Rising interest rates and inflation might make RUSD’s $1 billion referendum less effective | Local News

While the actual cost to taxpayers over 30 years is likely to be around $1.072 billion above the levy limit, around 40% of that spending is going to be in debt service, i.e. paying for interest and other assorted costs with the millions the district is borrowing.

The amount approved for spending is actually closer to $598 million, and its buying power may be shrinking further because of inflation and the federal government’s moves to curb inflation.

The referendum was approved by a margin of five votes in 2020. But spending the money approved was stalled for two years due to a challenge to a recount that was finally settled by the state Supreme Court three months ago.

In June, U.S. inflation was at 9.1%, the highest rate in 40 years, the Bureau of Labor Statistics reported.

Mike Clark, RW Baird financial advisor to RUSD, said Monday that the school district’s referendum finances should be relatively unchanged over the next six to 12 months. But, if interest rates continue to rise, that would present difficulties.

“Overall, from an interest rate standpoint, we’re in OK shape, at least for this initial phase,” Clark said.

The Federal Reserve last month raised the benchmark interest rate by three-fourths of a percentage point in an attempt to slow inflation. It was the Fed’s biggest increase since 1994.

RUSD board member Ally Docksey raised questions during a meeting Monday about the financial viability of the district’s still unsolidified plans.

“Between interest rates increasing and inflation and supply chain issues … can we even accomplish what we originally told the public we were going to be able to do with this referendum?” Docksey said.

The district’s long-term plan for the referendum money includes building five new schools and renovating all remaining schools to varying extents. At Case High School, for example, a 1,000-seat performing arts auditorium is planned; and at Horlick High School, softball fields are to be added.

Americans have benefited from abnormally low inflation in recent decades, and the current rate is far from the highest among the world’s most advanced economies.

According to a June Pew Research Group report: “Between the start of 1991 and the end of 2019, year-over-year inflation (in the U.S.) averaged about 2.3% a month, and exceeded 5.0% only four times …

“The U.S. is hardly the only place where people are experiencing inflationary whiplash (in 2022). A Pew Research Center analysis of data from 44 advanced economies finds that, in nearly all of them, consumer prices have risen substantially since pre-pandemic times … In 37 of these 44 nations, the average annual inflation rate in the first quarter of this year was at least twice what it was in the first quarter of 2020, as COVID-19 was beginning its deadly spread. In 16 countries, first-quarter inflation was more than four times the level of two years prior.”

According to that report, Turkey’s inflation in the first quarter of 2022 was 54.8%. Out of the 44 countries researched, Israel has seen the sharpest inflation increase. “The annual inflation rate in Israel had been below 2.0% (and not infrequently negative) every quarter from the start of 2012 through mid-2021; in the first quarter of 2020, the rate was 0.13%.

“But after a relatively mild recession, Israel’s consumer price index began rising quickly: It averaged 3.36% in the first quarter of this year, more than 25 times the inflation rate in the same period in 2020,” whereas in the U.S. the increase was only about four times.