Advantages of Private Management

This Sounds Like Our “Tale of Two Parks”

From the Daily via Mark Perry

“While the Senate barbershop is federally subsidized, the House barbershop is a private business. Its three employees, one of whom is part time, are independent contractors. The House barbershop was privatized in 1994, a decision that House Republicans made after they took control of the lower chamber for the first time in decades.

The dueling business models of the congressional barbershops have produced different financial results.While the Senate barbershop required a $300,000 federal bailout last year, the House barbershop turned a profit. And while Senate Hair Care Services, the formal name for the Senate barbershop, is not charged a dime for its work space, House Cuts pays the government $2,000 to $3,000 in rent each year.”

A similar side by side comparison in parks yields roughly the same results.

Customer Service Agents with Guns and Badges

I often get asked about how we handle law enforcement at privately-operated public parks.  After all, most state-employed rangers have law enforcement credentials, and our employees don’t.

But most rangers have law enforcement credentials because of the rewards for having these, not because there is so much demand in most parks for law enforcement (we run a few urban parks that are an exception to this). Park employees who obtain law enforcement credentials get monetary rewards in terms of higher pay and access to more lucrative law enforcement pension plans.  Some also get psychological rewards from being able to carry a gun and a badge.  In most cases, though, we can easily work with local law enforcement to set up procedures to handle the few law enforcement situations that arise.

The other answer I give folks is that it is a bad idea to try to provide customer service with law enforcement officers.  In many cases, the approach to problems is different.  Can you imagine McDonald’s employees who constantly wrote you citations for illegal parking?

Here is an extreme example:

A Montara man walking two lapdogs off leash was hit with an electric-shock gun by a National Park Service ranger after allegedly giving a false name and trying to walk away, authorities said Monday.

The park ranger encountered Gary Hesterberg with his two small dogs Sunday afternoon at Rancho Corral de Tierra, which was recently incorporated into the Golden Gate National Recreation Area, said Howard Levitt, a spokesman for the park service.

Hesterberg, who said he didn’t have identification with him, allegedly gave the ranger a false name, Levitt said.

The ranger, who wasn’t identified, asked Hesterberg to remain at the scene, Levitt said. He tried several times to leave, and finally the ranger “pursued him a little bit and she did deploy her” electric-shock weapon, Levitt said. “That did stop him.” …

Hesterberg, whose age was not available, was arrested on suspicion of failing to obey a lawful order, having dogs off-leash and knowingly providing false information, Levitt said.

Arresting and tasering people for off-leash dogs is absurd in the extreme.  We have this problem all the time with dogs – everyone thinks their own beloved dog deserves a special exception to the rules.  But we work hard to get compliance in a friendly way.  Some people ignore us, and when they do, we try to remember that its just a freaking off-leash dog, not a serial killer on the loose.  I could only imagine us calling out law enforcement if our employee was being ignored and the dog was being a particular nuisance or the person was known to have ignored the rule on repeated visits.

Labor Costs

This relationship between public and private labor costs here is very similar to what we find in parks.  Most park agencies have about 80% labor costs, while ours for running similar facilities is between 30% and 40%.

The New York Times reports that labor currently represents 80 percent of the Postal Service’s expenses, while it accounts for 53 percent at United Parcel Service and only 32 percent at FedEx

The difference mainly lies both in productivity expectations as well as escaping civil service pay and benefits scales.  The difference is typically NOT about number feet on the ground — in fact, private companies tend to have more customer contact people in the park than do state agencies.

Keeping California Parks Open

From a press release last week

Adopting a public/private management strategy used successfully for decades by the U.S. Forest Service can ensure that endangered California state parks remain open, are properly and professionally maintained, and are available to the public for years to come.

Due to the state budget crisis, California State Parks has been forced to cut millions of dollars from its operating budgets. To make ends meet, California has proposed closing 70 state parks.

“It doesn’t have to be this way,” says Warren Meyer, president of Phoenix-based Recreation Resource Management (RRM), a $10M company that manages public parks and recreation areas throughout the U.S.

“With a public-private partnership model used by the US Forest Service (USFS) for thirty years in hundreds of California parks and campgrounds, the government retains ownership of the land and control of the use and character of the park while handing over operational tasks that are time, money, and labor intensive to a more cost-effective private company.”

When operating public parks in these partnerships, private companies typically provide visitor services, routine maintenance and repairs (such as bathroom cleaning), landscaping, trash removal and payment of utilities.

“While these operational tasks by no means constitute all the work required to keep parks open, they account for the vast majority of the money spent by the state parks organization in the field,” says Meyer.

“In these contracts, private concessionaires pay for all these costs solely out of the gate fees paid by the public, without further taxpayer subsidy. In addition, we pay the public agency a substantial concession fee, often converting a money-loser to a moneymaker for the government.”

In these arrangements, the public agency ensures that the private operator maintains the land in the condition and character the public expects.

“This USFS program is already working in hundreds of locations in California, and over a thousand nationwide,” states Meyer.

The fact sheet in this same release is a useful resource

How Recreation Public-Private Partnerships Work

  • The public retains ownership of the land. Private companies must maintain the desired character and facilities in the park. Typical concession agreements include extremely detailed operational requirements and restrictions.
  • The Parks Agency retains responsibility for strategic planning, habitat development and restoration, facilities planning, environmental sciences, rule-making, oversight, and fee approval.
  • The private company takes on operational tasks (from maintenance to bathroom cleaning) that consume much of the state parks budgets but don’t impinge on these strategic tasks.
  • Private company’s expenses, and therefore most park operations expenses, are paid out of park visitor fees without any additional payments from the state. In return for retaining these user fees, the company pays a competitively-bid rent to the state.
  • The state may use this rent to help cover its other expenses, or may reinvest the rent, as does the US Forest Service, in catch-up maintenance and park improvements.

Advantages for California

  • The substantially lower cost position of private companies allows park operations as well as major maintenance to be performed using existing visitor fees without taxpayer subsidies. Even smaller parks can benefit when bundled together into larger contracts. The result is that more parks can be kept open to the public.
  • More efficient management also allows for lower use fees — for example, while California State Parks typically charge as much as $30 for a campsite without utilities, at similar public campgrounds in California RRM charges no more than $18.
  • Private concessionaires have incentives that are well-matched to the public — they make money only if happy and satisfied visitors come back to the park. As a result, the parks operated in California by RRM receive very high marks from customers and in third-party surveys.
  • If the public agency wants to improve the facilities in parks, private companies can be a critical source of capital. RRM has invested more than $3 million across the country helping parks catch up with deferred maintenance and improve the visitor experience. At McArthur-Burney Falls SP in California, RRM has invested nearly $1.5 million in a new store and visitor center, new cabins, and new boat docks.

Privately-Operated Federal Park Will Stay Open During A Government Shutdown

As occurred in 1995, when the government shuts down, most of its recreation areas have to close, from the national parks to the Washington Monument to the Smithsonian museums.

But when most Federal recreation is closed, potentially during a busy spring break week next week, one set of government parks will be open — US Forest Service recreation areas operated by private companies under concession contract.  Because private operators collect all the gate fees and pay all the expenses themselves without any government appropriations or labor, these concession campgrounds and day use areas do not have to close when the Treasury runs out of money.

This is something to think about with state parks in nearly all 50 states facing closures during local budget battles.  Privatization of park operation shields the public from budget shenanigans and the usual game of chicken legislators play with parks during the appropriations process.

A Third Choice

By promoting efficient private management of public recreation, I am hoping to offer a third choice to these two:

Documentary on Private Management of Public Parks

Check out this most recent Reason.TV video, which includes your humble correspondent.

Customer Feedback on Private Management

Got the letter from a customer of a US Forest Service park we operate.  I know the last paragraphs almost looks like a setup but we honestly got this letter out of the blue from a customer no one here knows.

Seasonal Closures

One of the key strategies for making ends meet in recreation is seasonal closures and/or service reductions.   With only a few exceptions (San Diego, maybe?) most parks have strong seasonality.  Here is one example that caught my eye in the news:

Two western Kentucky lawmakers say they don’t support plans to close resort parks two days a week in the winter and privatize restaurants and golf courses.

“Rather than shutting down the parks for two days, they should be promoting them to increase business,” Rep. Will Coursey, D-Benton, said. “It sends the wrong message.”

Let’s make sure we are clear on this — They are talking about closing Tuesday and Wednesday in Kentucky in the winter time, which (if you are not from the area) is typically cold and rainy.

My company runs several enormously popular parks in Western Kentucky for the US Forest Service.  They are so popular we have lines and wait lists in the summer to get in.  But we don’t even try to keep the place open from November 1 to March 15, and even then the dropoff we get in the late and early season is substantial.

I am not that familiar with these parks in the article, but I would have to take a good long look at them to see if I would support keeping them open in the winter at all, much less 5 days a week. I am currently looking at a resort type public park in Georgia with a lodge, and the cost of keeping a resort and restaurant open in the winter when there is no business is simply astronomical.

But let’s consider the lawmaker’s suggestion for a moment.  I am a marketing guy.  You ask me to do something to fill up a cold, rainy western Kentucky resort on a Tuesday and a Wednesday during the school year.  How?  I am sure you could hire someone who would gladly take your money for this project, but what possible chance of success does it have?  Who is going to go when their kids are in school to spend two mid-week days in a cold and rainy resort? In the Georgia example I am looking at, there is nothing one can do to reasonably get occupancy high enough even to break even — the mid-week and winter off seasons are too much of a drain if the lodge remains open during these slow times.

The only possibility is selling to the business meeting market, to try to get businesses to come in.  This is a tough sell anyway, particularly in this area of the country, but it also requires some minimum facilities.  Small lodges don’t work well, and there needs to be good meeting space, good A/V and internet infrastructure, and  catering capability.  And even if all this capability exists, there will not be meetings all the time and the rest of the time the costly capability will just sit unused, burning money.

Which leads to another inherent problem with government management of recreation — their labor force tends to be both expensive and, more importantly, inflexible.  One reason they cannot just shut down for the winter is that it begs the question, what do we do with all of our salaried staff?  One reason companies like mine can offer such large cost reductions without sacrificing service is that our labor force is enormously flexible.  I have mobile employees (in RV’s), some of whom want year-round work and some of who only want seasonal work.  This allows us to match staffing to demand better, so we don’t pay a 30 person staff in the winter to sit around looking at empty parks.

Oh, and I thought this was funny, from the same article:

“I agree with Will on the closing, and I’ll have to hear a lot of discussion on privatizing the golf courses before I could support that,” Cherry said. “If they’re privatized, it means a profit for someone. The state may have to make changes in procedures so that it earns the profit.”

A couple of thoughts.  First, of all the different kinds of public parks, is there any type with a more proven track record of successful private management than golf courses?

Second, God forbid anyone make a profit.  I am sure the state is losing money on the operation, so why do they care if someone makes a profit if their loss goes away and the golf course remains open to the public?

Third, this just shows lawmakers again talking without any knowledge of the subject.  All private management deals include rent payments back to the state, so whether the private entity makes money or not, the state is going to convert a current loss to a gain via rent payments.   In effect, private cost reductions and performance improvements result in additional surplus, and that surplus is split with the private company retaining some as profit and paying some out to the state as rent.  Win-win.

More Support for Private Solutions to AZ Parks Budget Shortfall

From the Goldwater Institute:

The Goldwater Institute responded to recommendations that state parks be funded through a new license plate fee with a simple suggestion of its own: instead of raising taxes for parks, keep them under state ownership but let one or more private companies manage them.
Senator Barbara Leff wrote and won approval for Senate Bill 1349, which gives the Arizona Parks Board authority to immediately contract with a private company to run state parks. Despite an offer from a Phoenix-based company, the parks agency has shown little interest and even outright hostility to the idea.

As an alternative, local communities have been making extraordinary efforts to keep open parks they deem important to their local economies.While private contracting is not always simple, its benefits in this case are clear. Parks would stay open and the state budget would face less pressure. Unfortunately, the State Parks Board has shown little willingness so far to move on this important issue.

The Power of Incentives

I can pretty much guarantee that our company does not have this situation with our assets in our public recreation management operations:

City Controller Wendy Greuel released an audit today showing that various City departments could not locate hundreds of items purchased with taxpayer funds, and that hundreds of other items had been sitting unopened or unused for up to 7 years….

* Of 254 items that we attempted to locate, 115 were not where they should have been. While 56 items were ultimately found in the wrong location, 59 were unable to be located at a cost of $938,000.
—Some of the items that were never found included a video recorder purchased by ITA for almost $60,000.

* Departments are supposed to conduct a physical inventory of items every two years to maintain accurate physical inventories of equipment. ITA and Sanitation have not conducted a review in at least 5 years and Recreation and Parks has not conducted a review of all items in at least 7 years.

* ITA and Recreation and Parks have 138 items that were purchased at least 1 year ago, still in warehouses or staging areas. These items are worth $237,000, and some were purchased over 7 years ago.
—Some of the items not placed into service included 9 microwaves, 1 deep fryer and 2 television sets by the Recreation and Parks Department and various computer equipment by ITA.

Parks are closing around the country for lack of money.

Private Management and Infrastructure Maintenance

The NY Times has more on NY park closures. Many of these parks are ones our company could keep open, but to date I have been reluctant to approach NY as I have Arizona, as I am skittish about trying to operate a business in that state.

The other night, an executive of Arizona State Parks told a public audience that Arizona had invested a lot of infrastructure in the parks and private companies intended to “run the parks into the ground” for profit.  I found this ironic, as I wrote the Arizona State Parks director in response:

It is hilarious to me that [Arizona Sate Park] management is pointing the finger at my company for running infrastructure into the ground.  [One State Park executive] has shown me the deferred maintenance book [for the state parks system].   I would venture that none of the facilities we have operated for any amount of time for any public authority has the compounded deferred maintenance issues you have in many of your parks.  Over the last 3 years, above and beyond regular routine maintenance, we have spent nearly $3 million in capital maintenance and refurbishment, and over $2 million in new facilities or whole facility replacements, all at public recreations areas.

Increasingly, our company has been brought in to a number of park systems to bring private capital to repairing years of deferred maintenance that the public entity can’t afford to address (most recent example here).  It seems like the New York system may be yet another example addressing the myth that somehow private entities are worse than government entities at regular maintenance:

The agency has already absorbed significant cuts in the last three years and during the peak summer months has a skeletal staff in place inside the state parks. “It’s not an agency that’s been dripping with dollars,” Ms. Dropkin said. “They were pretty lean to begin with. They do their best, but the infrastructure is really crumbling. They keep the bathroom doors together with duct tape.”

Private vs. Public Management

People often ask how we are able to manage parks in a quality manner at a much lower cost than public parks organizations.  Here is one of the reasons:

The NY Times has a surprisingly fair article this week about the near-impossibility of firing an NYC public school teacher:[I]n the two years since the Education Department began an intensive effort to root out such teachers from the more than 55,000 who have tenure, officials have managed to fire only three for incompetence. Ten others whom the department charged with incompetence settled their cases by resigning or retiring.

It’s not as though the city hasn’t tried.

The city’s effort includes eight full-time lawyers, known as the Teacher Performance Unit, and eight retired principals and administrators who serve as part-time consultants to help principals build cases against teachers. Joel I. Klein, the schools chancellor, said that the team, whose annual budget is $1 million, had been “successful at a far too modest level.”

So it took 16 lawyers/administrators two years to get rid of 13 teachers. Practices that would immediately bankrupt a private company are considered normal for the public sector.