AGENDA #5a
MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Impact of Rising Vehicular Fuel Prices on the Fiscal Year 2004-05 Fuel Budget
DATE: January 24, 2005
This memorandum provides information regarding the impact of rising vehicular fuel prices on the Fiscal Year 2004-05 fuel budget.
DISCUSSION
Attachments 1 through 3 are graphs showing the fuel price history over the past two years for gasoline, diesel fuels and kerosene bus fuel. Attachment 4 is a chart showing our fuel usage in the first half of Fiscal Year 2004-05 and projecting fuel costs for the remainder of the year. The projections in Attachment 4 assume that fuel prices will remain at current levels for the remainder of the year.
Attachments 1 through 3 show that we experienced a dramatic increase in fuel prices beginning on or about September 1, 2004. Fuel prices peaked on about October 25, 2004. During this eight-week period, fuel prices increased by $0.29 per gallon for gasoline, $0.38 per gallon for diesel, $0.21 for biodiesel and $0.38 per gallon for kerosene bus fuel. If fuel prices had remained at these elevated levels for the remainder of the year, we would have experienced fuel budget shortfalls of about $6,400 in the general fund and $210,400 in the Transportation Department. By changing from biodiesel and kerosene bus fuel to regular diesel fuel, we could have eliminated the shortfall in the General Fund and reduced the shortfall of the Transportation Department to about $158,000.
As a precaution and in response to rapidly escalating prices, we made a temporary switch from biodiesel and kerosene to regular diesel on or about October 15, 2004. When fuel prices returned to budgeted levels in mid-December 2004, we resumed using biodiesel and kerosene fuels. Attachment 4 shows that, due to the temporary adjustments in our fuel buying practices and falling prices in late December, we were able to remain within our vehicular fuel budget for the first half of the fiscal year.
In spite of the high kerosene prices reflected on Attachment 3, the bus fuel budget was only 48.8% expended at the end of the 2nd quarter. We were able to stay within our budget for bus fuel in the first half of the year because we switched to the less expensive diesel fuel for about four weeks and we actually used less fuel than originally budgeted.
If fuel prices level off or continue to moderate in the 2nd half of the year, and if our fuel usage remains below the budgeted number of gallons, we will be able to stay within our existing budget for bus fuel. If usage increases or if prices begin to rise again, it may become necessary to reallocate some funds within the Transportation Department to provide additional funds for bus fuel. The Transportation Director has earmarked a portion of unobligated funds from an operating assistance grant to address this contingency if necessary.
Historically, the Town of Chapel Hill has taken a leadership role in the use of alternative fuels as a means of achieving improved air quality in the region. This effort has included the use of kerosene bus fuel and biodiesel fuel in the general municipal fleet because these fuels produce fewer harmful emissions than regular diesel fuel. Our goal will continue to be to use biodiesel and kerosene fuel to the maximum extent possible within our budget.
CONCLUSION
At current fuel prices, we will be able to continue our use of biodiesel and kerosene fuels for the remainder of the year without exceeding our overall budget for motor vehicle fuels. If we experience another short-duration period of escalating fuel prices, we believe that we can remain within our existing fuel budget by suspending the use of biodiesel and kerosene fuels until prices return to budgeted levels.
ATTACHMENTS