Pump slump good for government
Lower gas prices, more driving mean more revenue
FALLING FUEL PRICES may be wreaking havoc in oil-producing countries, but they are bringing smiles to drivers in Massachusetts and helping state and local officials keep their budgets in balance.
The price of gasoline has dropped by nearly half since mid-2012, when the average retail price hovered around $3.59 a gallon. By March of this year, the price was creeping up, but it was still below $1.90 a gallon. It went as low as $1.78 in February, according to AAA.
The plunging gas prices have benefitted the state in two ways. First, gasoline and diesel costs are going down, allowing state and local officials to use the savings on fuel to plug holes elsewhere in their budgets. Second, the drop in prices has prompted more Massachusetts residents to take to the roads, providing a significant boost to the state’s gas tax revenues. The decline in fuel costs and the boost in gas tax revenues yielded the state a net gain of nearly $40 million last year, and that estimate doesn’t include all state agencies. If gas prices keep dropping, the net gain could increase. Through the first seven months of the fiscal year, the state is already ahead $99.1 million in gas tax revenues compared to last year while fuel spending is running below last year’s pace.
The savings on gas have been impressive. According to the Executive Office of Administration and Finance, the state paid out $19.4 million during fiscal year 2013 for fuel for the nearly 150 agency accounts it oversees, including the State Police. For fiscal 2015, which ended on June 30, the total gas tab at the agencies dropped by more than 22 percent to $15.1 million. The budget for fuel in the current fiscal year is $12.7 million. The drop in prices also factored in to Gov. Charlie Baker’s mid-year 9C cuts. Baker cut $50 million out of the budget, with nearly $2.7 million coming from savings in fuel costs that had not been expected at the start of the year.
In 2013, the Department of Transportation spent $5.4 million on nearly 1.8 million gallons of fuel, not including the MBTA. Last year, the cost went down to $4.2 million while usage increased to more than 1.9 million gallons.
For the MBTA, because of the mix of fuels used by buses, the savings were not quite as dramatic, in part because the authority uses fuels such as propane and compressed natural gas that have not experienced dramatic price drops. The T’s budget for fuel has dropped from $25.5 million in fiscal year 2013 to $22.9 million in fiscal 2015. Through the first seven months of the fiscal year, the agency spent $12.2 million on fuel, including $4.9 million on diesel fuel. The agency had budgeted more than $18.9 million for diesel for the entire year, putting the T on track to spend half that amount.
The troubled commuter rail also got some good news on the fuel front. In fiscal 2013, the T spent more than $39.4 million on fuel for commuter rail trains, a tab that dropped nearly 25 percent by last year to $30.4 million. Through January, the MBTA spent just $11.6 million of its $40 million diesel fuel budget.
The Department of Transportation also purchased hedges on financial markets to lock in lower prices through 2018, ensuring the savings will continue. For fiscal 2016, the agency will pay $1.85 a gallon, a price that drops in 2017 to $1.56 and then rises to $1.60 the following year, all 10-year lows. That cost does not include the 24-cent-per-gallon gas tax that consumers and municipalities pay but the state doesn’t.
“The only real downside is if prices completely collapse to inflation-adjusted historic lows. We are committed to these prices from our state-approved vendor through the end of FY18,” DOT spokeswoman Jacquelyn Goddard wrote in an email. “But we could then further lock in prices near these new lows for FY19 and beyond. It’s really a great deal for the department and the Commonwealth.”
The state has also benefited from more people driving. While lawmakers raised the gas tax by 3 cents to 24 cents a gallon in 2013, revenues showed little increase in the following months even factoring in the hike. But as retail gas prices dropped, revenues eventually picked up, suggesting people were either driving more or shifting to vehicles that consume more gasoline.
In January 2013, the first month of the tax increase, state gas tax revenues were $47.7 million, down nearly $3 million from the same month a year before. By January this year, the state reported raking in $60.1 million in gas taxes for the month, a spike of nearly 26 percent from the same month three years ago. For the seven months ending in January, the state collected $398.1 million in gas tax, more than $55 million higher than at the same point in 2013.
But in late 2014, prices began a slow and then dramatic decline. In response, consumption of gasoline accelerated, hitting an average of more than 7 million gallons a day in August of last year and staying around 6.6 million gallons since. “Cheaper gas prices certainly factored into that increase,” says Mary McGuire, a spokeswoman for AAA.
At the local level, savings are not as large but proportionally can bring unexpected savings in all areas of government, where fuel use is often overlooked but is a key cost-driver in municipal budgets. The town of Weymouth, for instance, one of the largest in the state by area, uses about 200,000 gallons of fuel a year, giving it a savings of several hundred thousand dollars because of the price drops.Data from the Boston Police Department show a significant drop in the agency fuel budget, which fell more than 30 percent from fiscal 2013 to 2015 and is on pace in 2016 to be half what it was three years ago.
Other Boston city agencies haven’t seen much savings yet, largely because usage has increased dramatically. According to Boston Mayor Marty Walsh’s office, the city’s spending on gasoline declined 2.7 percent from fiscal year 2013 to fiscal 2015. During that same period, consumption by most of the city’s agencies, excluding police, fire, school, and the health commission, soared by 23.4 percent. Laura Oggeri, a spokeswoman for Walsh, said much of the increased use came from the need for snow melters to run nearly non-stop during last year’s historic brutal winter.