Post #876: Town of Vienna, please see the forest through the trees.

Posted on October 22, 2020

This will be of no interest to anyone outside of the Town of Vienna.  Unless you are a student of how “silo thinking” can lead to truly inefficient decisions.

Let me cut to the chase.  The Town of Vienna is using a $16M piece of land to produce (arguably) $20,000 in annual cost savings to the Town.  Probably, less than that.  And using that in such a way that, in practice, prevents any better use of that valuable property for benefit of Town residents in general.

In effect — and in literal practice — the Town is taking a $16m piece of real estate, and valuing it at zero in its cost-benefit calculation.   And coming up with their decision, based on that.  While, simultaneously, the Town is busily purchasing additional, new tracts of land, at around $2M/acre.  If a business did that, it would be deemed totally irrational behavior.  When the Town of Vienna does it, it’s just business as usual.

Using such a high-valued piece of property, for so little return, is self-evidently inefficient and should be stopped.  I wish our elected officials would get their heads out of the trees and see the forest on this one.  Or, to switch metaphors, I’m asking our elected officials to do what organizational leadership is supposed to do, and look beyond and above individual departmental silos.

And yet, I have little faith that the Town of Vienna will see it that way.

Detail follows.

The story in brief.

The Town of Vienna collects leaves off the streets, then grinds and rots them to create mulch.  Typically, that’s about 9000 cubic yards or 1600 tons of leaves.  The Town ends up having to give away two-thirds of the mulch it creates this way, to a local mulch dealer, as nobody in Town seems to want it in sufficient quantity.  For free.  Delivered.

Creating that mulch generates a lot of noise, flying debris, odor, and truck traffic.  So, naturally, the Town has chosen to do that a) right in somebody’s backyard b) on a piece of land historically described and treated as park land.  You can see the full write up in Post #526, with more detail on the “park” aspect in Post #541.

This year, a) the mulch dealer that used to take the Town’s excess mulch for free is closing, b) the Town can’t find any place to take that for free, and c) the Town’s leaf grinder (“tub grinder”) is broken.  It is beyond its expected service life, and needs (depending on which source you look at ) between $30,000 and $80,000 in repairs.

(Oh, and a new grinder would cost $500,000.  But they can rent a grinder for $35,000 per year.)

The Town Council held a work session on that three days ago.  No video of that work session has been posted yet, so I have to rely solely on the written materials posted at this URL.

There are two glaring technical errors in the Town’s cost analysis, that I can see.  I’ll just mention them in passing.  Both of them have the effect of understating costs, and in particular, the cost of continuing what we are doing now.  In effect, they are errors that favor the status quo.

One, the cost that the town associates with leaf collection does not include any regular-time hours, only overtime.  So any of the work done on straight time is, for purposes of the Town’s cost accounting here, free.  And, apparently, that is the majority of the work.  So, among other things, that means we can’t compare the actual (true, fully-allocated average cost) of our leaf collection to other jurisdictions.  And by presenting something akin to economist’s “marginal cost”, it makes the cost of other alternatives (priced at a fully-allocated average cost) appear high by comparison.  In short, our own cost accounting simply takes all TOV employee straight-time hours devoted to this task, and counts them as if they were free.

Two, the capital cost of the tub grinder replacement is not included in the cost calculation.  Given that the whole issue here is whether or how to continue grinding the leaves, that’s a critical omission.  Given the stated capital cost of 500,000, and assuming the Town pays roughly 2.5% of borrowed money, for an expected 15-year lifespan of that piece of equipment, the capital consumption cost plus interest, by itself, is about $41,000/year.  But in addition, tub grinders are high maintenance pieces of equipment, and could easily have another $10,000 per year in annual maintenance and repair costs.  (I note that in February 2013, the Town approved an emergency $17,000 repair in the middle of leaf season, for this piece of equipment.  So high maintenance and repair cost is not some theoretical possibility.  The upshot is that just the machine-related costs, for replacing the tub grinder with a new one, could easily exceed $50,000 per year.  N.B., disposing of 1600 tons of leaves, with Fairfax County, at an estimated $35/ton, would cost $55,000. 

The forest is what matters here, not the trees.

But I’m really here to focus on the conceptual error in the Town’s analysis, because I think that’s by far the biggest error they are making.

In their entire treatment of this issue, Public Works values the land used in this processing at zero. 

For Public Works, to value the land at zero, within its own budget silo, makes perfect sense.  Nobody charges them for the use of the land.  And so, rationally, they treat it as if it were free.

But for the Town to treat that land as worthless is criminally stupid.  Because, among other things, it could be used for its originally intended purpose, as park land.  With some small effort, it could be opened up for enjoyment by the entire town.

Now, that might be dismissed as a mere theoretical musing of an economist, if the Town were not actively engaged in buying up land, at present.  Recall the 3/4 acre Robinson property, adjacent to a parking lot, was purchased for about $1.5M, or roughly $2M per acre.  Recall that the First Baptist Church property, at 3 acres, was purchased for about $5.5M.  Or a little under $2M/acre.

And so, at the rates the Town has been paying lately, that ought to be treated as the $16M piece of property that it is.  To an economist, it doesn’t matter that the Town didn’t have to buy it recently.  What matters is, land is scarce, and that’s a prime piece of land.

So, the question is, what return is the Town getting from that property?  As it stands, it’s going to grind leaves there.  Because it can no longer get rid of the ground leaves for free, it’s only going to grind about a third of the Town of Vienna leaves (assuming the Town Council can understand that paying to process leaves, and then paying to dump those processed leaves for the same cost as dumping unprocessed leaves, wastes all the money spent processing the leaves).  But let me ignore that, and assume that by grinding the leaves, the Town can magically avoid tipping (disposal) fees with Fairfax County.  So it’s going to use the land, plus a $35,000 tub grinder rental, to avoid $55,000 in tippage fees with Fairfax ($35/ton x 1600 tons).  For a net savings of $20,000.

In fact, the town will only grind a third of the leaves, because that’s all it can get rid of, for free, by delivering them free to citizens.  So if you really want to get technical, the Town is going to spend $35,000 renting a machine, and grinding leaves on that property, to avoid maybe $18,000 in tippage fees.  It’s actually going to have a net loss of $17,000 in the transaction.  We’ll literally be paying money, in order to use a $16M piece of land, for grinding up leaves.

Now imagine what value that 8-acre track of land could have in alternative uses.  Start with the fact that a football field is 1.3 acres.  And you’d need some parking next to the road, if people are going to be able to use it.  Maybe some well-kept nature trails.  Maybe some playground equipment.  Rental garden plots.  Fitness trail.  And so on.

It’s hard to say what value people place on park land.  But I’m guessing it’s more than zero.  Which is pretty much the rate-of-return the Town is going to get — if that — using it to grind leaves, under current circumstances.

The Town should take these recent changes — loss of free leaf disposal, expensive repairs needed on the leaf grinder — just to rethink this whole approach.  And to assign some value to the use of the land, as it does that.

I mean, at some level, it’s almost hilarious.  Here’s the Town, doing its best to cram as much new housing as possible onto Maple, leaving not one cubic foot of legally allowable space unoccupied.  Meanwhile the Town itself sits on large tracts of mostly-empty land — here, and at the Northside property yard — and literally values them at zero in its own economic deliberations.

Surely it doesn’t take a Ph.D. in economics to see that something is wrong with this picture.