Archive for the ‘Private Recreation Management’ Category.

Stop Calling Crony Corporatism "Public Private Partnerships"

As someone whose company engages is what is usually called "public-private partnerships" or PPPs, one would expect me to be an enthusiastic supporter of all such efforts.  (As an aside, my company privatizes the operation, but not the ownership, of public parks and we are paid entirely by user fees and get not one single dollar of tax money.)

But I totally agree with Randal O'Toole's frustration here, talking about light rail in Denver:

Now RTD has been forced to admit that two other lines being built by the same company won’t open on time. RTD claims that it saved money by entering into a public-private partnership for the line in what is known as a “design-build-operate” contract. In fact, it saved no money at all, but was merely getting around a bond limit the voters had imposed on the agency. If the private contractor borrows a billion dollars or so and RTD agrees to pay the contractor enough to repay the loan, the debt doesn’t appear on RTD’s books. Taxpayers will still end up paying interest in the loans, which actually makes it more expensive than if RTD had stayed within its debt limit.

Public-private partnerships work great if the private partner is funded out of the user fees collected for the project, such as a toll road or water system. The Antiplanner resents the way the transit industry has coopted the term, public-private partnership, because their kind of partnership works differently. Instead of being dependent on fares, the private partner gets a fat check from the agency each month–up to $3.5 million in this case–whether anyone rides the train or not. This means the private partner has little incentive to make sure the system is working. RTD has withheld a portion of the monthly payments until the problems are solved, but eventually the contractor will get all of the money.

The solution isn’t for the agencies to build the lines themselves. The solution is to completely avoid megaprojects that aren’t funded out of user fees. Without the discipline of user fees, everything that’s happening with the A line should have been expected.

In Defense of Profits -- Why They Are At Least As Moral as Wages

Quick background:  my company privately operates public parks, making our money solely from the entry fees voluntarily paid by visitors and campers.  We don't get paid a single dollar of tax money.

A major partner of ours is the US Forest Service (USFS), which actually operates more recreation sites than any other agency in the world (the National Park Service has a higher profile and the Corps of Engineers has more visitors, but the USFS is the most ubiquitous).  Despite the USFS being an early pioneer of using private companies to reduce the operating costs of parks and campgrounds, the USFS still has a large number of employees opposed to what we do.  The most typical statement I hear from USFS employees that summarizes this opposition -- and it is quite common to hear it -- is that "It is wrong to make a profit on public lands."

It would be hard to understate the passion with which certain USFS employees hold to this belief.   I discovered, entirely accidentally through a FOIA request my trade group had submitted to the USFS, that a Forest Supervisor in California (a fairly senior person in the USFS management structure) whom I have never met or even had a conversation with circulated emails through the agency about how evil he thought I was.

This general distaste for profit, which is seen as "dirty" in contrast to wages which are relatively "clean" (at least up to some number beyond which they are dirty again), is not limited to the USFS or even to government agencies in general, but permeates much of the public.  As a result, I thought I would describe a conversation I had with a USFS manager (actually this is the merger of two conversations).  The conversation below had been going on for a while discussing technical topics, and we will pick it up when the District Ranger makes the statement highlighted above (a District Ranger is the lowest level line officer in the USFS, responsible in some cases for the land management functions of an area the size of a county.  I have cleaned up the text (I am sure the sentences would not be as well-formed if I had a transcript) but I think this captures the gist of it:

Ranger:  I think it's wrong that you make a profit on public lands

Me:  So you work for free?

Ranger:  Huh?

Me:  If you think it's wrong to make money on public lands, I assume you must volunteer, else you too would be making money on public lands

Ranger:  No, of course I get paid.

Me:  Well, I know what I make for profit in your District, and I have a good guess what your salary probably is, and I can assure you that you make at least twice as much as me on these public lands.

Ranger:  But that is totally different.

Me:  How?

At this point I need to help the Ranger out.  He struggled to put his thoughts on this into words.  I will summarize it in the nicest possible way by saying he thought that while his wage was honorable, my profit was dishonorable, or perhaps more accurately, that his wage paid by the government was consistent with the spirit of the public lands whereas my profit was not consistent

Me:  I'm not sure why.  My profit is similar to your wage in that it is the way I get paid for my effort on this land -- efforts that are generally entirely in harmony with yours as we are both trying to serve visitors and protect the natural resources here.    But unlike your wage, my profit is also a return on the investment I have made.  Every truck, uniform, and tool we use comes out of my profit, whereas you get all the tools you need paid for by your employer above and beyond your salary.  Further, your salary is virtually guaranteed to you, short of some staggering malfeasance.  Even if you do a bad job you likely would just get shunted to a less interesting staff position at the same salary, rather than fired.   On the other hand if I do a bad job, or if one of my employees slips up, or even if some absolutely random occurrence entirely outside my control occurs (like, say, a flood that closes our operations) my profit can completely evaporate, or even turn into a loss.  So like you, I get paid for my efforts here on public lands, but I have to take risk and make investments that aren't required of you.  So what about that makes my profit less honorable than your wage?

Ranger:  Working on public lands should be a public service, not for profit

Me:  Well, I think you are starting to make the argument again that you should be volunteering and not taking a salary.  But leaving that aside, why is profit inconsistent with service to the public?  My company serves over 2 million visitors a year, and 99.9% give us the highest marks for our service.  And for the few that don't, and complain about a bad experience, every one of those complaints comes to my desk and I personally investigate them.  Do you do the same?

Why do I make such an effort?  Part of it is pride, but part is because I understand that my margins are so narrow, if even 5% of those visitors don't come back next year -- because they had a bad time or they saw a bad review online -- I will make no money.  Those 2 million people vote with their feet every year on whether they think I am adequately serving the public, and their votes directly affect how much money I make.  Do you have that sort of accountability for your public service?

Postscript:  Interestingly, though perhaps not surprisingly, the government ranger did not bring up what I would consider the most hard-hitting challenge:  How do we know your profits are not just the rents from a corrupt, cronyist government contracting process.  Two things let me sleep well at night on this question.  The first is that I know what lobbying I do and political connections I have (zero on both) so I am fully confident I can't be benefiting from cronyism in the competitive bid process for these concession contracts.  Of course, you don't know that and if our positions were reversed, I am pretty sure I would be skeptical of you.

So the other fact I have in my favor, which is provable to all, is that the recreation areas we operate are run with far lower costs and a demonstrably higher level of service than the vast majority of recreation areas run by the government itself.  So while I can't prove I didn't pull some insider connections to get the work, I can prove the public is far better off with the operation of these parks in private hands.

Public Park Management

As many of you know, my company privately operates public parks and recreation areas.  With costs 50-70% lower than government management, one would think that private operation would be on the table as an option when government recreation budgets face shortfalls**.  However, this is seldom true.  The reason is that you will almost never, ever, ever hear discussion of efficiency improvements in any discussion of public park budgets.  100% of any such discussion will be "how do we find new revenue streams", even when those revenue streams are one or even two orders of magnitude smaller than potential efficiency gains.  When costs have to be cut, they are cut solely by closures and service reductions.

Which is why I smiled when I read this article about Connecticut State Parks sent by a reader:

The effects of state budget cuts will soon be felt at Connecticut’s 109 state parks, including cutbacks in lifeguard staffing and park maintenance and the closure of three state campgrounds.

The $1.8 million in reductions to park operations will take effect after the July Fourth holiday weekend, and Robert Klee, commissioner of the Department of Energy and Environmental Protection, said he expects additional cost-cutting steps next spring. DEEP faces an overall $10 million reduction in funding from the state’s general fund.

“By carefully analyzing how and when the public uses our state park system, we will achieve the savings we need while keeping much of what we offer at our 109 parks open and available to the public,’ Klee said.

But park advocates argue these reductions point to the necessity of identifying additional revenue streams to help fund the parks.

“This just underscores the need for these sustainability funds,” said state Sen. Ted Kennedy Jr., the Democratic co-chairman of the legislature’s Environment Committee. Kennedy and other lawmakers have proposed concepts over the years such as expanded park concessions, a tax on disposable plastic bags, higher park rental fees and sponsorships.

The only cost reductions discussed in the article are reductions in service days and hours.    If one were in private industry, one would approach this by identifying all the activities performed by the organization, such as bathroom cleaning and landscaping, and then look at benchmarks to see if others do it less expensively and then try to figure out how they do it less expensively and determine if those methods could be copied.  None of this ever occurs in the public sphere.  The several times I have suggested it in senior meetings, for example in California, the whole room goes quiet and looks at me like I am insane.

 

** In reality, every single government agency running parks has a shortfall, even when their budget is balanced.  Why?  Because virtually no agency, including the big ones like the National Park Service or California State Parks, fully cover all of their capital maintenance costs.  All these agencies have growing deferred maintenance accounts, even when they claim that budgets are nominally balanced.

Reopening A State Park

Over  a year ago, due to budget constraints, Alabama State Parks was forced to shut down Roland Cooper SP, near Camden, Alabama.  The park was beloved by the local community and an important economic asset to the town of Camden.  As a result, a lot of local folks put pressure on the state to find some other solution than just closure.  To its credit, the Alabama State Parks Department was willing to consider private options that most state agencies refuse to countenance.  The end result is that my company will be reopening the park -- still a public asset but operated privately -- in time for Labor Day.  The full announcement is here.

We are still working on the permanent web page, but if you are in the area our Facebook page is here.

Example of the Impact of Minimum Wages on Consumer Prices

I thought folks might be interested in a letter I just wrote to the US Forest Service.  I have left some of it out, but these are the guts of it.  As many of your know, we manage parks and campgrounds under concession contract for public entities.  As such, we typically must get changes to customer fees approved in advance by the agency.  This is a version of a letter we just wrote to a number of US Forest Service offices in California explaining the substantial increases to camping rates that must occur over the coming years to accommodate the new California minimum wage laws.

2017 Fee Proposal & Impact of California Minimum Wage Increases on Camping Rates

The purpose of this letter is to make you aware of the substantial effect that the recent increase in California minimum wages will have on use fees. I will get into details below, but in short the newly-legislated 50% increase in the state minimum wage is likely to increase our costs by about 22%, even ahead of inflation in other categories of expenses. Just to stay at parity and to avoid cuts in service, we (and other California concessionaires) are going to need substantial increases in fees over the next five years. Frankly, this does not make me very happy – our company will have to struggle with public resentment of the new fees without making an extra dollar in profit – but it is the reality we must face together. The only other alternative would be large cuts in service (e.g. bathroom cleaning frequency) which frankly I am not going to accept.

Background on the Minimum Wage Increase

California minimum wages have already risen over the last three years by 25% from $8 to $10 an hour. The new California law, which will apply to most concessionaires, demands the following timetable for minimum hourly wages (smaller companies with fewer employees than we have will have one extra year to comply):

2016: $10.00

2017: $10.50

2018: $11.00

2019: $12.00

2020: $13.00

2021: $14.00

2022: $15.00

Note that given the terms of other portions of labor law, these same sorts of percentage increases must trickle up to all managers and salaried employees in California as well.

Background on Concessionaire Cost Structures

Not surprisingly, as a labor-intensive service business, a substantial portion of concessionaire costs are directly tied to wage rates. The minimum wage increase will increase at least three categories of our costs:

  • Wages
  • Payroll taxes (which are calculated as a percentage of wages, so will go up by the same percentages as wages go up)
  • Workers compensation insurance premiums (which like payroll taxes are calculated as a percentage of wages and go up by the same percentage wages go up)

Looking at our financials for our California permits (we have three large permits in the Inyo NF and one in the Cleveland NF) these three categories make up 44% of our total costs.

Preliminary Estimated Fee Impacts

Let’s look, then, and how much our costs may rise between now and 2022.

For the labor and labor-related charges discussed above, we know that costs will rise 50% between now and 2022. A 50% price increase on 44% of our costs raises our total cost structure by 22% (0.5 * 0.44).

But all of our other costs will also continue to rise during this period by at least the national rate of inflation. It is very possible that these costs will increase faster in the future due to this minimum wage increase – for example, our waste disposal costs will almost certainly go up as the labor costs of waste disposal companies rise. For a starting point, we will assume 3% general inflation in 2016 and 2017 and 4% in the years after that. This would yield a 24% increase in the other 56% of our costs for an impact on our total costs of 13.4% (0.24*0.56). Combining these two effects, we can expect a total cost increase to operate campgrounds in California by 2022 of 35.4%.

Note that though we bid based on trying to earn a profit margin around 9%, our actual profit margin in the USFS campgrounds we operate in California has been between 3% and 7% of revenues (5% in 2013, 7% in 2014, 3% in 2015). There is simply no room in that margin to absorb a 35.4% cost increase. We are going to have to therefore seek fee increases over the next 6 years in the 35% range, or between $6 and $8 on the $18-$23 camping rates that currently obtain. This is about a dollar or year, or two dollars every other year.

Competitor Analysis

We understand that the USFS wants to justify fee increases based on market conditions. One problem we will have is that even though we don’t open until April or May at seasonal locations, we need to get fee approval the previous September or October. We fully expect private operators will have to pursue fee increases of a similar magnitude; however, they may not announce their new higher rates in time for our very early fee-setting process. This makes local competitive analysis misleading.

Fortunately, in California we have another large public campground provider, California State Parks (CSP), that has many of the same public service and land management goals as has the US Forest Service. They therefore make a very good comparison. While rates vary by park, CSP is typically charging $35 a night for a no-hook-up campsite in parks that are very comparable in their natural settings to USFS campgrounds.

We currently charge no more than $23 for a no-hook-up site in the USFS in California (both in the Inyo and Cleveland NF). Even with a $6 fee increase, we would still be offering no-hookup campsites at 17% lower cost than does the State of California today (and presumably even lower in 6 years given that CSP is likely to continue to increase its camping fees).

[Rest of the letter on exact fee recommendations and other contract issues omitted]

Matt Yglesias Summarizes the Public Parks Opportunity in One Paragraph

A two-fer!  This is from Yglesias's very good article on passenger rail also quoted in the previous post.  In discussing why Amtrak is generally uninterested in making incremental improvements on the Northeast Corridor, he writes:

The way Amtrak is currently set up, there's no real incentive to undertake incremental improvements. The Northeast Corridor already generates an operating profit, which simply defrays losses elsewhere in the system. Making it run better doesn't generate any wins for the people who would have to do the work, and would plausibly just lead Congress to reduce subsidies. If the NEC were spun off as an independent entity — perhaps even a private company — then it could internalize the gains from improved service and seek private financing to make cost-effective investments.

Long-time readers will know that my company privatizes the operation (but not the ownership) of public parks.  I will make two-hour presentations to parks agencies about how we can improve operations quality while cutting costs by 30-50% or more, and the near-universal response is, "well, if you reduce costs, then the legislature will just reduce our appropriations."  More efficient park operations, and at the margin better visitor service, don't create any wins for agency employees given their incentives.  In fact, if the parks are improved and more people show up, their job is just harder.  I had the manager of Arizona's premier state park tell me, absolutely in all seriousness, that he had the best job in the world if it wasn't for all the visitors.  Can you imagine a McDonald's franchise manager saying that?   As I have always said, government is not populated with bad people, it is populated with perfectly normal people who have terrible incentives.

When agencies choose how to spend incremental funds, they will almost always try to route these to the agency staff, in the form of more headcount and/or more pay.  When money is actually spent to make investments in the parks themselves, projects are chosen not by return on investment or customer priorities, but based on which ones will create the most prestige for the agency and its leaders.  This latter is one reason the Washington Metro is the mess it is, as the agency and the politicians who make appropriations will always prioritize system expansions over capital maintenance and sensible incremental improvements.

Fifteen Great Swimming Holes

I had to highlight this article on 15 great swimming holes in the US because our company operates two of them, #8 and #9.  As an added bonus, they actually list all 15 on the same page rather than in that clickbait format where you have to press next like 20 times to see the top 15.

Coyote on the Real Clear Radio Hour

Bill Frezza interviewed me for his show the other day.  I felt it was not one of my better performances but he says he is a wizard of editing so we will see.  Anyway, I am actually sharing the show with Coyote-favorite Dr. Richard Lindzen, so at least that half of the show should be worth your time.  Here are the details:

Tune in Saturday, February 13th to RealClear Radio Hour with Bill Frezza with guests Richard Lindzen and Warren Meyer.

You can listen live on Bloomberg’s Boston iHeartRadio or Bloomberg’s San Francisco iHeartRadioSaturdays at 10a PT/ 1p ET, 4p PT/ 7p ET or Sundays at 1a PT/ 4a ET.

Government Science Monopoly

Richard Lindzen, atmospheric physicist, MIT professor emeritus, and lead author of the “Physical Climate Processes and Feedbacks” chapter of the 2001 Intergovernmental Panel on Climate Change report, attributes climate hype to politics, money, and propaganda. Lindzen particularly takes issue with the “97% consensus” claim that is being used to stifle debate and demonize skeptics.

Rescuing Public Parks

Warren Meyer, founder and president of Recreation Resource Management, shares how he has successfully managed public parks for nearly 25 years. Meyer advocates for whole park concessions—privatized management of public parks—to save them from closure and agency mismanagement.

If you can't tune in live - download the as-aired shows from iTunes or listen to podcasts with additional content on SoundCloud or YouTube

 

The weekly one-hour program airs:

WXKS 1200 and WJMN 94.5F in Boston Saturdays 1p & 7p & Sundays 4a ET,

KNEW 960 & KOSF 103.7 in San Francisco Saturdays 10a & 4p & Sundays 1a PT,

1030 KVOI in Tucson, AZ Saturdays 4a MT,

KSBN 1230 Money Talk in Spokane, WA Saturdays 5a PT,

Cities 92.9FM WRPW in Bloomington, IL Saturdays 7a CT,

1590 WSMN in Nashua, NH Saturdays 12p ET,

KATE 1450AM in Alberta Lea, MN Saturdays 1p CT,

1330 WEBY in Pensacola, FL Saturdays 3p CT,

The Patriot, KRMR 105.7FM in Hays, KS Sundays 3p CT,

The Patriot, KNNS 1510AM in Larned, KS Sundays 3p CT,

KVOW 1450 in Riverton, WY Sundays 3p MT, and

WROM Radio in Detroit, MI Mondays 8p ET

A Few Thoughts About the Yosemite Trademark Brouhaha

A lot of folks have been asking for my thoughts on this conflict, where Delaware North, the departing concessionaire at the Yosemite Lodge, is claiming they own trademarks associated with the old, beloved lodges that must be bought out for lots of money, either by the government or the new concessionaire.

There are lots of versions of National Park Service (NPS) concession contracts floating around out there, and as I have had a few of these contracts, I am generally familiar with the terms and problems that arise (though I want to caution I am not privy to any insider details of this dispute).  But here are a few thoughts:

One of the hardest problems with government concession contracts is how does the government provide incentives for the private company to invest capital in the concession without giving the concessionaire a long-term contract that reduces the government's control.  Since any improvements made to the government land can't be removed and become the property of the government, it probably takes a 30-year contract to cause private companies to want to make such investments (as they would then have time to get a return from the assets, and most improvements tend to have a 20-30 year life anyway).  But the government does not want to lock themselves into one concessionaire for 30 years - 10 is as far as the NPS generally wants to go.

So the NPS has a process by which private companies can make permanent investments in the facilities, and the amount of these investments are added to an account (it used to be called Leasehold Surrender Interest, or LSI, so I will call it that -- I am not sure what it is called in current contracts).  At the end of the contract, there are some formulas for valuing the LSI in the account, and if the concessionaire loses the contract, the next concessionaire has to buy out the LSI.  If there is no next concessionaire, the Feds have to buy it out.

This provides good incentive for investment, because money you put in you basically get out at the end, plus any return in the middle.  Also, since there is a federal guarantee of repayment, this makes it possible to get a bank loan to finance the improvements (otherwise an investment in leasehold improvements on government land that the bank can't put a lien on is impossible to get bank financing for).  But this also creates problems.  Over the years, the LSI can grow so huge that it becomes impractical for anyone to buy out -- the LSI numbers at these large concessions can be in the hundreds of millions of dollars.  This is what happened at the Grand Canyon, when the US Government had to pay down the LSI by tens of millions of dollars to get companies to bid.  The other issue is that it creates a large, unfunded, off-the-books obligation for the government (because they ultimately back repayment of the LSI) in the billions of dollars.

Anyway, it is my understanding that it is not the LSI that is the problem here.  NPS contracts also for years had a provision that not only did one have to buy out the previous concessionaire's LSI (which represents investments in permanent facilities), but one also had to buy all the personal property he had associated with the concession (eg boats, trucks, inventory, shelves, coolers, etc).  While the LSI provision is generally sensible, though with some issues, this personal property buyout often led to disaster.  Because, unlike LSI, there is no agreed-upon value for the property (if the NPS is following its process, they can tell you at any point in time what the LSI is worth and everyone should be in agreement -- no similar process exists for valuing personal property of the concession).

So here is the situation.  The outgoing concessionaire has an asking price for his personal property, and the incoming concessionaire has an offer price likely well south of the seller's price.  In a normal transaction, there is some negotiation.   But a key part of the negotiation is that at some point the buyer can just walk away and refuse to buy.  This walk-away is not allowed in the NPS contract situation.  The incoming guy HAS to buy.  So outgoing concessionaires, particularly unscrupulous ones, will set a huge asking price and refuse to come off it.  Arbitration is possible, but mediators often split the baby in a way that sellers still get above-market rates for their stuff.  And all the while this takes time -- one is supposed to be opening the concession and we have not even secured rights to the assets we need to run it!  So the clock is ticking AND we can't walk away.  Incoming concessionaires often get hosed  (which is why I believe new contracts in the NPS do not include this personal property buy-out provision).

This happened to us at a NPS marina in Colorado.  The previous concessionaire ran a number of businesses in the area.  When they lost the concession, they stripped it of any good assets it had and then went around to all of its other businesses and gathered up all the junk and useless assets they could find and dumped them into the concession.   They then demanded a huge price for all this junk.   The NPS was absolutely no help -- they had no records of concession assets, and with turnover no one had even really visited the concession much.   We ended up taking a loss in the $200,000 range, buying a whole yard of stuff that we almost immediately had to pay to have carted to a junk yard.  Later we found that we were on the hook for almost a half million in facility repairs the previous company had never made -- the NPS had detailed notebooks of the failed inspections and required maintenance that was never performed, but never once disclosed any of this to us until we had signed the contract, and then demanded that we were on the hook for it all.  But that is another story, which goes to explain why I will never, ever work with the NPS again.

Anyway, my take is that Delaware North is doing the same thing that happened to me in Colorado, but on a larger scale -- writing up the price of a bunch of assets (in this case intellectual property) and using the terms of the bad NPS contract to extract above-market pricing for them from the next concessionaire.  All entirely legal, but at the cost of absolutely destroying their reputation with the NPS (I wonder if Delaware North is planning to exit the NPS concession business anyway such that they don't care).  Anyway, the new concessionaire, Aramark has certain advantages that I did not have as a small company.  In particular, they can simply refuse to buy the assets (which they have -- they have already renamed all the lodges and stores) and fight the issue in the courts later.

By the way, if you are wondering how the US Government can be so casual with trademarks and intellectual property, this tends to be, in my experience, a huge blind spot for them.  As an example, the US Forest Service uses a single national reservations company and all of us concessionaires in the Forest Service are required to use that company.  Years ago, the company who won the contract promised better information on the website about each campground.  So, for the hundred plus campgrounds we operate, at the request of the US Forest Service, we spent weeks measuring sites, taking pictures, and drawing campground maps for posting on the reservation system.  Several years later, when this reservation company lost the contract, it turns out the company had contract provisions from the government that the believed let them retain all the intellectual property.  The company then claimed all the maps, pictures, and site descriptions -- that we developed -- were theirs.  What a mess.  I can't totally remember how it came out but I think we got the rights to the pictures and descriptions back but all new maps had to be made.  The point is that the government has historically been myopic about the value of non-physical assets.

My Testimony to the House Subcommittee on Public Lands

If you are really bored, and I mean for values of boredom approaching "Maybe I should pull out my old Menudo albums and give them a listen," you can watch me and others testify to the Public Lands Subcommittee of the House Natural Resources Committee.

As you will be able to tell, I pretty much never do the Washington thing.  there really being nothing much my business needs up there other than to be left alone (unfortunately a vain hope most of the time).

This case is a bit unique.  Fees and recreation on public lands are governed mainly by a certain piece of legislation called FLREA (I won't bother with all the actual words, everyone just calls it FLREA).  The law governs fees the government can charge for public recreation, passes that provide discounts to these fees, etc.

The Forest Service has a unique program (at least among the Federal Lands agencies involved in FLREA) where private concessionaires don't just run a resort, like in the Park Service, but run an entire "park".  This means that, unique to all the other agencies, the Forest Service actually has private companies charging park entry fees ("day use fees") and camping fees.   In theory this should be relatively easy to manage, and the existence of the concession program has never really been an issue in these proceedings, but sometimes in the rush of legislation we are simply forgotten, and rules are written into the law that are simply unworkable for private companies.  A good example in this law is the long fee approval process that could require 18 months to change a fee -- this provision would be a disaster for us because we often have to react to things like changing minimum wages on a couple months notice.

Postscript:  Yes I know -- Moire fail on the tie

"It's Not Right To Make A Profit on Public Land"

The title of this post is based on the single most common complaint I get from government employees when trying to convince them to allow our company to operate their recreation sites.  Let me retell probably my favorite argument I ever had on this topic.  I will confess I cleaned up some of the verbiage in the retelling.  I will further observe that our company soon after mysteriously lost the bidding for the renewal contract, just about the only time we have ever lost such a renewal in over 40 bids.

 I was having a discussion with one of the many US Forest Service District Rangers who do not like having private for-profit companies operating on public lands, even if we save the taxpayer a lot of money by doing so.  He said to me, "It's not right to make a profit on public land."  I thought a minute and responded, "So you work for free?"

He looked at me confused, "What do you mean?"  

I said, "well, if you took a salary, you would be making a profit on public land, wouldn't you? "

He responded that "this was totally different -- a salary is not the same profit.  And besides, my salary is nothing like your huge profits."

I said, "Are you kidding?  My profits on this District are less than half your salary.  And you earn your salary whether visitors are happy or not.  Your salary is guaranteed and unless you are caught having sex with an eight-year-old on your desk, you probably have it until retirement.  My profit is never guaranteed -- I might make it or I might not.   And getting that profit requires investment of tens of thousands of dollars in trucks and such.  And if I don't do a good job, customers stop showing up and I don't make any money at all."

He responded, "but your profits just add cost.  A non-profit doing the same thing, or the government doing the same thing, would save that money."

I said in turn, "that is incredibly naive.   What I do is operate efficiently and at low costs.  So a non-profit or the government does NOT do the same thing, because without the incentive to make a profit they don't operate anywhere near as cost-effectively.  I have never seen an example where the government could operate for less than twice my costs.  So our company can save half the costs of operating the park, which dwarfs the size of my 5% profit margin.  The savings I produce are 20 times my profit -- if anything, I am grossly underpaid.

I Have This Argument All The Time With The US Forest Service

I operate recreation areas in the US Forest Service and from time to time get criticized that my profit adds cost to the management of the facilities, and that the government would clearly be better off with a non-profit running the parks since they don't take a profit.  What they miss is that non-profits historically do a terrible job at what I do.  They begin in a burst of enthusiasm but then taper off into disorder.    Think about any non-profit you have ever been a part of.  Could they consistently run a 24/7/365 service operation to high standards?

Don Boudreaux has a great quote today that touches on this very issue

from page 114 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

While capitalism has a visible cost – profit – that does not exist under socialism, socialism has an invisible cost – inefficiency – that gets weeded out by losses and bankruptcy under capitalism.  The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency.  Put differently, profit is a price paid for efficiency.

It is also the "price" paid for innovation.

The Uphill Battle to Reduce the Size of Government

Last year, when Congress did a 1-year renewal of legislation governing public recreation and fee policies (FLREA) they left out a tiny provision that discouraged government agencies from taking back tasks they had privatized.  With that gone, parts of the USFS immediately began to move to bring certain operations back in house, even when doing so required that they both spend more tax money AND reduce services levels to the public.  Such is the strength of incentives in any government bureaucracy to expand their scope, staffing, and budget, even when it makes no sense for the public.

This week in an article at PERC, I tell one such story in depth. Here is an excerpt:

Consider one example: The Tahoe National Forest in California recently took the operation of some of their parks out of private hands, ending a nearly 30-year partnership with one of our competitor companies.

Did the Forest Service do it to save money? The private concessionaire operated entirely with the user fees paid by visitors, using no taxpayer money, and even paid rent back to the government. The agency’s in-house operating plan for running these campgrounds requires at least $2 million in taxpayer money over the next five years to supplement user fees.

Did they do it to improve service? The private concessionaire employed more than 60 paid workers living on site, with managers who worked weekends and holidays. The Forest Service plan calls for half this number of paid employees, and none will live on site or work weekends—the busiest time for recreation.

Did they do it to address some egregious for-profit abuse? The agency is actually planning to replace dozens of paid private workers with volunteers. At the same time that the federal government is mandating higher minimum wages for campground concessionaires, the Forest Service is replacing paid workers with unpaid labor.

Did the Forest Service do it to keep user fees low? The original stated reason for kicking out the private operator was the concessionaire’s request to increase user fees in response to recent increases in California’s minimum wage. In the end, however, the Forest Service raised fees even higher than those proposed by the concessionaire.

My Interview on Recreation PPPs With the World Bank Blog

The interview is fairly short but covers the most common questions about Recreation PPP's and private operation of public parks.  It is on the World Bank blog here.

The Federal Government's Minimum Wage Hypocrisy

Diana Furchtgott-Roth and Jared Meyer have an article in the Federalist discussing the hypocrisy of members of Congress who advocate for higher minimum wages while paying their interns nothing.  It is worth a read, but rather than excerpt it, I wanted to add another example.

The example comes from the world of private operation of public parks, the business my company is in.  We keep parks open by operating much less expensively than can the government, usually using only the fees paid by park users without any additional tax dollars.

Last year, Barack Obama issued an order raising the minimum wage of Federal contractors to $10.10 an hour.  Though concessionaires like us are normally thought of legally as tenants of the government rather than contractors, the Department of Labor wrote the rules in such a way that this wage order would apply to concessionaires that operate Federal parks, such as those in the US Forest Service's campground concession program.

As a result of this order and similar minimum wage increases by the State of California, a concessionaire (not our company) that ran campgrounds in the Tahoe National Forest in California informed the Forest Service that it would need to raise camping rates to offset these minimum wage increases.  As an aside, wages and benefits that are tied to wage rates (e.g. workers comp and payroll taxes) make up about 50% of a private concessionaire's costs.  So if minimum wages go up, say, 20%, then (given the very low margins in the business) a 10% price increase is necessary just to stay even.

The Tahoe NF rejected the fee increase request, despite the fact that the concessionaire turned over its books to show that it was losing money at the higher minimum wage rates.

So what did the Tahoe NF do?  It took over operation of the campgrounds itself, ending a successful 30-year partnership with private operators.  How did it solve the minimum wage issue?  Simple!  Minimum wage laws don't apply to the Federal government.  So it will use dozens of volunteers who are paid nothing to operate the campground.

In other words, at a time when the President believes it is a burning priority to make sure every campground worker makes at least $10.10 an hour, the US Forest Service is firing private, paid workers and replacing them with volunteers.

By the way, even using volunteers, the US Forest Service will STILL be paying more to operate the campgrounds than it did with the concessionaire.  Under the private partnership, the private operator paid all expenses and paid the US Forest Service a concession fee, essentially rent.  The campground's operation and maintenance were paid for entirely with user fees, and the USFS actually made money from the operation.  Now, even with volunteers, the USFS operating plan shows it using $2 million of taxpayer money over the next five years in addition to user fees to keep the parks open.

Update:  Despite the original (stated) reason for taking over the campground, and despite using dozens of unpaid laborers, the USFS still had to raise customer rates in the end -- higher than the original private concessionaire proposed!

Best Campgrounds of the West

Sunset Magazine just had its annual "Best Campgrounds of the West" issue and we have four of the campgrounds we operate on the list -- pretty good considering we only operate in two of the four regions they cover (we operate 4 of the 54 campgrounds they recognize in CA, AZ, and NM).

On the list were Sabrina (CA), Big Pine Creek (CA), Cave Springs (AZ) and Sleepy Grass (NM).  We always love getting positive feedback, of course, but are particularly thrilled in this case since the frequent criticism of private operation of public campgrounds is that private companies will somehow ruin the recreation areas for profit.  Exactly how we would make money by destroying the natural beauty which draws paying visitors to these parks is never explained.  But it is good to have confirmation that we private operators are doing a good job.

Oak Creek Canyon Near Sedona Finally Reopening

Three of the visitor areas we operate -- Manzanita Campground, West Fork / Call of the Canyon Day Use Area, and the Grasshopper Point Day Use Area -- are finally being allowed to reopen October 1, 2014.  If you are in the area, please come visit and enjoy the fall foliage and the beautiful weather.

Where's Coyote?

Well it has been a busy 10 days for travel.  Last weekend my wife and I were at Harvard for our 25th anniversary of graduating from the business school there.   The way the b-school taught at the time, they basically locked 90 people together (a "section") in the same room for a year and threw teachers and course material at them.  I may have spent more time in a room with those 90 people than I spent in the same room with my dad growing up.  So you get to know them pretty well.  It was fun seeing everybody, though intimidating given all the folks my age running Fortune 50 companies or cashing out billion dollar startups.

After that, I went to Bozeman early this week and discussed free-market options for reforming the National Park Service at an event hosted by PERC, the Property and Environment Research Center.  On Tuesday we went into Yellowstone and met with the Superintendent there, who had also run the whole agency for about a year.  A lot of the discussion was about sustainability - financially.  The NPS raises less than 10% of its revenue from visitors, and so must constantly fight with Congress for cash.   One problem is that Yellowstone (perhaps their premier park) charges just $25 per vehicle for a one week admission.  This is insane.  We have tiny state parks in Arizona with one millionth of the appeal that fill the park despite a $20 a day entrance fee.  And the NPS (or really Congress) takes every opportunity to discount this already absurdly low rate even further.  You can get into all the parks for the rest of your life for a single $10 payment with the Senior pass.  This essentially gives free entry to their largest visitor demographic.

Today I am in Houston for a sort of climate skeptics' conference.  If you are in the area and the agenda looks interesting, they are still selling admissions (I think) for $75 for the two day event at the Hyatt downtown.   Rick Perry is speaking tonight, and that is supposed to be a draw I guess but I am actually skipping that and focusing on the scientists they have through the day.  Hopefully it is interesting, but I am also a conference skeptic so we will see.

Memorial Day Icebergs

Taken from a campground we operate in the UP of Michigan on Lake Superior, the white stuff is ice on the lake on May 28

click to enlarge

Problem Endemic To Public Parks Management

Glenn Reynolds is writing about colleges, but he could just as easily be writing about public parks:

Full-time administrators now outnumber full-time faculty. And when times get tough, schools have a disturbing tendency to shrink faculty numbers while keeping administrators on the payroll. Teaching gets done by low-paid, nontenured adjuncts, but nobody ever heard of an "adjunct administrator."

Replace "faculty" with "people actually working in a park" and administrators with "headquarters staff" and he has described the management of public parks exactly.  Most parks agencies are suffering from administrative bloat, with more people in headquarters than out in the field actually running parks.  When they have layoffs, it is always of field staff and not headquarters administrators.   In the parks world they will even ignore major maintenance needs in favor of making sure they have the funds to keep paying headquarters staff.

It is just absurd.  Of course, in my case, we make a business out of this.  We run public parks, and have 300 field employees actually in the parks and 2 in headquarters.  It allows us to cut costs while simultaneously doing a better job.

Trying, And Failing to Get Transparency About the Government Shutdown of Private Park Operators

Hans Bader submitted a FOIA on October 9 about US Forest Service and Dept. of Agriculture decision-making leading up to the unprecedented shutdown of private operations on US Forest Service land.  I have seen the FOIA results and -- almost laughably -- virtually all of the documents relate to the end of the shutdown, and all of the documents are dated after the date of his FOIA.  In other words, the US Forest Service essentially ignored the documents requested by the FOIA request and submitted a stacks of unrelated documents.

More from Mr. Bader here

It's Not A Just Revenue Problem in Arizona Parks, It's A Cost Problem

Former Arizona State Parks director Ken Travous takes to the editorial page of our local paper to criticize current park management and the Arizona legislature for not sending enough money to parks"

Things were looking pretty good, and I guess that’s the problem. In some odd kind of way, employing some type of sideways logic, the Legislature deemed that if State Parks is getting along well, it must be out of our control. So, after 15 years of parks acting like a business, the Legislature decided to act like a government and take their money. A little bit here and there in the beginning, to test the public reaction, and then in breathtaking swaths.

Heritage Fund ... gone. Enhancement fund ... swiped. General fund? No way. A $250,000 bequest? Oops, they caught us; better put it back.

State Parks now has a mountainous backlog of maintenance projects all because the Legislature would rather wholly own a failure than share a success. We need to put people in the halls that care about those things that we want our children to enjoy, and a governor who will stand in the breach when the next onslaught appears.

I agree with Travous that our parks could use some more funds.  But what Mr. Travous ignores is that the seeds of this problem were very much sown on his watch.

Travous points out that revenues in the parks expanded to nearly $10 million when he was in charge.  But left unsaid is that at the same time agency expenses on his watch ballooned to a preposterous $33 million a year**.  At every turn, Travous made decisions that increased the agency's costs.  For example, park rangers were all given law enforcement certifications, substantially increasing their pay and putting them all into the much more expensive law enforcement pension fund.  There is little evidence this was necessary -- Arizona parks generally are not hotbeds of crime -- but it did infuriate many customers as some rangers focused more on citation-writing than customer service.  There is a reason McDonald's doesn't write citations in their own parking lot.

What Mr. Travous fails to mention is that the parks were falling apart on his watch - even with these huge budgets - because he tended to spend money on just about anything other than maintaining current infrastructure.  Infrastructure maintenance is not sexy, and sexy projects like the Kartchner Caverns development (it is a gorgeous park) always seem to win out in government budgeting.  You can see why in this editorial -- Kartcher is his legacy, whereas bathroom maintenance is next to invisible.  I know deferred maintenance was accumulating during his tenure because Arizona State Parks itself used to say so.  Way back in 2009 I saw a book Arizona State Parks used with legislators.  It showed pictures of deteriorating parks, with notes that many of these locations had not been properly maintained for a decade.  The current management inherited this problem from previous leaders like Travous, it did not create it.

So where were those huge budgets going, if not to maintenance?  Well, for one, Travous oversaw a crazy expansion of the state parks headquarters staff.    When he left, there were about 150 people (possibly more, it is hard to count) on the parks headquarters staff.  This is almost the same number of full-time employees that were actually in the field maintaining parks.  As a comparison, our company runs public parks and campgrounds very similar to those in Arizona State Parks and we serve about the same number of visitors -- but we have only 1.5 people in headquarters, allowing us to put our resources on the ground in parks serving customers and performing maintenance.  None of the 100+ parks we operate have the same deferred maintenance problems that Arizona State Parks have, despite operating with less than a third of the budget that Travous had in his heyday.

I am not much of a political analyst, but my reading is that the legislature cut park funds because it lost confidence in the ability of Arizona State Parks to manage itself.   Did they really need to cut, say, $250,000 from parks to close a billion dollar budget hole?  Arizona State Parks had its budgets cut because the legislature did not think it was acting fiscally prudent, like cutting off a child's allowance after he has shown bad judgement.

I have met with current Director Bryan Martyn and much of the Arizona State Park staff.  Ken Travous is not telling them anything they do not know.  Of course they would like more funds to fix up their parks.  But they understand that before they can expect any such largess, they need to prove that Arizona State Parks will use its funds in a fiscally sensible manner.  And I get the impression that they are succeeding, that the legislature is gaining confidence in this agency.  The irony is that  Arizona State Parks will be able to grow and get more funds only when it has overcome the problems Travous left for them.

 

 ** Footnote:  Getting an actual budget number for ASP is an arduous task.  I once talked to a very smart local consultant named Grady Gammage who worked with parks and finally despaired of accurately laying out the budget and allocating it to tasks.  What this achieves is that it allows insiders to criticize anyone they want as being "misinformed" because almost any number one picks is wrong.   The $33 million figure comes from outside consulting reports.  The headcount numbers come from numbers the ASP information officer gave me several years ago.  Headcount numbers are different today but the ones above are relevant to the agency as it existed when Travous left.

Challenging the Governments Arbitrary Closure of Privately-Funded Parks During the Shutdown

I have not updated this story in a while, but we continue to litigate against the Federal Government over the closure of privately-operated and privately-funded parks on public lands.  The closure is over, obviously, but it is a situation that is very likely to recur and we are attempting to fight this battle now to set a precedent.   The Wall Street Journal's law blog is running an update on the story here.

You can find all my posts from the shutdown here.

Measure of the Job Market

The other day I sent out an email listing a job opening next summer for camp hosts.  The job was in an out of the way place (in Arizona, north of the Grand Canyon) and had been hard to fill.  I have a list of 22,000 people who have asked to have camping jobs sent to them.

The email batch of 22,000 had a 54% open rate.  That is ridiculously high.

When Private Enterprise is Inflamatory

When people ask me about my business, one of the things that is hard to explain is just how deep and visceral the skepticism of private enterprise can be.  I constantly have people take single words I might have uttered in the immediacy of a live TV interview and try to craft straw man positions for me out of them**.  Sometimes it is not even something I said, but something where some lazy journalist has poorly paraphrased my position.

Here is a great example, where a Flagstaff writer (who by the way knows me and my phone number quite well but did not bother to interview me) tries to take my opposition to the government shutdown to paint me with some sort of entitlement.  She lectures me that I don't actually own the land on which I operate, as if that is somehow news to me.  You can read my comments if you are interested, but the issue with the shutdown was the lawlessness of Administration officials, not any sense that I am entitled to the land any more than my lease contract allows me to be.  (As an aside, she seems to be expressing a strong theory of landlord rights, that my landlord (the US Forest Service) should have the absolute right to shut me down whenever they want.  Why is it that I don't think she has the same position vis a vis other tenants and landlords?)

By the way, compare her straw man to my actual position on public land, which is likely to the Left of many of my readers:

In my history of public discussions on private operation of public parks, it is no surprise that I run into a lot of skepticism about having any private role at all.  But I also run into the opposite -- folks who ask (or demand) that the government sell all the parks to private buyers.  So why shouldn't privatization of parks just consist of a massive land sale?

The answer has to do with profit potential.  Over time, if in private hands, a piece of land will naturally migrate towards the use which can generate the highest returns.  And often, for a unique piece of land, this most profitable use might not be a picnic area with a $6 entrance fee -- it might instead be something very exclusive which only a few can enjoy, like an expensive resort or a luxury home development (think: Aspen or Jackson Hole).  The public has asked its government to own certain unique lands in order to control their development and the public access to them.

Public ownership of unique lands, then, tends to have the goal of allowing access to and enjoyment of a particular piece of land for all of the public, not just a few.  Typically this entails a public agency owning the land and controlling the types of uses allowed on the land and the nature and style of facility development.  I call these state activities controlling the "character" of the land and its use.  (One could legitimately argue that private land trusts could fulfill the same role, and in fact I have personally been a supporter of and donor to private land trusts.  However, I am not an expert in this field and will leave this discussion to others).

Having established a role for the government in setting the character of the lands we call "parks," we can then legitimately ask, "does this goal require that government employees actually staff the parks and clean the bathrooms?"

** Postscript:  A couple of years ago I was asked to do an interview with Glen Beck on my proposal to keep open, via private operation, a number of Arizona parks slated for closure.  It was the first time I ever did live TV, and a national show to boot.  I had never seen his show but he had the reputation of being freaky and unpredictable, which just made me more nervous.   Anyway, during the interview I said that typically an agency would contract with us for a group of parks, instead of just one, so the stars could help cover the cost of the dogs.  This terminology is from a framework many business school students learn early, often called a BCG matrix (named after the Boston Consulting Group).  It is a two by two matrix with market share or profitability on one axis and market growth on the other.  Anyway, the profitable high revenue units within a company are stars and the unprofitable stagnant ones are called dogs (the profitable stagnant ones were cash cows and I can't actually remember what was in the fourth box).  You can see this nomenclature is so established they actually put little pictures of stars and dogs in the boxes.

Anyway, it was a poor choice of wording, but the nomenclature is wired do deep in my now it just came out.  The context of the entire interview was that I cared deeply about the parks and that I was offended that the legislature was going to let them close when there was an easy solution at hand.  No matter.  The #2 guy at Arizona State Parks took the video and make the rounds of the state park staff, highlighting my use of the word "dog" and inflaming their rank and file that I thought their parks were bad places and I was bent on destroying them, or something.  Anyway, none of the Arizona Park Staff I have ever talked to has ever seen an operations manual for their parks but they have all seen the video of me saying "dogs."

Postscript #2:  Don't ever think that consulting is different from any other business.  When I was an McKinsey, we had piles of frameworks we used (the 7S organization framework being perhaps the most common and actually fairly useful, as its intent was to take focus away from structure alone in organizational work).  Anyway, McKinsey had to have a growth-share matrix, but to try to differentiate this product a bit they had a 3x3 matrix rather than a 2x2.

Since I am somehow oddly onto a consulting tangent here, the single most useful thing I garnered from McKinsey was the pyramid principle in persuasive and analytical writing.  I have talked to a lot of other ex-McKinsey folks, and almost all of them wonder why the pyramid principle is not taught in high school.  I am not a believer in business books -- I am looking around my office and I don't think I see even one here.  But if I had to offer one book for someone who wanted a business book, this is it.