BULK BUYING, TAX BENEFITS HELP STATE GOVERNMENT WEATHER HIGHER GAS PRICES

By Jason Feifer
STATE HOUSE NEWS SERVICE

STATE HOUSE, BOSTON, JUNE 24, 2004…..Rising fuel prices have eaten into the budgets of some state departments, but bulk purchasing power and tax exemptions have insulated state government from any serious financial concerns in a fiscal year marked by surging prices at the pump.

State agencies buy gasoline at up to 40 cents less per gallon than consumers pay at the pump, due to the state's contract for bulk purchase of unleaded gasoline and diesel fuel, according to James Ferri III, energy procurement team leader at the state's Operational Services Division.

However, each department handles purchases individually, and some agencies that do not have on-site storage tanks to accommodate bulk purchases must instead use a more costly fuel discount card program. The card program requires departments to buy gas at pump prices, minus the federal tax of 18.4 cents per gallon.

But even with bulk purchases and tax benefits, the state is not fully exempted from the price hikes that recently put a gallon of gas beyond the $2 mark. According to the state Division of Energy Resources, the average statewide per gallon price of gasoline dropped 2.7 cents this week, to $2.06 a gallon. A year ago it was $1.51 per gallon.

"Because of the volatility of crude oil prices, no one is truly insulated from rising costs," Ferri wrote in response to a News Service inquiry about the impact of gas prices on state government.

But not every department that lacks on-site storage must use the card system.

Some smaller departments buy fuel from larger departments with storage. For example, according to Massachusetts Highway Department spokesman Judith Forman, the department sells gas to both the Executive Office of Environmental Affairs and the Department of Environmental Management.

Mass. Highway and the Turnpike Authority are the two largest users of gasoline and diesel, according to Ferri.

While bulk purchase discounts may reach 40 cents a gallon, it is more often between 20 and 30 cents, according to Forman. She highlighted one day of purchase as typical: On May 26, 2004, Mass. Highway paid $1.66 a gallon for regular gas while the average price at the pump was between $1.91 and $2.02.

The higher the price at the pump, though, the better the discount on bulk purchases.

Since each department buys and budgets for fuel individually, department managers are responsible for finding ways to cover purchases that exceed their budgets.

Mass. Highway, for example, budgeted $1,756,979 for fuel in fiscal 2004, according to Forman. As of early June, it had spent $1.43 million. That's close to fiscal year 2003's fuel spending, which Forman said was $1,556,672.

The department has more than 2,000 vehicles it needs to fuel, including anything from dump trucks to cars.

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BULK BUYING, TAX BENEFITS HELP STATE GOVERNMENT WEATHER HIGHER GAS PRICES

If fuel expenses go beyond the budget, she said, the department tries to find ways to divert funds from other areas of its budget, instead of asking for extra money from the Legislature.

That's also how the Mass. State Police handles its fuel budget. According to Trooper Thomas Ryan, the department has already made internal adjustments to handle the rising gas prices. It will not need to seek additional fuel funds for fiscal year 2004, he said.

The Massachusetts Bay Transportation Authority operates differently, though. It has its own contract with a fuel wholesaler, and its board of directors sets a fuel budget every two years. The budget for this current fiscal year and the next is $986,220, according to spokesman Joseph Pesaturo.

He said that because of the two-year budget plan, during which time fuel rates could change dramatically, it's difficult to know if that sum will be sufficient.

"If the market fluctuates downward, then we still might stay under that cap," he said. "If not, we'll go back to the board of directors for another authorization."

If current predictions stand, that may not be necessary. According to Ferri, crude oil and gas prices are projected to decline.

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