Archive for the ‘Privatization Initiatives’ Category.

Rethinking California Parks

The Little Hoover Commission, a sort of internal consulting arm attached to the California legislature, has released a report called “Beyond Crisis: Recapturing Excellence in California’s State Park System“.

I am still skimming the report.  Certainly private partnerships play a role in the recommendations, but they appear to be the more tepid “private partnerships to increase revenue” rather than the more impactful “private partnerships to reduce operating costs.”  At best, private partnerships might generate a few extra million dollars in park revenues, but private operations could cut park operations costs by half, or by over $100 million.

Private Park Operations on the Freakonomics Blog

A nice article on the private park operations contracts recently issued to keep some California State Parks open.  In particular, I cheered at this:

The experiment upon which the state is set to embark will provide an opportunity to compare the relative efficacy of resource management provided by central government control, private ownership, and local cooperation.

I welcome this comparison.  In fact, I long for it.  Beg for it.  I have always thought it was telling that for all the skepticism aimed at private operations of public facilities, the private operators in this case are the ones who have been begging for an independent comparison of costs and results, while state agencies have resisted such studies.  I wrote in the comments:

I was one of four private companies that bid on these parks. One thing that is often lost in all this is that there are over 1000 very similar public parks already under management in a USFS service program that dates back over 30 years. Three of the four bidders for the CA parks, and the winning bidder, came from this program.

I applaud your observation that a natural experiment seems to exist here. But the odd part, for me, is that such an experiment has existed for decades, and no one wants to follow up. Here in AZ, AZ state parks has 35-ish parks under its management and our company has 35-ish federal parks under private management. Many are next door to each other. But it turned out to be virtually impossible to get the faculty at Arizona State who was preparing recommendations on private management, or the press, or the agency itself to actually do the comparison. Everyone wants to hypothesize on the results based on their faith or lack thereof in private enterprise, no one wants to do a direct comparison.

This frustrated me since I knew we managed the parks at half the cost, and had better customer service (camparizona.com ranks public campgrounds. In the survey taken a year or so ago our company had 3 of the top 5 public campgrounds under our management, and the state parks agency had zero)

I tried to do one direct comparison on my own: http://parkprivatization.com/2012/01/case-study-private-vs-public-park-operations/. It would be awesome if someone in academia were to take this on. Those interested should contact me at my park blog: http://www.parkppp.com.

By the way, it is incorrect to talk about loss of control to private operators. All of our contracts are highly structured with hundreds of pages of standards and restrictions. We cannot add a new service, modify or add structures or facilities, change fees, or most anything else without seeking approval from the parks agency. The agency still establishes the character and services and facilities of the park – we just provide the customer service and cleaning much less expensively.

These contracts are almost always structured as concession agreements, meaning the private operator gets paid just with gate fees from the customer, not with appropriations. If customers hate the park or the service, no revenues. I get asked all the time, “won’t you just stop cleaning the bathrooms so you can make more money.” I answer, “Sure, same way that McDonalds and Marriott and Nordstroms make most of their money by not cleaning their bathrooms.”

California State Parks Selects Private Operator to Keep Parks Open

See the whole story in the WSJ here.  Unfortunately, it is behind a pay wall.  Here is an excerpt:

California is close to finalizing bids from private companies to take over day-to-day operations of six state parks, including Brannan Island here, in an unprecedented step by the state to prevent mass park closures after stiff budget cuts.

On Monday, the state expects to finish its first corporate agreement, under which American Land & Leisure Co. would take over operations of three state parks for five years, the California Department of Parks and Recreation said. Three other state parks also are slated for private management, which covers running all concessions, visitor services, security and parks’ legal liabilities. The state will maintain ownership of the park lands.

The corporate bids are part of California’s last-ditch effort to keep more state parks open. The nation’s second-biggest parks system by area after Alaska’s has been in a tailspin in recent years, with annual funding slashed by $23 million—or 20%—since 2009.

California Issues RFP For Private Operation of Five State Parks

Via Leonard Gilroy of Reason

For years, Reason Foundation has recommended that cash-strapped states consider tapping the private sector to take over operations of state parks as a means to lower costs and rescue parks threatened with closure in a difficult budget environment. Both the U.S. Forest Service (USFS) and BC Parks (British Columbia) have long pioneered the use of public-private partnerships (PPPs) for park operations, but states have been slow to follow their lead…until now, that is.

California State Parks (CSP) has issued a new request for proposals (RFP) seeking a five-year concession contract (or contracts) to operate campground and day use recreational areas at five park units in the Central Valley (Turlock Lake SRA, McConnell SRA, George J. Hatfield SRA, Woodson Bridge SRA, and Brannan Island SRA). This is the first serious and robust parks PPP procurement of its kind at the state level. The RFP is here, and CSP’s sample contract is here. Bidder responses are due on May 1.

The contract would be structured as a concession, a commercial lease through which the state would retain ownership and control over the parks while paying the private operator nothing to operate them. Instead, the private operator would be allowed to retain the user fee revenues (e.g., gate entry fees, camping fees, etc.), in return for an obligation to pay a set percentage back to the state annually as a form of rent. CSP has set a minimum annual rent level for each park that bidders must exceed in their proposals. Bidders can submit proposals for individual parks, but the procurement is designed to give maximum weight to those proposals that cover all five parks. In fact, the parks in question appear to be a mix of revenue generating and revenue losing parks (once operating costs are factored in), so bundling all of them together is likely to be an attractive option to bidders to maximize their ability to mitigate risks.

While this sort of arrangement is quite common at the Federal and local level, state parks agencies have resisted it for a variety of reasons.  Now, however, with increasingly high user fees failing to cover the cost of expensive government operations, and with parks facing failing infrastructure and even closure, more state parks agencies are considering this approach.   California State Parks is both the largest and in many ways most respected state parks agency in the country, so this step may help give increased impetus to private operations proposals in other states.

It will be interesting to see what public reaction will be.  Traditionally, environmental groups and state workers unions have opposed this approach, often not realizing many of the parks they already use and enjoy are already privately operated.  For example, in California, over 500 Federal and local public parks and campgrounds are privately operated, including most of the recreation areas in the US Forest Service.

Update: Apparently one Canadian province is considering a similar initiative

Hostility to Reducing Costs via Private Operations

California makes noises about being open to any option that keeps parks open, but then I see stuff like this, demonstrating that the legislature cares far more about protecting current government jobs than it does about reducing costs or maintaining services to the public

Apparently, the folks in Sacramento believe that cities looking for ways to reduce expenses are better off with no libraries at all than with privately operated libraries.

Assembly Bill 438, sponsored by Assemblyman Das Williams, D-Santa Barbara, is headed to Gov. Jerry Brown’s desk because Democrats in Sacramento voted to control local decisions and prevent cities from making choices about what is best for their own libraries.

The bill represents a dramatic overreach by Sacramento into local communities. Via AB438 the Legislature mandates that cities choosing to privatize are not allowed to reduce the size of their library staffs. Further, the bill mandates that every single current library employee must keep his or her job in any future public-private partnership agreement, which explains why powerful unions have been pushing the bill. Cities will also be forced to spend time and money preparing and submitting studies and reports to Sacramento in order to obtain the state’s permission to privatize.

“We hope the governor will veto the bill, since he has talked a lot about the importance of retaining local authority,” said Dan Carrigg of the League of California Cities.

California has been a national leader in partnering with the private sector to operate libraries. In fact, the first-ever public-private partnership between a local government and private operator was signed in 1997 between Riverside County and Library Systems & Services Inc. and this agreement is still in place today.

How did that work out?

In June 2010, Riverside County published a report highlighting the results of their 13-year partnership with LSSI. The study found taxpayers have enjoyed better services with longer operating hours. Staffing has more than doubled. The number of open library branches increased from 24 to 33 and more than $15 million was invested in new facilities or major renovations.

Florida Considers Private Management of Parks

From FlaglerLive.com

The  Division of Environmental Protection is proposing to partially privatize 56 parks, including Washington Oaks Garden State Park and Faver-Dykes State Park. The proposal is being submitted to the state Acquisition and Restoration Council next Friday (June 10) as an expansion of camping and RV opportunities at those sites. But the camping and RV sites would be built and operated by private companies.

The council is an 11-member panel with representatives from five state agencies who rank the state’s environmentally sensitive land-acquisition priorities through the Florida Forever program. Florida Forever has essentially lost its funding, leaving the council to focus on its other mission: reviewing management plans for state parks and conservation lands.

Opening parks up to camping and RV sites falls under park management plans, which would have to be amended to enable the change. Those plans, called the “unit management plan,” are reworked every 10 years, with public hearings and involvement. Washington Oaks’ 10-year plan is about two years away from just such a review. DEP is asking the council to accelerate the process, though it would also make provisions for a public “meeting” at each affected park. The DEP’s proposal does not specify a formal public hearing, though that may be a matter of semantics.

“The new facilities will be designed, constructed and operated by private entities selected through the department’s procedures for soliciting and contracting state park concession services,” the DEP’ssummary proposal reads. “The Department will retain full control over all aspects of planning, design, construction and operation of the new facilities to ensure consistency with the mission and quality standards of the state park system. This system-wide expansion of camping opportunities will increase the level of public benefits state parks provide, enhance the economic benefits of state parks, create jobs, and move the state park system closer to economic self-sufficiency.”

A Nice Parks Study in Utah

I have been disappointed with quality of analysis in some of the recent consulting studies that have come out in Arizona on parks and privatization.  In particular, one study early this year interviewed something like 60 employees of various state and local government agencies on privatization — but not a single one of these 60 or their agencies had any experience with concession management of whole parks.  It still puzzles me why the US Forest Service, which is right here in the state and has concession operation of whole parks in over 40 parks in Arizona, has apparently been ignored by every Arizona study on the topic.

Anyway, that is all water under the bridge.  I recently saw a study by a group in the Utah legislature on parks and how to make their state parks more financially sustainable.  While I quibble with some of it and would have done some things differently, it is one of the best public studies I have seen to date on this topic.  It actually gets at the elephant in the room that most studies ignore (ie park employee compensation rates) and even addresses some more subtle issues that are often missed (eg. proliferation of law enforcement titles due to individual incentives to seek such titles rather than demand for law enforcement).  I have linked the study below, which is a fairly large pdf.

Utah state parks audit

Private Operation a Potential Alternative to Closures in California

From KCRA.com

Two California lawmakers are seeking answers concerning a list of state park closures that has yet to be released. Sen. Tom Harman, R-Huntington Beach, and Assemblyman Jim Nielsen, R-Gerber, want State Parks Director Ruth Coleman to provide information on what options are being explored to avoid expected closures.

Nielsen told KCRA Thursday he believes there is a path that could avoid park closures altogether.

“Public-private partnerships are but another consideration to assure that our parks are open and well-maintained,” said Nielsen. “There are even a lot of things local governments can do, some of which might want to take over the parks themselves.”

Parks spokesman Roy Stearns said that public-private partnerships are one option being considered

New Approach to Funding State Parks

The following is a guest editorial, which has appeared in a number of California newspapers, from John Koeberer, head of the California Park Hospitality Association (of which I am also a board member).

The prospect of California State Park closures is again in the news as the State of California deals with its continuing budget crisis.  There are, however, private alternatives that should be considered before closing the parks.

Increased public funding of the parks just isn’t an option.  The failure of Proposition 21 last November made that clear.  By soundly defeating the proposition, voters declared their opposition to increasing taxes to maintain state parks as they are today.  Countless surveys and actual park use demonstrate that while Californians love their state parks, they also want them managed within available resources.

The State of California has exhausted the governmental solutions to the dilemma.  And so, California State Parks have no alternatives other than to close parks or find non-governmental funding solutions to sustain them.   In the past, privately funded solutions have been dismissed out of hand.  Though today, no solution that would keep our state park system viable should be discarded.  So, let’s consider these alternatives:

Close Some State Parks. As a park professional, it is difficult for me to even mouth the obvious, but some parks don’t belong in the state park system.  Most of these are among the smallest of our parks and lack any semblance of statewide historical, natural, cultural, recreational or economic significance.  They were often added in response to political influence, when funding was more available or when state government was on an acquisition spree.  California needs an independent task force (similar to the Defense Base Closure & Realignment Commission) to assess which parks should be retained and which should be buttoned up and maintained until times are better.   The task force might also recommend which parks are likely candidates for adoption by non-profits, local park districts or other sympathetic entities that are able to operate and maintain them.  Potential savings from this assessment could be substantial.

Private Management.  Many parks could be packaged on a regional basis for private-sector management, while others have sufficient real or potential revenues to be managed on their own.   Private enterprise has shown it can accrue operating savings on an average of 30% better than government while managing park facilities comparably.  Under this scenario, supervision and protection (public safety, natural resource protection, etc.) of the parks would remain under the direction of a California State Parks superintendent.  Depending upon need and appropriateness, functions like maintenance, janitorial, fee collection, interpretation and limited and contracted security could be assumed by private contractors.  These functions represent the lion’s share of the overall costs to keep parks open.  There is significant precedent for this type of arrangement across the country.  The savings (both human and financial) could be substantial and could support and manage more effectively parks still directly operated by the California State Parks.

Innovate Revenue-generating Solutions. Many innovative, privately-managed ways to raise funds are available to state parks, including: automated fee-collection at park entrances, parking lots and showers that could collect revenue 24/7 at a fraction of the cost of manned kiosks; more privately owned and managed tent cabins, park models, yurts, and other popular new forms of alternative camping that could generate added revenue for the parks; and special events (concerts, competitions and spectator events) that could generate substantial new receipts for parks.  Programs and policies that encourage private investment could attract new types of tour, recreational and interpretive programs to parks while appealing to new audiences of park users.  To its credit, California State Parks is now surveying tour companies to investigate more profitable ways to provide tours.  A top-to-bottom review of outdated state park policies could result in substantial gains in fee collections, such as at Hearst Castle where significant revenue is lost because of current approaches.   More revenue can be generated without additional investment by state government.  In many cases, existing park concessionaires would be willing to expand their operations via amendments to their contracts, in ways that increase revenue to the state, sustain and improve upon the park experience, and preserve park values.

Challenge Concessionaires for Solutions. It is in the DNA of entrepreneurs to invent new ways to stimulate revenue.  Do that by challenging state park concessionaires to propose revenue-producing ideas and programs appropriate to the parks. Private capital can be attracted for park improvements when equitable opportunities for a return on the investment are given.  Many such investments in facilities and equipment could be left in state park ownership at the conclusion of the contracts with these private companies, allowing the state parks to attract even greater fee revenue upon the contracts’ rebid.

Employ a Management Consultant. Considering that the old approaches aren’t working, it’s time for a fresh start.  Take this opportunity to reinvent how state parks are managed and operated.  Major U.S. corporations and non-profit organizations often employ private management consultants to help them conceive new approaches.  By doing so, they stay competitive, vital and relevant.  Although private and public missions are different — innovative and effective management practices, policies and techniques are applicable to both worlds.  There are very few governmental agencies that could not benefit from an external review and analysis.

All of the preceding private-sector approaches can be accomplished at little to no cost.  They are not panaceas for the crisis facing our state parks but represent departures from past approaches.  The many private park management companies now operating in public parks across the nation demonstrate that most criticisms of private solutions are unfounded.  In the light of funding realities, past reluctance by the legislature and labor to involve the private sector must be overcome if California is to sustain its state park system.

The California State Park funding crisis has given our state the opportunity to redefine how our parks are managed in ways that will assure their quality, relevance and access for Californians now and into the future.  If we can muster the political will to welcome new ideas from the private sector, while keeping park operations overseen by California State Parks professionals, then impending closures to and the rapid deterioration of the state park system does not need to be inevitable.

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).

Arizona Urged to Privatize Parks

From the AZ Daily Star

The state should pursue more opportunities to turn parks over to private companies, or at least let them operate retail concessions, a panel appointed by Gov. Jan Brewer to study government recommended Tuesday.The initial report by the Commission on Privatization and Efficiency suggested turning more of government over to the private sector. Members also want to push Congress to repeal laws that now prohibit the state from letting private firms set up shop in rest areas along interstate highways.

But state Gaming Director Mark Brnovich, whom Brewer named to head the panel, said this is only the first step. He said the nine-member commission, all handpicked by the governor, is predisposed to believe that if a government service can be privatized, it probably should be.

“Like the governor, members of the commission are strong believers in the free-enterprise system and the free market,” Brnovich said in an interview. “History has shown that the private sector is able to come up with innovative and, very often, cost-effective solutions to problems.”

Brnovich acknowledged that private companies, unlike government, must make a profit. But he said commission members don’t see this as meaning higher costs for taxpayers.

“The free-market system, capitalism, works because folks are forced to come up with better ideas and create greater efficiencies and come up with new innovations,” Brnovich said. He calls it the “Yellow Book test.”

Arizona Parks Proposals

Arizona State Parks has actually issued a proposal for a whole-park concession.  Here is the AP story, which quotes me at the end.  Rather than run the quote they used for the article, here is my entire set of comments I sent to the reporter:

1.  Our company (and many others) operate public parks in public-private partnerships, and have been doing so for decades.  In certain agencies, such as the US Forest Service (USFS) or the Tennessee Valley Authority, this is totally accepted practice.  It is also accepted practice in any number of cities and counties.  Why state parks organizations have typically resisted this model, when so many other public recreation and conservation agencies have adopted it, is somewhat of a mystery to me.

2.  The Oracle RFP is pretty thin gruel.  When I presented to both Arizona State Parks (ASP) and the legislature some months ago (not last week as in your email), I said that there were many parks on their closure list that were standalone business opportunities but Oracle was not one of them.  I said that Oracle could probably be included packaged with another nearby park — I run many parks that lose money but are packaged with other parks that make money so the whole package is still attractive.  Also, by putting together several parks in one area, there are certain economies of scale in management and operations to be gained.  I have not been able to debrief my COO who went to the Oracle meeting, but his general sense was that the Oracle was encumbered with many restrictions that almost guaranteed it could not be a good commercial opportunity.  We are able to operate parks with much lower costs than can ASP at similar or superior quality levels, but at some point the revenue gets too small even for us to make work, and Oracle may well be such a case.  I am working from memory, but I think the state brings in about $20-$30K a year at Oracle and spend about $280,000 to operate the park.  Even if we cut the costs by 75%, it still does not come close to working.

3.  About 3 months ago, a guy named Leonard Gilroy, a local resident who works for the Reason Foundation, told me this:  He said the number one play in the anti-privatization playbook was to pick the absolute worst commercial opportunity in whatever organization that is facing privatization pressure, offer it as an RFP, and then when there are inevitably no private bids, say “see, we tried but privatization does not work — no one will bid on these parks.”  Given that I was told this months ago, I have to look on the Oracle RFP with some suspicion that it was purposely selected to be a poor opportunity in order to blunt the pressure for privatization.  However, this may be unfair as it is impossible as a third party to read motivations.  I know, however, that ASP 2nd in command Jay Ream has gone on the record at a public meeting for Lost Dutchman SP that he is in complete and total opposition to privatization or public private partnerships of any sort.  For this reason, our company has not ruled out bidding on Oracle, even if it is a money loser, merely to pre-empt this strategy

4.  I have not heard anything about Lyman Lake, so such an RFP is new information for me.  A whole-park RFP for Lyman Lake structured along the lines that the US Forest Service routinely offers these contracts might be a good opportunity for a private company.

5.  I would encourage you to visit my blog at www.parkparivatization.com.  The same exact arguments are used over and over against public-private partnerships in parks and these are addressed throughout the blog, but in a compact form right at the top in the FAQ.  ASP (and in fact most state parks organizations) acts like this is some kind of risky new rocket science.  In fact, our company does this all across the country, and runs 35 whole parks and campgrounds for the US Forest Service right here in Arizona.  Check our web site at www.camprrm.com for locations.  What has frustrated me through this debate is that nobody (including notably nobody from the Arizona Republic or Arizona State Parks) has bothered to do any basic due diligence on recreation public-private partnerships when we have numerous examples right here in the state.  Heather Procincio, district ranger for the USFS in Sedona (Red Rock District) could easily discuss the 20+ year history of the USFS having private companies manage nearly all of its recreation areas in the Coconino NF.  Brian Poturalski in the USFS Mormon Lakes / peaks ranger district in Flagstaff also knows a lot of the history.  The USFS is the largest public recreation organization in the world and has hundreds of contracts to privately operate parks and has been doing this for decades.

New Jersey Privatization Task Force

Apparently NJ is taking a very aggressive look at public-private partnerships to help close their huge budget gaps.  Recreation was near the top of the list

Park management concession agreements: Having written numerous articles in recent months suggesting that states embrace the private operation of state parks—something relatively “new” to states, but common at the federal level—it was particularly rewarding to see the Task Force embrace the concept, recommending that the state should enter into one or more long‐term concession agreements with private recreation firms for the operation and management of all state parks. Annual savings to the state were estimated to range between $6-8 million annually, a significant sum relative to overall park spending. This is the boldest, most sweeping call for state park privatization that I’ve personally ever seen at the state level, and Gov. Christie and NJ State Parks have an opportunity to blaze a new and transformational path forward on state parks management that policymakers in every state should be watching closely.