National Park Service: Concession Reform Issues (Testimony, 03/12/98,
GAO/T-RCED-98-122).
GAO discussed the need for concessions reform in the National Park
Service as well as in other land management agencies, focusing on a
comparison of the Park Service's concessions programs with those of
other federal agencies.
GAO noted that: (1) concession activities on federal lands is a large
industry that generates billions of dollars; (2) GAO's most recent work
showed that over 11,000 concession agreements were managed by civilian
agencies throughout the federal government; (3) concessioners operating
under these agreements generated about $2.2 billion in gross revenues;
(4) over 90 percent of concession agreements and the concession gross
revenues were from concessioners in the six land management
agencies--with many of the largest concessioners operating in the Park
Service; (5) for agreements that were either initiated or extended
during fiscal year 1994, concessioners in all of the land management
agencies paid the government an average of about 3 percent of their
gross revenues; (6) in the case of the Park Service, the average return
was about 3.5 percent; (7) in contrast, concessioners in nonland
management agencies paid fees of about 9 percent of their gross
revenues; (8) the key factors affecting rate of return to the government
were: (a) whether the fee was established through competition; (b)
whether the agency was permitted to retain most of the concessions fees
it generated; and (c) whether an incumbent concessioner had a
preferential right in renewing its concession agreement with the
government; (9) throughout the federal government, rates of return from
concessioners were higher when established through competition; (10) in
addition, agencies which had authority to retain fees and which did not
grant preferential rights of renewal generally obtained higher rates of
return to the government from concessioners; (11) in previous reports,
GAO noted that as Congress considers reforming concessions in the Park
Service, it may want to consider: (a) encouraging greater competition by
eliminating preferential rights of renewal; and (b) providing
opportunities for the Park Service to retain at least a portion of
concession fees; (12) in addition, some concession reform proposals have
suggested removing possessory interest--the concessioners right to be
compensated for facilities constructed or acquired on federal lands; and
(13) at issue are the long-term costs of acquiring concessioner-owned
facilities relative to the benefits realized by having greater control
through government ownership of facilities.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-RCED-98-122
TITLE: National Park Service: Concession Reform Issues
DATE: 03/12/98
SUBJECT: Retail facilities
Concessions contracts
Government collections
Federal property management
User fees
Public lands
Non-government enterprises
Comparative analysis
Profits
National parks
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Cover
================================================================ COVER
Before the Subcommittee on National Parks and Public Lands, Committee
on Resources, House of Representatives
For Release
on Delivery
Expected at
10 a.m. EST
Thursday
March 12, 1998
NATIONAL PARK SERVICE - CONCESSION
REFORM ISSUES
Statement of Victor S. Rezendes, Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division
GAO/T-RCED-98-122
GAO/RCED-98-122T
(141169)
Abbreviations
=============================================================== ABBREV
NASA -
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to summarize our past work on
concession issues and discuss the need for concession reform. My
remarks today are based on over 30 reports and testimonies we have
issued on concessions over the past 20 years--much of which has
focused on the concession activities at the National Park Service.
Our most recent report on concessions, which we issued in April 1996,
discussed the rates of returns from concessioners operating in
civilian agencies throughout the federal government.\1 This report
provided a comparison of the Park Service's concessions programs with
those of other federal agencies. The findings of that report as well
as the others continues to demonstrate the need for concessions
reform in the Park Service as well as in other land management
agencies.\2
In summary, our work has shown the following:
-- Concession activities on federal lands is a large industry that
generates billions of dollars. Our most recent work showed that
over 11,000 concession agreements were managed by civilian
agencies throughout the federal government.\3
Concessioners operating under these agreements generated about $2.2
billion in gross revenues. Over 90 percent of concession agreements
and the concession gross revenues were from concessioners in the six
land management agencies--with many of the largest concessioners
operating in the Park Service. For agreements that were either
initiated or extended during fiscal year 1994, concessioners in all
of the land management agencies paid the government an average of
about 3 percent of their gross revenues. In the case of the Park
Service, the average return was about 3.5 percent. In contrast,
concessioners in nonland management agencies paid fees of about 9
percent of their gross revenues.
-- The key factors affecting the rate of return to the government
were (1) whether the fee was established through competition (2)
whether the agency was permitted to retain most of the
concessions fees it generated, and (3) whether an incumbent
concessioner had a preferential right in renewing its concession
agreement with the government. Throughout the federal
government, rates of return from concessioners were higher when
established through competition. In addition, agencies which
had authority to retain fees and which did not grant
preferential rights of renewal generally obtained higher rates
of return to the government from concessioners.
-- In previous reports, we noted that as the Congress considers
reforming concessions in the Park Service, it may want to
consider (1) encouraging greater competition by eliminating
preferential rights of renewal and (2) providing opportunities
for the Park Service to retain at least a portion of concession
fees. In addition, some concession reform proposals have
suggested removing possessory interest--the concessioners right
to be compensated for facilities constructed or acquired on
federal lands. At issue are the long-term costs of acquiring
concessioner-owned facilities relative to the benefits realized
by having greater control through government ownership of
facilities.
Mr. Chairman, before I discuss our most recent report on concession
issues and the need for concession reform, I would like to note that
concessioners play a vital role in enhancing the public's enjoyment
of the national parks and other recreation areas. At the same time,
the Park Service has an obligation to ensure not only that these
concessioners provide healthy and safe services to the public, but
also that the government receives a fair return for the use of its
lands so that the nation's natural and cultural resources can be
adequately preserved and enjoyed by future generations.
--------------------
\1 Concessions Contracting: Governmentwide Rates of Return
(GAO/GGD-96-86, Apr. 29, 1996).
\2 Besides the Park Service, the six land management agencies are the
Bureau of Land Management, Bureau of Reclamation, and the Fish and
Wildlife Service within the Department of the Interior; the Forest
Service within the U.S. Department of Agriculture; and the U.S.
Army Corps of Engineers within the Department of Defense.
\3 Other than the U.S. Army Corps of Engineers, the April 1996
report did not include concessioners in the Department of Defense.
CONCESSIONS OPERATIONS IN THE
FEDERAL GOVERNMENT
---------------------------------------------------------- Chapter 0:1
Our work has shown that concession activities on federal lands are a
large industry that generates billions of dollars. In April 1996, we
issued a report on governmentwide concessions activities. Unlike our
past work, which examined concession activities within the six land
management agencies, this report reviewed concession operations
throughout the civilian agencies of the federal government and
included concession activities at agencies such as NASA, the U.S.
Postal Service, the Department of Justice, and the Department of
Veterans Affairs--just to name a few. In the report, we found that
in fiscal year 1994, there were 11,263 concession agreements managed
by 42 different federal agencies. Concessioners operating under
these agreements generated about $2.2 billion in revenues, and paid
the government about $65 million in fees and about $23 million in
other forms of compensation. The average total rate of return to the
government from concessioners that had their concession agreement
initiated or extended in fiscal year 1994 was about 3.6 percent of
concession revenues.
While 42 different federal agencies have concession agreements, 93
percent of these agreements and revenues are managed by the six land
management agencies. However, in spite of having the largest
programs, the rate of return from concessioners operating in the land
management agencies is significantly less than the return generated
from concessioners in other federal agencies. We found that for
concession agreements that were either initiated or extended during
fiscal year 1994, the average return to the government from
concessions in the land management agencies was about 3 percent--in
the case of the Park Service it was about 3.5 percent.\4 In contrast,
the return from concessions in the other nonland management agencies
averaged about 9 percent. (See app. I for a list of rates of return
from concessioners for agreements initiated or extended during fiscal
year 1994 for each federal agency in our review.)
--------------------
\4 According to the Park Service, in 1996, the average return for all
park concessioners, including franchise fees, improvement accounts
and other forms of compensation was 6.8 percent.
FACTORS AFFECTING THE RATE OF
RETURN
---------------------------------------------------------- Chapter 0:2
Our analysis of rates of return throughout the federal government
indicated that there are three key factors that affect the rate of
return to the government. These are (1) whether the return from a
concession agreement was established through a competitive bidding
process, (2) whether the incumbent concessioner had a preferential
right of renewal in the award of a follow-on concession agreement,
and (3) whether the agency had the authority to retain a majority of
the fees generated from the concession agreement.
Our work indicated that when concession agreements are awarded
through a competitive process, the rate of return to the federal
government was higher. Specifically, for concession agreements
initiated during fiscal year 1994, the return to the government from
concession agreements that were competed averaged 5.1 percent of the
concessioners' gross revenues. When competition was not used in
establishing concession agreements, the return to the government
averaged about 2.0 percent. While the return to the government is
higher for concessions that are competitively selected, very few
concessions agreements have fees established through
competition--especially among concessions in the land management
agencies. For concession agreements that were entered into during
fiscal year 1994, only 8.6 percent of over 2,100 agreements in the
land management agencies were established through competition. In
contrast, for concession agreements in the nonland management
agencies, about 96 percent of 101 concession agreements were
established through competition during this time period.
Another factor affecting the return to the government from
concessioners is the existence of preferential rights of renewal.
These rights primarily affect concessioners in the Park Service.
Under the Concessions Policy Act of 1965, Park Service concessioners
that have performed satisfactorily have a preferential right of
renewal when their concession agreements expire. This preference has
generally meant that when a concession agreement expires, an
incumbent concessioner has the right to match or better the best
competing offer to win the award of the next concession agreement.
This preference tends to put a chilling effect on competition because
qualified businesses are reluctant to expend time and money preparing
bids in a process where the award is most likely to go to the
incumbent concessioners. With fewer bidders, there is less
competitive pressure to increase the return to the government. Our
analysis of Park Service concession agreements showed that in fiscal
year 1994, new concession agreements that were awarded with a
preferential right of renewal resulted in a return to the government
of about 3.8 percent. In contrast, Park Service concession
agreements that were competed in the same year without any preference
resulted in an average return to the government of 6.4 percent.
A third factor that affects the rate of return to the government from
concessioners is the agencies' authority to retain fees. Our
analysis of federal concessions showed that when agencies are
permitted to retain over 50 percent of the fees from concessions, the
return to the government is over 3 times higher than agencies that
are not authorized to retain this level of fees. In addition, five
nonland management agencies that had authority to retain most of
their fees managed 5 percent of the concession agreements throughout
the government. These agreements generated about 3 percent of the
total revenues from concessioners, but generated 18 percent of the
total concession fees. In contrast, the six land management
agencies, which have not had authority to retain concession fees,
have over 90 percent of the total concession agreements and
concession revenues, but generate only 73 percent of the total
concession fees. Thus, our work showed that agencies authorized to
retain fees obtained more fees in proportion to their concessioners'
revenue than agencies that were not authorized to retain fees.
NEED FOR CONCESSION REFORM
---------------------------------------------------------- Chapter 0:3
For over 20 years, we have issued reports and testimonies that
highlighted the need for reform of federal concession laws and
policies. Our most recent work, which I have just summarized, is
further evidence of the need for reform. Based on this body of work,
it is our view that any efforts at reforming concessions should
consider (1) encouraging greater competition in the awarding of
concession agreements, including eliminating preferential rights of
renewal, and (2) under what circumstances it would be appropriate to
provide opportunities for the land management agencies to retain at
least a portion of their concession fees. In addition, some
concession reform proposals have suggested removing possessory
interest--the right of concessioners in the Park Service to be
compensated for facilities constructed or acquired on federal lands.
At issue are the costs of acquiring concessioner-owned facilities
relative to the benefits realized by having greater control through
government ownership of facilities.
Encouraging greater competition in awarding concession agreements,
and eliminating preferential rights of renewal, should be a primary
goal of reforming concessions. Using a competitive bid process to
award concession agreements has several benefits. Our April 1996
report presents evidence that where there is competition in awarding
concession agreements the rate of return to the government is
significantly higher. Competition among qualified bidders would also
likely result in improving the level or quality of services provided
to the public. Finally, using competition to establish fees would
eliminate much of the need for elaborate and at times cumbersome fee
systems used by the land management agencies. A significant
impediment to competition is preferential rights of renewal granted
to Park Service concessioners by the Concessions Policy Act of 1965.
Thus, in our view, any legislative effort to reform existing
concessions law should consider including the elimination of
preferential rights of renewal.
Our April 1996 report on concessions indicated that when agencies are
authorized to retain most of their concession fees, the return to the
government from its concessioners is significantly higher. However,
permitting agencies to retain a portion of the fees from
concessioners has both costs and benefits. Our work has shown that
retaining fees for use in agencies' operations serves as a powerful
incentive in managing concessioners. However, if the Congress
decides to use increased fees to supplant rather than supplement
existing appropriations, this incentive would be diminished. In
addition, our past work in the Park Service indicated that the agency
has a multibillion dollar backlog of unmet maintenance and
infrastructure needs. Furthermore, in recent years, the agency has
had to cutback on the level of visitor services provided to the
public. One option to help address these issues, which we have
raised in the past, might be to provide additional financial
resources through fees--including entrance fees, user fees, and
concession fees. While retaining fees will not resolve such problems
as multibillion dollar backlogs, it will nonetheless provide some
assistance to parks units across the nation.
It is important to note that permitting the land management agencies
to retain concession fees is a form of "backdoor" spending authority,
and as such raises questions of oversight and accountability. In
addition, earmarking revenues reduces congressional flexibility to
shift budget priorities. Furthermore, permitting the land management
agencies to retain fees could also raise scoring and compliance
issues under the Budget Enforcement Act. These issues need to be
weighed in considering whether to permit the land management agencies
to retain fees.
COSTS AND BENEFITS OF
REMOVING POSSESSORY INTEREST
-------------------------------------------------------- Chapter 0:3.1
One issue that is frequently discussed as part of Park Service
concession reform is possessory interest--the concessioners right to
be compensated for improvements constructed or acquired on federal
lands. Possessory interest was established by the Concessions Policy
Act of 1965 and is unique to the Park Service. Bills to reform
concessions law have often differed in their treatment of possessory
interest. Some proposals have sought to get rid of possessory
interests while others would allow it to remain. There are some
costs and benefits of removing possessory interest which I would like
to discuss.
Bills which have proposed to remove possessory interest have
suggested it be done over time. As existing concession contracts
expired, the new contracts would contain language directing the
concessioner to depreciate the value of its possessory interest over
an extended period of time. Once the possessory interest was fully
depreciated, the structure would be owned by the government.
Removing possessory interest in concession facilities would provide
the Park Service with greater control over these facilities and would
allow greater flexibility in managing concessioners. For example,
when possessory interest is provided for, the Park Service would have
to use appropriations to buy out the possessory interest of a
nonperforming concessioner. If possessory interest were eliminated,
the Park Service could terminate the contract of a nonperforming
concessioner without having to use appropriations to acquire
concession facilities. In addition, government ownership of
concessions facilities has the potential of expanding competition for
concession contracts. If the concession facilities are government
owned, prospective bidders for concession contracts would not be
required to expend capital to acquire facilities. As such, the Park
Service may receive more bids for the award of concession contracts
which has the potential of increasing the return to the government.
However, in the near-term, acquiring these facilities could be
costly. If the Park Service acquired a concession facility during
the term of the contract, the fees it received would likely be lower
because the concession would probably not give up its ownership
interest in a park facility without some form of compensation in
return. This result becomes more significant if, as the
administration proposes, concession fees are returned to the parks.
While the Park Service would gain ownership of the facilities, it
would be getting less, and possibly substantially less, in fees
during the acquisition period.
In addition, once the Park Service owns these facilities, it is
responsible for maintaining them. The Park Service currently has a
multibillion dollar backlog of deferred maintenance. If the
concessions' possessory interest is eliminated and the Park Service
acquires additional facilities that need to be maintained, its
workload will increase. While the Park Service could require the
facilities to be maintained as part of a concession contract, such a
requirement may lead to some reduction in the fees it receives.
-------------------------------------------------------- Chapter 0:3.2
Mr. Chairman, in recent years, an understanding has emerged that the
federal government needs to be run in a more businesslike manner than
in the past. It is clear that agencies such as the Park Service can
learn some lessons about competition and incentives from nonland
management agencies. However, if the Congress proceeds with
reforming concessions, it should consider (1) changing existing
concessions law to encourage greater competition and eliminating
preferential rights of renewal, and (2) providing opportunities for
the Park Service to retain at least a portion of its concession fees.
This concludes my statement. I would be happy to answer any
questions that you or other members of the Subcommittee may have.
RATE OF RETURN ON CONCESSIONS
AGREEMENTS EITHER INITIATED OR
EXTENDED DURING FY 1994
=========================================================== Appendix I
Amount Total
Concession desposited into (fees + Number
ers' concessioners' special of
gross special accounts concessi Rate of
Agency revenue Fees accounts\a ) ons return
----------------- ---------- ---------- ---------------- -------- -------- --------
Forest Service $306,473,8 $7,765,758 $66,339 $7,832,0 2,361 2.56%
30 97
National Park 135,626,77 3,624,398 1,116,671 4,741,06 555 3.50
Service 4 9
Army Corps of 9,473,016 214,446 34,531 248,977 27 2.63
Engineers
Bureau of Land 2,376,622 71,243 0 71,243 15 3.00
Management
Fish and Wildlife 807,713 39,551 0 39,551 6 4.90
Service
Bureau of 16,000 600 0 600 1 3.75
Reclamation
=========================================================================================
Subtotal, land 454,773,95 11,715,996 1,217,541 12,933,5 2,965 2.84
management 5 37
agencies
U.S. Postal 27,349,976 1,950,669 0 1,950,66 183 7.13
Service 9
General Services 17,671,583 143,054 129,605 272,659 17 1.54
Administration
Department of 6,679,611 1,838,571 0 1,838,57 5 27.53
Veterans Affairs 1
Department of 5,804,100 810,980 33,003 843,983 54 14.54
Justice
National 3,845,102 608,181 0 608,181 16 15.82
Aeronautics and
Space
Administration
Department of 1,206,526 14,057 15,562 29,619 3 2.45
Commerce
Department of 1,441,766 323,925 0 323,925 6 22.47
Transportation
National Archives 235,000 3,300 0 3,300 1 1.40
and Records
Administration
Federal Deposit 178,803 39,557 0 39,557 1 22.12
Insurance
Corporation
Other Interior 7,424 0 3,712 3,712 1 50.00
agencies
=========================================================================================
Subtotal nonland 64,419,891 5,732,294 181,882 5,914,17 287 9.18
management 6
agencies
All agencies $519,193,8 $17,448,29 $1,399,423 $18,847, 3,252 3.63%
46 0 713
-----------------------------------------------------------------------------------------
\a Concessioners are allowed to deposit funds into concessioners'
special accounts (in lieu of or along with payment of concessions
fees) for improvements and maintenance of facilities on federal
property.
Note: From questionnaire financial data, we calculated the rate of
return by dividing gross revenues into the sum of reported (1)
concessions fees and (2) amounts depositied into concessioners'
special accounts. Questionnaire responses that did not contain both
revenue and concessions fee data were excluded from this analysis.
Source: GAO questionnaire data.
*** End of document. ***