Despite slowing inflation, local entities’ projects affected by high prices

Data from the U.S. Bureau of Labor Statistics shows price increases peaked last summer, but officials say prices remain high, with local entities in Tomball and Magnolia working to manage costs as budget planning looms and capital projects begin construction.

Nationwide, BLS data shows the price of all items was up 6% year over year as of February, which was down from a 9.1% year-over-year increase as of June. Locally, consumer price index data shows prices in the Houston-The Woodlands-Sugar Land area were up 5.2% year over year as of February—the latest available local data, a drop from a year-over-year increase of 5.3% in December.

“If we look at what occurred from COVID[-19] years [and] from before that, this has been a huge increase that we’ve had to deal with for two years now,” Tomball ISD Chief Financial Officer Jim Ross said during the district’s March 6 workshop meeting. “Even though we’re saying 5.3% [in December], we still aren’t recovered from [inflation] going up in the past.”

Tomball city officials noted that while prices for some items remain high, other projects are costing less than projected, which frees up money to be used elsewhere in the budget.

“We like to think that maybe inflation has turned the corner a little bit,” said Patrick Jankowski, chief economist and senior vice president of research at the Greater Houston Partnership, at a Feb. 3 Greater Tomball Area Chamber of Commerce luncheon.

Though inflation is slowing, city and school officials said they are still experiencing high prices, which is affecting capital projects, purchases and how overall annual budgets look.

Overseeing city budgets

In Magnolia, City Administrator Don Doering said while rising prices and inflation are hard to track, the city saw an increase in the cost of its sewer line project on Nichols Sawmill Road throughout its three phases from $1.27 million to $2.9 million.

Doering said he attributed the price increase to inflation, but despite limited funds, Magnolia cannot hold off on some capital projects because of their immediate need.

“Our main projects right now are water and sewer, and we don’t have a choice,” Doering said. “We have to go forward. So we really have not pushed projects into the future.”

Still under a temporary development moratorium that was originally enacted last December, the city of Magnolia is working to build wells to increase its water capacity.

Meanwhile, since 2021, Tomball has seen prices rise 55% for wastewater treatment chemicals, 27% for public works service contracts, 16%-18% for public works vehicles and 34%-46% for diesel fuel, according to Assistant City Manager Jessica Rogers and a March 3 State of the City presentation.

When items cost more than planned, the budget gets evaluated to see where costs can be reduced, Rogers said.

“Vehicles is one where we looked at, ‘OK, well we can maybe pause one vehicle purchase until the next fiscal year,’” Rogers said.

However, Rogers said the city has seen costs decrease for construction.

“We were looking at construction materials [with] 20%-25% [price increases] in 2022,” Rogers said. “So when we were putting together budgets for our capital projects, we assumed that trend was going to continue. What has happened is while there’s still inflation in that area, it’s actually started to slow.”

In regard to capital projects, Rogers said the Matheson Park upgrades that began Jan. 16 are costing the city around $1.3 million, according to the March 20 City Council agenda packet. Community Impact previously reported the project would cost around $1.8 million to add a new playground, a splash pad and pickleball courts, among other improvements.

Similarly, a project to improve alleyways in Old Town Tomball is set to cost less than projected, with Phase 1 anticipated to cost between $1 million-$1.5 million, Rogers said.

A project to put a new water tower off of Boudreaux Road and the Grand Parkway may also cost around $6 million, less than its original $8 million estimate, City Manager David Esquivel said.

“We try to update those numbers as we go along,” Esquivel said. “Because if there’s no need to encumber that money on just one project because we can project that [it will cost less], that gets moved to the next [project] just in case that [costs more]. It’s an ongoing process.”

Administering school bond projects

In Magnolia ISD, voters approved a $228 million bond package in November for three new schools, future school sites, and safety and security projects, Community Impact previously reported.

The district received bond proceeds March 7, Assistant Superintendent of Operations Erich Morris said.

Within the bond proceeds, Morris said MISD accounted for rising prices.

“Obviously inflation has impacted construction cost, but our initial budgets ultimately reflected the current and forecast result of the inflation,” Morris said. “It’s probably accurate to say that around 15% of the budgets associated with the new campuses is at least loosely associated with inflationary costs.”

In TISD, the district saw a 17.2% increase in the actual dollar amount of the monthly construction cost index from the beginning of facility planning to bond adoption for its $494.46 million bond package in November 2021, Ross said in a memo sent to Community Impact.

In the memo, Ross said the district never thought an increase of this magnitude would happen.

“Changes in the other variable components must be considered,” Ross said. “Changes such as the type of construction, change in the completion dates and/or decide whether the facility will be constructed at all.”

Budget planning

Morris said inflation does affect MISD’s overall budget. Last year, the district’s fuel budget nearly doubled from around $500,000 to around $1 million.

“Those things have to be accounted for, and we’re going to have to have fuel to get our kids home,” Morris said. “So it’s something that you have to anticipate, and we try to plan our best.” Morris also said the state funding process plays into how the district can respond to inflation.

“Based on the state funding system, we’re limited in the amount of funding we receive,” Morris said. “As of 2022-23, we’re still receiving the same amount of funding per student for the fourth year in a row in spite of inflation. So anytime we have to either respond to or—on the front end—plan for inflationary costs, we’re taking money from some other location, which makes it challenging.”

At the city level, results of the Texas Municipal League Fiscal Conditions Survey—sent out to the organization’s 1,178 member cities last December, with 362 responding—showed a majority of cities with a population under and over 10,000 expect revenue to remain constant next year.

However, as cities project revenue to remain constant, Doering said he anticipates cost increases in Magnolia’s upcoming budget, for which the planning should begin in late spring.

“Basically, we’re just going to have to increase about everything,” Doering said.