Annual Privatization Report 2013

California Pioneers Public-Private Partnerships for Private Operation of State Parks

Subsection of Annual Privatization Report 2013: State Government Privatization

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As reported in recent editions of Reason Foundation's Annual Privatization Report, policymakers in several states have begun to explore the expanded use of privatization and public-private partnerships (PPPs) in the operation of state parks as a means to keep parks open and thriving amid strained budgets and heightened competition for limited state funds. Though used at the federal level for decades, California broke new ground at the state level in 2012 by becoming the first state to contract with private recreation management companies to operate whole state parks.

For over 25 years, the U.S. Forest Service (USFS) has used an innovative PPP approach—a "park operation PPP" or "whole park concession" agreement—in which it enters into leases (concessions) authorizing the operation of one or more recreation areas by a private recreation management company (concessionaire) under a performance-based contract. Under a park operations PPP, a concessionaire takes most or all of a park's operations and maintenance costs off the public agency's books and pays the public agency an annual lease payment based on a percentage of the entry, camping and other user fees collected at the park (typically 5–15 percent of gross revenues). The agency retains full ownership of the land, and the concession subjects the company to strict state controls on operations, visitor fees, maintenance and other key issues.

Private, for-profit recreation management companies currently operate over half of the USFS's thousands of developed recreation areas (e.g. campgrounds, day use areas) nationwide under such "whole-park" concession agreements. For example, Colorado, California, Oregon and Washington each have over 100 USFS recreation areas and campgrounds operated by private concessionaires, with most other western states like Arizona, New Mexico and Nevada each having dozens under private operation as well. This USFS program was originally prompted by fiscal pressures on the agency in the 1980s during the Reagan administration, which led it to embrace user fees and PPPs to keep its numerous recreation areas open and self-sustaining. Other public agencies such as the Tennessee Valley Authority and the Lower Colorado River Authority have made extensive use of concessionaires to operate and maintain complete parks and campgrounds under park operations PPPs, though until 2012 this partnership model had seen limited use at the state level.

That changed in early 2012 when California State Parks (CSP)—which was seeking to avoid the closure of up to 70 state parks under severe funding pressures—issued a request for proposals (RFP) seeking a five-year concession contract (or contracts) to operate campground and day use state recreational areas (SRAs) at five park units in the Central Valley:

  • Turlock Lake SRA;
  • Woodson Bridge SRA;
  • Brannan Island SRA;
  • McConnell SRA; and
  • George J. Hatfield SRA.

Two of these—the McConnell and Hatfield SRAs—were subsequently removed from the procurement after the state struck agreements with outside donors to keep them open. For the remaining three parks, CSP set a minimum annual rent level for each park that bidders had to exceed in their proposals—based either on percentage of gross revenue returned to the state or specific minimum rent payment amounts set by the state, whichever was greater—and it allowed would-be concessionaires to bid for any combination of one or more parks. The parks in question represented a mix of revenue-generating and revenue-losing parks, allowing a win-win for bidders and for the state by bundling each of the parks into one PPP vehicle. The Brannan Island SRA alone had cost the state $740,000 to operate in 2011, over twice the amount it raised through user fees and traditional concession revenue, according to The Wall Street Journal.1

According to the agency’s request for proposals, the objectives of the PPP were to:

  1. Maintain campground, day use and recreational facilities and signage;
  2. Ensure adequate staffing to maximize use and protection of facilities, including roads and trails;
  3. Collect campground and day use entrance fees;
  4. Ensure the safety and convenience of park visitors; and
  5. Protect the state’s natural and cultural resources.

In June 2012 the department selected a winning bidder—Utah-based American Land & Leisure, which operates 492 campgrounds across 12 states—for the three-park package. Some noteworthy aspects of the PPP include:

  • The contract term lasts five years.
  • The state set forth clearly delineated maintenance requirements for both itself and the concessionaire. The concessionaire is generally responsible for handling (and covering the costs of) minor improvements and day-to-day repairs. For larger maintenance jobs, all revenues paid back to the state as concession rent in these three parks will be put into a park maintenance fund from which the concessionaire can spend with state approval. Regardless, the state has removed the maintenance costs for these parks from its books and transferred them to the concessionaire.
  • To protect itself against lower-than-expected concessionaire rent payments over the life of the concession, the state required American Land & Leisure to obtain a performance bond covering 100 percent of the anticipated rent payments over the next five years. This is a risk transfer mechanism to ensure that the state receives 100 percent of the rent payments originally envisioned in the procurement, regardless of whether the anticipated revenues are actually generated by the park in practice.
  • Workers at the affected parks that chose not to stay on with American Land & Leisure were not fired, but transferred to other parks in the system.
  • The concessionaire provides on-site, live-in staff to operate the parks, while either the California Highway Patrol or local sheriff’s offices handle law enforcement responsibilities.
  • The concessionaire is required to provide commercial general liability, automobile, and worker’s compensation insurance under the contract, at levels greater than the state had previously insured itself.
  • The concessionaire is required to maintain the premises, trails, roads, facilities, furnishings and equipment in good condition in accordance with agency standards and contract provisions. In fact, the concessionaire is required to implement an operations plan for each park unit (prepared by the concessionaire and approved by the state) that outlines how services will be provided and facilities maintained over the life of the concession.

Additionally, CSP signed separate park operation PPPs with the Bodie Foundation to operate Mono Lake Tufa State Natural Resource Area and with Parks Management Company to operate Limekiln State Park on the central coast, bringing the total number of California state parks operated under park operation PPPs to five. CSP also negotiated partnership agreements with a variety of cities, counties and non-profit organizations to keep dozens of other parks from threatened closure as well.

Beyond California's groundbreaking contracts, other noteworthy developments on PPPs in parks and recreation in 2012 include:

  • Florida: In May, Florida Governor Rick Scott signed into law a bill that would authorize private for-profit and nonprofit corporate sponsorship activities in Florida state parks. Senate Bill 268 authorizes the state’s Department of Environmental Protection to enter into sponsorship agreements allowing private firms to sponsor signs with commercial displays on state-owned greenway and trail facilities, subject to prior agency approval. A total of 85 percent of the proceeds from the program are dedicated to the operation of state trails and greenways, with the remaining 15 percent allocated to the state transportation trust fund for use in the Florida Traffic and Bicycle Safety Education program and the Florida Safe Routes to School program.
  • Georgia: In September 2012, the Georgia Department of Natural Resources announced plans to turn over operation of the lodges and cottages at two state parks (Unicoi and Amicalola Falls) to Coral Hospitality, a Florida-based hotel management company, before the end of the year. The agency initially planned to close the Unicoi State Park lodge for renovations until discovering that the project costs exceeded available funding. Instead, Coral will upgrade guest rooms at the facilities while keeping the lodges open, with additional renovations of the conference facilities, restaurants and cottages scheduled over the next two years. Other park campgrounds and recreational amenities will continue to be operated by the state. Coral has also operated the state-owned Brasstown Valley Resort & Spa and the Lake Blackshear Retreat and Golf Club at Georgia Veterans State Park since 2005.
  • Illinois: In May 2012, the Illinois Senate unanimously passed legislation (House Bill 3611) that would transfer ownership of Wildlife Prairie State Park near Peoria from the state to the nonprofit Friends of Wildlife Prairie Park, which currently operates the park. The move comes as the state deals with ongoing fiscal pressures that have significantly reduced state parks funding in recent years. The privatization will make it easier for the nonprofit operator to attract private donations and secure financing for capital projects. At press time, the Illinois House had not taken a final vote on the legislation.
  • Indiana: During the 2012 election campaign, incoming Indiana Governor Mike Pence expressed support for tapping PPPs to develop new lodging and recreational amenities in state parks, according to the Fort Wayne Journal-Sentinel.2 Pence’s campaign stopped short of calling for PPPs to take over existing park operations, instead focusing on PPPs to develop new park amenities.
  • Maine: In April 2012, Maine Governor Paul LePage approved the privatization of the operations of the state-owned Fort Knox Historic Site, turning over management to the Friends of Fort Knox, a nonprofit organization that had previously provided tours and other services at the park. Friends will lease the operation of the park for four years—collecting admission revenues and paying a 15 percent portion of gross revenues back to the state as an annual lease payment—and it will take over all facility and grounds maintenance, in addition to other day-to-day operations.3 The state’s Bureau of Parks and Lands retains the authority to approve any modifications to historic facilities and any proposed entry fee changes.
  • Texas: The Texas Parks and Wildlife Department issued a request for proposals in July 2012 seeking official corporate sponsors in an attempt to supplement declining state parks funding with outside revenue. Authorized in a 2011 state law, the agency solicitation envisions a range of sponsorship opportunities that include limited advertising at parks and the ability to use the official corporate partnership designation in company marketing materials. State officials anticipate the new program could generate at least $1 million in outside corporate support, according to the Austin American-Statesman.4 Bids were due in August 2012, and at press time the agency was still evaluating responses.

(Editor's note: Portions of this article were derived from Reason Foundation’s January 2013 study, "Parks 2.0: Operating State Parks through Public-Private Partnerships," by Leonard Gilroy, Harris Kenny and Julian Morris.)

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Endnotes

1 Max Taves, “Private Fix for Public Parks,” The Wall Street Journal, June 17, 2012.

2 Niki Kelly, “Pence sees nuclear energy future,” Fort Wayne Journal Gazette, August 29, 2012.

3 Bridget Brown, “Details of Fort Knox privatization lease released,” Bangor Daily News, April 12, 2012.

4 Asher Price, “State Parks and Wildlife Department turns to corporate sponsorships to raise money,” Austin American-Statesman, July 29, 2012.

Leonard Gilroy is Director of Government Reform





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