Federal Lands: Concession Reform is Needed (Testimony, 07/18/96,
GAO/T-RCED/GGD-96-223).

GAO discussed its work on concessions issues, concession reform, and the
National Park Service's (NPS) use of concessioner special accounts. GAO
noted that: (1) in 1994, there were 11,000 concession agreements
throughout the federal government; (2) the agreements generated over
$2.2 billion in revenue for concessioners; (3) while concessioners in
land management agencies paid the government an average of 3 percent of
their gross revenues, concessioners in other agencies paid an average of
9 percent of their gross revenues; (4) key factors affecting the
government's rate of return include whether the concession is
established competitively, whether the agency can retain concessions
fees, and whether incumbent concessioners had a preferential right of
renewal; and (5) Congress may wish to consider encouraging competition,
eliminating preferential rights of renewal for incumbents, promoting
consistency among land management agencies, and providing greater
opportunities for land management agencies to retain concession fees.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED/GGD-96-223
     TITLE:  Federal Lands: Concession Reform is Needed
      DATE:  07/18/96
   SUBJECT:  Concessions contracts
             National parks
             National forests
             Land management
             Government collections
             Special fund accounts
             Accounting procedures
             Public lands
             Competition

             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Before the Subcommittee on National Parks, Forests,
and Lands, Committee on Resources,
House of Representatives

For Release on Delivery
Expected at 10 a.m.  EDT
Thursday
July 18, 1996

FEDERAL LANDS - CONCESSION REFORM
IS NEEDED

Statement of Victor S.  Rezendes
Director, Energy, Resources, and Science Issues
Resources, Community, and Economic Development Division

GAO/T-RCED/GGD-96-223

GAO/RCED/GGD-96-223T


(272573)


Abbreviations
=============================================================== ABBREV

  GAO -
  GGD -
  RCED -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to summarize our past work on
concessions issues, discuss the need for concession reform, and
provide some details on the Park Service's use of concessioner
special accounts.  My remarks today are based on over 30 reports and
testimonies we have issued over the past 20 years.  Of the six land
management agencies, much of our work on concessions has focused on
the concession activities at the National Park Service within the
Department of the Interior.  In addition, we have also reviewed
concession activities in the other five land management agencies
including, the U.S.  Forest Service within the Department of
Agriculture; Bureau of Land Management, Bureau of Reclamation, and
U.S.  Fish and Wildlife Service within the Department of the
Interior; and the U.S.  Army Corps of Engineers within the Department
of Defense.  Our most recent report on concessions, which we issued
in April 1996, discussed rates of returns from concessioners
operating in civilian agencies throughout the federal government.\1
The findings of that report as well as the others continues to
demonstrate the need for concessions reform among the land management
agencies. 

In summary, our work has shown the following: 

  -- Concession activities on federal lands is a large industry that
     generates billions of dollars.  In 1994, there were over 11,000
     concession agreements managed by civilian agencies through-out
     the federal government.\2 Concessioners operating under these
     agreements generated about $2.2 billion in gross revenue.  Over
     90 percent of concession agreements and the concession gross
     revenues were from concessioners in the six land management
     agencies.  For agreements that were either initiated or extended
     during fiscal year 1994, concessioners in the land management
     agencies paid the government an average of about 3 percent of
     their gross revenues.  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 it may want to consider (1) encouraging
     greater competition and eliminating preferential rights of
     renewal, and (2) promoting greater consistency among the land
     management agencies in managing concessioners at federal
     recreation areas.  In addition, it may wish to consider
     providing opportunities for the land management agencies to
     retain at least a portion of concession fees. 

Mr.  Chairman, before I discuss our most recent report on concessions
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, forests, and other recreation areas.  At the
same time, the land management agencies managing concessioners have
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 resources can be adequately conserved and enjoyed by future
generations. 


--------------------
\1 Concessions Contracting:  Governmentwide Rates of Return
(GAO/GGD-96-86, Apr.  29, 1996). 

\2 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 land management agencies was about 3 percent while the
return from concessions in the other federal agencies averaged about
9 percent.  Within the six land management agencies, concession
agreements in the National Park Service accounted for about 30
percent of the gross revenues and the return to the government.  (See
att.  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.)


   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 that
were 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 which were entered into during
fiscal year 1994, only 8.6 percent of over 2,100 agreements in 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 business are reluctant to expend time and money preparing
bids in a process where the award is most likely going 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) promoting more consistency by including all of the
land management agencies as part of concessions reform.  In addition,
Congress may also wish to consider providing opportunities for the
land management agencies to retain at least a portion of their
concession fees. 

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 work has shown the need for common concessions policies among the
land management agencies so that similar concessions operations are
managed consistently throughout federal recreation lands.  As we
reported in June 1991,\3 no single law authorized concessions
operations for all six land management agencies.  Rather, at least 11
different laws govern concessions operations.  Many of these laws are
specific to an agency and allow the agency broad discretion in
establishing policies on the terms and conditions of concessions
agreements.  One exception to this is the Concessions Policy Act of
1965 which prescribes Park Service policy for several key terms and
conditions in concessions agreements.  The results of differing laws
and policies are that similar concessioners are managed quite
differently among the land management agencies.  For example, a
marina operator in the Park Service may have a preferential right of
renewal and pay a fee based the Park Service's fee system that is
based on industry profitability norms.  In contrast, a marina
operator in the Forest Service may not have any preferential right to
renew his agreement, and pays a fee based on the Forest Service's fee
system that determines fees based on the concessioner's level of
investment in facilities and a percentage of their revenues in up to
nine different business categories such as food service or grocery. 

Our April 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 and Forest Service has
indicated that these agencies have backlogs of unmet maintenance and
infrastructure needs, which combined exceed $5 billion.  Furthermore,
in recent years, both agencies have 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, forests, and other
recreation areas across the nation. 

It is important to note that permitting the land management agencies
to retain fees is a form of "backdoor" spending authority, and as
such raises questions of oversight and accountability.  In addition,
earmarking revenues reduces governmentwide budget flexibility. 
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. 


--------------------
\3 Federal Lands:  Improvements Needed in Managing Concessioners
(GAO/RCED-91-163, June 11, 1991). 


   INFORMATION ON CONCESSIONER
   SPECIAL ACCOUNTS AT THE
   NATIONAL PARK SERVICE
---------------------------------------------------------- Chapter 0:4

As you requested Mr.  Chairman, I would now like to take a few
moments to discuss our recently issued report on special account
funds within the Park Service.\4 Park units have been permitted to
keep some of the funds that are generated from specific in-park
activities without going through the annual appropriation process. 
One type of these special account funds deals with concessions. 
These concessions special account funds are generally established as
part of the terms and conditions of a concessions agreement with the
Park Service.  As part of the agreement, the concession operator
periodically escrows a portion of its gross revenues or a fixed sum
of money into a bank account.  The monies deposited into the account
are in lieu or in addition to franchise fees and are used by the
concessioner to repair, improve, or construct facilities related to
the concession operation.  Franchise fees from Park Service
concessioners generally go to the Treasury.  Expenditures from
special accounts are made only with the approval of the Park Service. 

The use of concessioner special account funds has increased over the
past few years.  This is largely because while franchise fees are
returned to the Treasury, the special account funds remain at the
parks.  In fact, at some of the largest parks like Yellowstone and
Yosemite, the primary concessioner no longer pays any franchise fees. 
Instead, the return to the government is entirely from special
account funds and other nonfee compensation.  At other parks, like
the Grand Canyon and Glacier National Park, the Park Service and the
concessioners have made amendments to concession agreements to reduce
or eliminate franchise fees and to establish or increase the special
account funds. 

According to data from Park Service headquarters, in fiscal year
1994, 21 park units had a concession special account fund;
headquarters officials estimated that the deposits totaled $13.9
million.  During this review, we contacted a sample of 27 parks units
to determine the level of deposits in special account funds.  In
fiscal year 1994, 14 of the 27 units we reviewed had concessioner
special accounts.  These 14 park units reported that a total of $19.4
million had been deposited into special accounts--a difference of
$5.5 million more than reported by Park Service headquarters.  We
discussed this difference with Park Service officials.  We found that
the discrepancies were due to differing interpretations among Park
Service concessions officials--both at headquarters and at the
individual parks units--as to what should be counted as
concessioners' special accounts.  However, Park Service officials
acknowledged that the headquarter's data were not complete because
the Park Service did not have a system in place to routinely collect
information on these accounts.  The agency has been developing a
system to track these accounts, and expects it to be implemented by
August 1996.  We plan to follow-up on this issue after the Park
Service's tracking system is implemented. 


--------------------
\4 National Park Service:  Information on Special Account Funds at
Selected Park Units (GAO/RCED-96-90, May 17, 1996). 


-------------------------------------------------------- Chapter 0:4.1

Mr.  Chairman, in recent years, an understanding has emerged that the
federal government needs to be run in a more business like manner
than in the past.  It is clear that agencies such as the Park Service
and the Forest Service can learn some lessons about competition and
incentives from nonland management agencies.  However, if the
Congress proceeds with reforming concessions, it should consider
changing existing concessions law to encourage greater competition
and eliminating preferential rights of renewal, and promoting greater
consistency by establishing common concessions policies among the
land management agencies.  In addition, it may wish to consider
providing opportunities for the land management agencies to retain at
least a portion of 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 FISCAL YEAR 1994
=========================================================== Appendix I

                                               Amount
                                            deposited
                                                 into
                                           concession       Total
                   Concession                    ers'     (fees +   Number of
                   ers' gross                 special     special  concession     Rate of
Agency                revenue        Fees  accounts\a   accounts)           s      return
-----------------  ----------  ----------  ----------  ----------  ----------  ----------
Forest Service     $306,473,8  $7,765,758     $66,339  $7,832,097       2,361       2.56%
                           30
National Park      135,626,77   3,624,398   1,116,671   4,741,069         555        3.50
 Service                    4
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  12,933,537       2,965        2.84
 management                 5
 agencies
U.S. Postal        27,349,976   1,950,669           0   1,950,669         183        7.13
 Service
General Services   17,671,583     143,054     129,605     272,659          17        1.54
 Administration
Department of       6,679,611   1,838,571           0   1,838,571           5       27.53
 Veterans Affairs
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   5,914,176         287        9.18
 management
 agencies
All agencies       $519,193,8  $17,448,29  $1,399,423  $18,847,71       3,252       3.63%
                           46           0                       3
-----------------------------------------------------------------------------------------
\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 deposited 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. ***