Budgeting is one of the most important roles of government operations. Estimating the amount of money a government will need in the future can be challenging, however, when inflation and other market factors can be unpredictable. It’s vital for public officials and their staffs to have tools at the local level to help estimate future costs . 

The Municipal Cost Index is one such tool. First published by American City & County in September 1978, the MCI was designed to determine the rate of inflation of municipal costs, i.e., the cost of providing services to city and county residents. Its inputs are the monthly consumer price index, produced by the U.S. Bureau of Labor Statistics; the producer price index, produced by the U.S. Department of Commerce; and the construction cost index, published by the Engineering News-Record. 

Each of those figures is given a proprietary weight to reflect the composition of local government purchases in the base year, initially established as 1967. In April 1988, the base year was updated to 1982. It is a fixed-weighted type of index, reflecting only changes in price over specific periods of time at the national level.

Local government managers have used the MCI:

• To make the case for increased expenditures attributable to inflation when submitting annual budgets.
• To provide a feel for price trends that may affect the city or a particular department far enough in advance to minimize the effects of a predicted budget shortfall.
• To help monitor price levels for commodities purchased in quantity, thus making inflationary price jumps more visible.
• And to measure the impacts of inflation on city expenditures over time.

The Government Finance Officers Association and individual local governments such as that of Leesburg, Florida, suggest the MCI as a tool finance officers can use for budgeting.

“We host a whole suite of what we call best practices” selected by standing committees, said Emily Brock, director of GFOA’s Federal Liaison Center. The MCI is part of the organization’s budgeting best practices, she said. 

“As a composite index, it allows for an entity to kind of look at the different factors right now. There's potential for indices to be reactionary to the [current] federal policies, which are kind of a 180 from the last administration's federal policies,” she said. “The MCI allows for you to be able to look back in time, to think thoughtfully about policy shifts, to also think thoughtfully about [changes in costs] month over month and the impact of tariffs. That's an important concept in construction and in making sure communities that are planning long term have a good grasp of what is realistic over the long term.”

Brandon Lewis, water and wastewater director for Griffin, Georgia, said he began using the MCI to adjust water, sewer and solid waste rates in 2007. His department uses the MCI along with audited fiscal year financial information for rate adjustments and settings. “It shows the impact of inflation on the cost of delivering municipal services rather than the broad spectrum of the consumer market,” he said.

Boyd Chivers, a selectman for Candia, New Hampshire, called the MCI “a valuable tool in explaining and defending our 2025 municipal budget. MCI is unique as it measures the cost of goods and services specific to municipalities.”

Smart Cities Dive will publish the MCI once a month as the inputs become available, typically on the 20th of the month or the next business day. The site currently contains data since 2021; additional historical data will be added over the next few weeks.