While higher fuel costs are a net loss for the City and County of Honolulu, state coffers swell when gasoline prices rise. That's because the state levies a 4.5 percent excise tax on gasoline sales. When prices rise, so do excise tax collections.

For example, the average price for gasoline last month in Honolulu was 42 cents a gallon higher than in August 2004, according to AAA Daily Fuel Gauge Report data. That equates to a 1.8-cent-a-gallon increase in excise taxes, or an estimated $405,108 in added tax revenues in August alone, based on state estimated daily demand of 726,000 gallons on O'ahu.

That windfall in tax revenue from higher gas prices will more than make up for an estimated $291,441 net increase in gasoline expenses for the state.

To put it another way: one month of the tax windfall will more than make up for one year of increased gas expense.

So the question for the state becomes: what to do with the windfall.

"We just realized a huge windfall over these 20 days now," Gov. Linda Lingle said last week regarding increased tax revenues from high gas prices. "And it will continue to be a windfall going foreword. So we'll talk with the Legislature about that."

The state also is cutting back on purchases of premium gasoline to save money on its fleet of 5,000 vehicles. In past years, almost 40 percent of gasoline purchased by the state was of the more expensive mid-grade and premium varieties. That has since been cut to about 14 percent, said state comptroller Russ Saito.

Other vehicles switched to regular have run without problem, he said.

The switch to regular helps save $80,400 a year.

"We're doing a real good job of cutting back, at lest in terms of premium purchases," Saito said. "We're trying to conserve as well, but we've got to drive our vehicles."

Reach Sean Hao at shao@honoluluadvertiser.com.