Municipal budgets get break on fuel prices

Friday, November 28, 2008 6:04 AM EST
By Rachael Scarborough King, Register Staff

Earlier this year, as they were putting together a town budget, North Branford officials anticipated another season of high fuel prices, using estimates of $2.55 to $3.05 a gallon for their purchasing outlook.

So they were “pleasantly surprised,” Finance Director Anthony Esposito said, when prices began to tumble in the past few months. For its most recent delivery, the town paid $1.46 a gallon for unleaded gasoline, $2.18 for diesel and $2.15 for heating oil, he said.

With the economy continuing to suffer, towns across Connecticut and the country are anxiously anticipating the upcoming budget season, and worrying about credit, taxes and municipal projects.

But there appears to be at least one hopeful spot in the economic forecast: fuel prices. Just as car owners are feeling less of a pinch at the pump, municipalities are hoping for some relief from the escalating costs of recent years.

Towns purchase hundreds of thousands of gallons of heating oil, diesel and gasoline each year to heat municipal buildings and schools and to power their fleets.

With the price of a barrel of oil surging to an all-time high of $145 in July, many town finance directors were fearing the worst for this winter. But now that oil prices have plunged to about $50 a barrel, some towns are locking in oil prices in anticipation of future savings. Recently, Guilford locked into prices for the 2009-10 fiscal year that are expected to save it $145,000 over the current fiscal year.

Others, like North Branford, made a decision to stick with the market and see how low prices will go. Esposito said he expects the town will lock in to a price if officials think that oil has hit bottom.

“It was a conscious decision to see how the whole economy affecting the energy pricing was going to pan out, and has it helped? Most definitely,” he said. “A decision was made not to lock into a fixed price, and to date that’s been a very wise move.”

But Esposito noted that the poor economy has hit the town’s budget in other ways. For example, the lower interest rates that the Federal Reserve has implemented to try to stimulate the economy mean that the town is seeing less of a return on its investments.

“While we’ll see positive variance on the energy side if the current trend continues, we’ll see a negative variance on the interest income,” he said. “I’m not sure it’s going to be a dollar-for-dollar match, but the energy savings will definitely help offset the bottomline impact of the reduced interest earnings.”

West Haven officials also decided not to lock into fuel prices this year and have seen some savings over the anticipated 2008-09 budget, Purchasing Manager Mark Bisaccia said. He noted that prices could still change by the end of the winter.

“Last July, we probably would have thought, ‘OK, we’re well on our way toward paying these extreme prices,’ which we thought were going to take place. Come to find out in September everything started dropping like crazy,” Bisaccia said. “You never know what’s going to happen.”

Hamden Finance Director J. Michael Betz said he thinks this will be a difficult budgeting season for towns in predicting energy costs for the 2009-10 fiscal year. Hamden locked in to prices of $2.96 for heating oil, $3.14 for diesel and $2.83 for gasoline five weeks ago, only to see prices fall further still.

“It stopped for a while when it was falling and I think that’s when we moved in,” Betz said. “We did better than some and we did worse than some other communities I think. It is higher than what it is now, but who would have thought it was going to go to $50 a barrel?”

Betz said he expects the town to come out on budget for fuel spending for this year. But as for next year, 2009-10 is “very murky right now,” he said.

“I’ve never seen anything like this, and I’ve been in this business for a long time,” he said.