Gas prices for county vehicles were up 30 percent in April and 20 percent in May and June - but it's not for the reason you think. It's due to a decade-old business model that allows the county's Fleet Management Department to charge all county departments with vehicles - including the school system - a markup on the wholesale per gallon cost of fuel.

That markup is typically 30 percent, but was reduced to 20 percent for the months of May and June because of rising fuel costs. The presence of the markup came to light recently at a school board meeting when some members questioned how Fleet Management is spending the money - and why county taxpayers are ultimately paying 30 percent more for fuel than the wholesale cost.

The fuel markup applies to all county and school departments with vehicles.

The school system is Fleet Management's largest customer, accounting for about half of its total revenue (including the markup, labor charges to maintain vehicles and parts). For FY08 (ending June 30), the school system is expected to spend $4.9 million for fuel. Of that, $1 million is attributed to Fleet Management's markup, according to numbers provided by the school system. From FY05- 07, the markup cost the school system another $2.33 million.

The police department is Fleet Management's second largest customer, accounting for about 20 percent of its total revenue. As of June 3, the markup has cost the police department $372,490 for FY08. From FY06-07, it cost the department more than $620,000.

Fleet Management's business model dates back to the mid-1990s, when the 30 percent markup was enacted as a way of making the department self-sufficient. "We don't get an appropriation from the [county's] general fund," explained Bob Pratt, automotive fleet manager. "We work on a break-even basis. All of the costs that are associated with our operation we pay for out of the revenues that are generated throughout the year. We're just like a private company within the government."

The department's operational budget for FY09 is $14.5 million, an increase from $13.9 million in FY08. That's up from $11 million in FY06.

Fleet Management has three revenue streams: the fuel markup and labor and parts costs for maintaining county vehicles. The markup is generally used to pay for tools, equipment, salaries, utilities, training and other costs associated with running the department's garages. It does not cover the cost of maintaining vehicles - that cost is covered by charging county departments for labor and parts.

"Any revenue that is [generated] above our total expenses goes into a retained earnings fund," explained Pratt. The fund is used to pay for unexpected expenses or larger capital projects. Over the last five years, Fleet Management has installed four lifts, at a cost of $50,000-$100,000 each, in its main bus shop. It also recently replaced the roofs on two buildings. "There's a lot of cost involved - lots of computers, lots of software, lots of equipment - to keep the operation going," said Pratt.

Currently, Fleet Management's retained earnings fund totals $4.2 million.

Henrico County maintains its fleet using a similar business model. Like Chesterfield, Henrico's Central Automotive Maintenance division maintains all of its county's vehicles, including those for the school system. Annually, the Henrico department takes care of around 3,250 vehicles compared to Chesterfield's 2,500. Henrico's FY09 Central Automotive budget totals $17.2 million.

But there are major differences between the two departments when it comes to fuel markups, overall fuel costs and labor rates. According to Paul Proto, director of general services, Henrico's fuel markup is a flat 11 cents per gallon. "It varies a penny or two per year, but it stays around 11 cents," Proto said.

As of last week, departments within Chesterfield's government were paying $4.78 per gallon for diesel fuel, compared to only $3.92 in Henrico.

The two county's labor rates also vary. Effective July 1, Henrico will raise its labor rate from $50 per hour to $53. In contrast, Chesterfield's current $53 labor rate will increase to $63 on July 1.

Matoaca District school board member Omarh Rajah calls Fleet Management's fuel markup "highway robbery."

"I feel that the 30 percent is no different than what the CEOs of oil companies are making today. Prove to me that you're investing back into our community," said Rajah, during a recent interview.

Bermuda District school board member Marshall Trammell Jr. also questions the markup. "I would like to know how much money is there, and if they have enough tools," said Trammell during a May board meeting.

"When we first started the various agreements [to consolidate some county and school system services in the mid-1990s], this was all about doing two things: increasing efficiency and trying to save money for the county as a whole," recalled Trammell, during an interview last week. "As a member of the school board, I am certainly interested in making sure we get good value for the money. If we're supposed to be stewards of our dollars, then we need an accounting of what's being done with it. It doesn't make sense to me to consolidate services if we are paying more than if we would've kept doing it ourselves."

Rajah suggested the possibility of looking for a vendor to provide fuel and maintenance services for the school system. "If we feel that we're not being treated fairly, I think it's important to find other resources," he said.

School administrators are expected to give the school board an update on its relationship with Fleet Management at a future meeting.

According to Rob Key, Chesterfield's director of general services, the county is already looking to change how Fleet Management operates. "Thirty percent at $2 a gallon is much different than 30 percent at $4 a gallon," admitted Key.

"When you look at it, if I had to pay [another] 30 percent, I would have a problem with it as well," added William Johnson, deputy county administrator. "This is a 10-year-old model that was set up when gas was $1.29 a gallon. As gas goes up, a 30 percent markup hurts everyone. Now, we're trying to look at what is the best business model to run the fleet. We didn't ignore it. We're just trying to analyze it."

Any changes would likely take place for the budget starting July 1, 2009. "The budgets have been set for FY09," said Johnson.

Changes currently under consideration include switching the 30 percent markup to a flat 60 cents per gallon markup, increasing labor costs or a combination of the two.

Check out more stories in this edition of the Chesterfield Observer, now a weekly publication.