Concessions Contract Will Cost Grand Canyon National Park $100 Million, But Benefit Park In Long Run
A new concessions contract for businesses on the South Rim of Grand Canyon National Park will cost the park $100 million, an amount that could impact just about all operations in the park, Superintendent Dave Uberuaga said Wednesday. In the long run, however, the move stands to benefit both the park and its visitors, observers believe.
Though costly -- the $100 million appears to be the largest sum the National Park Service has ever paid to make a concessions contract more appealing -- the transaction aims to make this contract, and others down the road, more competitive by making them somewhat more affordable to a range of companies.
“Competition drives services, drives quality, drives a lot of things in terms of what the visitor will experience," Superintendent Uberuaga said during a phone call. "So it enhances ... whatever the concession is to carry out. In general, the competitive nature creates better services and a higher return to the government.”
Many key park concessions long have been managed largely by four companies -- Xanterra Parks & Resorts, Delaware North Companies Parks & Resorts, Forever Resorts, and Aramark Leisure.
Xanterra long has been involved with operations at Grand Canyon, Yellowstone, Zion, Death Valley, and Crater Lake national parks; Delaware North has run lodging and dining operations at Yosemite National Park, and recently acquired the contract at Shenandoah National Park; Forever Resorts has operated the Grand Canyon Lodge on the park's North Rim, as well as lodgings and other services in such parks as Mammoth Cave, Isle Royale, Badlands, and Big Bend; and Aramark has operations in Olympic, Mesa Verde, Denali, and Glacier Bay national parks.
As each year of operations passes, the companies make investments into the properties, investments that can amount to multi-million-dollar sums, or, in the case of Xanterra at the Grand Canyon, roughly $200 million. And when concessions contracts come up for bid, those sums can cost winning bidders if they oust the incumbent -- when Delaware North won the contract for Shenandoah, it had to pay Aramark $10.3 million -- or they can dissuade other companies from bidding.
"It limits the flexibility of the park to have any competitive bidding on any of these concession contratcts," David Nimkin, director of the National Parks Conservation Association's Southwest Region, said Wednesday. "Who's going to bid if they’re going to have to compete against a benefit that Xanterra has from having all that money and equity, essentially, tied up in federal real estate? It doesn’t put the Park Service in a fairly strong negotiating posture.”
To break, in essence, such strangleholds, Congress in 1998 rewrote the Park Service's concessions business by passing the Concessions Management Improvement Act. In short, this measure aimed to reduce preferential right situations, institute franchise fee distribution changes, mandate new competitive bid requirements, and increase accountability and oversight. These changes seemed to take hold most recently at the Grand Canyon, where earlier this month the Park Service awarded roughly half of the South Rim's concessions business to Delaware North. Delaware North will, though, have to pay Xanterra $41 million in "leaseholder surrender interest (LSI)" fees that reflect Xanterra's investments in those operations.
When Grand Canyon this week released the prospectus for the remaining concessions on the South Rim -- lodging at El Tovar, Bright Angel, Phantom Ranch on the canyon floor, and the mule rides into the canyon, as well as the Thunderbird and Kachina Lodges, Maswik Lodge, retail and food service at Hermits Rest, retail service at Hopi House and Lookout Studio, and transportation services such as bus tours and taxi service -- it was the second time it floated the contract. Failing to find any bidders the first two times, the Park Service agreed to pay down the LSI fees by $100 million with hopes of making the 15-year contract appealing to companies other than just Xanterra. Still, it leaves another $57 million that would be owed Xanterra if another company wins the contract.
Whether any other company bids on the contract is yet to be seen. Regardless, the park will go ahead and pay Xanterra the $100 million when the new contract takes effect, whichever company lands it.
Though the buy-down is aimed at preventing monopolies in concessions and improve services, the short-term impact at the Grand Canyon could be wide-ranging as roughly $75 million of the $100 million is being loaned the Grand Canyon by other parks across the country that will have to be repaid in about five-to-seven years. The money from those other, unspecified, parks came from unobligated funds they had from franchise fees they collected and which will eventually be needed for projects in their own parks.
"As I understand it, all of them will have enough revenues in FY15 to cover whatever projects they did have," explained Superintendent Uberuaga. "They just lost their savings account, unobligated money. The intent is for us to pay that back to each of the individual parks that the money was redirected from.”
While Superintendent Uberuaga has been squirreling away some funds from franchise fees in recent years, that amounts only to about $25 million, leaving his staff to come up with $75 million for the repayments. The superintendent believes he can do that in as little as five years, in part because the new concessions contracts require the winning bidder to pay the park at least 14 percent in franchise fees per year. But some of the repayment will likely come from other operations at the park, he acknowledged.
On Wednesday morning the superintendent met with his staff for several hours to go through all projects on the table, consider the possible impacts of cuts on them, and explore ways to come up with the millions of dollars needed for the repayment. No immediate decisions were made.
“I don’t have anything specific in terms of programs, but the direction we’ve given ourselves is what can we reduce in the programs? What scope can we reduce? Can we delay some of this? Do we really need to fix X, Y, Z today, can we buy a year (before implementing them)?" Superintendent Uberuaga said.
"The speculation part of it right now, there’s already enough concern, people wondering what it is. I don’t even have enough information to give them any specifics," he went on. "At this point, we’re just drilling it down right now to figure it out. The main point is we don’t have money for all the scope and extent of the programs that we did in the past. Does it mean one’s going to go away? Hell no. Does it mean that we might have two less people in it? Very likely. That’s the first effort, to hang on to what we’ve got and reduce the scope and scale.”
The internal Park Service loan was just one alternative the agency looked at to make the concessions contract more appealing. In the end, though, it made the most sense, the superintendent said.
"The goal was to have a buy-down strategy and we were reluctant to get there because we kept thinking that we were going to get a bid. And once we didn’t, it was like, well, what are our real alternaties? And in the short-term, as our comptroller would say, we have to look internally to solve our own problems," he said.
While the arrangment and the repercussions have made many of the park's 300 or so employees nervous, Superintendent Uberuaga said they understood the goal.
"It does create concerns for everybody, which is definitely justified, and we’re just going to be as committed to them, be transparent, be fair, be professional, and we’re going to communicate as soon as we have anything to everybody," he said. “This will be a setback, and a readjustment, but as I told them, this is millions of dollars in the long run that will come back to the park and the Park Service. In the short term, we have to make a transition and scale back some of the things we like to do.”
Back at the NPCA, Mr. Nimkin thought that while there might be short-term pain for the park operations, the long run would make for a healthier business operation.
“However they get it, however that’s retired, I think carrying that kind of liability is a burden. And if there are creative ways to improve the flexibility of the park through a real competitive bidding process, I think that’s a good thing," he said from his Salt Lake office. "There are a lot of unknowns. I don’t know where the money would be coming from, how it would be allocated. But I know that carrying that kind of liability is not a healthy situation.”