AGENDA #12f

 

BUDGET WORKING PAPER

 

TO:                  W. Calvin Horton, Town Manager

 

FROM:            Bill Letteri, Public Works Director

 

SUBJECT:       Impact of Rising Fuel Prices on the Fiscal 2005-06 Fuel Budget

 

DATE:             April 27, 2005

 

 

This memorandum provides information regarding the impact of rising fuel prices on the fiscal year 2005-06 fuel budget.

 

DISCUSSION

 

Attachments (1) through (3) are graphs showing fuel price history over the past two years and the recommended budget fuel prices for fiscal year 2005-06.    

 

From the beginning of this fiscal year to date, we have experienced per gallon price increase of $0.25 for gasoline, $0.45 for diesel fuel, $0.25 for biodiesel and $0.38 for kerosene bus fuel.

 

The current volatility in the fuel market makes it very difficult to predict where fuel prices will peak in fiscal year 2005-06.  However, the general consensus from various media sources is that prices will continue to rise.  Our recommended fuel budget prices of $2.00 per gallon for diesel fuel and kerosene and $1.80 for gasoline will allow us to remain within the budget assuming the average fuel price does not increase more than $0.25 per gallon over the next year.  The chart below provides a scoping estimate of the budgetary impact of a continued rise in fuel prices in $0.05 incremental increases in the average price of fuel over the next year.

 

Increase in Average Price

Impact on Public Works Fleet

Impact on Transit Fleet

Impact Town Wide

$0.05

$10,300

$31,400

$41,700

$0.10

$20,600

$62,800

$83,400

$0.15

$30,900

$94,200

$125,100

$0.20

$41,200

$125,600

$166,800

$0.25

$51,500

$157,000

$208,500

$0.30

$61,800

$188,400

$250,200

$0.35

$72,100

$219,800

$291,900

$0.40

$82,400

$251,200

$333,600

$0.45

$92,700

$282,600

$375,300

$0.50

$103,000

$314,000

$417,000

 

 

 

  Potential Cost Reduction Measures

 

We have not been able to identify any cost reduction measures that would have a major positive impact on the reduction of the Town’s overall fuel expenses.  For example, if we could reduce the vehicle miles traveled by the entire town fleet, including buses during fiscal year 2005-06 10%, we would only reduce fuel consumption by 8,400 gallons, or about $13,600 at current prices.  Unfortunately, such a reduction would have a serious negative impact on our ability to deliver police, fire, transportation, solid waste collections and other routine town services.  If we abandon the use of biodiesel in the general municipal fleet, we would reduce cost by about $20,000 for the entire year.    

 

While it is not possible to predict with certainty how high fuel prices will rise, we recommend that, for budget planning purposes, we assume that fuel prices will rise to an average of $2.00 per gallon for diesel fuel and kerosene bus fuel and $1.80 for gasoline.  If fuel prices rise more than $0.25 per gallon before the end of 2005 it may be necessary temporarily to abandon the use of biodiesel or plan for a mid-year budget amendment to address the shortfall.

 

RECOMMENDATIONS

 

Based on the information provided above, I recommend that we budget $2.00 per gallon for diesel fuel and kerosene bus fuel and $1.80 for gasoline.  I recommend that we continue to monitor fuel prices and revert to the use of diesel fuel when biodiesel prices exceed $2.00 per gallon.