What happens if the demand for your product decreases? Simple economics tells us that prices should fall. Why then is the Solid Waste Authority of Central Ohio talking about raising rates in the face declining demand for landfill space?
Franklin County landfill fees will likely jump nearly 12 percent over the next three years because the economy is down in the dump.
The Solid Waste Authority of Central Ohio is being hit by higher fuel costs, lower interest earnings on investments and more frugal customers. Business is down 3 percent at the landfill because people are holding onto old items --- or buying fewer new items encased in packaging that becomes trash.
So let's separate this out:
- Higher fuel costs=decreased supply and higher prices..
- Lower interest earnings on investments=decreased supply and higher prices.
- Business is down 3%=decreased demand and lower prices.
While the net effect is unclear, the article seems to go on to argue that the prices need to be raised beacuse the demand for landfill services is decreasing. Warning: Sarcasm ahead.
Haulers pay SWACO $33.50 for each ton of trash they dump at the landfill near Grove City. Less trash means less income for the waste authority.
The landfill had expected 850,000 tons of trash to arrive in 2008; instead, it is on course to get 825,000 to 830,000 tons.
Quick explanation: Less trash is a bad thing. Please keep that in mind so I don't have to keep explaining why the rest of this article makes sense.
Compounding the problem is that the authority's budget lacks wiggle room. Its board pinched and whacked its 2008 budget late last year after city, suburban and private customers complained they couldn't handle a fee increase on short notice.
The authority is operating in the red and is dipping into its $6 million rainy-day fund. Next year, SWACO faces a $3 million deficit.
"The proposed rate increases over the next three years are intended to stop the bleeding," Executive Director Ron Mills said.
Wait. I have an idea. How about reducing landfill operations in response to declining demand for landfill services? Nevermind. That would make too much sense.
Heftier tipping fees would be shouldered by Columbus, which pays to dump trash using city income-tax money. Homeowners in suburbs that charge households for collection, and businesses that hire private haulers also would pay more.
Looking forward to it.
SWACO's nine-member board is expected to approve the increases on Aug. 5, raising tipping fees $2 a ton in 2009, and $1 a ton in 2010 and again in 2011.
Dumping a ton of trash would ultimately increase to $37.50. This would buy the board time to make other cuts or find a better way to pay for operations, Mills said.
Doesn't decreased demand for landfill services have benefits? Crap, I forgot my own disclaimer. Less trash is a bad thing.
On one hand, less trash is good news: It will extend the life of the landfill and postpone the bill to build a new one. But SWACO's equipment and environmental-compliance costs are fixed. This year's budget was drawn up based on income expected from a steady stream of trash.
"We're committed to reducing the flow of trash through recycling," Mills said. "The difference is when we're able to plan for it. It's when we're surprised that it's a problem."
I hate it when we reach our goals through surprises. Pisses me off. "I wasn't ready for cleaner air. I wanted it. Really I did, but I wasn't ready for it. So please make my air dirty again so I can prepare for it to be clean."
Mills didn't rule out layoffs; SWACO employs 128 people.
"Everything is on the table," he said.
"And dammit, we need everything off the tables and in the trash cans."
The authority's biggest customer, Columbus, would pay about $650,000 more in 2009.
The fee increase was anticipated, said Mary Carran-Webster, assistant public service director.
"We will have to find the money to pay the additional fee," she said. "The city code requires that we pick up trash once a week.
Oddly, the city code doesn't require a quality education for the city's children.
City Finance Director Joel S. Taylor said the rate increase would cut into Columbus' ability to pay for other projects, such as new fire trucks, police stations and street resurfacing.
But Taylor, who sits on SWACO's board, called the proposed increase "about as cautious as it could be. … In my own belief, we're in a situation where we don't have much choice."
Some won't be affected immediately. Jefferson Township, for example, locked its tipping fees into a three-year contract with a private hauler last year, Administrator Ellen Walker said.
SWACO raised fees at its landfill $1.50 a ton in 2006 and $1.25 a ton in 2007.
The authority has a $36 million operating budget this year; a $3 million deficit would be a 8 percent shortfall.
Mills said other landfills are also seeing their waste stream wither.
Dammit people...make more trash. We need to maintain revenue streams for the landfills! In other news, the U.S. EPA is reversing policy and encouraging coal fired power plants to increase sulfur output so as to rejuvenate acid rain in the northeast, thereby bolstering the declining acid rain clean-up industry.
"This is very odd. This is the first time in SWACO's history that we've seen this kind of sustained decline," he said. "Some parts of the country, the decline is as much as 20 percent."
More simple economics: If demand for your product is inelastic, then raising prices will raise revenues. If demand is elastic, then raising prices will cause revenuies to fall. So is the demand for landfill services in Columbus elastic or inelastic? SWACO argues it is inelastic.
Raising prices won't drive trash to private landfills, Mills said. "SWACO is $8 to $10 a ton below (local) market rate."