Archive for May 2012

The Real Problem with Advertising in Parks

I am not a huge fan of advertising in public parks to increase revenues.  I don’t tend to be anti-advertising per se, but the number one reason, ahead of all others, for public lands to be public is so a public agency rather than the operation of markets can determine the use of, access to, and character of the land.  Advertising could undermine that character, though it certain can be debated.

But here is my real problem with advertising as a solution to park budget woes:  It is symptomatic of public parks agencies focus on the wrong side of the income statement.  In almost every state I have worked with, parks agency management works very hard to avoid scrutiny of its expenses, and attempts to shift the discussion to revenue enhancements as the path to budgetary salvation.

But this is a chimera.  In most cases, the revenue improvement initiatives are an order of magnitude smaller than potential expense reductions.

Let’s take one state that will remain nameless.  It rejected out of hand private concession proposals to operate whole parks and said it would focus on private concession proposals to increase revenues by paying concession fees, in this case seeking a private company to rent bicycles in the park.  So let’s look at the park:

Park gate fees:  $500,000
Park expenses  (probably missing some stuff):  $800,000
Situation:  The park requires at least $300,000 a year of general tax funds to stay open.  These are going away, so this gap must be closed or the park will close.

Proposal #1:  Revenue Enhancement.  A private company will be enticed to open an equipment rental (bicycles, etc.) in the park (there is already a store).  In the best case, this might net $100,000 a year in revenue for the private company which would pay the state 10% or $10,000 in annual concession fees.  The state’s $300,000 loss is reduced to $290,000

Proposal #2:  Expense Reduction.  A private company proposes to take over all expenses of the park in exchange for keeping the park gate fees, paying the state a 10% concession fee.  This is entirely possible in this example, as private concessionaires often have 50% or more cost reductions for the same or better service levels in operating parks  (remember, most of park operations is cleaning bathrooms and mowing the lawn).  In this example, the park’s $300,000 loss is reduced to zero, and in fact the state now receives $50,000 in concession fees from the park which can cover supervision of the concessionaire and perhaps some improvements to the park.

Hopefully, this helps explain my issue.  Focus on revenue enhancement, and taking risks with the character of the park through things like advertising, have almost trivial impact on park financial sustainability when compared to addressing the expense side of the equation.

In the News

I have an interview up in Parks and Recreation Magazine this month.  You can see it online here.  There are also several folks interviewed in opposition, which is fair enough.  As usual, those in opposition were allowed to react to my specific comments and interview notes, while I was never given a chance to respond to their comments.  Which is why I tend to give long-winded interviews addressing every possible criticism because I seldom if ever get a rebuttal.

The one comment I found both typical and odd was the one that said that private operation of parks was somehow a “failure” for state agencies.  I get variations of this all the time and to this day simply cannot understand it.  The purpose of state ownership of special lands is discussed here.  I would consider it a failure if public lands were not inexpensively accessible to the public, or if their character was not maintained, or if their facilities were allowed to deteriorate — three things that are all occurring as state parks budgets are cut.  I don’t see how having private employees clean the bathrooms is some sort of failure, particularly when this approach can head off many of the other aforementioned problems.

Privatization and Public Accounting

Dru Stevenson was nice enough to invite me to join him at the Privatization blog, which tends to address many topics in the privatization world.  The writers can be both skeptical and enthusiastic about the model, so the overall coverage is pretty balanced and it is a good resource on the topic.

Last week I introduced myself with an introduction to myself and private operation of parks.

In my second post, I addressed a topic I have been meaning to get to here for a while, which is the problem of making privatization decisions using public accounting processes that were never meant to support this kind of decision.  Here is an excerpt:

Back when I was in the corporate world, “Make-Buy” decisions — decisions as to whether the company should do some task itself or outsource it to companies with particular expertise or low costs in that area — were quite routine.  Even in the corporate world, though, where accounting systems are built to produce product line profitability statements and to do activity-based costing, this kind of analysis is easy to get wrong (in particular, practitioners frequently confuse average versus marginal costs).

But if these analyses are tricky in the private world, they are almost impossible to do well in the public sphere.  Grady Gammage, a senior and highly respected research fellow at Arizona State University’s Morrison Institute, has as much experience with public policy analysis as anyone in the state.  Several years ago, he spent months digging into the financial numbers of Arizona State Parks, with the full cooperation of that agency.  A critical question of the study was how much it actually cost to operate a park, vs. do all the other resource and grant management tasks the agency is asked to perform.  Despite a lot of effort by Gammage and his staff, he told me once that the best he could do was make an educated guess –plus or minus several million dollars — as to how much of the Agency’s budget is spent actually operating parks vs. performing other tasks.

The reasons that this is so hard is that the parks agency’s budgeting process was not set up to determine true net operating gains and losses at parks.  It was set up, like most public accounting systems, to enforce accountability to different pools of money that have been allocated by the legislature for certain tasks.  This tends to lead to three classes of problems that cause public make-buy decisions, as well as ex post facto third-party analyses, so difficult.  Since I am most familiar with the parks world, I will discuss these three issues in the context of parks: