Private Park Concessionaires and Fees

Welcome Wild Wilderness readers.  I have posted some additional thoughts for you here.

The US Forest Service (USFS) has received some negative reaction to its proposal to reduce the camping discount received by seniors with Golden Age and America the Beautiful Senior passes at its concession-run campgrounds.   For the last several decades, the USFS has offered senior pass holders a 50% discount off camping fees, and has required USFS concessionaires to offer the same discount.  Recently, the USFS has proposed reducing this discount to 10%, closer to the typical senior discount at privately-owned campground.

First the reaction, which is centered around a group of ex-USFS employees who have always been hostile to the USFS concession program.  This letter is fairly typical:

All public land recreationists owe a huge thank-you to the Idaho Congressional delegation for forcefully coming out in opposition to the horrible anti-democratic U.S. Forest Service proposal to eliminate the 50 percent discount for seniors and disabled for national forest campgrounds. Yet this is only the tip of an ugly iceberg. It is crucial to note that the Forest Service is caving in to massive pressure from profit-driven campground contractors. They propose handing over yet more campgrounds to concessionaires while also exempting them from honoring Golden Eagle passes—patently illegal….

The top brass of the Forest Service has gone bonkers with a cancerous privatization philosophy for outdoor recreation that is literally stealing your freedoms. We should stress to them the imperative of serving we the people—not the concessionaires and corporate America.

Of huge importance is continuing to stress to Congress that the Federal Lands Recreation Enhancement Act must be repealed. Out-of-control oppressive recreation fees at trailheads, rivers and backcountry venues must stop. The Forest Service cannot cry poor when it just received $650 million for capital improvement and maintenance in the stimulus bill! The literal future of recreation on the national forests is absolutely at stake. Please become part of the solution.

First, lets quickly set aside the legal issue.  It has never been clear that the USFS has ever had the legal authority to require concessionaires to provide the 50% discount to America the Beautiful pass holders, and in fact such a requirement flies in the face of most concession rules.  No other Federal recreation authority (NPS, Corps of Engineers, BLM) require or even expect concessionaires to accept their discount passes.  As for the America the Beautiful pass program, the enabling legislation as well as the language on the pass itself say specifically that it should not apply at concession-run facilities.  Opposite of what the author above says, it is in fact illegal may be illegal for the USFS to require concessionaires to accept these passes, though USFS concessionaires as a group have agreed over the past several years to accept the America the Beautiful passes for 50% discounts until the USFS can complete a rules-making process  (update:  there has been some confusion about this statement.   USFS concession contracts have for decades required concessionaires to provide 50% discounts to Golden Age and Access pass holders, but I was not referring to this program — this is a discussion of America the Beautiful passes, which actually say on the back of the pass itself that it does not apply at concession-run facilities).

Of course, my legal argument above would not be persuasive to the author of the complaint — in fact, his likely response would be to say that is all the more reason for the USFS to take the parks back from concessionaires (something that is never going to happen given staffing, cost, and budget restraints in the USFS).  So I want to spend a minute on explaining the logic of the USFS proposal (which our company only reluctantly accepted).  By the way, I know at least one person has written that I am somehow the secret agent behind this whole change, which makes me laugh, but you can read my official response  on the rules change and judge for yourself if this change is of any benefit to our company (bottom line:   for us this is merely a trade — lower discounts in for some customers, higher for others, with no real impact on profitability).

Who doesn’t pay for the 50% discount

To have this discussion, we need to discuss some typical economics.  Lets start with a USFS camp site in a concession-run facility that charges $16 a night  (a typical camping fee at a USFS concession-run facility is $16-$18, a great bargain compared to privately-owned campgrounds, belying some of the argument that USFS concessionaires are somehow rapacious).  This means that a Golden Age or ATB Senior pass holder would get camping at $8 a night.  I can guarantee that no one in this country can provide $8 a night camping and cover his costs, so someone else is going to have to pay for this discount.

This is fairly easy to illustrate.  In a very good year, like 2009, USFS concessionaires will make between $0.80 and $1.00 in pre-tax profit on a $16 night of camping  (in a bad year, they will lose money).  This is the concessionaires’ return for the time and capital they have invested in the business, and their incentive to remain efficient and provide good customer service so that paying customers will return.  By the way, each concessionaire pays the USFS a rental or concession fee as a percentage of revenues to repay the public for its investment in the campground.  Since these competitively bid concession fees typically run between 10-15% for busy campgrounds, the USFS (and the public) actually keeps between $1.60 and $2.40 from each $16 night of camping, far more than the concessionaire makes.  Also note that this is FAR more than the USFS made when it ran the campgrounds itself, as it typically lost money  (when all expenses are accounted fully — the USFS accounting doesn’t work very well for facility-level P&L’s).

I hope you can see from this example that the $8 senior discount is simply not going to come out of the concessionaire’s profits, as I suppose the author of the letter above might hope.  It has to come from somewhere else.

The official position of the National Forest Recreation Association (NFRA), a trade group for USFS concessionaires, has for years been that if it is a public policy goal to provide below-cost camping for certain politically-favored groups, such as seniors, then USFS funds should be used to pay for this goal.  For years we have suggested that the long-term solution would be reimbursement of concessionaires for such discounts, possibly on some kind of rental fee offset basis.  The USFS has consistently been unwilling even to consider such an approach, and claims it does not have the money for such reimbursement.

It is important to stop here and pause.  The author of the letter believes the solution is for the USFS to take these campgrounds over and continue to provide the discount.  But the USFS has already said it is unwilling and unable to fund this discount.  If it can’t pay concessionaires, who run the facilities less expensively, to provide the discount, it is not going to be able to do it running the facilities itself.    If citizens want the government to run these facilities in-house and provide below-cost services, then it is going to need to lobby Congress to substantially raise the USFS appropriations for recreation.  This simply is not in the cards right now.

So, who does pay for the 50% senior discount?

The answer is, of course, all the other younger campers.  Let’s walk through a specific example:

A campground charges a $16 fee, and has a thousand site-days of visitation per year.  Without any Golden Age pass discounts, this yields $16,000 a year of revenue.  Then, assume that 10% of the visitors have a Golden Age Pass and they qualify for a 50% discount.  This means that 900 site-days are now at $16 and 100 are at $8, for total revenue of $15,200.  To get back to the original revenue level, the base fee would have to be raised to $16.84.  So the addition of 10% of the campers with Golden Age Passes raises the rates to all other campers by 5-1/4%.  Similarly, if the Golden Age visitation in this example went to 20% of campers, then the base fee would have to be increased to $17.78 to keep total revenues the same.  By the time Golden Age visitation rises to 30% of the total, the average family is paying nearly $3 a night to subsidize Golden Age visitation.

So, every young family in the USFS is paying $2-$3 or more a night to subsidize below-cost services for older campers, and this subsidy will only increase as the population ages.  This subsidy obviously conflicts with notions of fairness and equal protection, as well as with a number of USFS goals, including their “More Kids in the Woods” program and the First Lady’s childhood obesity programs.    While, like any business, USFS concessionaires expect to continue to offer discount programs in the future, they are looking to approaches that better match discounts to available capacity irrespective of a visitor’s age (e.g. mid-week and shoulder season discounts).

Ironically, while concessionaires were the ones who pointed out these cross-subsidization issues to the USFS, most concessionaires do not expect any real improvement to profitability from these changes.   Many concessionaires were considering fee increases  (as in the example above) to account for rising discount pass usage, and these fee increases can now be shelved.  Further, most concessionaires expect to continue to offer attractive discounts, but to a broader subsection of the population and better matched to capacity.  And finally, companies all must competitively bid for concessions on a regular basis, and history has shown that any short-term increases in profitability on individual facilities is usually given away to the USFS  under the pressure of competitive bidding.

Speaking of Fairness….

It is fun to spin conspiracies of corporate power, but the reality becomes clear when the other half of the USFS fee pass rules change (which seldom makes the press) is considered.  In these same new rules, USFS is requiring that concessionaires provide free use and entry to America the Beautiful annual pass holders and discounted use for Senior pass holders — without compensation.  In other words, the USFS is going to sell annual passes, keep all the money, and then require that private companies provide most of the services to these pass holders without compensation.  Their intention is to apply this even within existing contracts, meaning that concessionaires who carefully bid these projects with razor-thin margins must now find a way to accommodate many of their customers showing up with passes that let them in for free.

This is obviously a requirement that concessionaires have opposed for years.  What the USFS did was to offer concessionaires a trade – a reduction in the senior discount requirement in trade for this requirement to honor these free passes.  Our company only reluctantly accepted this compromise  (our response is here)  which can be thought of not as reducing total discounting but as spreading the discounts more widely among all Americans.  One of the reasons the public response has been so unbalanced is not because this is some screaming sweetheart deal for private operators, but that those who will pay higher fees (seniors) have been notified of the changes while those who will pay lower fees over time (annual pass holders, younger campers) really don’t know they will be beneficiaries.

Update: In response to several complaints impugning the motives of concessionaires, seeming to automatically equate profit-motive with maliciousness.  As I wrote one reader:

You are absolutely right that I am not guaranteed a profit, nor should I be.  My company’s profit in USFS camping has averaged less than $1 per camping night over the last 5 years.  This is sufficient to my needs.  So if you wiped out my profit, I would quit the business, but what would you get?  The USFS costs to run these same campgrounds are far higher than mine.  Either fees would go up to cover these higher costs, or the campgrounds would close.  I know you would like a third option, that the USFS run these campgrounds without private companies and offer fees below their costs, and then have Congress make up the rest.  But that has not been a fiscal reality for a long time.

In the face of this funding reality, my company’s mission is to keep campgrounds open and run well.  It seems that nowadays, everyone has to assume people they disagree with have bad motives.  But in fact, my motives for being in this business are likely the same as yours — I am trying to help make public recreation better.  There are far more lucrative things I could invest my money in.  I am in this business because I have a passion for making public recreation work, and the reality of that is that lacking adequate funding from Congress, campgrounds have to support themselves with fee revenues, and I can do this better and more efficiently than the USFS.

Update #2: A lot of folks who are reading this post have concerns about the fee pass changes.  The USFS has announced open public meetings.