FUEL PRICES DRAIN BUDGETS.

Byline: Lisa Mascaro Staff Writer

Soaring gas prices have wreaked havoc on local government budgets as fuel costs skyrocket past projections, forcing some agencies to dip into reserves just weeks into the fiscal year that started July 1.

Los Angeles city officials are pleading with workers to reduce fuel consumption, while the Metropolitan Transportation Authority is already nearly $500,000 over budget as prices spiked nearly $1 a gallon more than they bargained for.

The Los Angeles Police Department is looking at getting more hybrid vehicles - even entertaining the idea of one day in the not too distant future chasing after bad guys in a Toyota Prius or the like.

``Every government, I think, is probably feeling the pain and probably wondering what they do. In some cases they may not have that much leeway,'' said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp.

``We're just so used to having energy relatively cheap and instantaneously available. It's sort of like a new day,'' he said. ``The whole situation has changed very dramatically. No one expected fuel prices to get this high.''

This summer's record high gas prices - verging on $3 at the pump across Los Angeles County - are more than most budget planners counted on when they started drafting municipal budgets back in spring.

Metrolink, for example, which relies on diesel to power its commuter trains, had budgeted $1.65 per gallon, but now is paying $1.97 on average since July 1 - and as much as $2.08 last week, a spokesman said.

Los Angeles County is bracing for fuel costs up to 30 percent higher than last year, while the city will be paying $9 million more this year to fill up its vehicles.

That means that money that could have been going for more police officers, street paving or other vital services is going to the pump.

``That'd be like saying 90 police officers, or whatever else,'' said Ellen Sandt, assistant chief administrative officer for the city.

``The money had to be spent on that, rather than on a new service or an enhanced service,'' she said. ``It's way more than anyone wants to see in one year.''

What's more is this summer's sky-high prices come after most agencies had already beefed up their fuel budgets from last year - some by nearly 50 percent.

The city of Los Angeles, for example, facing rising fuel prices, saw last fiscal year's $12.6 million fuel budget balloon to $18.8 million by the end of June, forcing the city to come up with $6 million to fill the gap.

For this fiscal year, which started July 1, officials set the fuel budget at $18.8 million, but now worry the $1 million they set aside as a reserve will be gobbled up by September because of recent gas spikes.

Similarly, the LAPD's $4.8 million fuel budget last year faced a $2.2 million shortfall that had to be plugged. So the department started this fiscal year with a nearly $7 million budget.

Also the MTA had already boosted its fuel budget to $48 million this year, after last year's $33 million budget fell short when costs soared to $41 million.

The MTA's Carolyn Flowers explained that filling up the agency's 2,000-plus fleet of compressed natural gas buses went from costing about 30 cents a CNG therm two years ago to 82 cents today.

``These are astronomical increases,'' said Flowers, deputy executive officer for operations. ``Trying to manage this is a constant challenge.''

Most local government agencies need various kinds of fuels - including diesel, unleaded and compressed natural gas - to power their fleets that are a mix of work vehicles, trucks and sedans.

Even though most agencies buy fuel in bulk to get discounts, their prices are still tied to the market, where crude oil hit a record of more than $67 a barrel earlier this month.

Their unleaded gasoline prices generally change each week, and rise and fall at the pump in much the same way consumer prices do. Natural gas has risen with oil prices. Diesel has skyrocketed.

None of the local agencies has storage tanks they can use to hold long- term gas reserves; nor have they delved into the complicated world of hedge-pricing as their counterparts at the Los Angeles Department of Water and Power have done with natural gas prices - estimating future gas prices and locking them in today - to stem their costs.

Kyser said few government agencies would have the ability to store gas or the fiscal prowess to hedge the market.

He said governments are going to have to get smarter about how they handle energy fluctuations.

``I think they have to be very strategic. ... Anything they are purchasing, they are going to have to spend more time studying these markets and figuring out what the prices are, which is kind of a whole new situation for them.''

Even those agencies that have so far escaped the summer spikes are nervous about how high prices might continue to go.

The Los Angeles Unified School District parked most of its 1,300-bus fleet this summer while many children were out on break, said David Palmer, deputy director of transportation services for the district.

But come Sept. 6, kids on the traditional calendar will return to classes and ``then the meter will start running,'' he said.

He's budgeted $6 million for fuel this year, about the same as last year, but that's still 40 percent higher than it was several years ago.

``At the current escalating cost of fuel we're going to need every cost we have in the budget, and them some, I believe,'' he said. ``When I'm fueling my car, I watch the meter go and I'm shaking my head.''

Lisa Mascaro, [phone]

lisa.mascaro(at)dailynews.com

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Photo:

Garage attendant Dean Parra refuels a Los Angeles Police Department cruiser at the West Valley station.

Evan Yee/Staff Photographer