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National Park Service Sitting On Half-A-Billion Dollars Of Concessions Obligations

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Concessionaires at Grand Canyon National Park hold nearly $100 million in LSI/NPS

Across the National Park System, there is an estimated half-a-billion-dollars of obligations owed concessionaires who run lodges, restaurants, and even some activities, for the National Park Service.

It's a sum that, while Park Service officials say is manageable, has seemingly stifled concessions competition in some parks and led the agency to divert tens of millions of dollars from some parks to others to reduce the debts. 

At Grand Teton National Park in Wyoming, the outstanding amount is more than $57 million. At Glacier National Park in Montana, it's $22 million. At Grand Canyon National Park in Arizona, it's nearly $100 million. At Yellowstone National Park, the sum is $21.5 million. 

Those figures are built into the existing concessions contracts, and not owed immediately, but could come due at the end of the current pacts.

The ramifications of carrying such large sums on the books has been most evident at Grand Canyon National Park, where the Park Service has failed to see robust competition for its South Rim concessions. The agency last year had to scrape up nearly $50 million from dozens of parks, along with $25 million from the Washington headquarters and $25 million from Grand Canyon National Park, in a $100 million bid to make a long-term concessions contract for the South Rim more palatable to bidders.

So far that move has proved unfruitful, and it could prove painful to those parks that contributed to the cause. While the initial South Rim concessions prospectus called for the winning bidder to pay a franchise fee of 14 percent to the Park Service -- a percentage designed in part to help repay that $50 million loan -- the fee since has been reduced to 8 percent with hopes of attracting a bidder.

"Has anybody asked what will happen now that the franchise fee has gone from 14 percent to 8 percent in terms of the pace at which the repayments will be made to the Statue of Liberty and to Alcatraz and to all the rest of the donating parks?" wondered Derrick Crandall, counselor to the National Park Hospitality Association that represents park concessionaires.

While Congress thought it had righted the Park Service's concessions business in 1998 when it replaced the 1965 Concession Policy Act, problems that have come up recently have some members of Congress concerned that the contracting system is ineffective.

"The system laid out in the National Park Omnibus Management Act (of 1998) has worked, with varying degrees of success. In recent years, however, it has become increasingly clear that competition in the bidding process and the ability of the Park Service to attract new bidders have both significantly diminished," Sens. Lisa Murkowski and Michael F. Bennett wrote to Interior Secretary Sally Jewell in mid-December.

"We understand that the concessions bidding system is not working effectively and the Park Service is doing what it can under the constraints of the law to attract bidders," they continued. "Yet we also believe the practice of 'borrowing' funds from park maintenance accounts is not an adequate solution. We believe this practice should not continue, and we urge you to intervene and stop this practice."

Possessory Interest Vs. Leaseholder Surrender Interest

In replacing the 1965 Act in 1998, Congress gave the Park Service a new formula for calculating what concessionaires are owed for investments they make in park infrastructure. Under the 1965 law, at the end of a concessions contract the improvements completed over the life of that contract are valued by taking reconstruction costs and subtracting depreciation to come up with a dollar value that does not exceed fair market value. That amount was known as "possessory interest."

Alternate TextAt Mount Rushmore National Memorial, there is more than $12 million in combined possossery interest and LSI held by the concessionaire/Kurt Repanshek

The 1998 law replaced the possessory interest formula with one that arrived at a dollar amount for Leaseholder Surrender Interest, or LSI. That figure is reached by taking the possessory interest value negotiated at the end of a contract and using it as the initial LSI in a new concessions contract. Then, going forward, any costs related to capital improvements, if any, are added. The total then is adjusted by the Consumer Price Index, with depreciation subtracted from the total, to reach the LSI value of the contract.

But bidding problems can arise when one contract comes to an end and a new one is being sought. At the Grand Canyon, the possessory interest owed Xanterra Parks & Resorts had, over the decades, approached $200 million. Normally, a successor concessionaire would be responsible for buying out any possessory interested owed its predecessor. That $200 million figure, though, had park officials concerned they would not get a competitive bid for a new 15-year contract for the South Rim concessions business, and so the decision was made within the Park Service to borrow millions of dollars from across the system to buy down $100 million of that total.

The Park Service also decided to split the South Rim concessions business into two contracts. Delaware North Companies won the smaller of the two contracts, and agreed to pay Xanterra $47 million in possessory interest, but Xanterra created another problem when it sued the Park Service over the bifurcation of the contracts.

While the Park Service and Xanterra eventually agreed to a temporary one-year contract to run such iconic South Rim businesses as the El Tovar Hotel and Phantom Ranch at the bottom of the canyon, it continues to search for a company to agree to its terms for the new agreement. 

Across the park system, the agency has had other problems with securing long-term contracts. At Glacier Bay National Park the agency has had trouble reaching a long-term contract for its lodge in Gustavus, on the Blue Ridge Parkway it has been unable to find a concessionaire for Rocky Knob Cabins, and had had problems in the past finding an operator for the Log Cabin Resort in Olympic National Park, just to cite three examples in addition to the Grand Canyon businesses on the South Rim.

Does The Existing Act Need To Be Replaced

Park Service officials declined to comment on whether the current concessions model hampers competition, as the two senators maintained.

"That's a subjective question that calls for an opinion," Park Service spokeman Jeff Olson said. "We'd be happy to answer questions of fact."

To examine the competitiveness of concessions contracting in the park system, National Parks Traveler has requested a breakout of all lodging concessions contract prospectuses during the past 15 years that received two or fewer bids. That request was pending last week as the agency's commercial services branch was gathering the information.

Derrick Crandall, counselor to the National Park Hospitality Association that represents park concessionaires, didn't hesitate to say the current contracting program is broken.

'œThe general consensus of concessionaires is that the system is not working well. (It) is not producing the win, win, wins for the public, for the agency, and the concessionaires that certainly everybody had hoped for from the '98 Act," Mr. Crandall said. "It'™s time to look and see if the act is at fault or if the implementation of the act is at fault.

"...There'™s a problem out there," he added. "As you look at the major prospectuses, a lack of response to most ... is indicative of a problem that we think needs to be addressed."

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There is roughly $57 million in LSI held by concessionaires at Grand Teton National Park, home to Jenny Lake Lodge/David and Kay Scott

Are the multi-million-dollar LSI figures deterring competition? Mr. Crandall doesn't believe so.

'œTwo things. No. 1, it'™s pretty common if you buy a business to actually take on some debt that that business already had," he said. "So no, it'™s not impossible for another company to come in and pay the LSI and then operate. But it'™s probably impossible to do that over a 10-year concessions contract, which is of course what the Park Service has been doing for the last two cycles. Now we'™re finally getting the Park Service to understand that they have to go to 15 and 20 years to allow the concessionaire to amortize that, and that can be worked out. It'™s not a big issue. It just requires an understanding of just how businesses operate, what the cost of money is, and finding a way to do that. But there are lots of solutions and we just have not had those discussions about how to deal with that."

The greater issue, Mr. Crandall said, is dealing with federal regulations. While there are four primary companies that manage the Park Service's largest concessions contracts -- Xanterra Parks & Resorts, Delaware North Companies, Forever Resorts, and Aramark -- companies such as Hilton Hotels and Resorts and Marriott International are put off by those regulations, among other things, he said.

"There are plenty of companies that could operate, but it'™s a competitive world out there and they look at the risks vs. the rewards. And they see risks of being subject to October (government) shutdowns, forced shutdowns because of fires, and problems that they can'™t deal with, like hantavirus and so many other issues," said Mr. Crandall. "All of the major hospitality companies have looked and have walked away, saying, 'This is just not something that we can do.'

'œProbably the most restrictive provision is the highly bureaucratic and burdensome price approval process that the Park Service goes through. A company like Delaware North at Yosemite has something like 143 different room types, and each of those room types have to be addressed in terms of comparability. It is just not something that makes sense," he went on. "And if you'™re a company like a Marriott or a Hilton or somebody else, you basically say, 'Does that meet what I want to be doing with my managerial staff'™s time?'"

While the Park Service moved at Grand Canyon to reduce the LSI with hopes of attracting more bidders, the 1965 Act specifically prohibited the agency from buying down possessory interest, and typically it also cannot act to reduce LSI until the end of a contract, either, according to Jo Pendry, chief of the agency's Commercial Services Program.

'œUnderstand that under the 1965 law, under possessory interest, we did not have that right. Concessionaires, pursuant to statute, LSI is a right to compensation, and it is due and payable under certain events, which is generally at the end of the term of the contract," she said. 'œSpecifically, in regards to the Grand Canyon, the NPS did not have the right to buy the LSI (leaseholder surrender) prior to the termination of that contract.

'œWe could not because of the way that contract was written. But since that time we have modified our concessions contract language, so that they now contain provisions that allow us to periodically buy down LSI," she explained. "We make careful evaluation of every concessions contract that we enter into, and if we believe that the LSI needs to be reduced we will make a strategic decision to do that. Facility improvements are planned events.

'œWhen we have the money, and the need, we will buy the LSI down.'

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At Yellowstone National Park, home to the Old Faithful Inn, concessionaires hold nearly $27 million in LSI/NPS, Jim Peaco

Though Ms. Pendry would not identify other concessions contracts across the system that might merit a buy-down, she said the agency was watching some more closely than others.

'œI think we have some contracts that we are watching, that we are concerned about," the Park Service officials said. "We likely have some other contracts that we will be buying down, because we believe the LSI may be too high. We watch them all very carefully to ensure that they don'™t grow so high to the point where we believe they hinder competition. We feel like we have flexibility to do that now, where we did not have that flexibility previously (under the 65 Act).'

With a new Congress in Washington, Mr. Crandall anticipates sitting down with key representatives to discuss the problems his group sees.

At the National Parks Conservation Association, Craig Obey, senior vice president of government affairs, said if changes to the Park Service's concessions program need to be made, they should be fair across the board.

'œNobody likes red tape except, maybe, at Christmastime" said Mr. Obey. "The centennial is upon us, everyone'™s top priority should be better funding the parks. If changes to concessions management arrangements are needed, the specifics need to be made crystal clear and any action should not only be fair to concessioners but to park visitors and American taxpayers. The public interest should be first in line.'

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Comments

It's shameful that park service has structured concessions so that no one, save a few concessionaires with less than the best guest service in mind will take any interest in operating the concessions.  They have continually micromanaged the life out of the businesses, dictating light bulb wattage, specific condiments, menu items, paint colors, etc. for each concession.  Most successful businessmen want some say in how to run their own operations.

I believe that different class of hotelier altogether would have long ago invested in the national parks if such were the case.  Now NPS is in the hole for an exorbitent amount.  Something they brought on themselves.  An amount any concessionaire with the slightest amount of business sense would not hold their breath on ever seeing.

Yes, many of the lodges are historic, and historic guidelines should be set.  Restaurants should be required to offer a variety of items catering to many different tases, with plenty of healty options (currently they are the purveyors of some of the grossest lukewarm GMO Sysco garbage available, which, however is what NPS has approved), but does not need to dictate each and every menu item, portion size, and condiment.

Concessionaires also need to stop being treated like second class citizens. No respectful businessman wants to be treated in such a matter, nor have employees treated as such.  NPS does specifically that in the requirement that employee housing is structured so that overcrowding is a major issue (while much of their own housing sits empty), and also in its general demenaor towards the private employees in the parks.

I know that this will upset the "government knows best" crowd, but their are businesses that run outside the park system quite successfully that respect history and the environment. We don't need NPS to tell us what ply toilet paper to use, figuratively speaking.

Leave your hands off the businessman, and you might find a willing investor even now.

 


An earlier NPT article says the sources of half the Grand Canyon LSI buydown 'loan' are concession franchise fees from other parks:

 

"The funds, swept up by the National Park Service's Washington, D.C., headquarters in August, come from concession franchise fees collected by the parks. Those fees typically are spent on a wide range of items, from commercial services plans and capital projects that support concessionaire activities to visitor services and resource needs."

 

/2014/12/eighty-eight-units-national-park-system-tapped-496-million-help-grand-canyon-national-park25963

 

So I was curious to read in this story that:

 

Sens. Lisa Murkowski and Michael F. Bennett wrote to Interior Secretary Sally Jewell in mid-December.

"...we also believe the practice of 'borrowing' funds from park maintenance accounts is not an adequate solution. We believe this practice should not continue, and we urge you to intervene and stop this practice."

 

Are the Senators confused, or just grandstanding?  The NPS link:  "Guidelines for Use of Concession 80% Franchise Fees" is not working.  Can someone explain how these funds are normally spent, and if that really includes maintenance?

 

For a sense of NPS micro-management of concessions, take a glance at this page:

 

http://www.nps.gov/commercialservices/policies.htm


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