Local governments hope for lower fuel rates in '15
While the Stark Area Regional Transit Authority will save hundreds of thousands of dollars thanks to falling oil prices by locking in a fuel price for a year, other local governments don't know if they'll reap any significant savings because the savings would evaporate if oil prices rebound.
PHOTO/ CANTONREP.COM/SCOTT HECKEL
Gary Hoslar fuels up at the Stark County Engineer's main garage Thursday.
The Stark Area Regional Transit Authority got a great holiday deal.
Last week, it locked in a 2015 price of $2.15 a gallon for diesel fuel, a discount of 95 cents a gallon compared to 2014.
With the price of crude oil plummeting around the world, SARTA Executive Director Kirt Conrad estimates SARTA will save $200,000 to $300,000 next year. The agency said it spent about $1 million dollars this year to fuel its 50 diesel buses and about $700,000 to fuel its 40 compressed natural gas buses.
The savings will more than offset a forecast $150,000 shortfall, with SARTA poised to double the frequency of buses on three routes to once every half-hour at a cost of $180,000 a year.
“It should save us some money,” said Conrad, adding that his agency was unable to get $500,000 in state capital improvement grants.
But he cautioned that his agency could face a cut in federal funding from the troubled federal highway trust fund. “This just gives us a hedge against any funding changes at the state and federal level,” he said.
Local governments could save tens to hundreds of thousands of dollars in 2015 from lower fuel prices.
SARTA may be the best-positioned agency to reap the savings because it uses about a half-million gallons of diesel fuel a year, obtained at a fixed rate. However, the Stark County Engineer’s Office, the city of Canton and school districts buy fuel every few weeks or months and are subject to price fluctuations. Many local governments are unwilling to lock in a price and risk missing a falling market price.
Another factor limiting savings is the fact that large, high-powered diesel vehicles make up most of the fleets of school districts and many agencies. Diesel fuel costs more than gasoline. The U.S. Energy Information Administration says that’s because of higher demand for diesel fuel, a shortage of refinery capacity years ago, the switch to low-polluting and lower-sulfur diesel fuels and the fact the federal excise tax on diesel fuel is 24.4 cents, six cents higher than for gasoline.
With no guarantee prices won’t skyrocket later in 2015, local governments aren’t counting on low gas prices. They say whatever savings they reap will ease financial pressure, bolster reserves and cover unexpected expenses. But it won’t be a windfall, and it won’t fund new services. It’s also uncertain how lower oil prices will affect the local oil and gas industry and whether that, in turn, could affect income-tax revenue.
“It’s a windfall. We really can’t plan on it,” said Stark County Sheriff George Maier. “One incident in the country, in the world, and this could change. And we certainly are pleased that the prices are what they are. And we certainly hope it will relieve the pressure on our budget and we’ll have more money to turn back in to the county at the end of the year.”
Tad Ellsworth, business manager for the Canton City School District, said the district is paying about $3.30 a gallon for diesel fuel for its buses, a savings from about $3.80 six months ago. Unlike SARTA, the district pays a variable rate as part of a consortium organized by the Stark County Educational Service Center. The district transports about 6,000 students each school day. It spent about $460,000 in 2013 on diesel fuel, a small percentage of its $100 million general fund budget. If prices stay the same throughout the year — a big if — Ellsworth estimates the district would save about $50,000 to $60,000 next year, enough to cover the salary of one teacher.
But it’s not something he’s counting on.
“There’s no way, these prices can hold up for long I wouldn’t expect,” Ellsworth said. “At some point, people are going to hold up (oil) production so the prices go back up.”
The wide variance between the fuel prices that school districts and local governments pay depends on several factors, including taxes, contract length and size of the purchasing pool, said Conrad. For example, SARTA is in a pool with four other transit agencies that buys 5 million gallons of diesel fuel a year, of which SARTA purchases 500,000. The Canton City School District, which idles nearly all of its buses during the summer, uses about 100,000 gallons a year. The Stark County Engineer’s office says it has to pay a federal tax of 28 cents a gallon but not state taxes. Conrad says SARTA is exempt from all taxes.
Conrad said the agency’s savings from declining crude oil prices is limited because SARTA already spends the equivalent of a $1 a gallon for natural gas for its 40 natural gas buses.
Steve Monte, director of transportation for the Plain Local School District, said the price may depend on the supplier a school district uses. Also Plain Local School District has its fuel delivered from Petroleum Traders through the Stark County Educational Service Center consortium.
The ESC’s interim treasurer, Tamra Hurst, said some school districts, including Canton City, have negotiated to buy gas from Speedway pumps with a special card at a different price.
Monte said Plain Local on its last order paid $2.45 a gallon for diesel, down from about $3.30 a year ago. Monte said whatever fuel savings the district gets could cover the cost of unexpected repair to a vehicle.
Stephen Gronow, the building and maintenance superintendent for the Stark County Engineer’s office, said the office will be able to save $110,000 if the diesel price averages about $2.53 a gallon in 2015. It’s now getting about $2.36 a gallon from Canton-based McIntosh Oil Co,, which has agreed to honor prices based on a formula negotiated by the state. In 2014, Gronow said, the office spent more than $374,000 on diesel fuel and gasoline, and diesel fuel averaged about $3.50 a gallon and gasoline $3.10. The average price of diesel was $3.24 in 2013 and $3.63 in 2012. For gasoline, it was $3.15 in 2013 and $3.35 in 2012. The county engineer buys fuel about once every six to eight weeks for the office’s dozens of diesel vehicles, which are used to carry equipment and plow snow.
Dave Torrence, the chief deputy Stark County engineer, said lower crude oil prices could result in a lower price for asphalt for paving next year when the price goes out to bid this spring. Crude oil is a key ingredient in asphalt.
Louisville City Manager Tom Ault says if fuel prices stay at their current levels, the city could save about $10,000 to $20,000 next year, a small amount in a general fund budget of $4 million a year.
“We don’t know how long it’s going to last, so it’s hard to predict how much savings we’re going to realize,” he said.
It’s not clear yet the impact of lower gas prices on state finances.
In a written statement, David Pagnard, a spokesman for the Ohio Office of Budget and Management, said if Ohioans have lower fuel costs and more money to spend, it could spur more consumer spending, driving up sales and income tax revenues.
Businesses could spend more on hiring. Lower prices could also encourage Ohio motorists to buy more gasoline, increasing revenue from the state’s motor fuel tax, which is a fixed cost per gallon.
However, businesses related to oil could lose revenue, impacting the taxes they pay the state. Gary Gudmundson, a spokesman for the Ohio Department of Taxation, said the state severance tax from oil drilling only provides part of the total $12.3 million a year in all severance taxes.
Canton Mayor William J. Healy II said as long as fuel prices are at these levels, the city will save money to fuel its police cruisers, fire trucks, snow plows and garbage trucks, but they could “go up to $4 by July. We don’t know.” The mayor said inevitably an unexpected expense will arise such as higher salt prices or a city furnace failing and any savings from fuel will help cover that.
Healy said many local manufacturers will benefit from lower gas prices. Meanwhile, oil and gas companies have invested so much into constructing facilities for the extraction and export of oil and natural gas from the area that he doesn’t see lower gas prices resulting in them abandoning their plans.
“The shale is here under us. It’s in our region. They have to come here to get that,” said Healy. “That’s something that’s going to evolve due to geography and geology, not based on the market. ... so these variables that go up and down, this is not anything that’s freaking anybody out in the oil and gas industry. It’s part of doing business.”
Reach Robert at 330-580-8327 or email@example.com.
Published: Monday, December 22, 2014