Coyote Blog

A lot of people have been asking me about Secretary Zinke's statements about encouraging more private operation of parks.  First the good news, its a great idea.  Here is my standard 400-word essay on why:

Should National Park’s be privatized, in the sense that they are turned entirely over to private owners?  No.  Public lands are in public hands for a reason — the public wants the government, not, say, Ritz-Carlton, to decide the use and character and access to the land.  No one wants a McDonald’s in front of Old Faithful, a common fear I hear time and again when privatization is mentioned.

However, once the agency determines the character of and facilities on the land, should their operation (as opposed to their ownership) be privatized?  Sure.   The NPS faces hundreds of millions of dollars in capital needs and deferred maintenance.  It is crazy to use its limited budget to have Federal civil service employees cleaning bathrooms and manning the gatehouse, when private companies have proven they can do a quality job so much less expensively.  The US Forest Service, for example, has had private operators in over a thousand of its largest parks for nearly thirty years, and unlike state parks agencies or even the NPS, it is not considering park closures or accumulating deferred maintenance, despite having its recreation budget axed.  Why? Because its partnership program with private operators is a fundamentally sounder, lower-cost approach to park operations.

In fact, such public-private partnerships are nothing new for the NPS.  The NPS was an early innovator in this field, and currently private companies operate many of the visitor services in parks, such as lodges and gift shops.  The US Forest Service innovation, which has been copied by many agencies including most recently California State Parks, has been to turn over operations of the whole park, not just the lodge, to a private company.  These are highly structured contracts, wherein the private company cannot modify the facilities or change fees without agency approval, and must meet a range of detailed performance goals.

Most critiques of private park operations center around quality and fees.  While there certainly have been some isolated failures, in general the results have been quite good.  In Arizona, a recent poll by CampArizona.com ranked the top 10 public campgrounds in Arizona.  Of these, three of the top five were US Forest Service campgrounds run by a private operator, as was the top Arizona campground in Sunset Magazine’s “Best of the West”  (OK, I have to brag, these are all run by my company). As for fee concerns, state-run parks in California charge $30 for a no-hookup camp site.  Privately operated public campgrounds in California forests seldom charge more than $18.

My company operates over 150 state, county, and federal parks.  I encourage you to take the “Pepsi Challenge” and see some of them for yourself.  They are well-run, generally with more staff than a typical state park, and have no significant deferred maintenance backlog.  Oh, and not a single one has a McDonald’s, a billboard, or a neon sign in front of a national monument.

Now for the bad news:  I am skeptical any progress will be made, for several reasons.

1. The rank and file of these organizations are generally against private operation of any of their functions.  For a couple of reasons.  First, people who work in government tend, through a self-selection process, to be people who are more confident in government solutions and more skeptical of private solutions.  Second, agency leaders are seldom judged on things like efficiency or customer service.  I read and act on every single negative review that comes in for our operations.  It is impossible to imagine the head of Arizona State Parks (which is about the same size as our company in terms of revenue and visitors) doing such a thing.  Agency leaders get their pay and prestige based on the size of their budget and headcount, and private outsourcing even of non-core functions works against this.
2. Overcoming this skepticism takes a lot of hard work, organizational work the Trump Administration has shown itself either unable or unwilling to undertake so far.   As a minimum, change requires messaging that engages the rank and file, not just the Republican base.   In most lands agency, it would also require that they scrap their insanely useless (but time-consuming) planning processes in favor of a real portfolio planning process that assigns recreation lands to different customer segments (e.g. wilderness experience vs. high development) and then explicitly addresses where private capital and operating efficiency could help.

The good news is that I think there is a path to success.  The privatization message should offer real benefits agency personnel care about (and I am pretty sure tax reduction is not one of these).  Privatizing things like bathroom cleaning would allow the agency to stop overpaying for routine non-core tasks and allow it to free up resources for things its employees (and the public) are passionate about, like addressing the enormous deferred maintenance account in most lands agencies and reversing crumbling infrastructure in parks.  Most agency employees joined with recreation or environmental science degrees and don't want to clean bathrooms or deal with angry customers anyway.

For the public, recreators who like a lot of infrastructure and facilities are natural supporters of private operation and bringing in private capital to public lands, but the most passionate advocates for public lands are disproportionately folks who want wilderness experiences and distrust development.  That is why having a portfolio management process for public lands is so important.  The Forest Service, for example, makes every campground they own in the west look the same.  I can close my eyes and tell you what your Forest Service campground looks like even if I have never been there.  This is crazy.   Create something like a "Wild Camping" label and attach it to a subset of the portfolio and don't allow any development.  Even remove development.  Then have other sites for more developed camping.   Maybe sites that focus on first-timers or kids.  Maybe lower-cost value sites.  (People always assume that as a private operator, I want to develop everything, but I don't.  Sure I have places where we have cabins and showers and electricity at every site.  But I also operate pure primitive sites with no power, water, or even cell service.  Hell, in some ways I like operating the latter better -- less to go wrong.)

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.

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.

I find it funny that Obama used the phrase "completely unnecessary damage" vis a vis the shutdown, since that seems to have been his staff's explicit marching orders:  Inflict completely unnecessary damage.  It was pretty clear there was never justification for the Administration to close our privately-funded parks.  Over the last week, case after case in court overturned similar orders in the NPS and USFS.  I just wish our TRO request had come to court a bit sooner so we could have had the precedent in hand.

Anyway, we are opening today, and readers will be spared more posts on our situation.  I know some of our customers are reading this site for updates.  The updated status of all our Forest Service campgrounds and parks and when they are opening is here.

The last remaining justification that anyone has given me for the need to close privately-funded concession-run parks in the US Forest Service is that the Forest Service must close to all uses on its lands.  But this justification is now in total tatters, making it all the more clear that closure of private concessionaires was an arbitrary and unjustified action.  Here is why:

• As reported earlier, the US Forest Service is still allowing many recreation uses on its lands.  Individuals can still camp and hike in non-developed areas.  Many US Forest Service campgrounds till seem to be open (example Oak Flats near Globe, AZ).  And many state parks, such as Fool Hollow and Slide Rock in AZ and Burney Falls in CA that operate on US Forest Service land have been allowed to remain open and still use Forest Service land for recreation.  In fact, the only groups that seem to be closed in the US Forest Service are private concessionaires, which increasingly appear to have been singled out for rough treatment by the Administration.
• We have received emails from the US Forest Service that these closures are required to be consistent with the NPS, but the NPS is allowing its parks to be reopened if they are funded by outside agencies.  Both Arizona and Utah have reached agreements to reopen National Parks in their states through use of state funding.  So why can't private parks on Federal lands be reopened through the use of private funding, which is how we operate anyway?  Its almost as if this Administration has some sort of bias against private activity.

From the Washington Examiner.  Because tenants have to be evicted when their landlord goes on paid vacation.

National Park Service officials cited the government shutdown as the reason for ordering an elderly Nevada couple out of their home, which sits on federal land.

"Unfortunately overnight stays are not permitted until a budget is passed and the park can reopen," an NPS spokesman explained to KTNV.

Ralph and Joyce Spencer, aged 80 and 77, respectively, own their home, but the government owns the land on which it sits.

"I had to be sure and get his walker and his scooter that he has to go in," Joyce Spencer told the local news outlet. "We're not hurt in any way except it might cost me if I have to go buy more pants."

Of course, I am in the exact same position

I mentioned in an earlier article that the Administration is threatening to close US Forest Service parks it does not even fund or run, privately operated parks that happen to have the Federal government as a landlord.  In fact, in our case, we pay the US Forest Service between 8 and 22 percent of revenues as a concession fee, so by threatening to close us it is costing them, not saving them extra money.

Apparently, the NPS is already doing this:

National Park Officials closed down the educational Claude Moore Colonial Farm near the CIA in McLean, Va., even though the federal government doesn't fund or staff the park popular with children and schools. Just because the privately-operated park is on Park Service land, making the federal government simply its landlord, the agency decided to close it.

A Claude Moore Colonial Farm official said that the privately-funded staff is on the job Wednesday, but barred from letting anybody visit the historically accurate buildings or animals. Anna Eberly, the managing director, sent out an email decrying the decision and rude National Park Service staff handling the closure.

Pointing to Park Service claims that parks have to be closed because the agency can’t afford staff during the government closure, Eberly wrote: “What utter crap. We have operated the Farm successfully for 32 years after the NPS cut the Farm from its budget in 1980 and are fully staffed and prepared to open today. But there are barricades at the Pavilions and entrance to the Farm. And if you were to park on the grass and visit on your own, you run the risk of being arrested. Of course, that will cost the NPS staff salaries to police the Farm against intruders while leaving it open will cost them nothing.”

She added: “In all the years I have worked with the National Park Service, first as a volunteer for six years in Richmond where I grew up, then as an NPS employee at the for eight very long years and now enjoyably as managing director for the last 32 years — I have never worked with a more arrogant, arbitrary and vindictive group representing the NPS. I deeply apologize that we have to disappoint you today by being closed but know that we are working while the National Park Service is not — as usual.”

This is purely political -- it costs rather than saves the government money.

This just came in over the transom via email.

WASHINGTON, D.C.///February 20, 2013///Sequestration will cut visitor access to the rim of the Grand Canyon, significantly delay the spring opening of key portions of Yellowstone and Yosemite, reduce emergency response help for drivers in the Great Smoky Mountains, limit access to the beach at the Cape Cod National Seashore, and impair the experiences in many other ways for millions of visitors at America’s national parks.   In addition, local, regional and state economies that depend on national parks will take huge hits as visitors are either turned away or skip visits due to the impact of the mindless sequestration budget cuts.....

CNPSR Spokesperson, Joan Anzelmo, former Superintendent of Colorado National Monument said:  “Congress might just as well put a big “Keep Out !” sign at the entrance to Yellowstone, Grand Canyon, Yosemite, the Cape Cod Seashore, and every other iconic national park in the U.S.   This foolhardy path tarnishes America’s ‘crown jewels’ and is a repudiation of the nation’s national parks often touted as ‘America’s best idea’.  Millions of Americans depend on national parks for their vacations and livelihood.  Those Americans are being told that national parks don’t count … that people who use national parks don’t count … and that people who live and work near national parks don’t count.”

A few observations:

• It's a 5% freaking cut.  I bet Wal-Mart is a more tightly-run organization than the NPS, and I further bet if I forced an immediate 5% cut at Wal-Mart they would do it without cutting store hours or service to customers.
• Again, we see government officials cutting the most cherished, visible services, rather than the chaff, in order to maximize citizen outrage rather than do their freaking job and set priorities
• It's a freaking 5% cut.  Did I say that already?
• I could cut huge chunks from the NPS budget while improving service by having private companies perform many operating functions.  Our company runs nearly 175 parks and in every one we have seen something like a 50% reduction in cost over government operation while simultaneously increasing staffing in the parks.
• This is absolutely boilerplate from every single agency and constituency that gets threatened with even the tiniest budget cut -- "you are telling XXX group they don't count."  Barf.
• I was going to make some observations about their budget over the last few years, but all their budget detail pages online seem to be down

I am currently as depressed and cynical as I have ever been today due to this absurd reaction to a trivial spending cut.  I have about zero hope that Federal spending will ever be reigned in.  Politicians of both parties and the special interests that support them will spend and spend until we find ourselves calling Greece asking for a bailout.

Hey, why make expensive investments when the government will just give you access to your competitor's infrastructure?

Federal Communications Commission has decided to mandate data roaming by a 3-2 vote. Simply put, major carriers like AT&T and Verizon will be required to let you check your email and perform VoIP calls over their federally-licensed airwaves even if you're actually paying a regional carrier for your cellular coverage instead -- just as they've been required to do for voice and messaging since 2007. As you can imagine, Big Red and Ma Bell aren't exactly jumping for joy at the news, with both threatening to slow expansion into niche markets if they'll be forced to share their infrastructure. The victorious members of the FCC claim that this doesn't constitute common carriage because the big boys still get to negotiate "commercially reasonable" rates. Considering that two dissenting commissioners say that it is, indeed, common carriage, though, and thus beyond the powers granted to the FCC, we imagine we haven't heard the last of this debate.

By the way,  the commercially reasonable rate piece is so much BS.  I can say from experience that there is no such thing as a true price negotiation when one party is forced to make a deal.  In one of my great moments in not reading the fine print, I signed a commercial lease with the National Park Service in which the fine print demanded that I buy the personal property used in that operation from the former tenant.

Well, you can imagine what happened.  The contract said I had to buy it at a reasonable market price, but at the end of the day, if they guy insisted on selling me a pile of useless junk for $100,000, my negotiation options were limited because I could not just walk away.  Just to really hammer the lesson home to me about being careful in such deals in the future, the former tenant really went the extra mile in taking advantage of the provision.  He stripped out every good asset from the operation and shipped in every non-working piece of junk equipment he could find in his other operations -- after all, I seem to have given him an open-ended "put".  Only his, shall we say, excessive creativity in the latter eventually saved me, as trying to sell property from other operations (there was even some old couches from someone's house sitting in the boat repair shed) was considered by the NPS to be a violation of the rules and they eventually released me from the requirement.

Tom Nelson has a pretty funny set of articles on the White House vegetable garden.    Michelle Obama told a group of kids it only cost $180.  Tom links a variety of videos and articles showing:

• Five NPS workers digging in the garden, with a tractor, tiller, and hand tools.
• A job posting for a college grad for the position of "White House Farmer."
• A job description of an assistant White House chef who currently overseas the garden.

Farming is cheap if the serfs (ie US citizens) provide all the labor and equipment for free.