Archive for the ‘Criticisms of Privatization’ Category.

Government Shutdown and Privately Operated Federal Parks

The government shutdown in October was an interesting chapter in the business of private operation of public parks.

For years I have said that one of the advantages of private operation of public parks is that these parks are sheltered from budget shenanigans.  If the park  is operating with no public money, they can’t be closed when budgets are cut.  In fact, in all past Federal shutdowns, such as the two under President Clinton, private concessionaires in the US Forest Service stayed open.

Well, I guess this Administration was dead-set on making a liar out of me, because private Forest Service concessionaires were shut down in the recent budget battle.  In the early days of the government closure, we were told that we would stay open, as in the past.  Then we got the fateful call from a senior US Forest Service executive telling us that the decision had been made “above the Department of Agriculture” (ie in the White House) that we had to close.  So we did.

However, we filed suit in Federal court to block the closure, and on the last day finally had our day in court, where the Federal judge excoriated the Forest Service for closing us.

If you are interested, I documented the whole saga at my other blog, with all the articles on the shutdown collected here.

By the way, in the interest of fairness, if you want an opposing viewpoint from someone who seems thrilled that we were closed, see here (along with some of my responses in the comment section, if they have not been deleted).

A Few Privatization Updates

I just wrote three new articles for the Privatization Blog.

The first looks at which types of public decisions should stay public in a privatization effort

The second looks at implementation issues and learning in privatization

The third acknowledges that privatization efforts can fall into cronyism, but points out that generally in these cases the public alternative falls into the same behaviors.  A great example is prisons, where privatization is derided by folks like Think Progress for the lobbying the prison companies do both for contracts and harsher laws, but they never acknowledge that public prison unions have demonstrated the same behaviors and for much longer.

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.

Case Study: Private vs. Public Park Operations

In private park management, the park continues to be owned by the public agency, and all decisions about the facilities, services, and character of that park remain in public hands.  The difference is in who actually does the cleaning and maintenance and operations of the park – high cost public agencies or more efficient private firms.

People love to hypothesize about the potential problems with private park operations as if there were no examples of such management to gather actual facts about performance.  But such examples do exist.  After years of such wild speculating (e.g. they will build a McDonalds in our park!) we finally took the state agency, legislators, and the media out to a pair of neighboring public parks in nature-loving, environmentally-sensitive Sedona — one publicly operated, and one operated by a private firm.

Here is the case study comparing the two

Broken Record

This is a generally fair discussion of private management of park operations in New Jersey.  But I am simply amazed at how this old trope keeps popping up every time

A chain restaurant in Wharton State Forest. A Ferris wheel at Liberty State Park. Weddings, flea markets, and corporate events taking over New Jersey’s historic sites and scenic lands.

That could be the future if the state goes forward with plans to privatize parts of its park system, some warn.

“Next thing you know, you have to pay more for everything and the public’s access is limited,” said Jeff Tittel, director of the Sierra Club of New Jersey. “You’ll be getting fee’d to death.”….

The problem, Tittel said, is “what happens down the road when private vendors take over park functions. They’re not professionals and don’t have the same level of caring for the parks,” he said. “Who’s screening them? Will valuables walk away?

“Then, there’s the loss of access,” he said. “If you can make more money on a Saturday afternoon renting out a park area, then the public doesn’t have access.”

The state could “bring in franchises that are detrimental to the theme of the park, like skeet-shooting, private golf courses, an amusement park, or a hotel catering hall,” Tittel said.

Readers will find answers to most of these questions both in the FAQ on this site as well as here.

But, in short, privately operated parks look just like the public ones, they are just operated less expensively.  None of our contracts allow us to add nutty new commercial facilities at will or limit access in any way.  The only differences are that we tend to actually charge less than publicly operated parks (because our costs are lower) and the facilities are in much better repair, because it is in our best interest to keep them nice (after all, Holiday Inn or McDonalds don’t make money by letting their facilities fall apart) and we don’t have to rely on the vagaries of the appropriations process get maintenance money.  Companies like ours are able to keep parks open and well-maintained using just the existing gate fees, without any additional taxpayer money — again because we are not saddled with the high costs and onerous work rules of a public agency.

To emphasize these points, we actually had a fact-finding trip of media, park officials, and legislators to two public parks in AZ, one publicly operated and one operated by a private company.  The case study from this trip is here.

Law Enforcement and Parks

As my company privately operates public parks, our employees are often taking over from state park rangers who have law enforcement credentials.  When we propose our services, we often get pushback on this issue — how are we going to live without all these law enforcement officers with arrest powers and guns and badges in the parks?

The answer I give is:  Things will be better.  It is an enormous mistake to handle customer service problems with a badge and gun and hard-ass attitude, but that is often what happens in parks.  You don’t see McDonald’s issuing citations to their customers, but state parks organizations do it all the time.

It turns out that the reason there are so many law enforcement officers in parks has nothing to do with demand — with very few exceptions, the parks we operate all require fractions of an FTE of law enforcement.  Maybe 20 hours a year per park.  But there are huge incentives for state workers to get a law enforcement license.  Beyond the psychic advantages of having a gun and badge, they typically qualify for a much richer law enforcement pension plan.   Park supervisors don’t care — the extra benefits don’t come out of their budgets.

Can Private Management Keep State Parks Open In California?

The San Francisco Chronicle addressed the issue of private management of public parks last week.  Unfortunately, despite the author’s stated goal of helping to answer questions about this approach, the article only interviewed people without any knowledge or experience with private park management and seemed to engage in some really wild speculation.  Here is the letter I wrote to the author

I was surprised at the tone of your article on December 15, titled “Private Funds or California Public Parks Questioned,” particularly the implication that private operation of public parks is somehow new and untried, thereby justifying wild speculation on its outcomes.  In fact, over 500 public parks in California are already operated privately, with examples of successful public-private partnerships that date back over 30 years.

This paragraph, which I presume is your private editorializing since it is not attributed to any source, struck me as particularly over-wrought

The question is, how will these agreements work over time? If parks remain open using donations, what is the incentive for legislators to put money for parks in the general fund budget? And who is going to stop a rich crook or pot dealer from taking a park off the closure list and using it for fiendish pursuits?\

I understand that the California State Parks system engenders deep loyalty and affection.  And if the state were proposing to entrust these vital public assets to some crazy, untried system, I suppose such hyperbolic language (“fiendish pursuits”?) might be justified.

But private management of public park operations was pioneered in California at least three decades ago by the US Forest Service.  The USFS has created a process in which the government still excercises the strictest control of park facilities, quality, fees, and access while harnessing the lower costs and innovation of private operators.  Numerous public agencies, including large park systems like the East Bay Regional Park District and the Metropolitan Water District, have used variations of this model, such that over 500 public parks are managed privately in this state alone.  You have likely been to one and never knew it.  That is because they look no different than the parks run by California State parks  — they don’t have condos or a McDonalds or billboards or anything that it is sometimes supposed private operators might build on public land.

What these parks do have is well-maintained facilities and very reasonable fees.  The facilities are well maintained because they must be by contractual obligation — they are not dependent on the vagaries of the appropriation process for their maintenance.  The reasonable fees are due to substantially lower operations costs.  Just as an example, California State Parks charges $30 a night for a no hookup camp site.  Very similar campgrounds in California in the National Forest that are operated by private companies never charge more than $22 a night for the same site, and often charge less than $20.

Our company, among many others, have operated public parks for decades.  The key is an intelligent division of responsibilities.  The public agencies we work with retain control over facility changes, conditions, fees, services offered, etc.  Companies like ours pay for all the operations, from insurance to staffing to maintenance to utilities, and pay for this solely with the gate fees already paid at the park, generally without any public subsidies.  The success of this model in keeping parks open can be seen in the US Forest Service.  The US Forest Service in California has seen its recreation budgets cut far more than have the budgets of California State parks, but in general the USFS is not talking about park closures.  They have found a more sustainable financial model for recreation operations.

Even in California State Parks, this is not a radically new idea.  While there are no California State Parks whose entire operations are managed privately today, private companies do operate large portions of a number of parks.  The conference center at Asilomar SP, the cabins at Big Redwoods Basin and Burney Falls, the stores and marinas at dozens of parks, and the tours at the Hearst Castle, are all operated privately under the close supervision of California State Parks.  And in these cases, no one expresses serious fears of Asilomar harboring drug dealers or Hearst Castle being operated for fiendish pursuits.  In fact, more than any other state in the nation, California already has the expertise and infrastructure in place to manage a private park operations program.

Remember, we are not talking about handing parks over to private entities to do with as they please  — these are highly structured relationships that substantially reduce costs because private operators can clean the bathrooms and do the landscape maintenance and staffing far less expensively than a public agency.

There are plenty of public public officials and private companies that can discuss this park operation model in more depth.  I would love the chance to discuss it with you in more depth, and there are plenty of public public officials and private companies who could demystify this for you.  And I don’t think any of us are pot dealers.

Problems with Fixed Cost Outsourcing Contracts

This is the kind of public management of private operations contracts that really drives me crazy

Phoenix gave away more than $3 million – so far – to Veolia Transportation, a transit company that operates buses throughout the city.

It’s $3,295,573.86, to be precise.

That’s how much Phoenix would have collected in fines from the French transit company had city officials not agreed to waive four month’s worth of penalties for things like late, broken or unkempt buses.

A significant savings for the Veolia executives who have Phoenix Mayor Phil Gordon’s girlfriend on their payroll as a consultant and Gordon’s good friend Billy Shields as a paid lobbyist.

And that $3.29 million tally only covers July, August and September, according to records obtained by New Times. Given that Veolia has racked up about $1 million worth of fines each month, it is likely that Phoenix also lost out on another million bucks for October.

The parties can argue back and forth about the justification for waiving of fines in this case (it was part of a settlement on a different issue).  But the fact is that, whether the fines should have been waived or not, the contractor in this case is providing measureably inferior customer service and the city is not fulfilling its oversight function to keep things on track.

Of course, before privatization opponents fall over themselves to use this as an example of why privatization should not happen, they will need to answer the question of how the city could be expected to provide quality service operating the buses itself when it fails on the fair less complicated task of monitoring an outside agency providing the service.  If the city cannot bring itself to enforce quality standards on a third party, it is unlikely it could have enforced the same quality standards on itself.

This in a nutshell is why our company only provides third part operations under concession arrangements where our revenue is 100% paid by the end user (without any government appropriations).  This way, while the public agency still must exercise oversight, the first line of accountability is provided by our desire to keep revenues up — if we do a poor job, visitors don’t come back and we lose money.   In a fixed cost relationship, which we generally won’t accept, the private company’s incentives are 100% focused on cost reduction rather than customer service — in fact, the more customers one drives off in such a relationship, the more profitable the contract.  In these arrangements (as in the example here with Violia) 100% of the accountability for quality comes from the public agency enforcing certain metrics, and as one can see, public agencies vary greatly in their ability and will to do so.

(Note:  The kind of concession-based revenue share relationship we operate under is pretty much impossible for Phoenix to use in their bus system, at least as long as they insist on running so many empty buses around town).

Symposium on Private Management of Public Parks in Arizona

The Parks and Recreation Student Association at Arizona State University had me in last week to speak.  However, through some diligent efforts of their leader, the speech really turned into a symposium on the pros and cons of private recreation management.  The speakers were:

  • Grady Gammage, Jr.  from ASU’s Morrison Institute, and author of a recent report on funding Arizona parks
  • Warren Meyer, president of Recreation Resource Management, a national operator of 150 public parks
  • Sandy Bahr, head of the Grand Canyon chapter of the Sierra Club

The video is a bit more than an hour long, but should be a helpful resource for those considering ways to keep public parks open.  Careful observers will see confirmation of two of my frequent complaints about criticism of public private partnerships in recreation:

  • It is fairly clear that most vocal public critics have not even studied actual implementations of privatization models that exist right here in Arizona, and are instead working off of hypothesized approaches that bear little reality to how things actually work on the ground
  • There is actually a lot of room for agreement between myself and critics.  Many of the fears the Sierra Club representative expresses are for functions most private companies in this business do not aspire to take over.

To the latter point, my key slide was probably this one:

I emphasized that private companies had few designs on the activities on the left, and were focused on the activities on the right.  The right-hand side tends to be a huge portion of the budget, with large opportunities for cost reduction, and I find most groups skeptical of privatization are generally more comfortable with it when it is clear the state will retain control of left-side activities.

Anyway, here is the video:

ASU Symposium: Can Public-Private Recreation Partnerships Help Arizona State Parks? from Warren Meyer on Vimeo.

New Record: Most Outlandish Critique of Privatization

This episode in outlandish critique’s comes from someone who has an impressive-sounding title — Moshe Adler, who apparently teaches economics at Columbia University and at the Harry Van Arsdale Center for Labor Studies at Empire State College.

Apparently, the city of New York uses private companies to trim trees.  Which leads us to this critique:

Possible Cause of Death: Privatization

When a branch fell from a tree at the Central Park Zoo in New York City last month, killing a 6-month-old baby and severely injuring her mother, who had been holding the infant, Mayor Michael Bloomberg declared it “an act of God.” But in all likelihood it was the act of a mayor….

City officials told The New York Times that the tree in question had been pruned twice since December. But pruning requires expertise and is time-consuming. … But it is precisely because tree maintenance requires expertise and great diligence that the responsibility for it should lie within the city, and that the person responding to reporters’ questions should be a city arborist.  Initially, city officials did not even know exactly who was in charge of maintaining the tree.

As turnkey operator for over 150 parks with many trees, part of our duty is to identify “hazard trees” that present a danger to the public and prune or remove them.  We do so in close cooperation with the USFS.  I don’t know what arborists Mr. Adler talked to, but certainly they are correct that this process takes some expertise.  However, they were either incompetent, or Mr. Adler is not reporting his full discussion with them, if they said that even the best expert can reliably identify every tree or branch that is likely to fall.

We have an aggressive hazard tree program that is conducted with US Forest Service experts looking over our shoulder, and we still miss lots of trees and branches that fall.   That is because nature is complex and unpredictable and sometime inscrutable.  Whenever we have had an accident of a tree falling and damaging something, we have an expert come out and do a post-mortem, and almost every time the diagnosis is that there was no reason to believe that branch or tree was in danger.

The contractor for tree trimming therefore could be bad or could be good – this single event does not shed much light on the problem.  Since Mr. Adler is an academic at a prestigious university like Columbia, I am sure that to be so certain, he must have done a real analysis which would logically compare incident rates with falling trees either between periods in New York with both public and private operation of the tree trimming, or else compare between cities that use different methodologies.   Given this obvious analysis, it is odd that he would not share the results with us in this article – surely a professor at Columbia isn’t just trying to draw an ideological conclusion from a single data point concerning a function with which he is not very familiar.

One wonders, further, if public servants are so flawless, why someone in New York City hasn’t thought of the idea of supervising private contractors with a public expert.  This is the kind of 90/10 solution we use with the USFS, with the Forest Service getting 90% of the cost benefit of private operations while still supervising the tree trimming and removal with a tree expert from within their organization.  This strikes me as falling into the same category of many other critiques of privatization, where the failure (if there is one in this example) is one of public management of the process rather than privatization per se.

Mr. Adler is is correct, I think, to put a heavy weight on incentives.  He feels that the incentives problem makes the diligence of public employees inherently superior.  What incentive, after all, do public employees have other than to do the right thing for the public, while profit making companies will tend to cut corners to improve profits.

First, there are certainly companies that cut corners, and the great thing about a free market is that these guys tend to get weeded out through competition.  The only exception to this is in government contracting, where mindless low-bid contracting  (my private company almost never takes the low bid when we are looking for a contractor) and poor supervision give corner-cutting private companies room to thrive.  I would argue that the continued existence and use of these type companies is a government failure rather than a private one.  Incredibly, Mr. Adler seems to agree

The body that awards the contract is not a private party acting on its own behalf but officials acting on behalf of the public, and the level of vigilance is not the same as that which occurs between private parties

As to employee incentives, while in theory public employees are supposed to serve the public, in practice their incentives tend to be an awful mess.  A big part of this problem is that  they are almost impossible to fire.  Combine this with a seniority-based pay package, and there is absolutely no incentive to perform.  I laughed when Mr. Adler wrote this:

The rationale for contracting out is always the same: cost cutting. The taxpayer will save money, it is argued, because the workers of private contractors get lower wages and fewer benefits than city employees get, and because the workers of these contractors have no protections against arbitrary dismissals.

In fact, public “protections against arbitrary dismissals” in practice become public protections against any dismissals.  The difficulty, for example, in firing a NY teacher is well documented.

Further, if a tree falls and kills someone, and there is a liability claim, the taxpayer pays for it.  What do the public managers care?  In fact, you can see this in Mr. Adler’s article, the public agency’s relative indifference to this incident.  Do you really think the agency’s indifference would not translate to workers?  What super-men is Adler positing for these public tree removal jobs — their bosses are indifferent, their pay does not change if they do a good or bad job, and they can’t be fired — but they somehow have a ruthless dedication to excellence?   Has Mr. Adler never been to the DMV  (actually, if he lives in Manhattan all his life, he may not have).

If the same event were to happen in an area we manage, the claim costs me personally money.  You can bet that if we hire indifferent employees who do a bad job, they are gone, usually in weeks.  If I was stuck for years, as the public is, with every employee we made a hiring mistake on, I would have to shut down the company.

More Privatization Ignorance

Every time I hear a rant against privatization, I hardly have to wait 30 seconds before the “you will build a McDonald’s in front of Old Faithful” card is played.  Jeff Tittle of the New Jersey Sierra Club does not disappoint:

Private companies could end up determining public access, use, and costs….

Increasing privatization means we will see more battles like privatization of Fort Hancock at Sandy Hook, or the construction of “Disney Land” in Yosemite. More state lands would be turned into country clubs, amusement parks, or cute historic themed shopping centers. We don’t want to see a historic building where Washington’s army stopped turned into a fast food shop….

The sale of naming rights creates a potential for a cultural and historical disaster. New Jersey could end up with Jello Cheesequake State Park, Jeep Liberty State Park or Fort Mott’s Applesauce State Park. This would detract from the historic significance of parks that are public assets, not corporate assets.

It just doesn’t work this way, at least not in well-managed public agencies.  Check out any of these parks here — these are all public parks that are privately managed.  All of them look natural, because they are and are required to stay that way.  In not one single contract are we allowed to, under any circumstances, determine public access or use, and in no contract can we change fees without state approval.  I suppose there are examples out there of private companies that have been allowed to build condos in what should have been a wilderness area, but is that a failure of privatization or of the government agency managing the process?  I get that Mr. Tittle does not trust the state of New Jersey to be able to structure or run these partnerships, but I wonder, given that, why he trusts them to run the parks at all?  Take this for example

The lease of Farley Marina led to scandals in which state employees got favors in exchange for illegally leasing boat slips.

That is certainly a bad outcome.  So instead of kicking out the private vendor and getting a better managed one we should, what?  Hand it back to the state agency whose employees are accepting bribes?

Private companies will emphasize the bottom line over the visitor experience.

I am sure there are ways in which these two can conflict, but I can tell you that this is a fixed cost business, and every extra visitor is therefore a treasure, financially.  Why wouldn’t a profit-making venture care about the visitor experience?  People say this kind of thing all the time in privatization discussions without even thinking about it.  Let’s fill in some other names:  McDonald’s emphasizes the bottom line over the visitor experience; Wal-Mart emphasizes the bottom line over the visitor experience; Marriott emphasizes the bottom line over the visitor experience.  Do any of these statements make sense?  In every service business I have ever heard of, the Venn diagrams of “Improves bottom line” and “Enhances visitor experience” overlap a LOT.

Some privately managed federal concessions have multiple year long waiting lists and exorbitant rates. This shift would put our parks out of reach for lower income families.

What is he talking about?   The only thing that fits this description is some of the National Park lodges.  There are waiting lists, I suppose,  because the private concessionaire is doing such a bad job and is so unconcerned over the visitor experience that they are flooded with demand (lol).  The waiting lists at these lodges are because the National Park Service will not allow expansion of the lodges (they are rightly concerned with the character of the park) and will not allow the rates to go up.  As a result, any economics book will tell you that there will be waiting lists.  In effect, the waiting lists are a result of the federal authority worrying about exactly the kinds of things  (park character and fees) that Mr. Tittle wants them to worry about.  And besides, it is totally disingenuous for the author to hint at these examples and then somehow imply that they are in any way analogous to entrance fees at state parks.  As he himself says, managing a concession within a park is totally different than operating the entire park.

Privatization in other states and at the federal level has led to increased entrance fees for camping, cabin rentals and swimming.

Incorrect.   Totally.  Privatization has led to a reduction in the cost of operation of these parks, and thus has reduced pressure on fees.  The US Forest Service, which uses a lot of concessionaires to run whole recreation areas, used to subsidize recreation fees with timber revenue.  When, through the efforts of organizations like the Sierra Club, these timber sales went away, Congress refused to fill in the gap in recreation funding and thus the USFS was forced to cease subsidizing user fees.  Had the USFS not relied on more efficient private operators, fees would have gone up more and many USFS facilities would have closed.

Because private companies can operate much more inexpensively, our rates are often lower.  In Arizona, Arizona State Parks charges $20 in the summer per car at Slide Rock State Park.  Next door at Grasshopper point, a similar day use area in the US Forest Service, we charge $8 per car.  In California, California State Parks charges $30 for a camp site with no utilities.  In the public campgrounds we operate in California, we charge no camping fee for a similar site higher than $18.   When California State Parks recently raised camping rates, they demanded that we raise the rates proportionately on the cabins we operate in one state park — we refused.  In New Jersey, Island Beach State Park charges $20 per night for no-hookup camping.  With only one or two exceptions, none of our no-hookup camp sites rent for more than $18 a night.  New Jersey typically charges $5-$10 per car for day use visits.  Across the country, we charge between $5 and $8.

There is pretty much nothing in this criticism that is not addressed in my FAQ on public private recreation partnerships, so I refer you there for more information.

Park Privitization Debate in New York

Len Gilroy of Reason debates in favor of park privatization in New York as an alternative to park closures in their budget crisis.

Ignorance, or Knowing Misinformation

This comes from New Jersey:

As the Christie administration considers privatizing New Jersey’s state parks and forests in order to keep them open and run more efficiently in tough budget times, environmental groups say the public could lose access to the open spaces if private vendors or corporations move in.

“The [DEP] commissioner said they were going to keep parks open, but with those kinds of [budget] cuts I don’t know how they are going to be able to run programs or have services at our parks,” said Jeff Tittel, the executive director of the Sierra Club in New Jersey. “These lands were bought by the public for public use and when you start privatizing it can change the hold dynamic on how we use or visit our parks.”

Tittel said private operators would potentially be under no obligation to guarantee public access.

“There’s a difference between having outsiders come in and let’s say run a concession stand like hot dogs or kayaking and things like that, versus actually managing the parks because they are going to be managing for a profit,” he said. “What we’ve seen happen in other states is that services go down and fees go up, and public use gets pushed to the side.”

Again, we see someone hypothesizing harms from public-private partnerships in recreation without ever having actually, you know, checked to see how it works in practice.  In reality, well-managed public-private recreation partnerships almost never fulfill these fears, though I will say these are the standard bogeymen trotted out whenever the privatization concept is raised.   Most of these issues are addressed in this FAQ, but a few quick thoughts:

  • Our company has 30 recreation operations contracts.  We don’t have a single one that allows us to change services, facilities or fees without the written permission of the parks agency
  • In a number of states, including Arizona and California, we operate facilities side-by-side with public agencies and in nearly every case, the fees we charge for similar facilities are lower than those of the state agency.  For example, in Oak Creek Canyon, Arizona State Parks charges $20 per vehicle to park at Slide Rock Park while right next door we charge between $8 and $10 at US Forest Service parks.  In California, standard State Park camping fees have risen to $30 for a site without utilities, while we charge no camping fee for a similar site higher than $18 at any of the facilities we operate.
  • At the end of the day, our company can run facilities to the same quality level much less expensively than can the civil service bureaucracy of most states.  Many folks who only deal with public management are unused to thinking in terms of productivity increases, and so assume reduced costs can only be obtained with decreased services.  While this is true in government jobs dominated by public sector unions that resist productivity increases, it is not true of the private sector.

I have run the numbers on New Jersey parks, and run their facilities and revenues through our costing models, and there are a number that may soon be closed that we could easily keep open without public subsidies — ie operate them within current fees collected.  One false assumptions embodied in this piece may be a vision that privatization means complete takeover of the public parks organization. In fact, though, in public-private partnerships, the public sector retains many responsibilities, and is only privatizing operational tasks.  Here is a picture of the typical public-private partnership in recreation:

Does Privatization Just Cherry Pick the Best Parks, Leaving Agencies Worse Off

A researcher for ASU’s Morrison Institute wrote me, as part of an email exchange:

“There is a fear, which I share, that privatization will peel off those parks that are either profitable or close to profitable”

This is a criticism I hear quite a bit, though I am not sure from what experience this even originates.  Some concerns expressed to me have real origins – for example, there have been poor-quality concessionaires and there have been local politicians who gave developers sweetheart real estate deals on public parks land, against the interest of the general public.  But I am not sure I know of any cases where public procurement strategy has been so short-sighted that it made this kind of mistake  (again, we see in this challenge the now typical rhetorical error of blaming a public failure, in this case poor contracting strategy, on private actors.)  My response:

  • We and other companies operate many whole “systems” in the US Forest Service, the largest public recreation agency in the world – a system being all the campgrounds and facilities in a geographic area.  In fact, this is really the only way the USFS offers parks nowadays in concession contracts, as regional mixes embodying all the parks under their umbrella, large and small.    In these contracts, money-losing small facilities are combined with larger facilities into a contract that can be economic while not leaving any parks stranded.  I operate campgrounds as small as 6 spaces, which clearly are not profitable on their own, but I do so as part of a larger contract.
  • While I have offered on some or all of 6 Arizona State Parks (ASP) parks, I did so to get ASP’s attention.  In addition to these 6, my offer very clearly states that I could likely run many of the smaller ones as well in a package with these 6 or 7, but that I needed a bit of help from ASP with some simple due diligence (e.g. electricity bills).  The only thing stopping me from offering on a large spread of both small and large parks is the absolute resistance of ASP to even talk to me.  There are some limitations to what I can offer totally blind, but these limitations have more to do with the lack of cooperation from ASP than any inherent limitation in our or a similar company’s ability to operate a broad mix of parks.
  • I am not sure why it is somehow gutting ASP to take money losing parks off their hands, even if they are close to breakeven.  First, they are still losing money.  Second, we are proposing to pay rent to the state — it would surprise me if a multi-year competitively bid contract for Alamo Lake or Lost Dutchman went for less than 10-12% rent.  This means converting a $10-$20 thousand dollar loss to a $30-$40 thousand gain for the state at each park.  And this is bad, why?
  • Companies like mine don’t “peel off” parks.  How could we?  We bid on parks packages as offered by public agencies.  There is nothing stopping AZ State Parks from offering a package of parks with the mix they want, not what private companies might want. This is what other thoughtful public recreation agencies do.  Positing any other outcome is merely to assume ASP is not competent in their procurement strategy.
  • Frankly, I have plugged the whole ASP park system into my cost models and I could easily run the recreation operations of the entire Arizona parks system, little ones and all, within the 2009 gate fees (without subsidies and without the 2010 ASP fee increases).  I haven’t made that offer, because it would scare the bejesus out of them.  But suffice it to say that ASP could easily find homes for most all the smaller parks with a thoughtful procurement strategy that mixes small and large parks in contracts — the USFS has been doing this for years

Morrison Institute Flub

I have never had much interaction with ASU’s Morrison Institute, a public policy school that seems to be held in fairly high esteem.  But I was unbelievably disappointed to read their report on revitalizing Arizona State Parks.  The document seems to be just a slick collection of all the State Parks organization’s talking points credibility stamped with the imprimatur of the Morrison Institute.

I am obviously not happy that the report is dismissive of private management options as a partial solution, but it is the way they were dismissive that irritates me.  They do not appear to have interviewed or studied a single private recreation operator, nor do they seem to have interviewed or studied a single government agency (like the Forest Service) that uses private operators.  All they include are a series of five or six highly negative quotes from Arizona State Parks employees that privatization is the worst idea ever.  These quotes are full of misconceptions that could have been reversed with, oh say, thirty seconds of actual, you know, scholarship.  It is roughly equivalent to doing a research project on Microsoft Windows by solely interviewing Apple employees.

Welcome Wild Wilderness Readers

Apparently I am the villain du jour at Wild Wilderness, a site that states its mission in part as:

When you venture in to the wilderness, do you seek nature and solitude or ticket lines and two-stroke engines? If recreation industry heavyweights have their way, your next walk in the woods will start at a toll booth and end in a gift shop with canned entertainment along the way.

Why? Because cash-strapped federal land managers have turned to corporate America to fill gaping budget holes. So the public must now pay private concessionaires to take a walk on public lands. Tent campsites are being paved over to build more lucrative RV parks. And hundreds of thousands of acres of public lands are being auctioned off.

I found my vilification at that site to be a bit odd, as I tend to be a big supporter of public recreation.  While there may be private companies doing things I am unfamiliar with, I can’t even imagine spending my time trying to add elaborate facilities the public doesn’t want to wilderness areas.  First, what a waste of time, even if I wanted to!  I can build any campground I want on private land, so why fight the complicated land use rules on public lands?  Second, I don’t have the interest — if I wanted to run highly developed campgrounds, I would be running KOA franchises.  Third, I don’t have the time.

What keeps me busy is trying to keep parks open and preserve public recreation by running recreation areas at a lower costs than can the public agency itself.  The Wild Wilderness folks would like to see all public recreation fully funded from general revenues without the need for fees or private companies, but my sense is that this is a reality that is long gone.  Federal, state, local parks are closing because elected officials cannot or will not fully fund recreation from the treasury.  When government agencies are not able to run these parks with the fee revenues at the gate, either fees go way up or the parks close (you folks in CA and AZ are seeing both of these happen).  We are trying to offer a third way, to keep parks open with private management.

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.  We currently have a proposal, for example, to operate six Arizona State Parks that are being closed — and we propose doing so without the fee increase AZ State Parks is imposing at its other parks.

Just check out a site like camparizona.com, which ranks the public’s favorite campgrounds in the state.  We run the #2, #4, and #5 campgrounds on the 2009 list.  All are in beautiful natural settings without a Starbuck’s or other corporate investment in site.  And all are ranked higher than most facilities run by the government.  Why?  Because I am as smart as you guys are.  If I asked you, I am sure you would say that if you ran the parks, you would never want to change their essential natural character, because that is what makes them attractive to visitors.  Give me credit for understanding that too.  The whole developed travel business got hammered in the recession last year.   While Westin struggled to sell $400 rooms, I had a record year offering affordable $16 camping to cash-strapped families looking to recreate during hard times.  Why would you assume I would want to change that?

Postscript: The USFS is beginning their planning process, and is having hearings here.  For some reason, the largest recreation provider in the world does not mention recreation in its planning topics, but I presume they will take comments from the public on anything.  In my vision, the USFS would, as part of its planning process, clearly designate individual recreation areas as to the character that should be maintained.  They have a designation system related to fees, but they really need a system that says what investments are appropriate for certain facilities – ie facility X will always be a tent camping site and no paved sites or RV hookups will be added.  Such a process would, I think, be of help to some of the concerns of Wild Wilderness readers.  The RVers (not me!) put tremendous pressure on the USFS to pave sites, add amenities, etc.  Despite the assertions on the Wild Wilderness site, these improvements don’t make the site any more profitable for our company.

Let me give one example of what a real planning process might address.  I hate generators when I camp.  Others love them, so fine, but in the campgrounds we run we are pretty diligent about enforcing quiet hours.  Why couldn’t there by no-generator campgrounds in the USFS?  I would love to designate a couple, but am not allowed to by the USFS (I know everyone seems to think I control the USFS, but we can barely change the brand of toilet paper we use without permission).  This kind of designation system would be a great kind of planning process, and could ensure a mix of facilities existed in every state for a variety of different visitor interests.

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.

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.

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.

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.