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Gas is cheap, but government raises reimbursement rates for federal employees anyway

Gas prices have dropped dramatically in recent months, but the government plans to pay higher reimbursement rates to federal employees and military personnel who drive their own vehicles for official duties this year.

The General Services Administration has increased its mileage reimbursement rate from 56 cents per mile to 57.5 cents per mile, or about 2.7 percent, for 2015.

The change, which took effect last week, came despite a staggering 31 percent decline in the average price of regular gas since June. It also occurred at a time when oil costs are expected to drop more because of a supply glut.

So why would the government pay its employees more to drive their cars for work when gas is so cheap? Let’s start with how GSA sets the reimbursement rate.

This year, the agency based its number on the Internal Revenue Service’s annual “single standard mileage rate,” which taxpayers can use for deductions related to business travel and other expenses.

The IRS calculates its rate through a yearly study of costs associated with driving, such as gas, maintenance, insurance, repairs and depreciation. In other words, the government considers more than just fuel prices when setting its reimbursement rates.

It’s also worth repeating here that the IRS bases its annual rate on a yearly study. That’s important because gas prices rose through the first half of 2014, skewing the average cost of gas to a higher level than the relatively low price you likely see at the pump today.

Until this year, GSA could set its reimbursement rate at a level below the IRS’s single standard mileage rate when appropriate, as long as it did not exceed the IRS’s number. That changed this year, after lawmakers inserted language into the 2015 defense-spending bill requiring GSA to use exactly the IRS number.

The new law appears to be working in federal employees’ favor.

As you can see in the chart below, GSA’s annual reimbursement rates have generally moved in line with the previous year’s gas prices. But now the reimbursement rate is moving in the opposite direction of gas prices, giving federal workers an advantage they wouldn’t normally have.

Note: This graphic matches the GSA reimbursement rate for each year with the previous year’s average gas price, showing how one trend generally followed the other in the past. It starts by comparing GSA’s 2005 reimbursement rate with the 2004 gas price.