The Capital Times
February 22-23, 1997
HIGH LIFE at a HIGHER COST
Madison's cost of living is higher than the country's
but its wages are lower
By Gwen Carleton
Madison residents might well agree that life is good in America's No. 1 city, but are they aware how much the good life is costing them? Research indicates the cost of living in the Madison area in several categories is significantly higher than the national average. At the same time, average wages here rank below wages in the country as a whole.
From spring 1995 to the fall of last year, Madison's cost of living stood between 4 and 14 percentage points above the national average, according to a survey by the Center for Mobility Resources, a research firm in Scottsdale, Ariz. The research indicates soaring home prices in the Madison area and a recent jump in food costs are the major forces behind the city's priciness.
But more specific information is difficult to come by. City, county and state officials do not collect local cost of living data. The Greater Madison Chamber of Commerce gave up its analysis of the local cost of living picture four years ago, in part because it feared the information with its high numbers might scare away businesses or prospective newcomers.
It is a critical lack. Knowing what average prices are and how fast they are climbing is important to anyone who earns a living and makes a purchase in the Madison area.
Not only are prices high, but statistics indicate wages in the Madison area are not keeping up. The figures have given rise to backing by several groups of what's called a living wage campaign.
The inflation rate, as opposed to the basic cost of living, gauges how fast prices are rising and provides another important indicator of how residents are doing in the local economy. The inflation rate determines the size of everything from workers' pay raises and pension payments to the personal exemption on federal taxes.
Given that the national inflation rate is now averaging around 3 percent, consider these Madison statistics:
- Madison food prices rose 7 percent between late 1995 and late 1996, according to the Wisconsin Farm Bureau Federation.
- A Ford Explorer here costs about 4 percent more now than it did a year ago.
- The cost of dry cleaning a pair of pants at Klinke Cleaners is 6 percent more now than it was a year ago.
Housing costs are a major factor putting pressure on the cost of living in the Madison area.
A look at postings of homes sold and resold outside the Madison Assessor's Office brings the numbers to life. Polaroid photos show east-side bungalows whose values rose from around $70,000 to more than $100,000 between 1992 and 1995. One west-side ranch-style home, worth $152,000 in 1991, now costs more than $200,000; another's price increased from $129,000 to $144,000 in two years.
The rising cost of homes has l pushed up assessments in Dane County and though tax rates have. fallen, both tax levies and individual property tax bills continue to go up. Experts say housing costs finally started to stabilize last fall, after years of explosive growth.
Against these indicators, Madison area wages increased an average of 3.7 percent in 1995, according to the federal Bureau of Labor Statistics.
Experts say the city's abundance of student and part-time, workers and its lack of unionized positions in industry have helped keep wages and wage increases below national averages. On the other hand, the labor pinch the area has experienced in recent years has tended to lift the wages of the lowest paid. But the experts also emphasize that many workers here have more than one job, providing them with extra income.
Lack of data:
Still, the wage and price forces driving the city's economy remain largely unstudied.
Currently, both public officials and citizens who need economic information about Madison rely on the Consumer Price Index, a detailed measure of inflation produced by the federal Bureau of Labor Statistics. But the CPI does not survey Madison, so Madison officials use regional estimates based on data from Racine, Milwaukee, Kenosha and other nearby cities.
"It's probably a good thing they, don't survey Madison," said Bill Preboski, a community assistance planner with the Dane County Regional Planning Commission. "I have a sneaking suspicion because of our housing, fuel costs and taxes, if we did a CPI here it would probably be higher."
Others, however, find the lack of information frustrating.
"Our department has people calling, wanting to look for jobs and housing costs," said August Cibarich, a labor market economist with the Wisconsin Department of Labor Statistics.
"I tell them it's more expensive than it was," he said. "Sure, they'd like more specific information, but we'd all like more specific information."
Federal, state and local officials assume Madison's costs are similar to those of its like-sized neighbors, and distribute millions of dollars in wages and benefits accordingly.
But if Madison's cost of living is actually higher than estimated, many families -- especially those with low and moderate incomes -- should find it increasingly difficult to pay their bills.
"If we were not on the same level as other midsized cities, we would be hurting," explained Joe Colletti, a state labor market analyst.
Finding a gauge:
Four times a year, Center for Mobility Resources researchers visit Madison and about 500 other U.S. cities to collect data about local housing, transportation, utility, service and food costs. The firm then weights the numbers, runs them past Arizona State University statisticians, and distributes them on the Internet and to libraries and businesses. Thanks to its rigorous statistical standards, the firm is considered among the most reliable of its kind in the country. The margin of error in its studies is said to be 3 percent points, plus or minus.
For the past two years, the research center has placed Madison's cost of living from 4 to 14 percentage points above the national average. That is primarily because of the city's high housing costs, but Madison's utilities and consumables also were above average for most of that period.
In contrast, larger -- and presumably more expensive -- cities such as Milwaukee and Minneapolis ranged from 3 to 13 percent above average in the same time period. Older information is not available, but according Rich Ganley, president of the research center, Madison has had unexpectedly high index scores for years.
Presumably, if Madison residents also earned high wages, this could offset the city's costs. But they do not. According to the U.S.Bureau of Labor Statistics, Wisconsin ranked 28 out of the 50 states in pay in 1995, and its wages remain below average for the region and the country. Madison's wages are low even in Wisconsin, the bureau found, lagging behind those paid in Milwaukee, Janesville and Racine.
Taxes are another important factor the Center for Mobility Resources survey does not consider. For years, Wisconsin has had some of the nation's highest taxes; in 1995, the state had the sixth highest tax rate in the United States.
Thousands of Americans -- from real estate agents and librarians to corporate recruiters and families -- are hungry for economic information about America's cities.
But consumers are not the only ones interested in cost of living data.
Federal officials need the information to figure the size of Social Security checks, veterans benefits, tax rate brackets and much more. State and local officials use it to set taxes, budgets and long-range plans.
University of Wisconsin officials use it to tell parents how much allowance college students need, and union officials use it to negotiate wages. The statistics directly affect the financial well being of millions of Americans.
To do their work, all of those officials rely on the Consumer Price Index.
The Bureau of Labor Statistics creates the CPI by checking the prices of some 90,000 goods and services, then weighting them to represent a typical family's buying patterns -- 17 percent for food, 40 percent for housing and so on. To save time and mopey, the bureau surveys only about 89 metropolitan areas in 45 states.
That is fine with plenty of Madison residents. Stephanie O'Neal, a spokeswoman for the Greater Madison Chamber of Commerce, points out that people are flowing into the city without knowing exactly what the local costs are or how Madison compares with other areas.
Others raise the same point. Even if Madison is expensive, they say, people continue to move here in droves.
"People like the place, and some choose to live with less discretionary income," said Jim Cavanaugh, president of the South Central Federation of Labor.. "Sure, there's a point where that changes, but we haven't reached it yet."
People can always leave if they feel it is too expensive, he pointed out. Instead, the city's population continues to grow.
Not. only does Madison's population continue to grow, but many of the new residents have high-paying jobs in academia, the government and the city's various professional firms, Presumably, for these residents a few percentage points in added costs is a small price to pay for the city's schools, lakes, safety and other charms.
But low- and middle-wage families are hit much harder by the city's unexpected costs.
Newcomers such as graduate student Steve Heuchelin (see accompanying story) find their careful budgets stretched to the breaking point by Madison's prices. For unskilled newcomers, those costs can prove disastrous.
"In order to survive on your own here, you need to make at least $8 to $8.50 an hour," said Colletti, the state labor market analyst. Yet many jobs for unskilled workers -- even government jobs -- offer less than $7 per hour, he said.
"Housing here is not for the poor or lower middle class," he said. Unskilled workers "just can't come here and expect to find work and housing."
Yet they do. Attracted by the city's low crime rate and solid employment market, unskilled workers continue to flow into Madison.
The Living Wage campaign, sponsored by the advocacy group Progressive Dane, is working to ensure that all firms receiving economic assistance or contracts from local government pay employees 110 percent of the poverty level.
But they have a long way to go before their idea becomes law. In the meantime, unskilled newcomers are on their own. Some work it out, others return home.
And according to area shelter workers, who have been overwhelmed with new people seeking services in recent months, increasing numbers are ending up on the street.
Madison not part of chambers' survey
Like Madison, hundreds of U.S. cities are not included in the federal Consumer Price Index survey. So in 1961, the American Association of Chambers of Commerce started its own survey to fill in the gap.
The association created ACCRA, the nation's most detailed non-government cost of living survey.
Every quarter, the national organization collects price . data about 59 goods and services from its members; then publishes a report measuring the costs in each city and showing how different cities compare.
The association urges every local chamber of commerce in the country to participate in the voluntary survey, and more than 300 cities usually do. But Madison does not.
Despite ACCRA's huge popularity, the Madison chamber participated only once, in the first quarter of 1993.
That year, Madison's cost of living was ranked 113.8 percent: 13.8 percent higher than the national average, and by far the highest in the state.
"One of the reasons we aren't participating is, obviously, because we were the highest in the state and it doesn't really help us to publish that," said Stephanie O'Neal, a spokeswoman for the Greater Madison Chamber of Commerce, alluding to the fact that a reputation for high costs could dissuade businesses and residents from moving to Madison.
The index requires chamber employees to go out and collect the data, which takes time away from other duties; she added.
"The amount of staff time it takes really doesn't warrant it," she said. "We continue to be very popular and are getting a lot of newcomer calls regardless."
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