Posts tagged ‘California State Parks’

Conference Invitation: Private Management of Public Parks

For those who may be interested, we are having a one-day conference on public-private partnerships for park operations on November 7 in Reno, Nevada.  The US Forest Service and those of us in the business have gotten a lot of inquiries from recreation agencies over the last year or so.  These folks are trying to keep parks open despite declining budgets.

The USFS figured out a way to do this over 30 years ago, and only now are other agencies starting to copy the model  (California State Parks just started using it this year, for example).  The USFS, like most agencies, charges a fee for the public to visit certain parks or to use campgrounds.  They found that they could not cover their high operating costs with just these user fees, and so had to use a lot of general fund money to keep the parks open.  Many complain that public recreation user fees are too high, but typically they cover only about half the agency's costs to run the park.  When general fund money started to go away, the USFS faced park closures, exactly the situation today in many state and local parks agencies.

The USFS found that private operators with a lower cost position and more flexibility could keep these parks open using just the user fees, and in fact actually pay the USFS some rent.  So instead of having to subsidize the park's operation with tax money, the parks began to generate funds for the USFS.

It took decades to get this right.  The USFS made mistakes in how they grouped parks into contracts, how they wrote the contracts, and how they did oversight.  The private companies made operating mistakes and some failed financially at awkward times, since when this program started there did not exist a pool of experienced operators.  But over the years, many of these problems have been worked out, and most privately-run sites operate to a standard at least as high as publicly-run parks.  Here in Arizona, three of the top five highest-rated public campgrounds are operated by private companies in the USFS program.

At this conference, both private operators and agency people experienced with this model will describe how it works as well as years of hard-won lessons learned.

The conference is free to most government agency officials, academics, and media and we have obtained a really inexpensive $49 hotel rate  (since by definition the agencies most interested in the model don't have much money).   The web site that describes the agenda and logistics is here.  Readers of this site who don't fit one of these categories but would still like to attend can email me at the link in the above site and I will get you in.

Um, It Seems We Have Misplaced $2 Billion

I do a lot of work with California State Parks, being a concessionaire in some of their parks, so I have been following the various scandals in that agency closely.  One part of the scandal was that CSP apparently hid something like $54 million in reserve funds from the legislature.  I wondered how it was possible for the state to not know there was $54 million lying around un-reported.

It seems like we have a partial solution to my quandary.  It is possible to misplace $54 million when you also misplace another $2 billion.

More than $2 billion in California taxpayer money has apparently been stashed in hundreds of special funds unaccounted for by the state Department of Finance, a newspaper reported on Friday.

An examination of more than 500 special fund accounts, like the $54 million discrepancy in state parks money, showed a $2.3 billion "discrepancy" between state controller and Department of Finance numbers, according to the San Jose Mercury News ( http://bit.ly/MPdkls).

No one checks the controller's figures, so the difference wasn't caught.

The analysis showed at least 17 accounts appear to have significantly more reserve cash than what was reported to the Finance Department.

The violent crime victim restitution fund, for instance, was off by $29 million, and a low-cost child health insurance fund was off by $30 million. The fund that rewards people who recycle bottles and cans was $113 million off.

State finance officials operate under a  longtime honor system. The controller's figures were never checked and oversight groups didn't catch the discrepancies even though the numbers are publicly available on two state websites.

LOL, politicians' "honor".  We can see what that is worth.

Government Agencies Run For Their Employee's Benefit

About 20 years ago I did a rail transit study for McKinsey & Company with a number of European state rail companies, like the SNCF in France.   With my American expectations, I was shocked to see how overstaffed these companies were.  At the time, the SNCF had more freight car maintenance personnel than they had freight cars.  This meant that they could assign a dedicated maintenance person to every car and still get rid of some people.

Later in my consulting career, I worked for Pemex in Mexico, where the over-staffing was even more incredible.  I realized that in countries like France and Mexico, state-run corporations were first and foremost employment vehicles run for the benefit of employees, and, as  distant second, value-delivery vehicles and productive enterprises.

Over the last 20 years, I have seen more and more of this approach to public agencies coming to the US.  If nothing else, the whole Wisconsin brouhaha hopefully opened the eyes of many Americans to the fact that public officials and heads of agencies feel a lot more loyalty to their employees than they do to taxpayers.

I see this all the time in my business, which is private operation of certain state-run activities (e.g. parks and recreation).  I constantly find myself in the midst of arguments that make no sense against privatization.   I finally realized that the reason for this is that they were reluctant to voice the real reason for opposition -- that I would get the job done paying people less money.  This is totally true -- I actually hire more people to staff the parks than the government does, but I don't pay folks $65,000 a year plus benefits and a pension to clean the bathrooms, and I don't pay them when the park is closed and there is not work to do.  I finally had one person in California State Parks be honest with me -- she said that the employees position was that they would rather see the parks close than run without government workers.

Of course, if this argument was made clear in public, that the reason for rising taxes and closing parks was to support pay and benefits of government employees, there might be a fight.  So the true facts need to be buried.  Like in this example from the Portland transit system, via the anti-planner.

In 2003, TriMet persuaded the Oregon legislature to allow it to increase the tax by 0.01 percent per year for ten years, starting in 2005. In 2009, TriMet went back and convinced the legislature to allow it to continue increasing the tax by 0.01 percent per year for another 10 years. Thus, the tax now stands at $69.18 per $10,000 in payroll, and will rise to $82.18 per $10,000 in 2025.

At the time, TriMet promised that all of this tax increase would be dedicated to increasing service, and as of 2010, TriMet CFO Beth deHamel claims this is being done. But according to John Charles of the Cascade Policy Institute, that’s not what is happening.

Poring over TriMet budgets and records, Charles found that, from 2004 (before the tax was first increased) and 2010, total payroll tax collections grew by 34 percent, more than a third of which was due to the tax increase. Thanks to fare increases, fares also grew by 68 percent, so overall operating income grew by about 50 percent, of which about 7 percent (almost $20 million) was due to the increased payroll tax.

So service must have grown by about 7 percent, right? Wrong. Due to service cuts made last September, says Charles, TriMet is now providing about 14 percent fewer vehicle miles and 12 percent fewer vehicle hours of transit service than it provided in 2004 (comparing December 2004 with December 2010). TriMet blamed the service cuts on the economy, but its 50 percent increase in revenues belie that explanation.

By 2030, according to TriMet’s financial forecast (not available on line), the agency will have collected $1.63 billion more payroll taxes thanks to the tax increase. Yet the agency itself projects that hours and miles of service in 2030 will be slightly less than in 2004.

Where did all the money go if not into service increases? Charles says some of it went into employee benefits. TriMet has the highest ratio of employee benefits to payroll of any transit agency. At latest report, it actually spends about 50 percent more on benefits than on pay, and is the only major transit agency in the country to spend more on benefits than pay. This doesn’t count the unfunded health care liabilities; by 2030, TriMet health care benefits alone are projected to be more than its payroll.

More Evidence California is Royally Screwed Up

I was in discussions with California State Parks over the last few days.  Given that their new earmarked funding source was defeated in the last election, they are facing cuts next year.  A number of parks will again face closure.  As I have many times, I said that I could easily keep many of these parks open under our operations using only the gate fees and no public subsidies.

For the first time, someone explained to me why they could not entertain my proposal.  It is illegal in California to replace any function performed by a public employee with a private contractor.   The only way they could consider private operation of a park is to allow it to close, lay everyone off, let it sit closed to the public for a while, and then possibly reopen it with private management.  And even that approach will likely be challenged in the court.  The public employees unions are committed to allowing parks to permanently close rather than establish the precedent of private management.

More on public-private partnerships in recreation and how private management of public recreation works, here.

I Finally May Be Understanding Something

This year has been a frustrating year for my business.  As many of you know, I am in the business of privatizing public recreation.  We take over the management of public recreation facilities, and are generally able to run them to the same or better standards as the government for less money.  Whereas before we take over, the government typically loses money on a park, we often can run it at a profit AND pay the government rent for the concession rights.

This year, numerous state parks have been threatened with closure in states all across the country.  In many of these states, I have communicated with everyone I could think of, from the governor to state parks leaders, trying to say that companies like ours could probably keep many of these parks open. I told them I wasn't looking for a sweetheart deal - we weren't afraid to bid against other companies, but it was crazy to close parks that could easily remain open.   We have been told any number of times by numerous state leaders that they would prefer to close the park rather than put it under private concession management.

To some extent, this is due to the pressure of public employees unions, who have every incentive to play brinkmanship and force closure of parks rather than set the precedent of having them managed by a non-union private company.  This is unsurprising.

I also understand that there is a fear of private management of public recreation facilities.  I swear the first think I hear almost every time I present on what we do  is that they fear we would put a billboard or a McDonalds in front of Old Faithful.  I kid you not, this charge is as regular as clockwork.  Fortunately, we manage about 175 public recreation facilities to a pretty high standard, and not one billboard or McDonalds can be found at any of them.  A large part of the bid process for any facility management contract is not just the rate or the rent but also the detailed operating standards to which it will be managed.  So this is a normal, but surmountable hurdle.

But even taking into account these usual sources of resistance, I am always just amazed at how vociferous the opposition is to even experimenting with private management.  States like California are simply hell-bent on closing parks a company like ours could easily keep open for the public (to be fair, Ruth Coleman, head of California State Parks, is very open to new models but she gets absolutely no support either within her organization or in the legislature for such new ideas).

But I think I understand this phenomenon better now after reading Kevin Drum today. This is what Drum wrote in response to the DNC ad, which clearly stretched the truth, claiming that Republicans voted to end Medicare:

Why not just tell the truth: Republicans essentially voted in favor of turning Medicare over to private industry.  With only a few words of explanation, this could easily be more effective than the ad that actually ran.  Like so:

Republicans voted to turn Medicare over to private insurance companies!  You heard right: they want to hand Medicare over to the same companies that [insert two or three insurance company outrages here, maybe a Wall Street reference, something about profits over people, etc.].  Democrats will never do that.  Blah blah blah.

Would that really be any less scary than the ad that actually ran?

So for Drum, and I presume for much of the Left, the suggestion that a government service be managed privately is just as bad as the suggestion that the service be ended. In essence, Drum is saying he would almost rather have no Medicare than Medicare provided privately.

It certainly explains a lot, and puts the phenomenon I see in public recreation into a larger context.

Update: A couple of the comments hpothesize the problem is that many in government and on the left just hate profits and the profit motive in general.  One related story -- I was in a meeting with a large state parks organization where a senior person raised the idea of private park management.  Well, everyone hated the idea, but when it looked as if the leadership might still seriously consider the private option, one person in the room said "well could we at least mandate that they can't make a profit."  There was a lot of head nodding at this.

I didn't go off on this and kept a smile on my face.  But I did lose it in an earlier meeting with the head of some government parks we actually did run.  We were discussing park fee increases for the next year (the state had just raised minimum wages about 30% and we were scrambling to make ends meet).  He said he was uncomfortable with the level of profits we made.  I asked him, "Jim (not his real name) does this state pay you more than $25,000 a year to run this park?"  He nodded.  I said, "then you make more profit in this park than I do, and what is more, you didn't have to invest $100,000 in equipment to get your job, nor do you have to rebid for your job every 5 years, nor does you salary go down if for some reason park visitation decreases."

Sometimes I wish I had stood up in that state meeting and said something similar, as in "Why is the money I make in a park somehow tainted because it is the difference between my revenues and expenses and the result of substantial investments and subject to extraordinary risks, while the virtually guaranteed-for-life salary you make, paid for by the same visitors, is somehow pristine?"

How to Keep State Parks Open in California

Letter I sent to Governor Schwartzenegger in response to his plan to close a number of California State Parks due to budget problems:

I know many people are
probably contacting you to oppose proposed closures of state parks to help meet
budget targets. My message is a bit
different: Closing these parks is
totally unnecessary. 

I own and manage one of the
larger concessionaires in the California State Park (CSP) system. We are the concessionaire at Clear Lake
and Burney Falls. At Burney Falls, for example, we have invested over a million dollars
of our money in a public-private partnership with the state to revamp to the
park. We also operate parks for the
National Park Service, the US Forest Service, Arizona State Parks, Texas
State Parks, and other public authorities.

Traditionally, CSP has
engaged concessionaires to run stores and marinas within parks, but not to run
entire parks. However, in many other
states, our company runs entire parks and campgrounds for other government
authorities, and does so to the highest quality standards. 

So, I can say with confidence
that many of the California State Parks proposed for closure would be entirely
viable as private concessions. For
example, we operate the store and marina at Clear Lake State Park
but
could easily run the entire park and make money doing so, while also paying
rent to the state for the privilege.

I know that there are some
employees of the CSP system that oppose such arrangements with private
companies out of fears for their job security. But it would be a shame to close parks entirely when an opportunity
exists to keep them open to the public, and improve the state budget picture in
doing so. 

Even if California decides to keep these parks open, I would encourage
you to have your staff investigate the possibility of expanding private
operation of state parks. CSP already
has one of the best and most capable concession management programs in the
country, a success you should seek to build on. The infrastructure is already there in CSP to solicit bids for these
projects and ensure that management of them meets the state's quality and
customer service standards.

Even though everything I said here is true, it probably is a non-starter because most state organizations are dead set against such private management.  They would rather close services to the public than establish the precedent of private management. 

Besides, the whole parks closure may well be a bluff.  Unlike private company budget discussions, where it is expected that managers offer up their marginal projects for cuts, the public sector works just opposite:  Politicians propose their most popular areas of spending (parks, emergency services) for cuts in a game of chicken to try to avoid budget cuts altogether.  As I wrote here:

Imagine that you are in a budget meeting at your company.  You and a
number of other department heads have been called together to make
spending cuts due to a cyclical downturn in revenue.  In your
department, you have maybe 20 projects being worked on by 10 people,
all (both people and projects) of varying quality.   So the boss says
"We have to cut 5%, what can you do?"  What do you think her reaction
would be if you said "well, the first thing I would have to cut is my
best project and I would lay off the best employee in my department". 

If this response seems nuts to you, why do we let politicians get
away with this ALL THE TIME?  Every time that politicians are fighting
against budget cuts or for a tax increase, they always threaten that
the most critical possible services will be cut.  Its always emergency
workers that are going to be cut or the Washington Monument that is
going to be closed.  Its never the egg license program that has to be cut.

Update: Here is the form letter the governor's office sent out in response to my letter:

A weakened national economy and auto-pilot state spending has created a projected budget shortfall of $14.5 billion for fiscal year 2008-09. Although state government revenues this coming year are actually forecast to hold steady, the problem is that every year automatic spending formulas increase expenditures.  Left unchecked, next year's budget would need to grow by 7.3-percent, which is $7.6 billion; even booming economies can't meet that kind of increase.  To immediately combat this crisis, the Governor has proposed a 10-percent reduction in nearly every General Fund program from their projected 2008-09 funding levels.  While these reductions are unquestionably painful and challenging, this across-the-board approach is designed to protect essential services by spreading reductions as evenly as possible.

To achieve this difficult reduction, State Parks will be reducing both its permanent and seasonal workforce.  As a result, 48 park units will be closed or partially closed to the public and placed in caretaker status.  By closing parks and eliminating positions, remaining resources can be consolidated and shifted to other parks to provide for services necessary to keep those parks open and operating.  While 48 parks are affected by closures, 230 parks-or 83% of the system-will remain open.

We must reform our state budget process.  Government cannot continue to put people through the binge and purge of our budget process that has now led to park closures.  That's why the Governor has proposed a Budget Stabilization Act.  Under the Governor's plan, when revenues grow, Sacramento would not be able to spend all the money.  Instead, we would set a portion aside in a Revenue Stabilization Fund to stabilize the budget in down years.  If a deficit develops during the year, instead of waiting to accumulate billions of dollars of debt, the Governor's plan would automatically trigger lower funding levels already agreed upon by the Legislature.  Had this system been in place the past decade, we would not be facing a $14.5 billion deficit. 

As Governor Schwarzenegger works with his partners in the Legislature, he will keep your concerns in mind.  With your help, we will turn today's temporary problem into a permanent victory for the people of California.

Privatizing Public Recreation

A bit over five years ago, I wrote an op-ed piece in our local paper calling for further privatization of public recreation.  The editorial was in response to a proposal for a large bond issue to rebuild recreation infrastructure.  I argued that the state should instead be focusing on attracting private investment.  Not only was there more money for recreation in private hands than public, but I sensed that private funds would more likely be invested in facilities the public really wanted, rather than goofy politically correct projects.  Further, private operators could operate recreation facilities much less expensively, in part because they are not tied to ridiculous public pay scales, pension plans, and job classifications.

Soon after, I had a business broker call me and ask me if I wanted to put my money (such that it was) and time where my mouth was.  After a lot of twists and turns, I ended up the owner of a recreation concession company.  In a recreation concession, a private operator pays the government rent in exchange for the ability to charge visitor fees and run the recreation facility for profit.  In most cases, our company can operate a property and make a profit on fees lower than the government must charge just to break even.

My business, Recreation Resource Management, has prospered since then.  And as I have gotten deeper into public recreation, what I have learned has only confirmed what I wrote in that editorial.  I have seen that when the government runs recreation facilities, it almost never spends enough money on capital maintenance and refurbishment.  The reason seems to be that legislators, given the choice, would much rather spend $X on a shiny new facility they can publicize to their constituents than spend $X maintaining facilities that already exist.  I laugh when I here progressives argue that private industry is too short-term focused and only the government invests for the long-term.  In practice, I find exactly the opposite is true.  Think about hotels, or gas stations, or grocery stores.  Private businesses understand that every 15-20 years, they need to practically rebuild existing infrastructure from scratch to keep them fresh for customers.  This kind of reinvestment almost never happens in public recreation.

Except this week!

After years of building up our business, we just completed a project with California State Parks that is what I have always wanted to achieve with the company.  At McArthur-Burney Falls State Park, California State Parks had an aging concession store and an outdated section of the campground that it really did not have the money to rehabilitate (by the way, this is an absolutely beautiful park -- I highly recommend it).  We crafted a two-part lease with the state which eventually led to us investing over a million dollars in the park:  In phase one, we built a new concession store (old store on left, our new store on right):

Park_storeexterior000  Store3

In phase two, just complete, we took an old tent-camping loop with no utilities and added 24 new cabins.  These cabins not only refurbish an aging and dated section of the campground, but they also add new amenities to the park to attract visitors who may not own an RV and who don't want to sleep in a tent.  In addition, since they are insulated and heated, these cabins will extend the camping season -- in fact, we already have a number of reservations for Thanksgiving, a time when no one would have wanted to tent camp here.

Cabin1    Cabin_inside2

Its a  win-win-win, where  we make money, the state gets lease revenues
from us that exceed their previous camping revenues, and the public
gets new amenities without any taxes or public spending.

So, in answer to the question I so often get, "why does a libertarian run a company that works with the government?"  Now you know why.  I will admit that from time to time I find myself on the losing end of libertarian-intellectual-purity debates because I choose this path rather than, say, living in a cabin in the wilderness and manufacturing rifle barrels for a living.  *Shrug*

Postscript:  One lesson I have also learned is that state governments are not always a monolith.  Texas and Florida, for example, while being beloved of libertarians for having no state income tax, can be horribly bureaucratic in certain areas (e.g. sales tax reporting and vehicle registrations).  California, on the other hand, which in many ways is one of the worst states to do business in, actually has what is probably the most innovative and business-friendly state parks organization in the country.  Go figure.

PS#2:  By the way, the cabins shown are actually modular buildings, built here in Phoenix by Cavco, and shipped to the site.  The classy interior work was done my by maintenance supervisor.