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June 8, 2006

Utilities drive up Higher Education Price Index

Skyrocketing utility costs are driving higher-than-average inflation at colleges and universities this fiscal year.

For the past five years, inflation has risen an average of 3.8 percent for colleges and universities, according to the Higher Education Price Index (HEPI). Final figures are not complete, but fiscal 2006 HEPI data released last week by the Commonfund Institute shows that inflation figure is expected to rise 5.0 percent in fiscal 2006, which ends June 30. It would be the highest jump since 2002 and 1.5 percentage points higher than fiscal 2005’s 3.5 percent increase.

For the past 10 years, annual HEPI inflation increases have averaged 3.6 percent compared with the federal government’s annual Consumer Price Index (CPI), which showed annual average increases of 2.5 percent.

Pitt Vice Chancellor for Budget and Controller Art Ramicone said the HEPI index typically runs about 1 percent higher than CPI and is a more helpful tool for Pitt in budget planning.

HEPI, an inflation index designed specifically for higher education, is considered a more accurate indicator of changes in costs for colleges and universities than the Consumer Price Index because, rather than tracking the price of a fixed basket of consumer goods, it measures the average relative level of prices in a fixed basket of goods and services purchased by colleges and universities each year through current fund educational and general expenditures, excluding research.

“We don’t buy clothes, we don’t rent apartments,” Ramicone said, enumerating some measures CPI takes into account that are applicable to individuals, but don’t fit the purchasing patterns of institutions such as Pitt.

HEPI tracks eight categories of operational costs of colleges and universities: faculty salaries, administrative salaries, clerical salaries, service employee salaries, fringe benefits, miscellaneous services, supplies and materials and utilities. The index is compiled from eight published government and economic agency sources.

“It’s exactly the basket of goods in the percentage we buy them,” Ramicone said of HEPI.

HEPI 2006 shows that colleges and universities experienced the steepest price increase in the utilities category, which was nearly triple the average increase of the past four years, and up 27.1 percent over last year’s increase. According to the report, the other major increase for 2006 was in materials and supplies, which rose 8.2 percent compared with a 4.8 percent rise in 2005.

Ramicone said those figures were similar to what has been experienced at the University this year, and said the University is seeing higher prices on construction materials such as cement and drywall, due to increased market pressure from construction in the third world and rebuilding following Hurricane Katrina.

He noted that Pitt had budgeted for a 31 percent hike in utilities this fiscal year, which ends June 30, and estimated that utility costs this year are up about 27 or 28 percent. While the use of the Bellefield Boiler Plant, fueled mainly by coal, spared the University some of the pain caused by higher natural gas costs, Ramicone said water and sewage costs are rising in double-digit increments, boosting Pitt’s overall utility bill.

—Kimberly K. Barlow


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