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How Will Local Governments Respond to Large Increases in Energy Bills?
Posted by Prof. Goose on May 27, 2008 - 1:00pm in The Oil Drum: Local
Topic: Policy/Politics
Tags: city politics, debbie cook, energy, local government, peak oil [list all tags]
This is a guest post by Debbie Cook, Mayor of Huntington Beach, CA, and candidate for California's 46th Congressional District. Debbie has been a peak oil activist for many years; in this post Mayor Cook provides some interesting energy and peak oil-related things to think about from a local government perspective.
Robert Rapier posed an interesting hypothetical yesterday as to how individuals would respond to gasoline at $100/gallon.
However, from my position for the last three years, the question has been “how will local government respond to large increases in energy bills?”
I am the Mayor of Huntington Beach, California, a full service city of 200,000 residents, 27 square miles, 1200 employees and 8.5 miles of beach. We have nearly 200 police vehicles, 3 helicopters, 15 fire engines/trucks, 7 ambulances, 1 HazMat vehicle, and 1 medical decontamination unit. In addition there are hundreds of miscellaneous vehicles and trucks for public works, marine safety, building department, water department, and administration. All said, we consume 495,000 gallons of gasoline/diesel/jet fuel per year. For every $1 fuel goes up, it is a half million dollars out of our general fund budget.
Perhaps more shocking than the amount of fuel our city vehicles use is how much fuel is used to pick up our residents’ trash, sort it at the transfer station, and then haul it 46 miles round trip to a dump that is running out of capacity. Prior to a recent conversion to natural gas vehicles, our contractor reported to me that they were using 525,000 gallons per year of diesel.
In addition to transportation fuels, our electricity bill is over $4 million per year and natural gas is over $1 million per year. We have 10 groundwater wells that pump 22,000 acre feet of water per year and 15 flood control stations with 49 engines that allow us to discharge 2.5 million gallons/minute of water during a storm event. I am told we have the highest discharge capacity of any community in Southern California.
There are countless services that local government provides to residents: streets, curbs, gutters, tree trimming, sewers, street sweeping, water, parks, community centers, emergency services, senior services including meals on wheels. All of these are energy intensive and mean local government is extremely vulnerable to supply disruptions and high costs. As budgets get squeezed, you can speculate as to which services will be the first on the chopping block.
I have spent the last three years educating elected officials and policy makers about the peaking of world oil production with only limited success. I have been as frustrated as my fellow peaksters as to the lack of response or attention this critical issue has received from all levels of government. As Mark Twain once said, “There is a great deal of human nature in people.” Jim Kunstler’s article The Psychology of Previous Investment is the best explanation I have seen as to why it is so difficult to overcome the inertia of the status quo. Our mistake is in thinking that elected officials will act differently than the public that they are elected to represent.
Peak oil is a truth that does not benefit the status quo and as such will require each and every one of us to keep banging the drum. In the meantime, I’m afraid that no matter how high the price of fuel goes, we are likely to see more of the same—blame and finger pointing and limited leadership and initiative.
Debbie Cook, Mayor
City of Huntington Beach
Candidate for California's 46th Congressional District
The Oil Drum is non-partisan and does not endorse any political candidate or participate in any campaign or election. Posts are provided for educational information only.
American hatred of taxes is going to cause a lot of extra problems adapting to increased fuel costs.
In the past, when we've has fuel supply problems, we've rationed. Strict rationing now could provide a few years of lower fuel prices and avoid the need to raise taxes to cover governmental use of fuel. This could give goverments (and all of us) time to switch to more secure supplies of energy that have fixed rather than volatile costs.
Rationing: It's the American Way!
Chris
I'm not real optimistic about the existence of secure supplies of energy that have fixed costs. The receding-horizons process will clobber any notion of "fixed" price. Also, the usual suspects that get proposed are usually suppliers of electricity, not transportation fuel. That problem is not physically insurmountable, but it adds yet more to the economic and environmental costs of implementation.
Additionally, the economic effects of rationing fuel won't be any more pleasant, or popular, than taxation.
(you can see I fall more or less into the doom-and-gloom school of thought on what's coming our way)
I've been interested in some of the tradable ration schemes that are out there. One, TEQs has been highlighted here: http://europe.theoildrum.com/story/2006/8/4/163554/8625
It is not clear to me that this would have an adverse economic impact since it would tend to put money where it will be most quickly spent. The economic impact of exporting all of your money to buy fuel is probably not quite as bad as the problems that arise when that money is used to arm the people you are fighting. Reducing fuel prices through rationing also reduces that stream of funds to second order.
Chris
I don't believe rationing before an actually supply shortage will do any good. Any oil we save by rationing will be snapped up immediately by the world market. The only way we could make rationing work now is to continue buying oil on the market at current rates and store it for future use. If we don't it will be snapped up by the Chinese or Indians.
If you accept that the current price is an indication of a supply shortage, then we are at that point now. It is possible that there are suppliers out there who could supply much more oil but are not doing so to run the price up.
If the US decided to reduce its consumption of oil by half over five years through a rationing program, this would boost supply for the rest of the world by about 12% or so. The rest of the world would have to snap that up faster than usual to maintain prices at current levels if suppliers can not organize to restrict production. My guess is that prices would fall.
If the US can show that much discipline, I would think that some other importers would also follow suit. The reason for doing this is that no one but the US can float the blue water navy needed to secure the oil deliveries of the next decade but the US would have no interest, on its own, to do so once it no longer imports oil. Leaving oil tankers to the mercies of pirates of various sorts would make other countries consider rationing programs as well. I would guess that a world undelivered price of $10 a barrel could be achieved with adequate consumer discipline.
I don't think it makes all that much sense to maintain a reserve of oil if we are going to stop using it. The domestic supply should be adequate if we continue to reduce use going forward. Reserves are important for nations that put themselves at risk by relying on imports but they are just expensive toys for those who take their security more seriously. They could be used to destabilize supplier governments though with clever timing.
Chris
According to this story, some police departments are already encouraging more bike patrols because of high fuel costs.
As somebody who depends absolutely on the bus and train, I'm wondering most about public transportation. Who will get priority when real shortages occur? Private citizens with the cash to pay for the fuel? Transit agencies with locked in contracts? Police, fire, medical and other public service and safety agencies?
The Washington Post has an article about the Washington Metro (bus and subway system). Their planners are raising the question of how the Metro and other transit services run by local governments will cope if gas prices continue to rise. Metro is close to being overwhelmed right now.
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/26/AR200805...
Further, how else does a country that is 9.4 trillion dollars in debt (at the federal level) reinvigorate its infrastructure (usually a state and local matter--and state and local entities have to keep a balanced budget, by the way) in such a way to cope with such phenomena as peak oil, climate change, and their impacts?
See the first comment.
At the ridership levels that Metro will be seeing at 5$ a gallon, do not be surprised if the METRO Authority starts pulling a profit. These profits could then in turn be used to upgrade their existing infrastructure.
Public transportation infrastructure cost way more then fares can compensate - it used for drivers and fuel mostly
I was going to guess that it was usually the other way around, that cities often take a loss on public transpo...but, if the entity itself is private (as in does not come out of the public/general fund) and turns a profit, your reasoning might hold.
Still, I am guessing that in most metropolitan areas, public transport is a part of the city budget, and therefore if it were ever to actually turn a profit, those funds would be directed elsewhere, especially in tough taxing or economic times.
I'm sure Mayor Cook or even Mr. Drake will no doubt have an answer to this. :)
Here's the METRO's budget page, if anyone is in the mood to figure out how closely tied to the District's budget it is: http://www.wmata.com/about/parp_documents.cfm?fromMenu=AboutMetro.5
Unfortunately, limited time (including an eMail to Dr, Goose).
I did download executive summary of 2008 budget.
Some tidbits.
Metrorail Operating Budget - $638 million, $505 million from fares (79.1%, low 80% is typical for DC Metro). Higher ridership > more fares
$500 million for labor, $46 million for electricity (remember escalators, lighting, HVAC, etc.) $47 million for services (mostly indirect labor I assume)
MetroBus Operating Budget - $453 million, $145 million from fares (32%, good for buses) Again higher ridership > More fares
For Metrobus, $380 million for labor, only $32 million for fuel (*assumed price not stated), $18 for services (mostly indirect labor I guess)
MetroAccess - Handicap/ADA - $63 million, $3 million from fares (4.8%) I am sure that Paul S would kick them to the curb first (need to repeal ADA first though).
Per Ed Tennyson, much worse bus service once had lower fare recovery %. In other words, buses are more economic if coupled to Urban Rail than as standalone.
WMATA has looked at going to 100+% fare recovery for operations of Metrorail, and it might be possible, but the additional burden on the roads & pollution from lost ridership make it "not worth it".
Sorry for Limited Time, Hopefully more later,
Alan
In a large majority of jurisdictions, the transit agency has a dedicated source of funding (1% sales tax in New Orleans). WMATA gets direct funding from DC, VA & MD.
The obvious variable is overhead per passenger mile - capital costs are pretty constant. For rail, costs per passenger falls as volumes rise.
The capital costs aren't shown - how would they compare to operating costs?
Variable costs also tend to fall as volume increases. 8 car trains take no more labor (one operator) than 6 car trains (OTOH cleaning crews are per car). Fully loaded cars use only slightly more electricity than nearly empty cars.
TOD takes time. Part of New Orleans success with streetcars (80+% to 100+% farebox recovery, is how well housing and living patterns are woven into the system (operating since 1834). The largest building in the city, 51 story One Shell Square, is in between the tracks of the St. Charles streetcar. After 5 PM it is hard to get a seat after the streetcar passes One Shell.
In addition, ridership increases on existing lines when a new line is opened. So the bigger the system, the more economic it is. Two lines are better than one line, Seven lines are better than six lines.
Best Hopes,
Alan
Best Hopes for Large, Dense Urban Rail systems,
Alan
Thanks!
Thanks Alan! Cool statistics. Do you have a number for how much money MetroBus pulls in as far as fares?
MetroBus Operating Budget - $453 million, $145 million from fares (32%, good for buses)
Thanks again, interesting to know. I would imagine that the 145 Million in Fares could easily double under higher gas price conditions.
Doubling riderhip, even with crush loads @ peak time/peak direction, would require some additional service and additional costs.
One simply cannot squeeze twice as many pax on-board a rush hour bus.
Alan
Public Operating Subsidy (not including Capital)
Rail - $133 million
Bus - $308 million
ADA - $60 million
Ridership (Note NOT pax-miles but just pax, rail riders travel MUCH further than bus riders on average)
Rail - 210 million
Bus - 134 million
ADA - 1.6 million
Capital Budgets vary widely year by year, and some are not broken down by mode (security, management improvements, debt service (mostly rail I guess))
In 2008 $182 million to run 8 car trains half the time (includes 184 new railcars, bigger transformers), Buses $48 million, Infrastructure (assume mainly rail, but buses take more than expected for mid-life rebuilds, shelters, garages, etc. City & States pay for most of bus ROW from another budget) $269 million.
In view of that same first comment, and in view of the fact that US "farebox recovery" ranges from mediocre to utterly dismal, something will have to give. (Oh, and one wheeze with those numbers is that they are "proportion of the amount of revenue generated through fares by its paying customers as a fraction of the cost of its total operating expenses", a loophole that a vast array of capital expenses can be driven through.)
There is currently a law that The American Consumer Must Never Be Asked To Pay For What He Or She Uses. It applies in spades to transit, which seems cheap only because that prize chump, the taxpayer, provides an essentially free ride (or literally free, in the case of the Staten Island Railway unless one rides all the way to the ferry) for the chosen few affluent enough to live and work within range of the transit system and privileged enough that they never need to work on the weekend or in the evening when the system is not running usefully (or not running at all.)
But nothing lasts forever. Perhaps, under more straitened circumstances, the no-pay law will just have to give way. Perish the thought, but instead of putting their fare on the government never-never as they do now, people might simply have to earn what they wish to consume, or else go without.
But not to worry, the freebies (and tax holidays and all the rest) will continue for the time being, as this is an election year.
As if your miles driven are not being subsidized.
That's history. It doesn't matter any more. The Great Money Pot is empty. No, it's beyond empty. It's gone negative. It's become the mother of all suction cups.
Plenty of taxes that can be raised !
WMATA gets part of the Virginia support from a 2% sales tax on gasoline & diesel in Northern Virginia. Make that 20% and significant funds could be raised :-)
Alan
Pols around the world are pandering to the public by promising to abate taxes on fuel. It appears a massive education job is needed first.
Please go ahead with this and tell us how it works for you.
In Manchester, England, the light-rail "Metrolink" service has a farebox recovery ratio of 1.43 (i.e. it's profitable).
In all of the UK (except London) the bus network is not run by local government - it was de-regulated in the 1980s and 1990s. Private companies run the buses and are free to set fares. In most parts of the country fares are noticeably more expensive than in London which is still regulated. This is despite London being more expensive for most other goods and services.
The upshot (from a Peak Oil point of view) is that all UK bus networks are profitable at the farebox level. There are no direct subsidies, except on some rural services and services deemed socially necessary. Local government pays only for bus shelters and signs. Central government provides free off-peak bus passes to people aged over 60. (This was introduced just before the general election in 2005; it was done for political rather than economic reasons). This £1bn/year scheme could be classed as a subsidy - it provides a significant source of revenue for the private bus operators.
But what level of service is provided ?
$8/gallon fuel does make bus more competitive with the private car.
Alan
Alan, the level of service on the light-rail is average for a city of its size. You'll find all the usual complaints about lateness, other passengers, and high fares. Same as any other city really. It helps that Manchester is a densely populated city; such a system wouldn't be profitable in less dense American cities.
My point was that public transport networks don't intrinsically require subsidies, contrary to popular opinion. The real challenge for local government is not how to pay for transit, but how to reduce the subsidies.
Alan, the level of service on the light-rail is average for a city of its size. You'll find all the usual complaints about lateness, other passengers, and high fares. Same as any other city really. It helps that Manchester is a densely populated city; such a system wouldn't be profitable in less dense American cities.
My point was that public transport networks don't intrinsically require subsidies, contrary to popular opinion. The real challenge for local government is not how to pay for transit, but how to reduce the subsidies.
Caltrain in the San Francisco Bay Area (which I use daily) is also close to capacity now.
I think we'll be seeing some interesting times ahead.
Good article. This passage jumped out:
Debbie, about that fleet of 200 + vehicles:
Buy the most efficient flexible fuel vehicles you can find (like the 09' Chevy HHR,) Buy your ethanol directly from the refinery (it's currently selling for $2.49, wholesale - maybe a touch less,) install a blender pump, and take the $0.45 blender's credit for yourself.)
This brings your fuel cost (on the ethanol portion) down to about $2.05, or so.
The beauty of the "Blender" pump is that it will allow you to fuel your older non-flex fuel vehicles, and your new flex fuel vehicles out of the same pump.
Just a thought.
In order to collect the blender's credit don't you have to owe income taxes to the Federal government? The credit is an offset to taxes owed as I understand it.
I don't think municipalities pay Federal income taxes or file Federal income tax forms. So how will the credit be collected when they aren't paying income tax to begin with? I may be wrong.
Perhaps if a for profit special entity was set up separately that did the blending with the city buying its fuel from them, it would work. There needs to be a taxable profit somewhere that can be offset with the blenders credit to make it work IMO.
That sounds great, because Iowa is right next to California, and you couldn't possibly lose 2/3 your mileage due to ethanol's insane energy density, and $ 2.49 ethanol couldn't ever come out to be more expensive than gasoline per joule of energy..
Ethanols great everyone, It will save America from evil brown people that think they have a right to their own resources and from big mean oil companies who are out to enslave every American child.
don't think you guys at the oil drum are up to date on things check out these new industry numbers, the efficiency's are amazing...
Amazing Ethanol Mill Efficiency's, according to industry experts
If ya need to I'll go over the numbers..
take a 1 reindeer hoof 18,000 btu's
take 4 lbs pixy dust 32,000 btu's
get a nose hair from Cher 7,800 btu's
now the average US corn harvest is approximately 755 bushels per square foot, and you can get a yield of 6 barrels per bushel of high quality super ethanol. (energy density is 4 times that of weapons grade uranium)
So you add all your inputs 18,000 + 32,000 + 7,800 and do a Energy returned on energy invested calculation
I'm going to estimate since rounding is real real hard,
anyway that's around 9000:1 EROI input, the USDA studies are flawed and The International oil companies are maliciously manipulating prices with their less than 12% share of world production combined.
Also Debbie, perhaps you might not want start those orders until the new sugar-cane ethanol plantation comes online at the north pole, their planning on making great technological strides and bringing cost down. Also the fine citizens of Huntington Beach can rid the world of some of those pesky emaciated African/Middle Eastern/Indian/Pacific Island/Eastern European kids by burning the little food they have in their own gas tanks. God I love America, the land of idea's..
I like your attitude and would like to subscribe to your newsletter.
That's brilliant Engineer-Poet, I will start my own blog, it will be about peak oil and energy mostly, of course, you can get the first comments :D..
I think I forgot the <sarcasm> tag there, sorry.
I know, lol, you just reminded me to start my own blog which I've been planning on doing for months..
With higher demand they can raise prices and use the money to expand capacity.
It will be interesting to see how politicians and beauracrats respond to Peak Oil. Up to this point they have been unanimous (with the exception of a few rich enclaves) in believing the old canard that "growth is good". Specifically, they believe in ever increasing population growth and building in their community. I was thinking this may discourage growth but in fact, it will likely just encourage them to increase via higher density buildings. Only if construction costs went way up from Peak Oil would they have any reason to get off the population growth kick from Peak Oil. Otherwise they will look at more people as giving them more taxes to pay for about the same amount of police cars and fir trucks, etc. as when there were less people.
But it will likely get the outlying "bedroom communities" to consider getting some commercial enterprises in so people can live and work in the same place.
I think only a peaking in coal and natural gas, with the resulting large increases in electrical costs will get politicians to stop thinking that "growth is good". And even then that will not be at the local level.