Deficit-challenged states that are closing state parks under budget pressure should consider a powerful alternative that can ensure that parks stay open—leasing parks to private sector operators.
Glenn Beck did a nice job teeing up this discussion in a segment yesterday (watch here or click below) with Warren Meyer, CEO of Recreation Resource Management, a private recreation management company that operates over 150 parks for federal, state and local authorities (including the U.S. Forest Service and Tennessee Valley Authority). Mr. Meyer’s company—and other peers, according to this Verde Independent article last weekend—are offering to take over Arizona state parks currently planned to be shuttered amid budget cuts. In other words, the private sector is offering to rescue state parks that would otherwise close.
As Beck points out, the choice being offered here is a no-brainer: we can (a) close state parks, or (b) keep them open at no cost to the state by leasing them to private concessionaires. In my mind, if the National Park Service can embrace the private sector and concession out lots of pieces of national parks—as it already does with most of its “crown jewels” like Arizona’s own Grand Canyon—then letting these same types of companies run state parks is hardly a stretch.
It’s probably helpful to drill down into a few other key points:
- The term “concession” can mean different things and needs clarification. A common type of parks-related concession might involve having a private company run a gas station or retail store in a national park, but that’s a much weaker type of concession we’re talking about here. In this context, a parks “concession” would essentially be a long-term (roughly 15 years) lease of the entire operation of a park (or group of parks) under a performance-based contract with a private recreation management company (i.e., “concessionaire”). The contract would spell out the government’s expectations on operations, maintenance, fee structure and other key issues. The concessionaire would then collect the user fee revenue during that term to fund their operations, possibly being required to share any revenues above a certain threshold with the state (as we see with many toll road concessions) so that taxpayers share in the benefit of any potential upside revenues. The concessionaire would simultaneously take on the costs of operations and maintenance (including labor), removing those huge costs from the state books. From the state’s perspective, the bottom line is that a park concession offers the opportunity to turn a money-losing asset (think costs, pensions, etc.) into a revenue generating asset that can be leveraged to help keep other parks open and thriving.
- Roads and parks are inherently different in many ways, but there are some parallels in the use of the concession model. In a certain sense, Arizona is facing a similar situation in state parks that Gov. Mitch Daniels faced with the Indiana Toll Road—the opportunity to use concessions to unlock the value trapped in a money-losing government asset. As Gov. Daniels noted on the National Journal blog earlier this week, “It’s the best deal since Manhattan for the beads, except this time the natives won. […] We captured three times the value of that road in political [i.e., state government’s] hands. It was losing money because politicians ran it.” For Indiana transportation, that meant using a concession to tap $3.8 billion in upfront cash to fund dozens of statewide highway projects the state couldn’t otherwise have afforded. For parks in Arizona and other states, concessions present the opportunity to keep parks open, operating and maintained rather than shutting them and bearing huge costs to reopen them again later. Different aims and structures, but same underlying result—the state was able to do more with less partnering with the private sector.
- Arizona policymakers passed legislation last year authorizing the state to enter into concessions to deliver transportation projects, joining over two dozen other states. If it works for roads, why not parks? Policymakers are increasingly realizing that they can take the concession models they’re becoming familiar with in transportation and apply them in schools, parks, corrections, mental health and numerous other areas.
- Inevitable fears of “loss of public control” are unfounded. As the Glenn Beck piece noted, parks concessions are guided by contracts in which the state spells out in clear detail how much the concessionaire can charge (so they can’t charge whatever they want), restrictions on development (so they can’t commercialize parks), performance standards, etc. As I often argue, the public sector actually gains control through concessions, rather than loses it, because public sector administrators often have very little control over their own personnel, given civil service rules, red tape, etc. At a practical level, this means that they can guarantee better performance from a concessionaire via contract than they can from their own state employees.
Perhaps the most important benefit of the concession model lies in the concept of risk transfer—the ability to transfer important and costly risks away from taxpayers and to a concessionaire. Some of those risks include:
- Revenue risk/demand risk: The concessionaire would bear 100% of the revenue risk, meaning that the concessionaire—not taxpayers—takes on the risk that enough user-fee-paying customers show up to the parks to cover the costs. This naturally incentivizes the concessionaire to provide high-quality facilities that attract users, and because of these incentives the private sector tends to be much more attuned to service quality and prioritization of resources. Simply put, the concessionaire would bear the risk that no one shows up at the parks they operate and they eat the entire loss, with no backstop by state tax dollars. Now there’s naturally some counter-risk here, in that the state would bear a small degree of risk that the concessionaire doesn’t go bankrupt at some point in the contract, but (a) this is a risk borne in almost any public-private contract, and (b) this risk can essentially be neutralized if the state does some simple upfront due diligence in ensuring that bidding companies are financially healthy. Vetting qualified vendors is a common task undertaken in many state procurement processes, so nothing new there.
- Appropriation risk: State parks operating under a concession no longer bear the appropriation risk that we’re seeing play out in real life across the country, as parks get axed from state budgets amid rampant state fiscal crises (some examples include California, New York and Louisiana). Really, this is more of a risk that’s eliminated, rather than transferred to the concessionaire (see revenue risk discussion above), so revenue/demand risk and appropriations risk are really two sides of the same coin.
- Operational risks: Operational risks transferred to the concessionaire generally involve things like system/facility maintenance and environmental and regulatory compliance. Since the concessionaire is taking over the whole operation, they—not the state—would bear the costs for most operations and maintenance, if not all. Procuring authorities would need to think through important issues like how to handle deferred maintenance, meaning the degree to which the concessionaire would be asked to address a maintenance backlog that may have accumulated under government operation (since policymakers generally tend to skimp on things like asset maintenance in favor of funding other pet programs). States may choose to try and address deferred maintenance through a concession, or they may not—the key is that’s a policy decision to make on a case-by-case basis.
- Legal risk/liability: Parks concessionaires have to insure themselves and are exposed to lawsuits and a variety of other risks that taxpayers currently bear under state operation. Also, states tend to self-insure, which means that they spend a lot of money outside of the parks budget to run their own insurance shops. A concessionaire would take on insurance responsibilities for any parks they operate, taking away those costs from the state.
- Project delivery risk: To the extent that there might be some capital expenditure involved in a given concession (like a visitors center or the construction of facilities in a new state park), the concessionaire would effectively take on the project delivery risks that the state would have otherwise taken if it was doing the same project. Examples of these include construction cost risk (i.e., cost overruns, ubiquitous in the public sector) and schedule/delivery risk (every day a facility isn’t open is a day that the operator can’t collect revenue) on any potential capital projects that policymakers may desire. Transferring the risk of cost overruns and schedule slips from the public sector to a concessionaire is a huge, obvious benefit to taxpayers. And concessionaires are much more nimble in project delivery than governments, delivering projects better, faster and cheaper without the weight of labrynthine and costly public sector procurement rules, wage mandates and the like.
It’s for all of these reasons that parks concessions seem like a no-brainer for cash-strapped states to consider as a viable and positive alternative to budget cuts, closures, tax hikes and other bad policy choices states are otherwise confronting. Even if policymakers believe that it is a core function of government to provide public recreation facilities, it does not then follow that government has to be the one to run those facilities. If a private concessionaire offers to keep parks open that would otherwise just be shut down, taking on costs and risks that taxpayers would otherwise bear, why would a responsible policymaker say no?
UPDATE: See related thoughts on parks from Goldwater Institute economist Byron Schlomach here and here.