District Fuel Savings Could Spur Investment in Content, Analysis Argues

Associate Editor

School districts stand to gain about $3.7 billion from savings on gasoline and heating oil in the fiscal year ending June 30, estimates Trace Urdan, a managing director and senior analyst at Wells Fargo Securities, LLC, and some of that found money could find its way to purchasing supplemental content.

Urdan follows school district spending because Wells Fargo maintains a market in the common stock of education content provider Houghton Mifflin Harcourt Company, which is based in Boston, and in K12, Inc., the Herndon, Va.-based online education provider that also offers supplemental digital content through its FuelEd division.

The two large publicly traded companies are joined by many privately owned education businesses providing content to the K-12 market.

In his Jan. 5 “Equity Research” publication, Urdan acknowledged that the found money would likely be distributed to “a wide range of projects,” but still said content providers could be among the beneficiaries with increased opportunities to make sales to districts. He suggested that lower fuel prices could represent “a meaningful boon” to the sale of supplemental content.

John Musso, the executive director of the Association of School Business Officials International, was less sanguine about the potential size of the windfall, and how it might be used. For one thing, some districts contract annually for a set price of gas, hoping for savings if gas prices increase. If gas prices decline, districts are contractually obligated to pay the set price.

Musso also injected “a word of caution” about how cash-strapped districts are likely to react to unanticipated savings.

“Assuming there is a savings in that one area, they’re going to be looking at other areas that might have come in over budget,” Musso said. “And this is one-time money. Whatever we use it for now, we can’t count on it next year, or the year after.”

Digital content is a top priority, Musso said, but so are other considerations, like shoring up reserves that were depleted in the recession, and reinstating school positions that had been lost during that time.

Urdan based his gas savings prediction on data originating from the Montgomery County, Md. and Fairfax County, Va. school districts— both suburbs of Washington, D.C.—where about 37 gallons of gas per year are used for student transportation. With nearly 50 million public school students, Urdan calculated that 1.84 million gallons of gas are used each year. Prices have dropped from an average $3.65 per gallon on July 1, 2014, the beginning of schools’ fiscal year, to $2.18 per gallon on January 5, amounting to a $2.03 billion savings this year.

Beyond that, he projected that lower heating costs could result in a $1.65 billion annual savings, using an estimate from the U.S. Environmental Protection Agency that schools in the country consume about 31.6 gallons of heating oil per student each year. That commodity has decreased from $4.12 per gallon to $3.08, he wrote.


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