Just using the words "budgeting" and "fuel costs" in the same sentence sends shudders down the spines of most fleet or purchasing managers responsible for estimating such costs.

The fluctuations of fuel prices experienced in 2008 - from a high of $4.14 per gallon retail for gasoline to a low of $1.60 in a span of roughly four months - certainly have made estimating fuel costs tougher.

While such a broad range of prices isn't expected in 2009, due largely to the worldwide economic recession currently putting a crimp in demand, expectations are that fuel costs have hit a floor and will rise as the weather warms around the country.

So what's a fleet manager to do?

Saving Money by Hedging Fuel Expenses

Bruce MacLean, fleet manager for Charlotte County Sheriff Office in Florida, doesn't have to worry about fuel costs, although he does budget for the sheriff department's expenses. His department purchases fuel directly from Charlotte County, which secured a fixed-fuel price several years ago as part of a long-term contract that has helped keep departmental fuel costs at comparatively low levels.

With the extreme volatility in fuel prices in 2008, Charlotte County agreed to alter its fixed price costs, mainly so the fuel distributor could stay in business and cover costs, MacLean said. However, even then his department was paying an average of 50 to 70 cents less per gallon than many other governmental entities at the adjusted, non-tax price.

"The adjustment the County made was based on spot prices. This long-term vision our County held dates back several years before I came here," MacLean said. "It has been a tremendous benefit for us, even during these times of [escalating] fuel prices.

In fiscal year 2008, Charlotte County Sheriff Department fleet vehicles were driven more than 6.33 million miles. With the lower fuel costs of the long-term fixed price agreement, the department continues offering its law enforcement officials take-home vehicle privileges, something not possible with higher fuel costs, MacLean said.

"Some departments have had to make much tougher decisions than us, such as eliminating take-home vehicle benefits altogether or limiting the number of miles fleet vehicles may be driven for each shift," MacLean said. He knows of some departments that have required two officers to share one vehicle.

Budgeting a Flat Fuel Rate Provides Cushion

Palm Beach County Fleet Management Division Director Douglas Weichman budgeted $3.50 per gallon for  fiscal year 2009 -October 1, 2008 to September 30, 2009. He first submitted a draft fuel budget in March 2008, before the huge upturn in fuel prices last summer and subsequent drop-off in late fall. 

This strategy allows him some cushion if fuel prices remain comparatively low for an extended period of time. Weichman's budget was based on predictions of how many gallons will be used in the 12-month span. 

The three types and amounts of fuel Weichman purchased in last year's budget included nearly 1.1 million gallons of diesel fuel at an average cost of $3.51 per gallon. In 2009, a large percentage of diesel fuel the County uses will be biodiesel, expected to include more than 3.1 million gallons of B-10 gasoline at an average cost of $3.25 per gallon. In addition, 119,000 gallons of Jet A fuel at an average of $3.35 will be used to fuel helicopters.

One strategy Palm Beach County uses is setting up rates that include a reserve fund. Weichman is currently working on the 2010 budget, and despite the recent plunge in fuel prices, he is considering budgeting about $4 per gallon for all fuels.

"It's impossible to predict fuel costs for a 9-12 month period," Weichman said. "It's better to be conservative." 


Saving Funds with Higher-Mileage Vehicles

Oakland County, one of the most populated areas of Michigan, ran a leased fleet until two years ago. Rates always included fuel. However, when significant cost fluctuations started a few years ago, funds for bounty department lease equipment were being used to pay for actual fuel consumed. That step made it a bit easier to budget for fuel costs, said Todd Birkle, manager for support services for Oakland County, Mich.

However, the even greater price fluctuations in 2008 played havoc with the county's budget again. Oakland County spent $2.6 million in 2008 fuel costs, the majority for the sheriff's department, Birkle said. In 2003, fuel costs were less than $900,000.

"It's been so tough because the decline in property tax values have caused significant cuts in our [tax] revenue," Birkle said. "All departments are pinched, but we don't want to be caught short budgeting too little."

Since cutting down on driving wasn't a practical way for the Sherriff's department to reduce fuel consumption, the County began purchasing vehicles that offered better gas mileage, namely Chevrolet Impalas, Birkle said. An Impala achieves an average of 5 miles per gallon more than a Ford Crown Victoria, allowing the department to save approximately 735 gallons of fuel per year for each law enforcement vehicle on the road. This helps save fuel costs and makes budgeting a bit easier, Birkle said.

Also helping Oakland County is the fact that about 50 percent of its consumed fuel is acquired at an on-campus fuel site where the County purchases bulk fuel, saving 15 cents-per-gallon average as opposed to fueling at retail sites. The County also has built a second on-campus fueling station that can hold up to 40,000 gallons.

Furthermore, whenever possible, the county purchases flex-fuel capable vehicles, Birkle said. While the availability of E-85 fuel in Michigan is still limited, greater supply will make E-85 fuel a more desirable and efficient option, and can save more money in the future.

"We've set up our new fueling station so when purchasing E-85 on a large scale becomes more efficient, we'll be ready to take advantage of those cost savings," Birkle said. "We're also trying to build a good supply of fuel at our central campus in case of a wide-scale power outage or other emergency."

Still, Birkle was very conservative in his fuel estimates for 2009. He budgeted for an average per gallon cost of $3.20 across all departments. In 2008, the county's per gallon costs averaged around $2.99. Any year-end fuel savings will be a positive variance and will be added to departmental fund balances, he said.

"We're hoping we can save a significant amount of money this year if fuel costs remain [comparatively] low," Birkle said. "If I knew what those costs would be, I'd be sitting on a warm beach somewhere."

Budgeting for Fuel

MacLean recognizes his department is in a favorable position, but even given these lower costs, they must watch fuel expenditures. To emphasize the situation, MacLean sent his co-workers a series of reminders throughout the year, reminding Sheriff's department personnel of ways to reduce fuel costs, such as reducing idling and driving speeds.

"We skated through much of the pain, but we realize it is better to be reminded how to save on fuel costs before it's too late than double up on runs," MacLean said. "I don't think anyone can accurately predict what fuel prices will do in the future so we must continue to be cognizant."

Before joining the Charlotte County Sheriff Department as fleet manager, MacLean worked in a similar position for Florida State Police. That department purchases fuel at the pump based on spot prices plus five cents, a strategy MacLean suspects caused great pain throughout that department as fuel prices rose in mid-2008.

"That arrangement probably killed a lot of budgets and had significant impacts that forced managers to make tough decisions," MacLean said. "As a fleet manager, it's important to consider all alternatives, and fixed pricing may be one that can make sense."

Palm Beach County's fuel budget is set up as an internal fund. The county bills customers for fuel at cost plus a 2 cents per gallon markup for costs related to running fuel sites, automating the fuel system, staff support, and more. In his role, Weichman usually consults various county departments fuel budgets.

Because of the fall in fuel prices, Weichman is now "considered a hero because I projected a much higher cost," and there is a potential for a fuel budget surplus come this fall. Of course, the opposite was true in fiscal year 2008 when some departments had to cut back during the year because fuel costs rose faster than anticipated."

He added, "I normally predict gallon usage to go up which helps build in some cushion."

Palm Beach County's total 2008 fuel budget was more than $14.3 million, with a budget deficit of $100,000 by the end of the fiscal year, Weichman said.  To cover the deficit, the County moved money from reserve funds. That revenue was used to offset total expenses once internal customers were billed.

"Our sheriff made a couple of local agreements with cities to provide police services last fiscal year instead of having their own police forces," said Weichman. "This did increase usage; however, the sherriff's department received revenue to offset costs for providing this services to cities. The rest of our customer usage was actually down, so they came in on or under budget."

Palm Beach County's fuel budget for 2009 is just over $16.1 million.

About the author
Mike Scott

Mike Scott


Mike Scott is a Michigan-based freelance writer and marketing consultant who has contributed to more than 100 national and local magazines, websites and newspapers. He also produces copy for a wide range of businesses and works full-time as a marketing communications director for a global market research firm.

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