Why does Chicago still have such high gas prices?
It’s Memorial Day weekend, which means more people are hitting the road...and slapping their foreheads when they see the price at the pump. Especially in Chicago.
According to a recent Lundberg Survey the price of a gallon of gasoline in the United States rose sharply in the last two weeks because of outages at Midwest and West Coast refineries
But gas prices in Chicago are often higher than the rest of the country. Higher than New York, Los Angeles — even Hawaii.
But why? Chicago isn’t far from oil-rich Canada and there’s a huge refinery right next door.
Even longtime Chicagoans don’t seem to know why gas is so expensive in the city.
"I don’t know? I think people in high office do what they want and we just have to go with the flow,” said Kuri Roundtree, who pulled into a BP gas station at Roosevelt and Wabash in the South Loop earlier this week. “I think it’s ridiculous. It costs me $70 dollars to fill up my SUV. I’m sure I’m not the only person complaining about this gas. All of my family members hate going to the gas station."
Finding the answer to Chicago’s expensive gas mystery is actually not that obvious.
“Chicago is unique for a few different reasons. Even prices outside our region could be going down while our prices are going up,” said Patrick DeHaan, senior petroleum analyst for GasBuddy.com.
DeHaan says many factors that help set gas prices for the entire country are simply out of our control. For starters, the sky high price of crude oil on the global market. Thanks to demand in Asia, turmoil in the Middle East and good ol’ Mother Nature — like the flooding we experienced earlier this month.
“There’s nothing really to fix,” DeHaan said. “That’s just the way the free market works with gasoline. Prices go up and down.”
Still, if you live in Chicago, it’s usually up.
Another reason for this is the process of refining the crude oil before it gets to the pump.
There are four refineries that generally serve the Chicago market, including BP’s massive refinery in nearby Whiting, Indiana, right across the state border.
The Whiting refinery has been around longer than there have been automobiles. It was part of John D. Rockefeller’s Standard Oil empire in the late 1800s. Of course, it’s more expensive now to refine crude oil than it was back then primarily because of environmental regulations.
You’ve probably heard about the cleaner burning “summer blend” that the Environmental Protection Agency requires for cities like Chicago.
“Summer gasoline, or gasoline with a different RVP, is a different formulation. You can’t use some of your lighter ends, such as your butanes to add to the volume of the gasoline, because it would evaporate out in the higher temperatures so it is more expensive in the summer,” said BP Whiting senior spokesman Scott Dean.
Unfortunately for Chicago’s gas customers, the city’s close proximity to the BP Refinery doesn’t help much in keeping costs down. Dean says that’s not how wholesale pricing works.
“It’s called the rack price,” Dean said. “The rack price is what the tanker truck driver who may be representing any number of companies, will go, will get the fuel, will pay whatever the rack price of what they’ve agreed to. And, the retailer will then determine the final price that they sell on the street.”
Customers may also have a desire to blame gas station owners for the high price of gasoline. But Beth Mosher, spokeswoman for AAA Chicago Motor Club, says it’s not their fault.
“Everybody wants to take it out on their local gas station owner why these prices are so high,” Mosher said. “But the reality is when the prices are this high the profit margins for these gas stations are so thin, they are going to make more from a bag of doritos that they are selling you than they are the gas.”
Mosher says the final factor for high gasoline prices can be pinned on the tax man.
“First and foremost, we have to talk about the high taxes in Chicago,” she said. “About 70 cents on the gallon is what people pay in Chicago for gas taxes, really, really a high number, especially given the statewide average is 49 cents on the gallon.”
Those figures can fluctuate, but that means generally 70 to 90 cents for every gallon of gas pumped in Chicago goes to taxes.
For example, if gas costs $4.67 a gallon that means 18 cents goes to the federal government; 43 cents for the state. And if you live in Chicago, tack on another 33 cents for Cook County and the city.
That includes sales and motor fuel taxes, the latter of which goes to pay for roads and bridges and some of the capital projects.
Although increasingly that money is being diverted to pay for things like pensions.
Another factor that hits wallets particularly hard is the way all levels of government in Illinois levy sales tax on gasoline purchases. The state of Illinois alone charges 6.25 percent sales tax. Twenty years ago when gas was much cheaper that meant just pennies on the dollar. But now that can be an extra 20 cents or more per gallon since the higher the gas price, the more taxes you pay.
“Most states don’t do that. Most states tax only based per unit, per gallon if you will. So, even if the cost goes up, the amount of tax you pay does not go up in terms of your overall cost,” said John Tillman, Chief Executive Officer for the Illinois Policy Institute, based in downtown Chicago.
Last summer, the Institute called for the state sales tax to be changed so it’s based on the number of gallons purchased, and not the price. The proposal fell on deaf ears in Springfield.
Still, if prices aren’t coming down anytime soon, what are drivers supposed to do?
Well, for one thing, we can buy less gas.
“We urge people not to wait for the government to do things but start consolidating your trips and take the L or the Metra train if that’s a possibility to you,” Mosher said. “Do things on your own to start getting better gas mileage out of your car.”
But even if you buy that fuel efficient hybrid or an electric car, drivers still might not be out of the woods when it comes to paying higher gas taxes.
Lawmakers in Springfield are talking about boosting motor fuel taxes to make up the lost revenue from fuel-efficient cars that use less gas. They may even impose fees on the fuel-efficient vehicles themselves to help fund road repairs.
One supporter of this proposal is Doug Whitley, president and CEO of the Illinois Chamber of Commerce.
Whitely is also co-chair of the Transportation for Illinois Coalition which has been in Springfield pushing an increase to Illinois’ motor fuel tax. Although with only one week remaining in the state’s spring schedule, he says most lawmakers are focused on issues like pensions, conceal-carry and same-sex marriage.
“The state’s capital program to fund construction for roads, bridges and transit falls off the cliff next year. That fiscal cliff we heard about in Washington also exists in Springfield,” Whitely told WBEZ this week.
Whitely explained that the state’s fiscal program that started in 2009 will expire in the next fiscal year.
“There’s discussion of how to keep capital dollars flowing to the state and local government and the transit districts so they can continue to build, maintain and modernize and handle their construction needs,” Whitely said.
Whitely said one proposal garnering a lot of attention is the idea of abolishing Illinois’ 19 cent motor fuel tax and establishing a new sales tax on fuels. A similar plan was just implemented in Virginia.
“The motor fuel tax was last increased 23 years ago and there’s no growth in that tax in large part because of the mile-advantages of today’s more fuel efficient cars can take advantage of,” Whitely said. “We already have cars getting 50 miles to the gallon and electric cars, so the motor fuel tax isn’t putting the money into the road fund to support construction.”
Another idea is to levy new taxes or registration fees on hybrids and electric cars directly.
“If you have an electric car, you're really getting away to use the roads but not having to pay much for them,” Whitely said.
Whitely is sympathetic to Chicago area residents who already pay a lot of taxes on gas. “But if you want to continue to have transportation systems that are modern, efficient, clean and safe, there’s going to be a cost related to that,” he said.
“The bottom line is, there is no free lunch.”
Michael Puente is WBEZ's Northwest Indiana bureau reporter. Follow him on Twitter @MikePuenteNews.