Soaring fuel prices create challenges for Mitchell city leaders, as some project bids come in $5M over budget
“When you try to budget for 12 months out and fuel prices change so drastically, it’s hard to get a good number to even start with,” Street and Sanitation Supervisor Kevin Roth said.
MITCHELL — As fuel prices climb to record highs, city officials are beginning to feel the effects of soaring energy costs.
From seeing some project bids come in $4 million to $5 million over budget to allocating more contingency funds for anticipated fuel cost increases, the rising gas and diesel prices have thrown Mitchell city leaders new challenges.
For Street and Sanitation Supervisor Kevin Roth, budgeting has been one of the most challenging parts in dealing with the recent surge in gas and diesel prices.
“When you try to budget for 12 months out and fuel prices change so drastically, it’s hard to get a good number to even start with,” Roth said. “You have no idea what the price of fuel is going to be a month or even days from now.”
Projecting fuel costs has never been more challenging for some city leaders than it is now.
Public Works Director Joe Schroeder said budgeting for fuel is done by factoring in the most recent three-year average of fuel prices. Considering gas and fuel prices have more than doubled from what they were two years ago, he said using the three-year average will be difficult this year. In May 2020, the national average for diesel fuel hovered around $2.39, while gas was roughly $2. As of Friday, the national average for diesel and regular unleaded gas was sitting at $5.53 and $4.59 per gallon, respectively, according to AAA’s data.
Comparing Friday’s fuel prices from the same span in 2021, the national average for a gallon of regular unleaded gas has increased by 50%. Diesel fuel saw a roughly 70% jump over the same period.
To get a clearer picture on how the spike has affected the city’s operations, City Administrator Stephanie Ellwein pointed to the city’s Street Department — a division that uses a sizable amount of gas and fuel on an annual basis.
According to Ellwein, total fuel costs for the Street Department this year are anticipated to climb about $10,000 over the $75,000 annual budgeted amount. As of now, the city’s street division has tallied $42,500 in fuel costs, which Ellwein is projecting will end up around $84,000 to close out the year.
In 2021, the annual fuel costs for the street division was $69,000. In 2020, when gas and diesel prices hovered around $2 and $2.42, the street division ended the year with a $53,000 fuel tab, almost half of what this year’s projected costs are.
While predicting the future of gas prices a year in advance is impossible for city leaders, Ellwein said department heads prepared well for higher gas prices during the budgeting process.
“Departments all planned for an increase in costs for both fuel and natural gas. It’s always difficult forecasting rising fuel costs, but we have our contingency funds in place to handle the increases to achieve a structurally balanced budget,” Ellwein said.
The rising prices and inflation that have swept across the country over the past year can be seen in the bids submitted for the North Wastewater Treatment Plant improvement project. Initially, engineers estimated the project to cost roughly $10 million about a year ago. But the three bids that recently came in to take on the project were all a little over $5 million above the city’s initial estimated project cost.
To cover the additional $5 million for the $15.7 million north wastewater treatment plant project, Schroeder has proposed a 63-cent increase in sanitary sewer rates and turned to federal grant opportunities that are not guaranteed.
Although Schroeder pointed to the surging inflation as a major factor that led to the drastic cost increase for the north wastewater project and other city projects, he said the rising fuel costs are playing a role as well.
“I’m sure the higher diesel prices are part of it. I’ve had a contractor recently tell me they aren’t sure what diesel prices are going to be, and they had to guesstimate what it would amount to for the project when they went to bid,” Schroeder said.
Price hike having minimal impact on city’s fuel costs
As for the fuel that the city purchases in bulk to operate all vehicles and equipment, Street and Sanitation Supervisor Kevin Roth said the recent price increases the city has seen have been fairly minimal compared to what others are experiencing at the pump.
Like many city governments, the city buys its fuel in bulk through a fuel quote process that allows companies to submit price quotes. As Roth put it, allowing oil companies to submit fuel quotes gives the city “bargaining power” that helps keep prices lower since multiple oil companies compete to gain the city as a customer.
Roth said materials and products containing oil that the city uses each year have spiked. According to Roth, chip seal material cost about $550 per ton. This year, Roth said chip seal material jumped to roughly $750 per ton.
“The price increase affects projects and some material we use more than the costs of the city’s fuel itself,” Roth said.