Your Government Outrage of the Week -- The Feds Try To Collect a Retroactive Rent Increase

Years ago the Forest Service wanted to eliminate car traffic in popular Sabino Canyon near Tucson, AZ, so they closed the road and asked companies for proposals to run a tram service to various stops in the canyon.  While a bit unusual at the time this service started, this is now a very common response to overcrowding in popular natural areas.  These services are typically leased as concessions, with the operator charging some sort of fee or fare from passengers, paying all expenses, and then paying the government an agreed rent in the form of a percentage-of-revenue concession fee.

In my world of campground operations, these concession fees are typically competitively bid and thus variable, but in the world of services like this one, there is a fixed list in the regulations of services and the percentage to be paid.  The problem here started because there is no item on the list for "tram operator".  So the government, in this case the local Forest Service, picked a logical equivalent from the table and told the tram operator what the percentage would be.  The tram operator set his fares based on this and his other costs and went on with business.

Flash forward many years.  The tour operator does a good job and has great reviews but the owner is a crusty guy who sometimes rubs the Forest Service staff the wrong way.  The Forest Service decides at the end of his term to compete the contract (called a permit by the FS) and give it to a non-profit.  Its not clear by the rules the FS can do this -- there are supposed to be protections built in for good-performing concessionaires who have invested a lot in the operation -- so the old permit-holder sued but the courts backed the Forest Service.

That is all back story.  This is what happened next though:

The Forest Service recently and retroactively imposed a 150% increase in a permittee’s fees for the period 2011-2015.  The Forest Service decision was based on the views of outside third party auditors it had hired to audit the agency’s fee assessments during that period.  The permit involved shuttle operations and fees were established under the Graduated Rate Fee Structure (GRFS) which sets fees based on the type of operations.  Because GRFS does not contain a classification for shuttle operations, the agency had previously categorized the operations as “Outfitting/Guiding.”  When the third party auditors reviewed the agency’s prior fees, they believed that the shuttle operations should have been classified as “Rental and Services” by the agency.

In 2016, the auditors completed their review of the prior five years of fee assessments and issued their final audit.  The permittee had paid fees totaling $99,231 for the period 2011-2015.  After changing the classification of the operations under GRFS, the auditors asserted that the permittee owed an additional $148,305 for that period.

This is really outrageous.  The mistake made was by the government -- the private operator logically trusted the numbers on his signed contract and assumed that those were the numbers he was operating under.  To retroactively charge this poor guy an enormous amount of money for a government mistake he had nothing to do with and couldn't even know about is just absurd.  Had he known the government wanted a higher fee before he actually started operations, he could have charged a higher fare to make up for it but now he can do nothing because it is all retroactive.  Its all the worse because this decision has a whiff of retribution about it given that this concessionaire took the government to court earlier over the loss of his permit.

This penalizing of a private company for a government mistake is not atypical in a government audit.  Years ago I had the Forest Service tell our company to do X and Y maintenance projects for them and that they would reimburse us for the costs (it was their responsibility but we were closer and and cheaper so it made sense).  Years later an auditor said that the FS should not have asked us to do the project that way, and that the FS had violated their internal rules.  So instead of just fixing their internal procedures or punishing those guilty in their agency they ... judged I was at fault and told me I had to refund all the money we were reimbursed for the project.  I obviously cried foul -- I told them I was authorized in writing, that I could not un-spend the money, that I had no responsibility for their internal compliance to their internal procedures, and that the error was theirs and I should not be the one punished for it.  As logical as this seems, it took me a surprisingly long time to get them to stop demanding this money back.