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Inflation rate will impact College revenues

Last week, the Bureau of Labor Statistics released August inflation figures. As expected, the August inflation rate was 5.3%. This nearly matches June and July’s inflation rates of 5.4% and produced an average monthly inflation rate to-date of 3.875% for 2021. Since January, the inflation rate has risen from 1.4% to 5.3%. Most economists blame the sharp rise in prices on global supply chain issues related to COVID-19.

The inflation rate, which is measured monthly and averaged over 12 months, is important. Really important. The WCC Trustees elected not to raise student tuition rates this year, so there will be no offset of inflation by higher tuition revenues. Property taxes, another major component of WCC’s revenue sources, have a cap that could come into play this year.

According to state law, property taxes can rise with the rate of inflation or by 5% per year, whichever is less. No matter how high the inflation rate goes, property tax collections will be limited to a 5% annual increase. In the months of May, June, July and August, the inflation rate has matched or exceeded 5%. Which means that WCC’s costs for certain items may rise beyond whatever offset the college will gain through rising property taxes.

High inflation rate, revenue limits mean cutting expenses

In other words, now would be a good time to start cutting expenses. (I don’t know – maybe hold off on hiring the 12th and 13th Vice Presidents?) Ours may be a rich community, but we’re not that rich. Unless inflation craters for over the last four months of the year – not likely – people are going to pay upwards of a 5% increase in their property taxes next year.

Frankly it’s a bad look to lard up the executive staff while residents choke on their new-and-improved property tax bills. And due to Michigan’s property tax system, those taxes aren’t going to drop instantly when deflation takes hold.

The remaining Health and Fitness Center bonds will stress WCC’s revenues. The annual bond costs on that building now exceed $1M and will continue to do so through 2027. The bond payments must come from the General Fund because the HFC does not sustain itself through operations. These debts make it harder to pay inflation-driven increases in WCC’s operating costs. Additionally, WCC voluntarily increased its IT costs by outsourcing its IT staff.

2021 is literally NOT the time to buy, build or hire. Likewise, it is time to have an honest discussion about the difficult spending choices WCC will soon have to make. Refinancing the remaining bonds on the HFC an delaying new construction are two options that merit discussion. Reducing the size of the executive staff and suspending executive pay raises, incentives and bonuses) should be on the table.

It’s time to prepare students for the size of the 2022 tuition increase and locate additional financial aid sources. Likewise, it’s time to prepare the College for the concomitant decrease in enrollment that always accompanies an increase in tuition and fees.

Photo Credit: frankieleon , via Flickr