Gas prices force cash-strapped cities to get creative

Drivers are not the only ones whose budgets are being squeezed at the pump. Faced with the prospect of $5 gas this summer, cities and towns are also trying to figure out how to stretch budgets by cutting corners, carpooling, or dipping into reserves.

“It’s an unexpected additional expense at a time when cities are strapped budget-wise,” says Chris Hoene, director of the research center for the National League of Cities. “It’s a bit like getting an unexpected snowstorm.”

Though cities factor gas-price increases into budgets, officials didn’t count on prices going up as much as they have. If this rise continues, they say, they will have to use funds that were intended for other purposes to offset the increase in gas prices.

Panama City, Fla., for one, may be forced to use emergency funds. But those reserves are usually saved for a natural disaster. 

“If gas prices go through the roof this summer, and we are hit by a hurricane, that would be our doomsday scenario,” says Jeffery Brown, assistant to the city manger.

Already, Panama City has started to implement policies first put in place when gas prices started climbing in 2008. They include not letting cop cars idle and encouraging non-essential vehicles, such as public works and utilities, to plan the day’s routes in advance to maximize fuel efficiency.

Many other cities find themselves in the same situation, looking at how to manage municipal fleets of garbage trucks and heating for buildings.

“The stretched budget forces municipalities to reconsider the way that they deliver services,” says Mr. Hoene. 

Poughkeepsie Mayor John Tkazyik has tried to promote common-sense solutions. He met with city managers and department heads of public work projects to look at ways to cut down on vehicle usage. The answers, which are reminiscent of solutions to the gas crisis in the 1970s, include carpooling and stopping for lunch on the way instead of making separate trips.

But when it comes to public safety, officials agree that that isn’t an area that can be cut. 

“The are not a lot of ways to save gas when it comes to public safety. You can’t have less police cars or streets to patrol,” says City Manager Brian Brooks in Forney, Texas. “It has to come from other parts of the budget.”

Still, the outlook isn’t all bad. For states, at least, there could be a silver lining. 

High gas costs "can be a positive" because they generate revenue through gasoline taxes and severance taxes, says Dan White, an economist at Moody's. "The more money that they get, the more they can spend."

This is particularly true in high oil producing states, such as Oklahoma, Louisiana, Texas, New Mexico, North Dakota, and Alaska. In Alaska, some 80 percent of the tax revenue comes from severance taxes from oil drilling.

Mr. White said when he worked for the state of New Mexico, "We used to root for oil prices to go up."