports include retiree pension and medical benefits. For the LAUSD, “Certificated salaries” are $3.1 billion. “Classified salaries” are $1.1 billion. “Employee benefits” are $2.2 billion.

Total for salaries and benefits: $6.3 billion. That was for the fiscal year ending June 30, 2021. Last September, the LAUSD worked out a 5 percent raise with the United Teachers of Los Angeles union. But that was when inflation was 2 percent, not 10 percent, as now.

Let’s stick with our audited 2021 number and assume the unions in their next negotiation demand a 10 percent premium on salaries. Then: 10 percent of $6.3 billion = $630 million.

Where’s that money supposed to come from? Will L.A. taxpayers be hit up again?

In 2017, 69 percent of voters approved Measure H, which raised the sales tax a quarter cent to fund homeless projects. And in 2020, a $7 billion property tax increase for LAUSD bonds passed with 71 percent.

However, Measure EE, a parcel tax raising $500 million a year for the LAUSD, was defeated in 2019 by 54 percent to 46 percent.

Conclusion

Let me emphasize that all my projections are speculative. I’m just trying to get people to think about how inflation impacts government budgets.

I remember the 1970s when inflation was the biggest budget problem every year. During the whole decade, my father was a district judge in Michigan. Every year he had to go before the city council in Wayne to get them to increase his budget to cover inflation, which ran up to 13 percent a year.

He had a good staff in his courtroom and wanted to keep them, so he made sure the council understood the need to keep up with inflation. But the council was dealing with inflation in all areas of its budget.

Get ready. Like the monster in a bad horror movie, inflation is baaaaaack.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.