Key Takeaways
- The Municipal Cost Index (MCI) helps local governments estimate inflation-related costs for budgeting.
- Originally established in 1978, the MCI incorporates multiple economic indicators to evaluate changes in municipal service costs.
- Smart Cities Dive will publish monthly updates of the MCI, providing valuable data for financial decision-making.
The Role of the Municipal Cost Index in Budgeting
Budgeting is crucial for governmental operations, but estimating future financial needs can be challenging due to unpredictable factors like inflation. To assist public officials in making these estimates, tools such as the Municipal Cost Index (MCI) have been developed. First introduced in September 1978 by American City & County, the MCI calculates the inflation rate of municipal costs, specifically focused on expenses associated with providing services to city and county residents.
The MCI is informed by several key economic indicators, including the monthly consumer price index from the U.S. Bureau of Labor Statistics, the producer price index from the U.S. Department of Commerce, and the construction cost index from Engineering News-Record. Each indicator is assigned a proprietary weight reflecting the spending patterns of local governments, initially based on data from 1967 and later updated to 1982.
Local government managers utilize the MCI for several purposes:
– Justifying budget increases due to inflation when submitting annual budgets.
– Monitoring price trends to address potential budget shortfalls in advance.
– Tracking price levels for frequently purchased commodities, making inflationary changes more evident.
– Assessing the long-term impacts of inflation on city expenditures.
The Government Finance Officers Association (GFOA) and various local governments, such as Leesburg, Florida, endorse the MCI as a budgeting tool. Emily Brock, director of GFOA’s Federal Liaison Center, highlighted that the MCI is part of the GFOA’s best practices. As a composite index, it allows entities to analyze various factors and consider the impact of federal policy shifts, helping communities plan realistically for the future.
Brandon Lewis, the water and wastewater director for Griffin, Georgia, has been using the MCI since 2007 to adjust water, sewer, and solid waste rates. He noted that the index effectively demonstrates inflation’s effect on municipal service costs rather than just the broader consumer market.
In Candia, New Hampshire, selectman Boyd Chivers referred to the MCI as a valuable resource for justifying and defending the municipality’s 2025 budget. He emphasized its unique ability to measure costs specific to municipal goods and services.
Smart Cities Dive plans to publish the MCI monthly, typically on the 20th or the nearest business day, as new inputs become available. The site currently features data dating back to 2021, with additional historical information expected to be added soon.
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