Rising fuel costs and inflation are expected to have a significant impact on the region’s 2023 operating and capital budgets, with an estimated increase of $9 million by the end of this year.
“We’ve had a significant and material escalation in the price of fuel since the beginning of the year and with the rate of inflation since the later part of last year,” said Craig Dyer, chief financial officer for the Region of Waterloo at a council meeting Wednesday.
“Looking at fuel prices and inflation rates from last year, they seemed reasonable at that time and for the projection rates for this year. No one expected any of these to run as high as they are.”
A report to council identified that the majority of the impact of the fuel price increase is in public transit, with lesser impacts in paramedic services, waste management and transportation.
According to the report, there has been a 66 per cent increase of the region’s 2022 budget for fuel, which is about $13.7 million. The fuel budget is based on gas prices of $1.06 a litre for diesel and $1.08 a litre for gas. But fuel prices in 2022 have averaged $1.56 a litre for diesel and $1.45 a litre for gasoline.
“We are expecting to get variances on the fuel side. If prices stay at their current levels, we could see variances in the $7.5 to $9 million range,” Dyer said.
The impact of rising costs is also becoming evident in tender awards for capital projects, indexing of existing service contracts, and pricing of new service contracts.
In almost all cases, actual inflation exceeds budget estimates developed last fall. This includes the cost of surface asphalt which impacts road reconstruction projects and the airport parking lot, as well as higher prices for steel and other materials.
Service contracts including janitorial services, waste management, and collection contracts are coming in higher than budget, and new service contracts, proposals, and tenders are all being impacted. For example, the report says contract renewals to date have exceeded the 2022 operating budget by approximately $1 million and annualizing this impact will add approximately $1.2 million to the 2023 operating budget.
“Variances are not new. There are always expenditure and revenue variances over the course of a year. We are very accustomed to monitoring and reporting on these types of variances. The fuel one is a little bit larger and more significant than usual,” Dyer said.
“We are a billion dollar-plus organization, and we have to look at the context of our overall budget. So, while we experience shortfalls on the fuel and inflation side, we are doing some work right now on a preliminary estimate on what our year-end position might be.”
On June 7 staff will provide the administration and finance committee with a preliminary 2022 year-end financial position estimate and will outline potential mitigation measures. Staff will also provide an outline of the preliminary 2023 budget and proposed budget review process.
