Archive for February 2010

Is the Fault Privatization, or Just Bad Procurement Strategy

The Huffington Post has a critique of privatization, with a few scare stories.   Here is an example:

In December 2008, Chicago’s Mayor Daley rushed a 75-year lease of the City’s 36,000 parking meters through City Council for $1.15 billion in much-needed budget cash. There were no public hearings, no financial analysis, no alternative solutions given to the Council before it voted. The Mayor’s maneuvering was so airtight that his next proposed budget included this revenue even before the deal was done. Aldermen were given the impossible choice – question the deal or fill a $150 million shortfall. The result: a Morgan Stanley-led venture, Chicago Parking Meters, snagged a “win-win” deal for themselves, and a “win now-lose later” deal for the city….

That’s what happened in Chicago. When the private operator upped rates and installed faulty meters, a public backlash led to an after-the-fact investigation. The Chicago Inspector General concluded the parking meter lease was a “dubious financial deal.” The IG said the city received nearly a billion less for the system that it was worth, and the hasty “crisis” nature of the decision making process meant that Daley didn’t evaluate better deals.

Hmmm.  Is that the fault of privatization, or procurement?  I can spot at least 5 fatal errors made by the government that no self-respecting private company seeking outside services would make.

  • Huge contract with no competitive bidding
  • Way to long of a term.  A ten year term is typical for such a straight operating contract where the government has already made the investment.  Thirty years is typical with a private investment.  75 years???
  • No control over rates (we cannot change rates in recreation contracts without our landlord’s approval
  • No control over specs on capital improvements (we cannot install anything without the state approving the equipment)

I will say I agree with at least this part of the diagnosis:

Increasingly, small groups of power brokers, not public servants, are helping to midwife decisions, with little or no oversight, that benefit themselves, the politicians and players they’re connected to (here, primarily in the form of an easy budget fix), but not necessarily you, the voter and taxpayer.

So, five fatal errors (at least) by the government, and what is their conclusion?

The privatization craze is happening all over the country, and the risk of vanishing public power spreads with it.

OK, so?  You just demonstrated that the Chicago government was wildly incompetent, so now you want to, what, increase its power?   This is a reason not to make government smaller?  My conclusion would be “thank god we are diminishing the scope of this group of incompetents in the Chicago government.  Fortunately, with their reduced scope, we can maybe focus on improving their procurement process.”  I am simply amazed that the Huffpo things a city government driven by cronyism should be more rather than less powerful, have more rather than less scope.  Why is a story about government malfeasance and incompetence a morality tale about private business?  Sure, a scabby bunch of rent-seekers got a sweetheart deal, but is that the fault of those who seek to make government less powerful or those who seek to make it more powerful?

The truth of the matter is that private businesses do this type of contracting ALL THE TIME.  For them it is not emasculating, it is empowering, allowing them to focus on a few things they are good at.  These types of deals have proven to work in private transactions for decades.  This is a tale of government failure, and should be treated as such.

We Are Starting to Get A Little Attention..

From ABC15 in Phoenix:

On another front, legislators on Wednesday heard a privatization pitch from Recreation Resource Management. The Phoenix-based company operates publicly owned campgrounds and marinas in 11 states.

Company President Warren Meyer offered to take over operations of some state parks for a year so they could remain open.

“As a citizen I want to see those parks stay open, and this is my contribution,” Meyer said.

State Parks Director Renee Bahl said private concessions aren’t a “silver bullet,” partly because the system depends on some popular parks to produce revenue to support less popular parks. Land title issues and intergovernmental arrangements also complicate things, she said.

However, “I’d say nothing is off the table and any partnership that we can find is better than a closed park,” Bahl said.

Private vs. Public Management

People often ask how we are able to manage parks in a quality manner at a much lower cost than public parks organizations.  Here is one of the reasons:

The NY Times has a surprisingly fair article this week about the near-impossibility of firing an NYC public school teacher:[I]n the two years since the Education Department began an intensive effort to root out such teachers from the more than 55,000 who have tenure, officials have managed to fire only three for incompetence. Ten others whom the department charged with incompetence settled their cases by resigning or retiring.

It’s not as though the city hasn’t tried.

The city’s effort includes eight full-time lawyers, known as the Teacher Performance Unit, and eight retired principals and administrators who serve as part-time consultants to help principals build cases against teachers. Joel I. Klein, the schools chancellor, said that the team, whose annual budget is $1 million, had been “successful at a far too modest level.”

So it took 16 lawyers/administrators two years to get rid of 13 teachers. Practices that would immediately bankrupt a private company are considered normal for the public sector.

New York State To Close Parks

From the East Aurora Advertisor:

Knox Farm State Park, located just outside the Village of East Aurora, is one of 41 state parks recommended for closure by the New York State Office of Parks, Recreation, and Historic Preservation under a plan announced by Governor David Paterson on Fri., Feb. 19. The proposal, part of an effort to shrink the state’s $8.2 billion budget gap, has already prompted an outcry in the East Aurora area, and among the users of parks around New York.

Great Post From Reason on Parks

Len Gilroy of the Reason Foundation links my Glenn Beck interview and then goes deep on park privatization issues.  Check it out.  Potentially the biggest benefit to the public:

Appropriation risk: State parks operating under a concession no longer bear the appropriation risk that we’re seeing play out in real life across the country, as parks get axed from state budgets amid rampant state fiscal crises (some examples include California, New York and Louisiana). Really, this is more of a risk that’s eliminated, rather than transferred to the concessionaire (see revenue risk discussion above), so revenue/demand risk and appropriations risk are really two sides of the same coin.

Who Owns the Customer List?

On one of my other blogs, a commenter asked if we use the names of visitors to the public parks we run as a cold call list to sell membership camping. The answer for my company is: Never. We never cross-sell any kind of service to our public park’s customers (except those on site). In my mind, that is one of those short-term revenue generators that long-term hurts the business. It is not even clear to me that I own the customer lists – it might be an interesting legal battle with our public partners over who owns the list, but it is one I have no intention of pursuing.

My Interview with Glenn Beck

We discussed my proposal to keep Arizona state parks open. Update: A transcript has been posted here.  Video moved below the fold because it was killing my page load times.

Continue reading ‘My Interview with Glenn Beck’ »

On the Air Today

I will be on the Glenn Beck Show at 5:40 EST on the Fox News Channel talking about the private management of public parks.

AZ Republic Cartoon

source

By the way, this is a bit unfair.  Even in the private world, sometimes shutdown costs can dwarf first year savings.  In my mind, it just increases everyone’s desire to see that these parks stay open.

Private Operations Pose Quality Problems?

Two of the most frequent refrains I hear from parks directors in response to private concession management proposals is that 1) Private companies will just jack up fees and 2) quality will suffer.

I found this quote from an article in SFGate about the future of California State Parks interesting:

Camping: If state parks are going to charge so much for camping, raised to $35 this coming summer for most sites, rangers are going to have to provide a stellar experience. That means a guarantee of quiet campgrounds at night, hot showers, and no issues over restroom cleanup and trash pickup. At $35, there’s no more wiggle room. A camp host or ranger will have to be on site to see to this.

Really?  Supposedly quality-challenged private operators almost always have 24/7 presence in the campgrounds they operate, and typically empty the trash and clean the bathrooms as often as 4-5 times on a busy weekend day.  And, private operators in public parks, such as in the USFS, often do it for as little as $16 a night.

As might be expected, there is absolutely no mention of privatization in the options list discussed.  Last summer, our company participated in a panel within California State Parks headed by Ruth Coleman, the state parks director.  It was clear that Ms. Coleman was open to new approaches, but her organization was enormously conservative (little-c).  In particular, it came through loud and clear that the rank and file would rather see parks closed rather than kept open under private management.

My Radio Interview on Arizona Parks

My radio interview with Terry Gilberg of radio 550 KFYI is not available online in mp3 here.   We discuss park privatization in general and my proposal to reopen Arizona parks.

Private Park Concessionaires and Fees

Welcome Wild Wilderness readers.  I have posted some additional thoughts for you here.

The US Forest Service (USFS) has received some negative reaction to its proposal to reduce the camping discount received by seniors with Golden Age and America the Beautiful Senior passes at its concession-run campgrounds.   For the last several decades, the USFS has offered senior pass holders a 50% discount off camping fees, and has required USFS concessionaires to offer the same discount.  Recently, the USFS has proposed reducing this discount to 10%, closer to the typical senior discount at privately-owned campground.

First the reaction, which is centered around a group of ex-USFS employees who have always been hostile to the USFS concession program.  This letter is fairly typical:

All public land recreationists owe a huge thank-you to the Idaho Congressional delegation for forcefully coming out in opposition to the horrible anti-democratic U.S. Forest Service proposal to eliminate the 50 percent discount for seniors and disabled for national forest campgrounds. Yet this is only the tip of an ugly iceberg. It is crucial to note that the Forest Service is caving in to massive pressure from profit-driven campground contractors. They propose handing over yet more campgrounds to concessionaires while also exempting them from honoring Golden Eagle passes—patently illegal….

The top brass of the Forest Service has gone bonkers with a cancerous privatization philosophy for outdoor recreation that is literally stealing your freedoms. We should stress to them the imperative of serving we the people—not the concessionaires and corporate America.

Of huge importance is continuing to stress to Congress that the Federal Lands Recreation Enhancement Act must be repealed. Out-of-control oppressive recreation fees at trailheads, rivers and backcountry venues must stop. The Forest Service cannot cry poor when it just received $650 million for capital improvement and maintenance in the stimulus bill! The literal future of recreation on the national forests is absolutely at stake. Please become part of the solution.

First, lets quickly set aside the legal issue.  It has never been clear that the USFS has ever had the legal authority to require concessionaires to provide the 50% discount to America the Beautiful pass holders, and in fact such a requirement flies in the face of most concession rules.  No other Federal recreation authority (NPS, Corps of Engineers, BLM) require or even expect concessionaires to accept their discount passes.  As for the America the Beautiful pass program, the enabling legislation as well as the language on the pass itself say specifically that it should not apply at concession-run facilities.  Opposite of what the author above says, it is in fact illegal may be illegal for the USFS to require concessionaires to accept these passes, though USFS concessionaires as a group have agreed over the past several years to accept the America the Beautiful passes for 50% discounts until the USFS can complete a rules-making process  (update:  there has been some confusion about this statement.   USFS concession contracts have for decades required concessionaires to provide 50% discounts to Golden Age and Access pass holders, but I was not referring to this program — this is a discussion of America the Beautiful passes, which actually say on the back of the pass itself that it does not apply at concession-run facilities).

Of course, my legal argument above would not be persuasive to the author of the complaint — in fact, his likely response would be to say that is all the more reason for the USFS to take the parks back from concessionaires (something that is never going to happen given staffing, cost, and budget restraints in the USFS).  So I want to spend a minute on explaining the logic of the USFS proposal (which our company only reluctantly accepted).  By the way, I know at least one person has written that I am somehow the secret agent behind this whole change, which makes me laugh, but you can read my official response  on the rules change and judge for yourself if this change is of any benefit to our company (bottom line:   for us this is merely a trade — lower discounts in for some customers, higher for others, with no real impact on profitability).

Who doesn’t pay for the 50% discount

To have this discussion, we need to discuss some typical economics.  Lets start with a USFS camp site in a concession-run facility that charges $16 a night  (a typical camping fee at a USFS concession-run facility is $16-$18, a great bargain compared to privately-owned campgrounds, belying some of the argument that USFS concessionaires are somehow rapacious).  This means that a Golden Age or ATB Senior pass holder would get camping at $8 a night.  I can guarantee that no one in this country can provide $8 a night camping and cover his costs, so someone else is going to have to pay for this discount.

This is fairly easy to illustrate.  In a very good year, like 2009, USFS concessionaires will make between $0.80 and $1.00 in pre-tax profit on a $16 night of camping  (in a bad year, they will lose money).  This is the concessionaires’ return for the time and capital they have invested in the business, and their incentive to remain efficient and provide good customer service so that paying customers will return.  By the way, each concessionaire pays the USFS a rental or concession fee as a percentage of revenues to repay the public for its investment in the campground.  Since these competitively bid concession fees typically run between 10-15% for busy campgrounds, the USFS (and the public) actually keeps between $1.60 and $2.40 from each $16 night of camping, far more than the concessionaire makes.  Also note that this is FAR more than the USFS made when it ran the campgrounds itself, as it typically lost money  (when all expenses are accounted fully — the USFS accounting doesn’t work very well for facility-level P&L’s).

I hope you can see from this example that the $8 senior discount is simply not going to come out of the concessionaire’s profits, as I suppose the author of the letter above might hope.  It has to come from somewhere else.

The official position of the National Forest Recreation Association (NFRA), a trade group for USFS concessionaires, has for years been that if it is a public policy goal to provide below-cost camping for certain politically-favored groups, such as seniors, then USFS funds should be used to pay for this goal.  For years we have suggested that the long-term solution would be reimbursement of concessionaires for such discounts, possibly on some kind of rental fee offset basis.  The USFS has consistently been unwilling even to consider such an approach, and claims it does not have the money for such reimbursement.

It is important to stop here and pause.  The author of the letter believes the solution is for the USFS to take these campgrounds over and continue to provide the discount.  But the USFS has already said it is unwilling and unable to fund this discount.  If it can’t pay concessionaires, who run the facilities less expensively, to provide the discount, it is not going to be able to do it running the facilities itself.    If citizens want the government to run these facilities in-house and provide below-cost services, then it is going to need to lobby Congress to substantially raise the USFS appropriations for recreation.  This simply is not in the cards right now.

So, who does pay for the 50% senior discount?

The answer is, of course, all the other younger campers.  Let’s walk through a specific example:

A campground charges a $16 fee, and has a thousand site-days of visitation per year.  Without any Golden Age pass discounts, this yields $16,000 a year of revenue.  Then, assume that 10% of the visitors have a Golden Age Pass and they qualify for a 50% discount.  This means that 900 site-days are now at $16 and 100 are at $8, for total revenue of $15,200.  To get back to the original revenue level, the base fee would have to be raised to $16.84.  So the addition of 10% of the campers with Golden Age Passes raises the rates to all other campers by 5-1/4%.  Similarly, if the Golden Age visitation in this example went to 20% of campers, then the base fee would have to be increased to $17.78 to keep total revenues the same.  By the time Golden Age visitation rises to 30% of the total, the average family is paying nearly $3 a night to subsidize Golden Age visitation.

So, every young family in the USFS is paying $2-$3 or more a night to subsidize below-cost services for older campers, and this subsidy will only increase as the population ages.  This subsidy obviously conflicts with notions of fairness and equal protection, as well as with a number of USFS goals, including their “More Kids in the Woods” program and the First Lady’s childhood obesity programs.    While, like any business, USFS concessionaires expect to continue to offer discount programs in the future, they are looking to approaches that better match discounts to available capacity irrespective of a visitor’s age (e.g. mid-week and shoulder season discounts).

Ironically, while concessionaires were the ones who pointed out these cross-subsidization issues to the USFS, most concessionaires do not expect any real improvement to profitability from these changes.   Many concessionaires were considering fee increases  (as in the example above) to account for rising discount pass usage, and these fee increases can now be shelved.  Further, most concessionaires expect to continue to offer attractive discounts, but to a broader subsection of the population and better matched to capacity.  And finally, companies all must competitively bid for concessions on a regular basis, and history has shown that any short-term increases in profitability on individual facilities is usually given away to the USFS  under the pressure of competitive bidding.

Speaking of Fairness….

It is fun to spin conspiracies of corporate power, but the reality becomes clear when the other half of the USFS fee pass rules change (which seldom makes the press) is considered.  In these same new rules, USFS is requiring that concessionaires provide free use and entry to America the Beautiful annual pass holders and discounted use for Senior pass holders — without compensation.  In other words, the USFS is going to sell annual passes, keep all the money, and then require that private companies provide most of the services to these pass holders without compensation.  Their intention is to apply this even within existing contracts, meaning that concessionaires who carefully bid these projects with razor-thin margins must now find a way to accommodate many of their customers showing up with passes that let them in for free.

This is obviously a requirement that concessionaires have opposed for years.  What the USFS did was to offer concessionaires a trade – a reduction in the senior discount requirement in trade for this requirement to honor these free passes.  Our company only reluctantly accepted this compromise  (our response is here)  which can be thought of not as reducing total discounting but as spreading the discounts more widely among all Americans.  One of the reasons the public response has been so unbalanced is not because this is some screaming sweetheart deal for private operators, but that those who will pay higher fees (seniors) have been notified of the changes while those who will pay lower fees over time (annual pass holders, younger campers) really don’t know they will be beneficiaries.

Update: In response to several complaints impugning the motives of concessionaires, seeming to automatically equate profit-motive with maliciousness.  As I wrote one reader:

You are absolutely right that I am not guaranteed a profit, nor should I be.  My company’s profit in USFS camping has averaged less than $1 per camping night over the last 5 years.  This is sufficient to my needs.  So if you wiped out my profit, I would quit the business, but what would you get?  The USFS costs to run these same campgrounds are far higher than mine.  Either fees would go up to cover these higher costs, or the campgrounds would close.  I know you would like a third option, that the USFS run these campgrounds without private companies and offer fees below their costs, and then have Congress make up the rest.  But that has not been a fiscal reality for a long time.

In the face of this funding reality, my company’s mission is to keep campgrounds open and run well.  It seems that nowadays, everyone has to assume people they disagree with have bad motives.  But in fact, my motives for being in this business are likely the same as yours — I am trying to help make public recreation better.  There are far more lucrative things I could invest my money in.  I am in this business because I have a passion for making public recreation work, and the reality of that is that lacking adequate funding from Congress, campgrounds have to support themselves with fee revenues, and I can do this better and more efficiently than the USFS.

Update #2: A lot of folks who are reading this post have concerns about the fee pass changes.  The USFS has announced open public meetings.

Work Campers — The New American Nomads

Over five years ago, I wrote this article about retirees in RV’s who have become the new American nomads.  Many of these folks work for my company each season, getting wages and a camping site in exchange for taking care of campgrounds. This is often called work camping.

A reader sent me this video from the NY Times discussing the same phenomenon  (here is the print article).  The only difference is these folks work for the government, which means that unlike at private companies, they don’t get paid.  I find it kind of fascinating that the NY Times thinks it’s a wonderful innovation that “cash-strapped state governments” help balance the budget on the backs of free labor from older people.  Can you imagine what the headlines would be if all the facts were changed, but the entity was a manufacturing company rather than a state park?  It would have been torches and pitchforks  (it is illegal except in narrow cases for private companies to accept free labor — the government of course exempts itself from this requirement, as it does from much of labor law).

I actually think my article was better.  The way work campers tend to disperse over the summer and then congregate over the winter in a couple of gathering spots (Colorado River in AZ, South Texas, Florida) reminds me a lot of the plains Indian tribes.  And the challenges of a nomadic lifestyle when the world wants you to have a permanent address are interesting, and there are whole business models being crafted to solve these problems.

Anyway, our company hires nearly 500 of these folks every year, and are huge supporters of this lifestyle (and we pay!)   If you are interested, check out our websites above and sign up for our job newsletter.

Something of a Breakthrough

The AZ Republic, which editorialized against our parks proposal before they had even seen it, gave us a brief mention today:

Separately, a Senate committee on Monday recommended passage of Senate Bill 1349. The bill, sponsored by Sen. Barbara Leff, would allow the parks board to lease the parks to public or private entities without going through normal procurement procedures.

That freedom could allow the parks to be leased quickly.

The lessee, who would be responsible for maintaining the park, could then charge admission fees and earn additional money through concessions.

“I’m trying to find a way immediately to make sure those parks do not close,” said Leff, R-Paradise Valley. “There are private companies that will manage those parks for us.”

Phoenix-based Recreation Resource Management, which operates 175 public parks around the country, has written a letter to parks officials offering to take over at least six of the parks.

This is something of a breakthrough, as our concern all along was that the state would try to ignore the privatization option altogether.  While it shouldn’t be, this is the last thing AZ State Parks wants to do.  However, with their options narrowing, they may be getting down to the last thing.  The outlines of the proposal we made is here.

Getting It Exactly Backwards

In opposition to a proposal for park privatization in Utah:

Mary Tullius, director of the Division of State Parks and Recreation, doesn’t think so.  She says the state prides itself on giving Utah families affordable destinations like state parks. And if those destinations were made private, the quality would suffer.

“History has told us that whenever you privatize something people are so focused on making money that they don’t pay attention to the infrastructure or to the maintenance of the facility. What happens after five years and they’ve run something and they haven’t taken care of it and they turn back to the state? And then the state has a much bigger problem,” she said.

This is exactly backwards.  As readers probably know, my business is the private operation of public parks.  The number one problem we have in taking over government parks is that they are usually terribly run down.  By the time the government is finally willing to turn to private companies for help (generally in the category of “last resort”) the government has typically been ignoring the capital maintenance needs of the parks for years.  As I have written before, government is terrible about appropriating sufficient amounts of capital maintenance dollars.  We see it in everything from parks to the Washington metro.

Nowadays, as a condition of taking over the operation of public parks, our company is generally asked to make a large up-front contribution to tackling deferred maintenance in the park.  In fact, in our newest contract with the Tennessee Valley Authority, we actually have rebuilt the entire park and campground from the ground up.

I am sure there are some private operators who have let things run down, but in general this has occurred when the public authority has insisted on giving the operator a series of 1-year contracts rather than a real 10-20 year contract.  Who is going to replace the roof if the contract only lasts for another 6 months.  On the other hand, who is going to fail to keep things nice if he knows he is going to be there for another 15 years?

I hear this kind of rant from people within the government all the time.  They seem to believe it, but it is hard to find an example where it is true.  When I worked for an oil company, they planned on having to totally rebuild their retail stations every 20 years or so.  What legislature plans for this kind of expenditure?

My current proposal to keep a number of Arizona State Parks open is here.

A Proposal to Keep State Parks in Arizona Open

Due to budget cuts, Arizona State Parks is closing 13 of its 22 state parks.  This last week, I have been making the rounds of the state government, from the state legislature to the head of Arizona State Parks, with a proposal to keep the 7 largest of these closed parks open, and pay the state money for the privilege.  Unfortunately, we have had only mixed success with a proposal that seems to me to be a win-win for everyone.  Our local newspaper editorialized against my proposal, without even knowing the details  (my response here).  So in this post, I am going to give the details of our proposal, and solicit your feedback, especially those of you in Arizona.  All I ask is that you read the whole thing, and not just leap into the comments section having just read and reacted to (positive or negative) this first paragraph about private operation of public parks.

Background

Our company, Recreation Resource Management (RRM), is over 20 year old, and we operate over a hundred public parks under concession agreement for the US Forest Service, the National Park Service, the Tennessee Valley Authority, California State Parks, and many others.  Traditionally, park concessions used to be limited to private companies running the gift shop or the bike rental inside a park.  And we do some of that (for example we run the store and marina at Slide Rock and Patagonia Lake State parks).  But our preferred niche has always been to run entire parks on a turnkey basis.  We run a huge variety of facilities that largely parallel anything we might find in the Arizona State Parks system — including campgrounds, day use and picnic areas, boat ramps, hiking trails, wilderness areas and historic buildings.  The largest parks we run are twice as busy as Slide Rock or Lake Havasu and four times as busy as any of the parks we are proposing to manage.  We currently run parks today literally right beside some of these Arizona State parks.  All of this is to say that the parks in Arizona are absolutely normal and typical resources that we manage.

A concession contract works much like a commercial lease.  We sign a contract allowing us to run the park for profit, and then pay the state a rent in the form of a percentage of fee revenues.  The typical operating agreement includes over 100 pages of standards we must conform to, from fee collection to uniforms to customer service to bathroom cleaning frequency to operating hours.

We aren’t trying to take ownership of the land.  We aren’t trying to pave the wilderness.  We aren’t trying to build condos in front of Old Faithful.  We are in fact willing to accept whatever recreation mission or preservation mission the public owner of the park sets and manage the park to that mission. If the site is to remain primitive, we keep it primitive.  If the public agency wants new facilities, we help bring capital investment in new facilities (all approved in advance by the public agency).  What we bring to the table is that in many cases, we can operate the park and keep it open with the fees paid at the gate, without big price hikes and without the need for subsidies.

Our Proposal

At all of my meetings this week I made three offers, each of which we were willing to commit to immediately  (we could actually be up and running with about 21 days notice):

  1. RRM offered to keep some or all of six parks open out of thirteen on the current closure list.  These parks are Alamo Lake, Roper Lake, Tonto Natural Bridge, Lost Dutchman, Picacho Peak and Red Rocks (park but not the environmental center).  Not only could these stay open, but we could pay rent as a percentage of fee revenues to the state, money that could be used to keep other operations open.  While these parks represent about half of the closure list by number, by visitation they represent well over 90% of the closure list.  Combined these parks had a net operating loss of $659,000 to ASP, which we propose to turn into a net gain for the parks organization.
  2. RRM offered to operate five parks that are currently slated to stay open but where we could pay rents that are higher than the net revenue figure ASP showed for FY2009.  These parks are Patagonia Lake, Buckskin Mountain, Dead Horse Ranch, Fool Hollow and Cattail Cove.  Combined, this group of parks lost money for ASP in 2009 which we propose to turn into a solid net gain.
  3. While we would need to do more study, RRM suggested it might take on some of the smaller, money-losing parks beyond those mentioned above if they were packaged in a contract with some of the other parks listed above

To avoid problems with the procurement process, we offered to take as short as a 1-year contract to give ASP time to prepare a longer-term bid process.  We also agreed to maintain all current park fees for the next year without change (in contrast to ASP current plans to raise fees), and agreed that no fee could be changed without ASP approval.  The only help we asked for was

  • We perform rules enforcement, but we need law enforcement backup form time to time
  • We perform routine maintenance and keep the park safe and attractive, but many of these parks have substantial deferred maintenance problems that we cannot take on with only a 1-year contract  (but would be willing to invest capital to repair under a longer term arrangement)

And if the ability to keep almost half the parks slated for closure open was not enough of a value proposition, we proposed one additional benefit.  Any parks that are put under private concession management immediately cease to be a political football.  For years, parks organizations have closed and opened parks in a game of chicken with legislators, with the public as the victim.  Parks under private concession management no longer are subject to such pressures, as they are off the budget.  Back in the 1990’s, when the new Republican Congress squared off with President Clinton over the budget, the government was shut down for a while, including all federal recreation facilities — EXCEPT those under private concession management.  We got calls from the media saying, why are you open?  To which we replied — hey, you have now discovered one benefit of private concession management — the parks we manage are no longer political pawns.

Reactions

So far we have had really good and positive reactions from Arizona legislators  (I have not been able to see any of the Governor’s staff).

The reaction from Arizona State Parks has been more muted.  While they are publicly open to all proposals, in reality this is the absolute last thing most of their organization wants to do  (you should see the body language in some of our meetings, it is a lot like trying to sell beer at a Baptist picnic).  They have not said so explicitly, but from long history with this and other parks organizations I can guess at some of the issues they have:

  1. Distrust of and distaste for private management runs deep in the DNA of the organization.  Many join parks with a sense of mission, seeing unique value to public ownership of parks and lands.  I attempt to explain that this value still exists, that what they are turning over is operations, not management and control, but I don’t get very far.  I try hard to give the new management of Arizona State Parks a clean slate, but I can’t help but be affected by something I saw their previous director say.  Back in about 2004 we hosted a breakfast at a convention of state parks directors up in Michigan, I believe.  Someone must have forgotten to throw us out of the room, because we witnessed the head of Arizona State Parks stand up in front of his peers and demand that they all hold the line against private management as one of their highest priorities.  It was made clear that state organizations that stepped out of line would incur the wrath of other states.  This summer we participated in a series of meetings in California called by Ruth Coleman, who is the head of the parks organization there and someone I admire.  She was trying to break the organization out of its old culture, but it was very clear in roundtable discussions that the rank and file would rather see the parks closed to the public than kept open using private concession management.
  2. I mentioned earlier that private management brings a benefit to the public of keeping the parks from being a political football.  But the parks organization feels like it needs that football.  Without the threat of park closures, it feels like its budget will be gutted like a fish.  And, now that its budget has been gutted, it still holds out hope its money will be restored and needs the park closures to keep up the pressure.  As long as there is even the slightest hope of budget restoration, a hope which I am pretty sure will “spring eternal,” my proposal, no matter how much it makes sense for the people of Arizona, will never be adopted.

Again, these are just guesses.  Renee Bahl of Arizona State Parks has told me they are open to all new ideas, and I will take her at her word.

Libertarian Concerns

Those of you who know me to be a libertarian might wonder how I function in this environment.  The answer is, “with difficulty.”  I have a strong philosophic passion to bring quality private management to public services, and this opportunity is a good one.  And I am not adverse to making money while doing so.  But I am adverse to rent-seeking, and there is admittedly a thin line between trying to make positive change and rent-seeking in this case.

I generally avoid this by insisting on short initial contracts (in this case 1 year) to prove out the concept and to allow time for the public agency to figure out how to put this beast through a procurement process that probably was not well designed for this type of thing.   This is what I did when the US Forest Service approached us with an idea to bring private management to the snow play area at Wing Mountain near Flagstaff.  We took it on a one-year contract (which grew to 2 years) and then the contract went out for public bid  – which we won – for 10 years.  We are very good at what we do and are not at all afraid to compete.  The only time I will not compete is when I perceive someone has a political connection that gives them an inside track.  After two or three losses in Florida counties to a company with no experience but a brother-in-law on the County commission, I realized it was just a waste of time to bid on these situations.

Conclusion

Please give your reactions and concerns in the comment section.  For those who disagree with private management of public resources, I will be honest and say you are unlikely to change my mind, as I have dedicated all my time and my life savings to the proposition.  But you may help me better understand and tailor our service to address public concerns.  I will try to keep the FAQ below updated based on what I am seeing in the comments.  If you are in Arizona and know someone you think I should be talking to, drop me an email at the link above.

FAQ

Does your company take ownership of the park? No.  The parks and all the facilities remain the property of Arizona State Parks.  We merely sign an operating lease, with strict rules, wherein we operate the park, keep the fees paid by the public, and pay the state a “rent” based on a percentage of the fee collections.  Even when we invest in facilities, like this store building and cabins, they become the property of the public at the end of the contract.

How can the state afford to pay you if they have no budget? We are not paid by the state, and receive no subsidy.  100% of our revenue is from fees paid by visitors to the park we operate.  If we don’t run a good operation that is attractive to visitors, we don’ t make any money.

Doesn’t the state lose out if you keep all the fees? No.  Mainly because in all the parks we have proposed to take over, the state has net operating losses of up to $200,000 or more a year.  By taking over the park, their losses go away AND they receive extra money in the form of rents we pay.  We are able to do so because we have developed efficient processes for managing campgrounds and have a flexible and dedicated work force.

Are you going to build condos and a McDonald’s? No.  The fact that this is such a common question is amazing to me, as we operate over 100 parks in this manner across the country and you would not be able to tell the difference between the facilities we manage and any other public park.  Under the terms of our operating contract, we cannot change fees, facilities, operating hours, or even cut down a tree without written approval form the parks organization.

Are you going to just jack up fees? No.  We have committed in our offers to keep fees flat for the next year.  We cannot raise fees without state approval, and we work hard to keep public recreation affordable.  Last year was a very good year for us because, in a recession, our low-cost recreation options gave many families on a budget a chance to have a quality recreation experience.

Why just a one year contract? We would actually prefer a longer contract, as this allows us to actually make approved capital improvements to parks (for example, we have installed many cabins in public parks we operate).  However, we have offered to take these under an initial contract that is just long enough to allow longer-term contracts to be fairly offered on a competitive bid basis.

Maybe no one trusts you because you are small and unproven? Well, perhaps.  But last year our total fee revenue was nearly $11 million, making us slightly larger than the Arizona State Parks system.  We have a proven record with decades of positive performance reviews from government agencies around the country.   For example, for those of you form Arizona, if you have stayed at a US Forest Service developed campground near Flagstaff, Sedona, Payson, or Tucson,  or sledded at Wing Mountain, you probably have stayed in a facility we operated.  We already operate two concessions in Arizona State Parks, and have a great record working with the organization.