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Governments figure in fuel costs

November 25, 2007|By DAN DEARTH and JOSHUA BOWMAN

WASHINGTON COUNTY

As gas prices climb, local governments are feeling the sting at the pump as much as, if not more than, private residents.

Washington County, the City of Hagerstown and the board of education all anticipate higher fuel costs this year than last.

The city expects to spend about $92,000 more on gasoline than it budgeted for fiscal year 2008, and county departments are being asked to reduce mileage whenever possible.

The board of education increased its motor vehicle fuel budget to $633,339 this year after spending $571,032 in fiscal year 2007, but officials said they also are affected by the rising cost of heating fuel.

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Last year, the school system spent $568,245 on heating fuel. Officials expect costs to rise, so $863,273 was budgeted this fiscal year.

"This is one of those things where there's a high degree of uncertainty (when it comes to budgeting)," City Finance Director Alfred Martin said. "It's been very challenging for us, but we've been dealing with it."

The three government bodies purchase fuel through contracts with vendors.

Although the contracts allow the governments to buy fuel at a reduced rate ? the county, for example, pays about 50 cents per gallon less than consumers pay at the local gas station ? the prices still rise and fall with the market.

So far this fiscal year, which began July 1, the City of Hagerstown has spent about $174,000 to buy fuel for city vehicles, including police cruisers and fire engines, Martin said this month.

The city has $430,000 budgeted this year for the expense but, if gas prices stay the same, Martin said he anticipates the city will spend about $522,000 by the time the fiscal year ends June 30.

He said fuel accounts for about only 0.3 percent of the city's $158 million budget. Nonetheless, the cost has to be monitored closely.

Washington County Budget and Finance Director Debra S. Murray said county departments that go over budget on fuel will make up the difference by cutting costs elsewhere.

If that doesn't work, the county is prepared to use cash reserves to make up the difference, Murray said.

Washington County has raised its gas budget more than $40,000, from $640,930 in fiscal year 2007 to $683,310 this year. So far, the county has spent $211,762 on fuel.

But fuel costs and usage always spike in the winter months, according to Highway Department Director Jack Reynard.

"We know better than to spend a lot of money early in the year," said Reynard, who noted that if gas prices stay the same, his department will finish the year about $20,000 over budget.

Martin said he isn't sure whether the city's taxes would have to increase to cover the additional fuel costs that the city most likely will incur. In the meantime, he will continue to work with economists to evaluate market trends and adjust future budgets accordingly.

"We're going to try to find savings in other aspects of the budget, just as households are doing with this problem," he said.

Staff writer Erin Cunningham contributed to this story.

Three factors generally affect the price consumers pay for a gallon of gas, according to convenience store representatives.

Wholesale costs

Prices for gasoline, which is traded as a commodity on the open market, change constantly, often by the minute.

What does that mean for the station down the street?

"The market can change instantly, but we usually don't change that drastically," said Monica Jones, spokeswoman for Sheetz.

Jones said Sheetz purchases gasoline from a distributor and is at the mercy of the market when it is time to buy. But she said daily price differences don't always mirror market fluctuations.

"If the cost goes up 10 cents a gallon, we're not going to pass all of that on to the customer," Jones said.

Capacity

The average underground storage tank can hold 8,000 to 10,000 gallons, according to the National Association of Convenience Stores' Web site.

Many gas stations average one shipment per day, though high-volume stations might receive more. If wholesale prices are volatile, the cost of each shipment can vary greatly, which can in turn affect the price on the sign.

Competition

While wholesale prices are perhaps the biggest factor in determining gas prices, the number on a competitor's sign also has a huge influence on a retailer's price, Jones said.

"We obviously look at the competition and work hard to beat them," she said.

Gas stations often will take reduced profit margins to avoid raising their prices sharply, according to the NACS.

Similarly, when market prices drop, stations might be slow to lower prices in order to make up losses suffered when costs went up.

On the whole, selling gasoline is a barely profitable business.

Jones said Sheetz nets about 3 cents per gallon in profit on average. The NACS estimates that gas stations average 2 to 3 cents per gallon in profit.

"We mostly rely on sales inside the store," Jones said. "Gasoline is the driver to get people in the parking lot."

? Joshua Bowman

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