I attended last night’s Town Council meeting, for the session regarding the proposed Vienna pool/gym.
Surprisingly, I have a lot still to say about this issue.
Unsurprisingly, not all of it is good.
Here, I just want to plow my way down to first thing you have to know, about this pool thing: Kelleher’s “inefficient scale” warning.
Then, by tacking a little bit of competition onto that, I arrive at this conclusion: In this situation, the cost of scale inefficiency is paid by the taxpayers.
Not to exclude the possibility that we might pay more than that — not ruling that out, at all — but (at least) the scale inefficiency of the facility shall be paid by the taxpayers.
Which, cool enough, can be restated as, if you want boutique fitness, it’s gonna cost extra. (Cost the taxpayers, that is. Users still pay something near the low price set by Fairfax, for its REC Centers.)
Number-wise, based on this (very) simple economic model, you’d expect the Town’s operating losses to be 50%, or $1.1M per year. Sorry, at least $1.1M per year. Permanently, as explained below.
And when I roll-up that stream of taxpayer subsidies (to cover those operating losses), I get $37M as the “present value” of the total. Which can then be compared directly to the $26M it should cost to build the facility. Suggesting that likely operating losses are more important than the capital costs for a Vienna pool.
But first, the news in brief: Last night’s Town Council meeting, as regards the proposed Vienna municipal indoor pool, in brief
Among many other things, at that meeting, Town Council listened to citizen comments on what was, formally, a public hearing regarding the proposed meals tax increase. But what was, in fact, a hearing (in the classical sense, as you got to speak and Town Council got to hear you) on the proposed Vienna pool/gym in general. Maybe 25 people got up to speak. At the end, Town Council “left the public hearing open”, legally-speaking, for any additional written comments .., and they’ll revisit next month. Basically, deferred any action until after Thanksgiving, after listening to the citizens. I left before that last bit, but got reliable word that that’s what they’d done.
I have hereby saved you listening through a whole lot of chit-chat.
The main show: Kelleher’s Validation
Speaks for itself, right?
In the table above, the numbers in yellow are facility annual operating costs. The total annual costs of running the Vienna facility (more-or-less, a mini-rec-center) and a Fairfax REC Center. Vienna’s is from their proposal, and (my estimation) is probably a pretty good guess. Fairfax is data: total REC Center costs divided by nine (the number of REC Centers).
To their left, you see the size, in thousands of square feet of (what in any normal building would be called) floor space (but owing to the fact that a good chunk of it is, in fact, liquid, gets some other awkward term here, but … it’s the analog of floor space.)
Reading across the big fat line of data, compared to the Fairfax REC Center, Vienna’s facility has:
- 33% of the floor space,
- 71% of the cost, and so (by long division)
- 212% or twice the operating cost per square foot.
Now comes the simplifying assumption. (Economist-speak for, the following crap may or may not be true, but I have to get rid of some details here, to get to a punch line. Plus it’s not unreasonable. We’ll revisit at a later date:)
If the number of annual memberships you can sell and service, for use of an exercise facility of this type, is directly proportional to the size of the facility …
Then, per the data above, operating cost per contract in Vienna is going to be twice what it is in the surrounding Fairfax REC Centers.
Now, would I like to have more and better data before staking my life on this claim? Yep. Am I aware that there’s a lot to unpack in that simplifying assumption. Like, doesn’t this assume the facilities are operated with equal … technical efficiency and so on. Yep, sure am.
We can talk about that later.
That said, and I don’t know about you, but I’m flat tickled to have any estimate at all.
What this estimate may lack in refinement, it more than makes up in clarity. No hocus-pocus. Two facility total costs, two facility sizes. And the assumption that, in essence, the facility size is directly proportional to annual memberships sold and serviced in/for that facility.
We can refine it later. Right now I need to get to the punch line of the story.
Taxpayers pay for scale inefficiency: Adding competition to Kelleher’s economies-of-scale.
Simplifying assumption 2: You can’t charge more than Fairfax.
Not to any material degree, anyway. We can bat this one back and forth, but that’s … kind of how markets work, if you get my drift. So if you’ve got a serious problem with this simplifying assumption, given that you are surrounded by those nice gigantic Fairfax facilities, … eh, we can discuss it later.
For now, all you need to know is that, as a matter of policy and pride, Fairfax sets REC Center rates to cover operating costs.
(And if you look further, there’s a whole fascinating (but apparently industry-norm) variation in tax subsidy for specific recreation activities. Golf, e.g., is expected to cover more than just operating costs. REC Centers, operating costs. Lot of in-the-parks stuff, less than operating costs. Right down to walking in the sunshine in a county park, free. It’s like common-sense Socialism. But the point is that the REC Centers sit in the middle of the spectrum, in terms of paying their own way.)
It’s not even worth putting this on a chart, because it’s just algebra. If Vienna’s price per contract = Fairfax price per contract = Fairfax cost per contract, then Vienna’s operating loss percentage is 53%.
Forever. Vienna is doing nothing wrong. There’s no “technical inefficiency” in how they are assumed to run their facility. There’s nothing that can be fixed. It’s purely inefficiency due to small scale. Scale inefficiency.
If we measure the scale inefficiency in this case by Vienna’s average cost per membership compared to the Fairfax REC Centers, the conclusion is that the taxpayer subsidy is 100% of the scale inefficiency.
I know it’s a misuse of the word, because we associated boutique with both smaller size, and higher quality, for want of a better term. So it’s sloppy, but it gets to the pith of it:
If you want a boutique recreation facility in Vienna, it’ll cost ya.
Conclusions: Operating losses are more important than capital costs.
First, Council Member Kelleher was right, in 2014, on a really important point.
That point needs to be recognized. Even if it’s not entirely convenient, for one side of this pool discussion.
And shame on the 2024 TOV’s entire stinking decision-making process for ignoring her. She was right then. Guess what? She’s still right.
I have a lot more to say, but let me get that stream of subsidy payments, off into the future, rolled up into something equivalent to a bond. So we can compare its size, to that of the proposed $26M bond issue.
So this is the point where I take permanent annual payments of $1.1M (half of operating costs), and “roll that up” to a number that’s equivalent to a bond We can dicker over the right interest rate to use, but I think it’s traditional to use the interest rate you pay if you need to borrow money. Which is about 3% interest rate, currently, for AAA municipal bonds. Leading to a net present value of $37M.
Which is bigger than $26M.
