Inflation Cost Hikes, Increases in Resource Delivery Lead Times Hit Key City Operations

Pasadena Water and Power and the Departments of Public Works and Transportation are expected to report Tuesday on the impact of inflation and supply chain issues on Capital Improvement Program projects these departments are either currently undertaking or planning.

The three departments will present a joint report about this as an information-only item for Tuesday’s Municipal Services Committee meeting, which is set to begin at 4 p.m. Meetings of the City Council, its various committees and of other City entities and agencies continue to be via video conference only. 

In a memorandum to the Municipal Services Committee, PWP and the Public Works and the Transportation Departments consolidated their report in response to a recent request by the City Council’s Finance Committee to present additional information regarding the potential impact of inflation, supply, and available labor to contract costs and schedules for key capital initiatives. 

PWP said inflation and supply issues have resulted in higher costs ranging from five percent to 109 percent over original or prior bids as well as increases in lead and delivery times. These outcome have “significantly impacted inventory balances and availability of resources,” PWP said.

In the joint report, the three City departments invoked the Bureau of Labor Statistics’ latest data that showed the annual inflation rate in May 2022 was 8.6 percent, the highest level since 1981, as measured by the Consumer Price Index. 

Included in the general inflation rate are several cost categories with direct significant impact for the City, the report said. 

The overall energy category increased 34.6 percent with gasoline costs increasing 48.7 percent, electricity increasing 12 percent, and natural gas increasing 30.2 percent over the last 12 months. 

On June 16, the Federal Reserve also increased interest rates by 0.75 percent – the largest rate increase since 1994.

About supply chain issues, the joint report mentioned that the U.S. unemployment rate was 3.6 percent on April 1, and Pasadena’s unemployment rate was 4.2 percent. The tight labor market has resulted in increased demand and production shortfalls, longer lead and delivery times and increased cost of fuel and transportation of goods, the report showed. 

The Public Works Department said price fluctuations on certain supplies and increased industry costs have resulted in new solicitations or estimates that are from 25 percent to to 300 percent higher when compared to previous years. 

Vehicle purchases have also increased pricing by approximately 30 percent, and the cost of gasoline is now around 40 percent higher when comparing monthly average costs from June 2021 to June 2022, the report added. 

“When exercising optional extensions for multi-year contracts, vendors are proposing pricing that is even higher than the current consumer price index and approved budget appropriations,” the report said. “As a result, many Public Works divisions need to rebid projects, leading to possible service delays and increased administrative processing time.” 

The Department of Transportation also reported significant impact of higher costs of materials, labor costs, and supply chain issues to some of their capital initiatives, such as the Avenue 64 Complete Street project — whose costs have increased by 94 percent due to increase in asphalt, a petroleum byproduct, and proposed traffic control cost increases. 

Also due to increased materials cost, the Department’s project to expand the City’s Adaptive Traffic System has increased costs by 48 percent. Its Installation of Leading Pedestrian Interval and Audible Signals project has increased by 25 percent; in this last project, the contract will need to be readjusted to cover only 74 locations instead of the original 94 as stated in the original contract, the report showed. 

The report also said the three departments will continue to monitor the current and developing conditions, and will provide periodic updates as needed via the Quarterly Monitoring Reports for capital projects.