CONCESSIONS MANAGEMENT 

OVERSIGHT HEARING 

BEFORE THE 

SUBCO:VLVIITTEE OX XATIOXAJj PARKS, ~lORESrrs, 

A ... \D LAXDS 

OF THE 

COlVIlVIITTEE ON RESOURCES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTH CONGRESS 

SECOND SESSION 

ON 

REFORM IN CONCESSIONS MANAGEMENT IN FEDERAL 

AGENCIES 

26-735cc 

JULY 18, 1996-WASHINGTON, DC 

Serial No. 104-84 

Printed for the use of the Committee on Resources 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1996 

For sale by the U.S. Government Printing Office 

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 

ISBN 0-16-053449-6 
COMMITTEE ON RESOURCES 

DON YOUNG, Alaska, Chairman 

W.J. (BILLY) TAUZIN, Louisiana 

JAMES V. HANSEN, Utah 

JIM SAXTON, New Jersey 

ELTON GALLEGLY, California 

JOHN J. DUNCAN, JR., Tennessee 

JOEL HEFLEY, Colorado 

JOHN T. DOOLITTLE, California 

WAYNE ALLARD, Colorado 

WAYNE T. GILCHREST, Maryland 

KEN CALVERT, California 

RICHARD W. POMBO, California 

PETER G. TORKILDSEN, Massachusetts 

J.D. HAYWORTH, Arizona 

FRANK A. CREMEANS, Ohio 

BARBARA CUBIN, Wyoming 

WES COOLEY, Oregon 

HELEN CHENOWETH, Idaho 

LINDA SMITH, Washington 

GEORGE P. RADANOVICH, California 

WALTER B. JONES, JR., North Carolina 

WILLIAM M. (MAC) THORNBERRY, Texas 

RICHARD (DOC) HASTINGS, Washington 

JACK METCALF, Washington 

JAMES B. LONGLEY, Maine 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

GEORGE MILLER, California 

EDWARD J. MARKEY, Massachusetts 

NICK J. RAHALL II, West Virginia 

BRUCE F. VENTO, Minnesota 

DALE E. KILDEE, Michigan 

PAT WILLIAMS, Montana 

SAM GEJDENSON, Connecticut 

BILL RICHARDSON, New Mexico 

PETER A. DEFAZIO, Oregon 

EN! F.H. FALEOMAVAEGA, American 

Samoa 

TIM JOHNSON, South Dakota 

NEIL ABERCROMBIE, Hawaii 

GERRY E. STUDDS, Massachusetts 

SOLOMON P. ORTIZ, Texas 

OWEN B. PICKETT, Virginia 

FRANK PALLONE, JR., New Jersey 

CALVIN M. DOOLEY, Californi~ 

CARLOS A. ROMERO-BARCELO, Puerto. 

Rico 

MAURICE D. HINCHEY, New York 

ROBERT A. UNDERWOOD, Guam 

SAM F ARR, California 

PATRICK J. KENNEDY, Rhode Island 

DANIEL VAL KISH, Chief of Staff 

ELIZABETH MEGGINSON, Chief Counsel 

CHRISTINE A. KENNEDY, Chief Clerk /Administrator 

JOHN LAWRENCE, Democratic Staff Director 

SUBCOMMITTEE ON NATIONAL PARKS, FORESTS AND LANDS 

JAMES V. HANSEN, Utah, Chairman 

JOHN J. DUNCAN, JR., Tennessee 

JOEL HEFLEY, Colorado 

JOHN T. DOOLITTLE, California 

WAYNE ALLARD, Colorado 

RICHARD W. POMBO, California 

PETER G. TORKILDSEN, Massachusetts 

J.D. HAYWORTH, Arizona 

BARBARA CUBIN, Wyoming 

WES COOLEY, Oregon 

HELEN CHENOWETH, Idaho 

LINDA SMITH, Washington 

GEORGE P. RADANOVICH, California 

JOHN B. SHADEGG, Arizona 

JOHN E. ENSIGN, Nevada 

BILL RICHARDSON, New Mexico 

NICK J. RAHALL II, West Virginia 

BRUCE F. VENTO, Minnesota 

DALE E. KILDEE, Michigan 

PAT WILLIAMS, Montana 

EN! F.H. FALEOMAVAEGA, American 

Samoa 

GERRY E. STUDDS, Massachusetts 

FRANK PALLONE, JR., TtNEW,JERSEY 

CARLOS A. ROMERO-BARCELO, Puerto 

Rico 

MAURICE D. HINCHEY, New York 

ROBERT A. UNDERWOOD, Guam 

PATRICK J. KENNEDY, Rhode Island 

ALLEN FREEMYER, Staff Director/ Counsel 

STEVE HODAPP, Legislative Staff 

RICK HEALY, Democratic Legislative Staff 

(II) 
CONTENTS 

Hearing held July, 18, 1996 ........................................ ........... ...... ..... .. .. .. ............... . Statements of Members: Hansen, Hon. James V., a U.S. Representative from Utah; and Chairman, Subcommittee on National Parks, Forests and Lands .............................. . Richardson, Hon. Bill, a U.S. Representative from New Mexico ................ .. Statements of witnesses: 

Andrews, Robert L., Assistant Professor of Management Science, School 

of Business, Virginia Commonwealth University ........................ ............ .. Prepared statement .. .. .................. .......................................... .. ............... .. Chandler, Bill, Director of Conservation Policy, National Parks and Con- servation Association ..... ...................................................... ....... ................ .. Prepared statement ...................... .. ........ ................... ... ............ ............... .. Diamond, Henry, Attorney at Law ......... ........ ............................................... .. Fischer, Dean W., Partner, Arthur Andersen LLP .. ............ ................... ...... . Prepared statement ............... ...... ... ............... .... ..... ........ .... .... .................. . Fowler, Cliff, U.S. General Accounting Office .. ... .... .. .. .. ........... .... .. ... .. ...... .. . .. Kennedy, Roger, Director, National Park Service ....................................... .. Prepared statement .................................................................................. . Rezendes, Victor S., Director, Energy, Resources, and Science Issues, 

Resources, Community, and Economic Development Division, U.S. General Accounting Office .. .. .. .. ................................ .. .............................. ......... . Prepared statement ....... ........................... ..... ......... .................................. . Woodward, Ned, U.S. General Accounting Office ..... ....... ............... ............ . .. Yearout, Robert K. , Chief, Concessions Division, National Park Service ... . 

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CONCESSIONS MANAGEMENT 

THURSDAY, JULY 18, 1996 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON NATIONAL PARKS, FORESTS AND LANDS, COMMITTEE ON 

RESOURCES, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m. in room 

1334, Longworth House Office Building, Hon. James V. Hansen 

(Chairman of the Subcommittee) presiding. 

STATEMENT OF HON. JAMES V. HANSEN, A U.S. REPRESENTATIVE FROM UTAH; AND CHAIRMAN, SUBCOMMITTEE ON NATIONAL PARKS, FORESTS AND LANDS 

Mr. HANSEN. The committee will come to order. We welcome our 

witnesses here. We notice on the witness list that Director Kennedy will be our last witness. We always welcome Mr. Kennedy 

here. 

And if I may deviate for just a moment, we will be sending you 

a copy of Mr. Hodapp's trip report to Yellowstone and also one to 

Superintendent Mike Finley. We would appreciate it if you would 

review it and give us your comments on it. We tried to be very objective on our analysis. 

It was almost exactly 1 year ago today many of us sat in this 

same room debating the merits of several concession reform bills 

which were before this subcommittee. I must congratulate the administration, because with time running out of this session, it appears likely they will succeed in frustrating our efforts to achieve 

the concession reform this Congress. 

Congress did send to the President the most comprehensive concession reform bill ever, a bill which would have wiped out the 

preferential right of renewal for all NPS concession contracts, a bill 

which would have opened 5,000 concession contracts among four 

agencies to competition, a bill which CBO scored as generating an 

additional $84 million for the Treasury over the next 7 years. Unfortunately the President vetoed the bill as part of the Balanced 

Budget Act. 

It was a bill which reflected many changes from the version of 

H.R. 2028 I originally introduced last year. I kept my pledge to 

work on a constructive basis with any of the affected parties on the 

legislation, and we have spent an awful long time talking with a 

lot of people on this issue. 

Unfortunately, the administration refused to negotiate with us. 

They refused to negotiate with us during the reconciliation conference even though we were very close. And after that bill was ve-

(1) 
2 

toed, Director Kennedy still refused to sit down and attempt to 

work out our differences on the measure, saying, "I take my lead 

in this matter from the junior Senator from Utah." And believe me, 

I have spent a lot of time with the junior Senator from Utah, and 

I think we are on parallel tracks. 

I am not surprised. If we had been able to resolve this issue, it 

would have removed a few sentences from Secretary Babbitt's 

stump speech, which he gives regularly on his government-spon- sored fishing trips around the country. It is clear that Secretary 

Babbitt is more interested in speeches and rhetoric than in solving 

problems. However, concessions mahage:ineht remains an important topic, and today we turn the committee's attention to the existing program. We find several things of great concern. First Of all is the 

fact that again we find the National Park ServiCe can't account for 

all of its money. In May of 1992, GAO first raised concerns about 

tracking of the special NPS concessions fund. The testimony of the 

administration today, 4 years later, is they are working on a pro- gram to track those funds, but just 2 months ago GAO found the 

Washington office could not account for millions of dollars in con- cession funds which were going into the parks. GAO found that the 

information supplied to them by the Washington office was inaccurate at 10 of 14 parks. 

This lack of accountability represents a great opportunity for 

those who want to misrepresent the amount of funding paid to the 

government by concessionaires for the purpose of attacking them, but it also speaks a lot about the management of the agency. Ironically the NPS wants Congress to give them more authority to retain concession fees when they can't even track the current fees. 

Today we will also examine the NPS policy with respect to franchise fee reconsideration. It is well understood that fees paid to the 

government by NPS concessionaires could be higher, but, as GAO 

will testify, are depressed in part by lack of competition. However, few people are probably aware of how these fees are changed during the course of a concession contract. While fees are set at the 

outset of a contract through negotiation, the NPS has adopted a 

policy of unilaterally dictating new fees at 5-year intervals throughout the duration of the contract. Further, these new fees are for the 

express purpose of controlling profit. 

To their credit, the NPS has recognized the serious flaws in this 

process-and we compliment them for that-and has engaged a 

consultant to make recommendations for changes. However, I 

would hope that by the end of the day, Director Kennedy would 

agree to set aside this flawed policy until a reasonable new policy 

can be implemented. We look forward to the testimony of our witnesses. I don't see 

anybody from the Minority or the Majority here at this time. We 

are all very busy. It is going to be a very full day, and I am going 

to hold everybody to 5 minutes, so if you are ih the middle of a sentence, and 5 minutes is up, please stop. 

We will start out, panel number one, the people from the GAO, 

if they would come up. We appreciate your being here. Thanks so 

much. 
3 

As you told me earlier, you can handle that 5-minute restriction 

I put on you, and we appreciate it. We have a full platter of things 

to do, and I have another meeting starting in 55 minutes, so I appreciate you being here. 

STATEMENT OF VICTOR S. REZENDES, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT DIVISION, GENERAL 

ACCOUNTING OFFICE, ACCOMPANIED BY CLIFF FOWLER 

AND NED WOODWARD 

Mr. REZENDES. Thank you, Mr. Chairman. I do want to introduce 

the two witnesses here with me. On my right is Cliff Fowler, our 

assistant director for the park work; and on my left is Ned Woodward, who has been responsible for most of the work that we are 

going to talk about. 

GAO has issued over 30 reports in the last 20 years. Our most 

recent one talks about the rates of return to the government for 

concessions at all the Federal agencies. Our previous work as well 

as this report point to the same thing: The need for reform in concessions. 

As you know, why we have concessions in national parks is not 

to raise money for the Federal Government, but rather to provide 

enjoyment to the public. However, there is a counterbalancing fact 

here that we should have a fair return for the Federal Government 

for the kinds of things that we allow concessioners to do. 

This is a big industry. There are over 11,000 concessions in the 

Federal Government in the civilian agencies, and they are managed by 42 Federal agencies. While that is a lot, the bulk of the 

agreements rest in the six land management agencies, which comprise over 90 percent of the agreements. What we found is there is a difference between the rates of return in land management agencies and the other agencies. In the 

land management agencies, the rate of return is roughly about 3 

percent. In the other agencies it is 9 percent. 

We identified three basic reasons for this disparity. One was the 

use of competition in awarding these agreements; two, whether 

there was preferential right for the existing concessioner to renew 

the agreement; and the third was whether the agency could retain 

the majority of the concession fees. 

Let me talk first about competition. What we did find is that 

when competition was used, it more than doubled the fee to the 

Federal Government. We are talking about without competition, 

the return to the government averaged about 2 percent; with competition, the return averaged about 5 percent. The interesting thing 

here is although the land management agencies have the bulk of 

the concession agreements we looked at for fiscal year 1994, they 

used competition in less than 10 percent of the cases. The other 

agencies used competition in over 90 percent of the cases. 

Let me now switch to the preferential right of renewal. As you 

know, this is giving the existing concessioner the right to match or 

better any other offer that comes in, we found that has a chilling 

effect in terms of particularly the rates of return and on competition because few firms are willing to come forward and bid and go 

through the time and effort to make a solicitation when, in fact, the 

existing contract is probably going to get the bid. 
4 

We found that when preferential rights to renew were included 

in the contract, the government's rate of return was just under 4 

percent. When that was not in the agreement, it was about 6.4 percent. 

Finally I want to talk about the third piece, which was whether 

the agency can retain the fees. We found that when agencies are 

permitted to retain over 50 percent of the fees that they collect, the 

return to the government is over 3 times higher than agencies that 

are not permitted to retain this level of fees. That is a powerful incentive for them to police these fees and get more out of them. 

Concurrent with that, in terms of allowing agencies to keep fees, 

this would provide a backdoor financing to these agencies, and it 

raises questions of congressional oversight as well as how these 

things are scored under the Budget Enforcement Act. So there are 

other counterbalancing issues that is going to impact on your flexibility to move money around in the Federal Government. 

I want to tie these three points to basically the last point that 

you mentioned, which was special accounts, which is related to retaining fees. 

We found, for example, in the Park Service that there is an increasing trend in the parks for the concessioners to forgo paying 

fees to the Federal Government and rather use special accounts, 

which is to turn money into a bank account to use it for construction and various other things related to concession activities within 

the park. 

The Park Service couldn't provide for that kind of money. We 

found they didn't know how much had been deposited into special 

accounts throughout the Service. We found when we did a sample, 

it was $5 million more than the $14 million they had accounted for. 

They are going through a process of trying to track that more accurately. We will be reviewing that as part of other work requested 

by the Subcommittee. That is it. 

Mr. HANSEN. Well, thank you very much. I appreciate that. That 

was great testimony. 

[The statement of Mr. Rezendes may be found at end of hearing.] 

Mr. HANSEN. We have been joined by the Ranking Member of the 

committee Mr. Richardson, and we turn the time to you if you have 

an opening statement. 

STATEMENT OF THE HON. BILL RICHARDSON, A U.S. 

REPRESENTATIVE FROM NEW MEXICO 

Mr. RICHARDSON. Thank you, Mr. Chairman. 

Mr. Chairman, I think it is very important that we pass concessions reform. We need to deal with this not just for deficit reasons, 

but to raise funds for the parks to improve the overall public lands 

system. 

I would hope we get a chance to vote on concessions reform this 

year. And I guess the basic issue, as I see it, as we look at reform 

of the concessions system is are we going to have a competitive system, or are we going to have a system that gives competitive advantages to certain concessioners? That is my view. 

Mr. Chairman, during the question period I will pose that question to the gentlemen, but thank you. 
5 

Mr. HANSEN. I recognize the gentleman right now. If you would 

want to go ahead and talk to the folks from GAO, you have three 

very able people there. Mr. RICHARDSON. Thank you, Mr. Chairman. 

I noticed your report. It basically says concessions reform is 

needed on Federal lands. Mr. Rezendes, I didn't hear your statement, I just walked in. Tell me in a nutshell your conclusion. Is 

a competitive process better than giving competitive advantages to 

certain existing concessioners? 

Mr. REZENDES. As I said, and that is in my statement, we found 

that when three factors were considered, competition, eliminating 

the preferential right to renew, and also when agencies had the authority to retain the majority of the fees that they collect. Those 

three provide a pretty powerful incentive to increase the rates of 

return to the Federal Government. Mr. RICHARDSON. What about the interest, possessory interest? 

Mr. REZENDES. We didn't find much impact there. We did do 

some analysis, I think, with possessory interest included in the 

agreement. The return to the Federal Government was just under 

4 percent, and without it, it was just over 4 percent. So it really 

wasn't a significant factor in terms of our statistics. 

Mr. RICHARDSON. Would you characterize the present concessioners as committed to improving the park system, or are they 

more money-making operations, more bottom line operations? What 

is your view of that? 

Mr. REZENDES. We have seen a trend of use of special accounts. 

And that is basically the Park Service foregoing fees to the Treasury and rather retaining money within the parks for renovations, constructions, maintaining the infrastructure there. 

If you look at some of the big parks, such as Yellowstone and Yosemite, basically we are foregoing fees totally to the government, 

and we are relying on special accounts, and that is being plowed 

back into the park. Mr. RICHARDSON. Are you familiar with Mrs. Jan Meyers's bill, H.R. 773? 

Mr. REZENDES. Yes, sir. Mr. RICHARDSON. Do you support that bill? 

Mr. REZENDES. We have previously testified that H.R. 773 was 

one of the concessions bills that talks about what we think needs 

to be done, which is increased competition, eliminating preferential 

rights, that sort of thing. Mr. FOWLER. If I could add to that, specifically what we are say- ing about that bill is that it does a lot of things we would be in 

favor of in terms of improving competition and getting rid of the 

preferential rights. 

Mr. RICHARDSON. In the Meyers bill? 

Mr. FOWLER. Yes. 

Mr. RICHARDSON. Did you hear that, Mr. Chairman? 

Mr. HANSEN. Would you like to repeat that? There are many per- sons who have claimed that the existence of the possessory interest 

in and of itself is a barrier to competition. Mr. Richardson was 

going along that line and got distracted there. What is your conclusion on that? 
6 

Mr. REZENDES. We know that the Park Service thinks it does, 

that it has a chilling effect on competition. That wasn't supported 

by any of the numbers that we came up with in this April report, which shows basically that the rates of return to the Federal Government when possessory interests were included in the agreements were roughly the same. There wasn't a major difference from 

our work. Mr. HANSEN. Your report there has an interesting conclusion in 

it. It says that in State parks in my State, we have 41 State parks, 

has a much higher rate of return than the national parks. What 

is your conclusion on that? Does it come down to that bottom line 

issue? 

Mr. REZENDES. We did look at four States and Canada, and we 

found that the States' rates of return on the parks range from 11 

to 17 percent, and in Canada it was close to 10 percent. Whenever 

you do an analysis like that, which is always a problem from an 

evaluation perspective, and finding comparability, the State parks 

obviously are smaller, smaller infrastructures. They are not quite 

the same as the national level. But it is interesting to note their 

rates of returns were higher, and they attributed part of it, at 

least, to competition, to use of competition in their concession 

agreements. Mr. HANSEN. As you know, we sent a letter to you folks on July 

15th. We were asking for some additional information. Specifically 

we would like you to review major concessions contracts, the extent 

of competition, return to the government, the impact on competition of existing preferential rights. 

We are also interested in special accounts. What has been the 

trend in the use of these accounts? Are these accounts used for 

projects which address priority needs? And a few other things, which we think would be very important. 

Actually the bill that we presented compared to the Meyers bill 

generated an additional $84 million for the government. Jan and 

I have tried to reconcile our differences on that. 

I think it is very difficult to ask someone to go to Yellowstone, 

put up millions of dollars in the Lake Lodge and others and say, oops, you just invested millions and millions of dollars; however, we 

are going to say to you that we are going to open this contract for 

competition. We are going to allow Bill Marriott to come in and 

scoop you out. That doesn't seem fair either, which I think the 

Meyers bill has a great deficit in when we get into that particular 

area. But we all have our differences of opinion, and that is the beauty 

of our system, as long as we all do it as gentlemen and ladies, as 

the case may be. Do you have any further questions for these folks, Mr. Richardson? 

Mr. RICHARDSON. No, I don't. Thank you. 

Mr. HANSEN. I appreciate your comments and your statement, and we look forward to hearing additionally from you. 

Our next group is Mr. Henry Diamond, Attorney at Law; Mr. Dean W. Fischer, Partner, Arthur Andersen; Mr. Robert L. Andrews, Assistant Professor of Management Science, School of Business, Virginia Commonwealth University; and Mr. Bill Chandler, 
7 

Director of Conservation Policy with the National Parks and Conservation Association. 

Thank you, gentlemen. We appreciate you coming here. Pleasure 

to have you with us. 

Mr. Diamond, we all know the rules here, we turn the time to 

you, sir. 

STATEMENT OF HENRY DIAMOND, ATTORNEY AT LAW 

Mr. DIAMOND. Mr. Chairman, good morning. My name is Henry 

Diamond, a partner in the law firm of Beveridge and Diamond. 

I suppose longer than any reasonable person should, I have been 

involved in concessions issues going back to the Outdoor Recreation 

Resources Review Commission made up of eight public Members of 

Congress and chaired by Laurance Rockefeller in 1961, which carried out a study of the concessions industry for that Commission, 

and which its report, as you may recall, led to many of the provisions of Public Law 89-249. 

My basic conclusion is that I have been extremely perplexed by 

the controversy surrounding the issue of reassessment and reconsideration of fees. I am perplexed for this reason: That over the 

years there has been a strong cooperative effort between concessioners and the Park Service. They have shared snowplows, and 

swapped gallons of paint, and fought fires together, and yet we 

have gotten a situation now where we have a considerable acrimony. 

It seems to me to be two reasons that this has developed: One, 

that the Park Service has been under pressure from a number of 

sources, including those on the Hill, to raise concession fees. And 

this is a legitimate public issue, what the level of fees should be. 

I certainly don't question that they should be reviewed. 

The second point is that they have used a very crude tool to assess what the fees should be, and this is our so-called NPS-48. I 

think others will criticize it in some detail, but let me say a word 

about it. It is a Park Service guidance. In my view, it uses a wrong 

comparator. It uses hotels and resorts that really aren't like Park 

Service concessions. And then the most, I believe, unfortunate part 

of it, the application of the system, is that the Park Service then 

drives down the net profit of concessioners to the mean of this average, to the mean of this index. And that produces-it says no 

concessioner may get more profit than the average person in an unlike index. And that is, I think, the basic problem we are dealing 

with. 

My view of the statute is that the Congress said-and this is important to state-the Congress said that the concessioners shall 

have a reasonable opportunity for a profit, not an opportunity for 

a reasonable profit. And there is a big difference there. There is no 

guarantee of a floor. It is not like a utility. Concessioners are not 

guaranteed a profit, nor should they be limited, and I think that 

is the key difference. Having criticized it, which I do in the paper which I will submit 

to you, and which I have done over the years, let me make some 

suggestions as to what could be done. The basic problem is that the 

current reconsideration system every 5 years creates a system of 

uncertainty. In recent years we have seen proposed increases three, 
8 

four, five times to the existing contract. And to a businessman, that 

is pernicious. If you don't know what your franchise fee is going to 

be, and the Park Service, who may be taking 20 percent of your 

net, says for the next 5 years we are going to take 80, it creates 

a situation of uncertainty. 

My suggestions for improving it, which are expanded in the 

paper which I am submitting, say, one, I encourage the competition 

that the Park Service is espousing. At the outset let's have intense 

competition and make a large part of that competition the franchise fee. Very often other factors come into it other than the fee, 

but put all the assumptions on the table when you compete for that 

franchise fee. By that I mean, say, if we are going to allow so much 

overhead, put it in the perspective; or if we are only going to allow 

certain officers' salary, put that in. If you are only going to allow 

such return, which I think is a bad idea, but if that is the Park 

Service's view, then that has got to be in perspective. 

Having had the certainty, then, I have a number of suggestions 

for toning down the changes later. One, get away from Dun & 

Bradstreet. Two, use something like adjustable rate mortgage with 

limits. Say that the fee is not going to go up more than 1 percent 

or 2, whatever the number is. Three, give more certainty and more 

role to the local park people who know better what is going on. And 

four, make sure that the Dun & Bradstreet Index is revised if you 

are going to use it. 

In closing, let me say that all of this speaks no criticism of Park 

Service personnel. As everyone knows, they are dedicated, and the 

concessions people are as dedicated as anybody. It bespeaks a rather harsh criticism, however, of this system, which I think can be 

improved and will produce better results, more certainty for business, and importantly for our public purpose, better service for the 

public. Thank you, Mr. Chairman. Mr. HANSEN. Thank you Mr. Diamond. 

Mr. HANSEN. Mr. Fischer? 

STATEMENT OF DEAN W. FISCHER, PARTNER, ARTHUR 

ANDERSEN LLP 

Mr. FISCHER. Good morning. Glad to be here. My name is Dean 

Fischer. I am a partner in the Chicago office of Arthur Andersen. 

I have been with Arthur Andersen for about 19 years now. I work 

in a variety of our practices within our firm. Most relevant to this 

hearing is my work in our Business Consultant practice where we 

work with our clients to improve their business processes and help 

them reengineer their businesses-just in the ordinary course of 

improvement of their operations on a day-to-day basis. My engagement with the National Park Service began some time 

around January of this year, and we were really given a charter 

of two things, two primary purposes. One was to identify opportunities to improve and simplify the franchise fee determination process. And second was to improve and simplify the Annual Financial 

Reporting process that takes place as part of this exercise. 

The constraints that we were given was to work within the existing law; not to come up with ideas for specific legislative reform, 

but to work within the current legislative constraints to improve 

the process. 
9 

We focused again on the franchise fee calculation, the reconsideration process, and how the AFRs, annual financial reports, are 

being used. 

We met with many people internally within the Park Service, all 

the way from the headquarters operation in Washington, the operations in Denver, some of the field areas, and we went out to eight, 

nine individual parks. We also had a session where we brought a 

sampling of some of the concessioners in to listen to their concerns-listen to their ideas for improvement and so on. 

Let me just very quickly highlight. We have a report that will be 

coming out that is in a draft form now and will probably be out 

within 30 days, 45 days or so. 

One of the things what I would like to do is just touch on the 

major recommendations that we are making with respect to the 

franchise fee calculation and NPS-48. For those of you who have 

worked through the calculation, it is very complicated, it has a fair 

amount of subjectivity in it, and it is not very well understood by 

many people, even those in the parks and some of the concessioners themselves. 

What we tried to focus on was ways to simplify this exercise, 

make the process more objective, make the calculation more objective, get more input from park and field personnel in the process, 

and to address one of the biggest issues that the concessioners 

have, which is to reduce the uncertainty that comes about at reconsideration time. 

-In the area of franchise fee determinations in the process, we are 

recommending a new process flow which we think will add more 

accountability and will make the process go quicker and smoother 

from both the Park Service standpoint and the concessioner's 

standpoint. 

With respect to the Annual Financial Reports, the Park Service 

has a very rich data base that has been accumulated over many, 

many years of concessioner results of operations and financial data. 

We think that the Park Service can better utilize some of that information, not only to better manage the concession operations, but 

for using those in the time of negotiation with the concessioners. 

Lastly, we think, as I think many do, that the preferential rate 

of renewal, the possessory interest, and just the general uncertainty with respect to reconsideration does have a significant--or 

has impact on competition. 

Our report, as I mentioned earlier, will hopefully be coming out 

within the next 35, 45 days, and it covers a number of other issues, 

but those are the primary things I wanted to cover this morning. 

Mr. HANSEN. You will send up a copy as soon as it is hot off the 

press, right? 

Mr. FISCHER. Absolutely. 

[The statement of Mr. Fischer may be found at end of hearing.] 

Mr. HANSEN. Mr. Andrews? 

STATEMENT OF ROBERT L. ANDREWS, ASSISTANT PROFESSOR 

OF MANAGEMENT SCIENCE, SCHOOL OF BUSINESS, VIRGINIA COMMONWEALTH UNIVERSITY 

Mr. ANDREWS. Good morning. I am primarily a statistician, and 

the remarks I am going to make are going to be related to statis-
10 

tical aspects of NPS-48. Some of those things have already been 

talked about very briefly. 

My testimony will refer to particularly one. I wanted to use Fort 

Sumter tours and the fee analysis that was done of them to illustrate, I think, some shortcomings of the NPS-48. I want to ask a couple of questions. One question: Is it appropriate to control profitability of concessioners by the National Park 

Service in adjusting the franchise fees? The particular procedure 

gets a distribution, a set of peers that will establish a distribution 

of profitability. Then look at a particular concessioner, and if they 

are above the value that is the middle, then they are adjusted completely back to the middle. That is the procedure that is used. In effect, what this does is that it taxes anybody that is above 

the middle 100 percent of their profitability. And the result to the 

concessioner is that you have no reason to be anything other than 

mediocre. You want to be in the middle because if you are above 

the middle, you are going to be taxed in your renegotiation and 

moved back to the middle so that there is no reason to excel in any 

way, shape or form. And I question whether this is what we want 

to do in terms of a policy that would tax people at 100 percent of 

their profitability above some value. 

Second question that I raise, if the government wants to control 

profitability, then is this policy and procedure as it is currently outlined and put into practice by NPS-48, is it fair? 

They use right now standard industrial classification codes to 

identify the peer group, rather than data bases that they may 

have. Some very serious questionability about that. Also, the people 

that report just are self-reporting. There is no information about 

the people that don't report, which can lead to very misleading situations. These are statistical data that are turned in that is a sample. In statistics we understand that there are variability associated with those things with sample values. No consideration given 

to that, which is a violation of any statistical procedure where you 

consider standard errors of what is being done. 

The values that are reported by concessioners, I talked about 

Fort Sumter tours, their equity was changed by 4 7 percent, and 

this was self-reported. However, the things that are self-reported 

data to use the standards are not adjusted in any way, shape or 

form. We get comparing apples and oranges; we take adjusted data 

and compare it with unadjusted data in terms of those standards. 

For example, these results that come out, the particular standard 

of Fort Sumter tours was held up against-was something that approximately a third of the companies there were operating at a 

loss. This was the standard that the National Park Service was 

holding up to them to say-and I question whether that is a realistic expectation that you are going to expect a third of your concessioners to operate at a loss. 

There seems to be some internal inconsistency in terms of the 

way the NPS guidelines are. The state is that the review of the 

concessioner's results will consist of a search for overstated or understated expenses and for evidence of good or poor management. 

The financial fee analysis that I saw from Fort Sumter tours certainly adjusted values, but no search for good or poor management. No encouragement at all for somebody to do well. AB I said, there 
11 

is 100 percent taxation of profitability among-above a particular 

level. Also there is no focus on quality of service at all. 

The documents states, the consideration of revenue to the United 

States shall be subordinate to protecting the park areas and services. And there is no consideration of that at all. And I think that 

those are serious problems with the NPS-48. 

Thank you, sir. 

Mr. HANSEN. Thank you Dr. Andrews. 

[The statement of Mr. Andrews may be found at end of hearing.] 

Mr. HANSEN. If you folks notice, there are two lights just going 

on. That means we have a few minutes to get over and vote. Regardless of what I say or anybody else says, we are controlled by 

the clock and controlled by what goes on on the Floor. 

Mr. Chandler, if you wouldn't mind, and the rest of you wouldn't 

mind, we will stand in recess while we run over and vote, and we 

will be right back. We are in recess. Thank you. 

[Recess.] 

Mr. HANSEN. The committee will come to order. Mr. Bill Chandler, good to see you again, sir. 

STATEMENT OF BILL CHANDLER, DIRECTOR OF CONSERVATION POLICY, NATIONAL PARKS AND CONSERVATION ASSOCIATION 

Mr. CHANDLER. Thank you, Mr. Chairman. I appreciate the opportunity to present the views of the National Parks and Conservation Association. In examining the GAO report, Mr. Chairman, what I draw from 

the report is the following: The National Park Service is virtually 

crippled in its ability to effectively manage concessions in a businesslike manner because of an obsolete law that gives almost every 

conceivable advantage to incumbent concessioners. The law guarantees lower than expected returns to the taxpayer. Nonetheless, 

we believe that the Park Service has striven mightily to do the best 

it can under this system and to raise fees, which it is doing. It is 

making progress, but not the kind of progress that I think both our 

association and you would like to see. Now, with regard to the issue of fights over concessions fees, 

there have, in fact, been relatively few of these. The idea that the 

Park Service is driving concessioners out of business or not letting 

them make enough profits is, I don't think, supported by the facts. 

We have had a handful of fee cases arbitrated in recent years, 

and we have had one challenged recently by a concessioner who did 

not follow the administrative process. Mr. Chairman, I don't think 

we would even have these disputes if we had a concessions bidding 

process that would let the market help determine the fees for a 

fixed period of time. In other words, we can get rid of all of this 

controversy if we just structure the right kind of system. Now, I know, Mr. Chairman, that you have agreed that preferential right needs to be repealed, but we still have not convinced 

you yet that possessory interest is not helpful or necessary to get 

the kinds of concessions we need in the parks. 

The Park Service and Arthur Andersen have identified 

possessory interest as a hindrance to fair competition. Common 

sense tells us this is so. For example, Mr. Chairman, if I am a busi-
12 

nessman and I have to come to the table in a bidding process with 

an incumbent concessioner, and the first thing I have to do is pull 

out $5 million out of my wallet to buy out the possessory interest 

of the incumbent concessioner, I immediately have a millstone tied 

around my neck in the bidding process. And we don't think that 

is fair, and we don't think it gets the kind of aggressive up and 

coming concessioners that periodically need to be brought into the 

parks, if and when necessary, to provide the services needed. 

GAO notes that four States and Canada, which it uses for comparative purposes, do not even allow possessory interest. What they 

do, Mr. Chairman, is that they structure the deal so that concessioners have enough time to make a profit and to amortize their 

investments. This is what contracting is all about: Flexibility to 

structure a deal that works in each individual circumstance. 

Our conclusion, Mr. Chairman, is that the only way to fix concessions management in the Park Service is to pass a reform bill that 

adheres as nearly to market mechanisms and market practices as 

possible. The National Park Service and the national parks are no 

longer the isolated kingdoms in the middle of nowhere that they 

once were in 1965. Concessioners in those parks can compete, and 

they can compete under the same kinds of practices that they are 

competing under elsewhere outside the parks. 

What we do need, Mr. Chairman, is action in the Congress on 

a bill. It is our view that the differences between your bill and the 

Meyers bill can, in fact, be worked out either in committee or on 

the Floor. 

But we are dangerously close to having no bill at all. Should that 

happen, the parks and the American people will be the losers. 

Thus, my plea today, Mr. Chairman, is for you to use your power 

to keep a bill moving, and we look forward to working with you in 

a constructive way to do that. 

Thank you, Mr. Chairman. 

Mr. HANSEN. Thank you very much, Mr. Chandler. 

[The statement of Mr. Chandler may be found at end of hearing.] 

Mr. HANSEN. I appreciate the very informative testimony from 

all four witnesses. There are some big problems, we know. Mr. Chandler just talked 

about the two bills. Keep in mind there are 28 legislative days left, 

and the ballgame ends, and we are just like a football game. The 

time comes up, and that is all they wrote, and we adjourn sine die, 

which means "without day," and we are done. 

I agree with your statement, Mr. Chandler. We would really like 

to sit down and work on these things. Jan Meyers is an extremely 

good person, and there is some awfully good stuff in her bill. We 

can't go back and cross every T and dot every I and look every 

semicolon over. It has to come down to these are the major differences, one, two, three. If we solve those, we put this on a fast 

track. We can't solve it, I hate to say it, because I agree with what 

you said, and I agree with what others have said. It would be a 

loss for the Park Service. And the Park Service does need some of 

these things in order to get things going. You have all commented on the uncertainty associated with franchise fee . Reconsideration is provided currently by the National 
13 

Park Service. Do you all agree that concessioners would be willing 

to pay a higher fee if there was less uncertainty? 

Mr. Diamond? 

Mr. DIAMOND. I think it would vary, Mr. Chairman, with circumstances, where the business is profitable and where the renewal looks like a good thing, and many would be. Some who are 

on the margin clearly would not, but that certainty issue is a very, 

very important factor which I think most concessioners would be 

able and willing to pay a little premium for; not all of them. 

Mr. HANSEN. Anybody else want to comment on that? 

Mr. Fischer? 

Mr. FISCHER. Yes. In fact, this was one of the issues that we covered in our meeting when we had some of the concessioners in 

while we were doing our project. In fact, a number of them affirmatively stated that they would, in fact, be willing to pay more if 

there was certainty. That reconsideration uncertainty is a huge uncertainty to them. And they did indicate the willingness to pay 

more for some certainty. 

Mr. HANSEN. Anybody else want to take a shot at that? 

Mr. CHANDLER. Mr. Chairman, if I could add a point. We would 

agree that certainty is the businessman's best friend, and the businesswoman's. And we think that we can understand how the reconsideration ·period would cause problems. I think there are other 

ways to structure these kinds of deals, though, that the Park Service needs to get into. 

For example, they could say, you know, if your gross exceeds $1 

million, you pay such and such a fee; if it exceeds $3 million during 

the course of the contract, you pay another fee. That approach 

builds in certainty, but it is also building in higher franchise fees 

up front if necessary. 

Mr. HANSEN. I know as I listen to you all speak and hear the 

well-thought-out ideas, some of them have to take the big dose of 

reality of what can we get through and what is going to really happen. But I have tried as a Member of this Committee for 16 years 

to go to as many parks as I can, and I have gone to an awful lot 

of parks, and every time I go to the parks, someone shows me an 

illustration. 

When I was in Yellowstone last year, I was over at the Lake 

Lodge, and Steve Tedder, Steve was showing me-Steve has been 

around a long time and really a savvy guy when it comes to parks, 

and he tries to be very fair. I find that basically with both concessioners and with our park people. They are dedicated, good Americans. Steve was showing me Lake Lodge, and he said this is what 

it costs us to do it. Man, we are not talking a small amount of 

money. We are talking big, big bucks. Well Lake Lodge, you know, 

was built before probably any of us in this room were born. And 

as an old developer 100 years ago, I wouldn't want to say that I 

was the one to put the uneven floors in, but there is a certain nice 

thing about it. It has a certain thing that grabs you. This is great 

history to go in here on this uneven floor and the way it is done. 

It is a lovely building, just like the Old Faithful Lodge. I can't remember the figure, but it was a lot of dollars. 

Now, how do we tell-that was then. TW Services, who has 

taken it over since then, how do we tell these guys, you don't have 

26-735 - 96 - 2 
14 

any right if this comes up for grabs next week or a year from now, 

you don't have any possessory interest in it? I can see some arguments, Mr. Chandler. Anybody want to take a whack at that? 

Mr. CHANDLER. I will take a whack at it, Mr. Chairman. We are 

not saying that they shouldn't maintain any value to be compensated for if they lose the contract. We are just saying it ought 

not to be appreciating at replacement or reconstruction cost value 

like it does now. And, in fact, I know this sounds strange, Mr. 

Chairman, and the way you present the example, everyone understands and probably believes it is strange, but, in fact, these same 

concessioners are bidding on other contracts outside the parks with 

no possessory interest. And what makes it possible for them to do 

that is the various pieces of the deal that are put together. The fee, 

the length of the contract, the amount of capital, the pricing, all 

of those things have to be feathered to fit together to make their 

overall profit margin come out for them over the life of the contract. 

That is the way the system is working in the market now, Mr. 

Chairman, and that is what I think we have to approach in your 

fee bill-excuse me, your reform bill. 

Mr. HANSEN. I would almost like to see that down-I agree with 

some of the things you are saying , but I would almost like to see 

it down to nuts and bolts. So, OK, they don't pay a franchise fee. 

We now charge them a franchise fee. Who is going to come up with 

the up front money? 

You know, I think about Mr. Kennedy. He has a real problem. 

If something happens in one of his parks, he has to come up with 

some bucks in a hurry. Say you burn down the lodge at the North 

Rim of the Grand Canyon. Wow! I mean, you are talking millions 

of dollars. And he doesn't have the money. The Treasury doesn't 

have the money. He doesn't get it from us. So what is he going to 

do, just stand there and be a frustrated guy? So somehow we return to the concessionaire and say, "OK, you do it," instead of saying take it out of the fees. I am not trying to pose any problems because everybody's heart 

is in the right place. It is just, how do we get to this thing? 

As I have stumbled through these parks and talked to people and 

talked to superintendents and the workers and others, not everybody goes to look at the Grand Canyon and not everyone goes to 

look at Yellowstone. 

I stayed up there with my wife and two kids in Yellowstone and 

just did kind of a really poor analysis, a statistical analysis, of why 

were people there, and I just said, "Pardon me, I work on park issues." I didn't tell them I was Chairman of the Subcommittee or 

anything. "But I would really like to know, what do you look for 

when you come to Yellowstone?" This infinitesimal amount came to 

see the hot spots and the geysers. Most of them came to see the 

Old Faithful Lodge. 

One guy said to me, he said, "I loved standing in this lodge." He 

said, "Look at the architecture of this place and the heads." And 

other people--the second one said to me, "The animals." A lot of 

them just say, "I just love the area, the beautiful landscape, the 

green carpet, the trees and all these things." 
15 

So, you know, it is kind of, beauty is in the eye of the beholder. So you look at it and say, if a lot of these folks come to these places 

because they like Old Lake Lodge, the Old Faithful Lodge, they 

like this lodge on the North Rim of the Grand Canyon, they like 

those things as much as they do, what many of us say, I like to 

stand and be inspired as I look at one of these Seven Wonders of 

the World looking over the Grand Canyon. 

I have told you folks many times, I have spent hundreds of hours 

in the Grand Canyon and I have gone to every point. I have hiked 

it a dozen times. I have flown an airplane down the middle of it. 

I rafted the river three times. I love the area. 

I think sometimes we get tunnel vision on some of these things, saying, well, everybody likes to come for Old Faithful and nobody 

wants to stay in those things that the concessionaires take pretty 

good care of. I sometimes get confused on that. 

I have to say I was, frankly, amazed last Tuesday when former 

Senator Gaylord Nelson testified in front of this committee. He 

kind of went on a tangent, and he was quoting a man who saidan old, old statement-we should never let automobiles in the 

parks. And then Mr. Nelson, former Senator Nelson, said-and he 

was absolutely right-"Wow! 370 miles of roads that Mr. Kennedy 

happens to have in Yellowstone Park, 42 miles from Jacob's Lake 

to the North Rim of the Grand Canyon. How are we going to do 

that?" In other words, he was saying let's make it a wilderness 

area. If I must say, one of the things that disturbs me about my good 

friend Jan's bill, I don't know if you folks-if she has changed it 

or not-is, if something burned down, you couldn't replace it except 

outside the park. Then we, in effect, lose one of the great reasons 

that people come to the area. 

So we are trying to work some of these things out. And that was 

an issue. If you go back and see, in the 103rd Congress, if you go 

back and look at the Floor debate, that was one of the big issues. 

I have already broken my own rule, but I don't have any choice 

with votes coming on. 

Let's see. Let me thank all of you. We do have some additional 

questions from the Minority and some of our folks. If we send those 

for you to answer, could we get a written response? Would that be 

all right? 

Mr. DIAMOND. Yes. 

Mr. HANSEN. We appreciate. Your testimony was excellent. Mr. Chandler, I didn't mean to hold you up. Mr. CHANDLER. No problem, Mr. Chairman. Mr. HANSEN. I don't control these votes around here. 

Mr. HANSEN. I will now excuse you folks and turn to Mr. Roger 

Kennedy, Director of the National Park Service. 

I heard Mr. Kennedy referred to as the ping-pong ball between 

Bruce Babbitt and the Senate and the House committees yesterday. 

I thought, I surely don't want the gentleman who works so hard 

and who tries so diligently-and I compliment him for working as 

hard as he does-in having to put up with the harangue he gets 

up here and the harangue he gets down in his own department. 

I admire you. You put up with a lot. 
16 

STATEMENT OF ROGER KENNEDY, DIRECTOR, NATIONAL 

PARK SERVICE, ACCOMPANIED BY ROBERT K. YEAROUT, 

CHIEF, CONCESSIONS DIVISION, NATIONAL PARK SERVICE 

Mr. KENNEDY. Thank you, Mr. Chairman. 

I don't know exactly what to do here. I would like to file my 

statement. 

I have got two things I think I need to do. First of all, I really 

want to underline what you have just been talking about. In my 

view, if this could not come out of my time, I would like to do this. 

It is real important. 

Our problem here is making it more likely that there will be 

long-term investment in the rehabilitation of facilities in parks, 

many of them having historic qualities, that need at least a couple 

of hundred million dollars pumped into them now, that will require 

much more focused attention as to why a prudent investor would 

make those investments. Now, we are going to have to help them 

with that. Very little of the discussion of the day is going to turn around 

that question: How do you enhance the probability that there will 

be a reasonable rate of return for an investor who puts a lot of 

money into the rehabilitation of structures in which service is provided to the public? Big subject. You are right, I think, that is 

where the emphasis belongs. 

Mr. HANSEN. Well, you are right. That is one of the big frustrations this committee has faced my entire time on it. I think somehow, whether it is the Jan Meyers' bill, the Hansen bill, somewhere 

that has got to be worked out. 

Mr. KENNEDY. Yes. I think that sort of starting out-whatever 

happens in this session, we have to go back to work on that question, addressing the fundamentals of the investment realities here 

and with-1 have been spending a lot of time with the CEOs of 

major concessioners, trying to understand this myself, and let's get 

back to work on it whatever happens this session, please. 

Mr. HANSEN. While you are on that and before you start your 

testimony, what do you think about the idea? Can we work out a 

concession bill in 29 days? 

Mr. KENNEDY. Yes. You always have the hope. My personal view 

is that the major differences here lie with the preferential right of 

renewal. 

Mr. HANSEN. Absolutely. 

Mr. KENNEDY. And the difference is not great, I believe. The 

point process that is in your bill we don't like, as you know. 

Mr. HANSEN. Sure. I understand. 

Mr. KENNEDY. But if we could get honest competition at the outset, as Mr. Diamond suggests, then from that a whole lot of things 

can proceed. And if that can cover most of the money-I don't think 

we need to worry about the number of contracts so much as we do 

the amount of money that is engaged here. If we can get past that 

point, I can't see any reason why we couldn't get an agreed bill. 

You know and I know that we spent a lot of time talking about 

this. 

My remark about Senator Bennett simply was that it seemed to 

me he was a good businessman who had his head around this. 

Therefore, I do have faith that this can be worked out. I always--
17 

Mr. HANSEN. Roger, he is also a good Mormon. Mr. KENNEDY. That is true, too. Mr. HANSEN. You know out of that he has repented from his 

sins? 

Mr. KENNEDY. So have I, and so have you, Mr. Hansen, almost 

daily, and we have got plenty of reasons. 

Mr. HANSEN. OK. He told me he repented from many of those 

things and he can now see the side of truth and righteousness. 

Having said that, and seriously, I agree with what you say, but 

it has got to come down to the point, if people-all these folks have 

a very realistic interest, and I don't play that down a bit, everyone 

who is here and others, but they have got to realize that the clock 

is ticking. 

Mr. KENNEDY. Yes. 

Mr. HANSEN. They have got to realize, if we want to be picayune 

and we want to cross every T and dot every I and, "I can't compromise and have it my way," forget this thing. I have got a full 

platter of bills to work on, and we are willing to do it if everyone 

else is. If not, we are going to say, "Manana." 

Mr. KENNEDY. OK. I hope we get a bill that has competition that 

is real going in. Beyond that, there are many other details about 

which one can bicker, but that is essentially it. Do you have competition or don't you? And does it stay in the parks? 

Of course, this being an oversight hearing, I am going to try to 

respond to things that I don't think should be undone on the 

record. Mr. HANSEN. Yes. Mr. KENNEDY. First, does the Park Service have decent books? 

Of course it does. It always has. My predecessors left with me some 

troubles in the accounting. We have gotten them fixed. The inspector general has said we have got them fixed. We will have a clean 

audit. I would just as soon hear no more about, the Park Service 

doesn't have good books. It does. It essentially did. What we inherited we have fixed, and the inspector general agrees. 

Second, there is no testimony before this committee indicating 

that we can't account for these famous special accounts. That is not 

the problem. The problem is, how do you state in categories what 

is in them? Every buck is accounted for. I just want to be sure that 

is on the table. 

Third, I simply-you don't have time for me to respond to Professor Andrews in detail, but I have to say, sir, that we have got to 

be able to respond in detail to that testimony. It is full of 

misstatement and error. 

Now, let's just move on, if I may, quickly to just a couple of matters of information. This is not contesting. I am simply trying to 

get some information on the table. 

The public needs to know, I suppose-and we both want them 

to-where the money goes from these special accounts. It is significant that they do things that we all want to have happen and they 

do things at the local park level. For instance, at Blue Ridge they 

go for gas tank rehabilitation; at Gateway they go for parking facilities; they go for rehabilitation of food service; they go for sewage 

treatment; they go for docking sites. This stuff isn't just sort of disappearing into the air. That is the point; it stays in the park. 
18 

It needs to be properly accounted for. It needs to be expended 

with professional skill at the local level by people who know what 

they are doing. Yosemite, hotel boiler system, replace the food service and merchandise facilities. This money gets spent at the local 

level, it doesn't float back to the general treasury for other purposes. 

We think it is very important to sustain that process, much as 

the reasons that we agree on together thoroughly, which is why 

fees ought to stay in the parks; very much the same process. I think, Mr. Chairman, I ought to stand back for questions because you are in a hole on time. So far as I can tell, we and the 

GAO are together on nearly everything here. We find their report 

very heartening. They think we are doing fine. 

Oh, yes, just one other set of numbers, if I can get them in very 

rapidly. We are doing pretty darn well on getting the backlog in 

concessions contracts done. There were 525 contracts expiring prior 

to January 1st, 1997. We have renewed 112 of them. We have got 

the backlog down to 311. We will give you greater detail on that. 

We are marching ahead with a rehabilitated and reinvigorated 

concessions process to get the work done within the confines of the 

current wall. We are just-we are doing pretty well. We are proud 

of these folks, and Mr. Yearout on my left runs a good operation. I think that is as much as you probably want to hear from me 

on direct, sir, and maybe more. 

[The statement of Mr. Kennedy may be found at end of hearing.] 

Mr. HANSEN. Thank you very much. 

Mr. Vento. 

Mr. VENTO. Well, Mr. Chairman, I just arrived. I just wanted to 

stop by and express my interest. I guess the purpose of hearings 

at this late date is that there is still some life left in the opportunity or possibility to work on this. 

Mr. HANSEN. It is up to you. 

Mr. VENTO. It is up to me? 

Mr. HANSEN. If you want to push its head under the water with 

its nose only that far above, you certainly have the prerogative and 

the wherewithal to do it. 

Mr. VENTO. Certainly, Mr. Chairman, there has been bipartisan 

support in the last session of Congress. I hope that and I understand your interest in playing a role in that. I would, you know, 

certainly want to try to cooperate with you within the parameters 

of what is workable for the Park Service. You know, I don't want 

to go through a recitation of what I know. You all know what I 

know about this. 

I think the problems have been obvious. They have been initiated 

by the former Secretary of Interior, Manuel Lujan, and have been 

picked up in this vein by Director Kennedy. And I am optimistic. 

I see some of the court case results are ahead and we are aware 

of. And the backlog, obviously, that you spoke to is initiated or a 

result of holding up because they are waiting for Congress in one 

respect to come forth with a new contract and a new law. But that 

has not served. 

You know, I think there is a lot of flexibility within the law. We 

don't-some of the preferential right of renewal or other services 

are touchy issues. There is a host of services that are offered that 
19 

are not going to lend themselves to competition because they simply are a matter of trying to arbitrate a service in an area where 

it is of limited profitability. 

Isn't that correct, Director Kennedy? 

Mr. KENNEDY. Yes, but we are for competition and we are moving on the backlog without waiting for anybody, because we sort of 

gave up on waiting for things and we are just going to try to get 

those contracts written and out under the current law the best way 

we can, sir. 

Mr. VENTO. Yes. But the issue is that you have to separate here 

where there are services necessary, and it really is a-there is no 

fee that is possible in some of these instances for services where 

the profitability is really very limited. So you almost have to arbitrate or come up with a different type of agreement in those instances. 

Mr. KENNEDY- There are limited instances of that kind, but 

there-yes, the short answer is, yes, some. 

Mr. VENTO. So there should be some waiver in terms of the law. 

Is there provisions today which-! mean, for instance, we try to 

treat this all as if there is competition. Is there a waiver in the law 

today, or should there be in the future with regard to that? 

Mr. KENNEDY. That permits us to waive competition in some instances? 

Mr. VENTO. Rather than going through this entire process, as an 

example. I mean, you can obviously open for business, but I mean, 

the fact is that .there are no bids. For instance, we had in Voyageurs, that has been the topic of conversation in the committee 

here off and on this year, they didn't have a bid at various times 

to manage the Kettle Falls Hotel or other spots. 

Mr. KENNEDY. Yes, sir, there are instances, and there will be 

more, there will be more, in which nobody is going to bid because 

the economics won't work. And that particular situation I am familiar with, too. There are going to be more instances in which we will 

not, under the current economics of doing business in these kinds 

of places, where there won't be any bids. 

As this committee knows, we have had some difficulty getting 

bids in part of the Sequoia Kings Canyon situation, and we are 

going to have to work at the economics of this more comprehensively than is currently in the course of the discussion of these 

bills. 

Yes, sir, this is a ripening problem, it is not one that is diminishing. 

Mr. VENTO. Mr. Chairman, one of the other pitfalls, I recall, in 

the last session was the debate concerning the concessions in terms 

of services being offered; that is to say, white-water rafting and 

other services that are really located outside the park but are operating within the park. 

Do you recognize or are you familiar with any categories of activities like that that probably should not be under the concession 

contract law? Our decision was to include them_ Mr. KENNEDY. Yes. Mr_ VENTO. And the House-the Senate decision was not to. It 

turned out to be probably a mistake in the sense of not moving forward with the Senate bill and just accepting it like it came. 
20 

But any words of advice for the Subcommittee or those working 

on this concerning that matter? 

Mr. KENNEDY. Mr. Yearout is the expert here on that. 

Mr. YEAROUT. I think in terms of operations like river running 

operations that begin outside and go inside the park, one of the difficulties we have had in the past is our ability to limit those kinds 

of operations unless we had a concession authorization. We have 

other permitting forms that we can use for those kinds of activities 

that are kind of incidental to the park, people coming in and going 

out. But we are not concerned about that. 

But we have been advised by the solicitor's office that the only 

way that we can control the numbers, if we want to control the 

numbers, of operations in the park, is to use a concession operation. 

In those cases where it is a rather large kind of an operation like 

the Grand Canyon, I mean, we have concessioners there that gross 

between half a million and four million dollars a year. It is going 

to be a more complex contracting operation. In other instances, 

where there are really very small operations, we try to do that with 

a very simple permit form. It sort of depends on the situation and 

what the--

Mr. VENTO. It is a permit versus a concession issue, and, you 

know, I don't know, but I do agree that they are offering services. 

They are using it. There are even more bizarre situations that result in terms of the air flights over the Grand Canyon. 

Mr. KENNEDY. Mr. Vento, your question was, I think, do we have 

anything useful to say given the legislative situation which we 

have now got? 

Mr. VENTO. Yes. 

Mr. KENNEDY. I don't think we do. My view of this is that we 

should focus on the primary points of distinction; as the Chairman 

said earlier, try to resolve those and get a bill. Here is an instance 

in which administrative discretion is probably right. You have got 

to have somebody make these choices. 

And my personal guess-and I could easily want to amend this 

comment when I am better informed-is that we shouldn't legislate 

that one, that that probably ought to be a matter of administrative 

action because of its intricacies. Reserving the right to be corrected, 

that is my hunch at the moment. 

Mr. VENTO. Well, we have some dollar differences and other 

threshold issues that we used. Some of them actually are quite 

large in terms of it. Mr. KENNEDY. Yes. Mr. VENTO. They were obviously legislating to exempt themselves, the outfitters were. Mr. KENNEDY. Yes, sir. 

Mr. VENTO. That was of concern, so it wasn't exactly-it isn't 

necessarily something that we can-1 don't think that you can necessarily walk away from. We probably ought to have some clarity 

extended to what the disposition of those aCtivities should be and 

how they should be dealt with. 

Mr. HANSEN. The time of the gentleman has expired. For the benefit of the gentleman from Minnesota, as we both 

know and everyone else knows around here, time is running very 
21 

rapidly. I was talking to a legislator yesterday, a Congressman, 

who said, "Every time I look at a bill, I look at it on a scale of 1 

to 10. If it is over 5, I vote yes. If it is under 5, I vote no." That 

is an interesting analysis. 

Maybe we want to put this on a scale of 1 to 10, and if these 

folks, the Park Service, our staff, the Senate staff, and those who 

have a concern, can finally work this thing out in a very limited 

and short time, if it is over 5, maybe we ought to try to move it 

on real fast. If not, we will look at the 105th Congress and see 

what happens. 

And I honestly think that we were very close on a bill we sent 

that the President vetoed. That was pretty darn close to the Meyers bill. They weren't really that far apart. So if we are going to 

play lawyer and everyone has got to dot the I and cross the T and 

get it exactly their way or go to court, forget it; we are not going 

to make it. 

If there is not any compromise in the hearts of those people that 

are in this room and others, or if we are going to play the idea ofno disrespect to anyone-of a great staffer who finds something 

with the NEPA law that isn't exactly right or something else, obviously we can't do that; and look for a point of order to kill this 

thing, fine, we will kill it. I mean, we can all play that game. You 

know, that is what some people feel that their life is intended to 

do. When they stand before their maker, they can say how many 

bills they killed on technical things. So I worry about that also. 

So I come down to the idea, we just have to-if we want to do 

this thing, we will know in a week. If we have got good faith on 

both sides, if it gets over 5, Bruce, let's look at it. If not, we will 

have to let it go. 

But there are things that bother us. You raised a good point, 

Roger, when you talked about this idea, and you say, well, what 

is another way to provide an incentive? We count up the point system. You folks don't like it. We are saying: OK, give us another 

idea. 

We look at this GAO report, and why is this? Here is the frustration we have. Here we talk about this special account. The one reported by the Park Service headquarters is entirely different than 

some of these others. Why? You look at Yellowstone. They are four 

million apart-you report $4,116,000; they report $7,000,990. 

Mr. KENNEDY. It isn't as if we lost the money. It is, what pocket 

do you put it in? That is the point I want to stress. Nobody has 

lost any money. Nobody has lost track of anything. It is just, what 

category does this thing fall into? 

Mr. HANSEN. I think someone should give us an elucidation and 

show us where it is, what happened to the three million bucks at 

Yellowstone. 

Mr. KENNEDY. GAO can do that. 

Mr. HANSEN. The list goes on. 

Mr. KENNEDY. Even in this world, I will bet you we could give 

you a reconciliation of that quickly. I am instructed by my professional betters here that they know how to resolve these box differences. There is no difference about what is in the box. 

Mr. HANSEN. We need someone who can balance their checkbook 

then, do a bank reconciliation statement for us so we can see it. 
22 

We find it a little frustrating because we sit here-! sit with Ralph 

regularly every day and say, "How much are we going to give 

them?" And he comes back and his people come back, and they say, 

"We don't even know the figures." 

And I talk to Steve, who is a real professional, and he says we 

have to get this reconciled. All in all, we are kind of frustrated. So 

when Ralph and I sit down and say here is how much we are going 

to go, we are not even sure what you have got. 

It is kind of like when the Pentagon found $40 billion 2 years 

ago. It really surprised me as a member of the Armed Services 

Committee. That is a lot of money. We are saying, where is this 

all coming from? We are given the obligation to appropriate the 

money for you folks. 

Well, let me just thank everyone for being here. 

Mr. Vento, thank you for coming over. You are probably the most 

knowledgeable man there is in Congress on a few things. Mr. VENTO. Don't do that to me, please. 

Mr. HANSEN. I was trying to set you up and blame you. 

The meeting stands adjourned, and thanks to all of you. 

[Whereupon, at 11:25 a .m., the Subcommittee was adjourned; 

and the following was submitted for the record:] 
GAO 

For Release on Delivery 

Expected at 10 am. EDT 

11nm;day 

July 18. 1996 

GAOrf-RCED/GGD-96-223 

23 

United States General Accounting Office 

Testimony 

Before the Subcommittee on National Parks, Forests, and 

Lands, Committee on Resources, House of Representatives 

FEDERAL LANDS 

Concession Reform is Needed 

Statement of VictorS. Rezendes, 

Director, Energy, Resources, and Science Issues, 

Resources, Community, and Economic Development Division 
24 

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.' 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 

' Concessions Contracting: Governmentwide Rates of Return (GAO/GGD-96-86, Apr. 29, 

1996). 

2

0ther than the U.S. Army Corps of Engineers, the April 1996 report did not include 

concessioners in the Department of Defense. 
25 

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. 

2 
26 

CONCESSIONS OPERATIONS 

IN THE FEDERAL GOVERNMENT 

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.) 

3 
27 

FACTORS AfFECTING THE RATE OF RETURN 

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 

4 
28 

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 contr!ISt, 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 

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 

5 
29 

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 

3

Federal Lands· Improvements Needed in Managing Concessioners (GAO/RCED-91-163. 

Jun. 11, 1991) 

6 
30 

Act of 1965 which prescribes Pack Service policy for several key terms and conditions in 

concessions agreements. The results of differing laws and policies ace that similar 

concessioners ace managed quite differently among the land management agencies. For 

example, a marina operator in the Pack Service may have a preferential right of renewal 

and pay a fee based the Pack 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 concessioners 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 ace 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 feesincluding 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 packs, 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 

7 
31 

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. 

INFORMATION ON CONCESSIONER SPECIAL 

ACCOUNTS AT THE NATIONAL PARK SERVICE 

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.• 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 National 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 

4

National Park Service: Information on Special Account Funds at Selected Park Units 

(GAO/RCED-96-90, May 17, 1996). 

8 
32 

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. 

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 

9 
33 

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. 

10 
34 

Attachment I Attachment I 

Rate of Return on Concessions Agreements 

Either Initiated or Extended During Fiscal 

Year 1994 

Amount 

dopollted Into ToiAII (I- Conce .. Jonera' conc.Mioner.' + apec:lal Numbotof 

Agency oro.. revenue Feu epect.l accounttl• accounta:) conc .. elona 

Forest Serv.ce $306,473,830 $7,765.758 $66,339 $7.832.097 2.361 

National Park ServiCe 135,626,774 3.624.398 1,116,671 4,741 .069 555 

Army Corps of Eng•neers 9,473,016 214,446 34.531 248,977 27 

Bureau of Land Management 2.376,622 71.243 0 71,243 15 

F•sh and Wildhfe Service 807,713 39.551 0 39.551 6 

Bureau ot Reclamation 16.000 600 0 600 

Subtotal. land management 

aoencies 454,773.955 11 ,715.996 1.217,541 12.933.537 2.965 

Postal Service 27.349.976 1,950,669 0 1.950.669 183 

General Services Administration 17,671,583 143.054 129,805 272.659 17 

Department ot Veterans Affairs 6.679.611 1,838.571 0 1.838,571 

Department of Just1Ce 5.804.100 810,980 33.003 843,983 54 

National AeronautiCS and Space 

AdmimstrattOn 3.845.102 608.181 0 608.181 16 

Depar!ment of Commerce 1.206.526 14.057 15,562 29.619 3 

Department of Transponation 1,44 1,766 323.925 0 323.925 6 

Nat1ona1 Archives and Records 

Adm•n•strat•on 235.000 3,300 3.300 

Federal Depos•t Insurance 

Corporation 178.803 39.557 0 39.557 

Ottter lntenor agencres 7.424 0 3,712 3,712 

Subtotal nontand management 

dgencies 64.419.891 5.732.294 181 .882 5.914,176 287 

All agenc1es $519.193.846 $17.448.290 $ 1.399.423 $18.847.713 3.252 

Rete of 

r.tum 

2.56% 

3.50 

263 

3.00 

4.90 

3.75 

2.84 

7.13 

1.54 

27.53 

14.54 

15.82 

2.45 

22.47 

1.40 

22.12 

50.00. 

9.18 

63~ 

"Concen•()l'leiS ate allOwed to aepos1tluncls 1nto concess1oners· spee1al accounts (10 lieu ol or 

along With payment ~ concesSions lees) lor •mprovem&nts and mamtel'\&t'lee ollac11ilies on 

federal property. 

Note From QUestionna~rel nanci at data. we calculated 1M rate of return by dividing gross 

re...-.nues 1nto the sum ot reported ( t) cOI'ICessions lees and (2) amounts deposited into 

concessroners· special accounts OuestioMaJfe responses that did not contain bOth rev@tlue and 

concessions fee data were excludea from tns analysis. 

Source: GAO quesliOnnaJte dala 

11 
35 

Testimony on 

Concessions Management -- National Park Service 

Submitted to the 

Subcommittee on National Parks, Forests and Lands 

House Committee on Natural Resources 

By 

Dean W. Fischer 

Partner 

Arthur Andersen LLP 

July 18,1996 
36 

I. Background and Experience- Dean Fischer 

Dean is a partner in Chicago working with the Financial and Economic Consulting 

Services group. Dean has been with Arthur Andersen & Co. in the Chicago office for 

approximately 19 years. Dean works extensively in our Business Consulting practice 

where he consults with clients to improve their business processes and uses of 

technology to reengineer their businesses. 

Dean has also performed substantial government contract consulting engagements for 

Motorola, Inc., Brunswick Corporation, US Sprint and a variety of companies and 

industries such as environmental treatment, manufacturing, engineering, aerospace, 

research, etc. Dean also performs a significant amount of his government contract 

consulting work for major Washington law firms. In addition, Dean has testified as an 

accounting expert in Federal District Court. 

Dean received his B.S. in Accounting from Valparaiso University in 1977. He is a 

member of the American Institute of Certified Public Accountants, the Illinois Society of 

Certified Public Accountants, the National Contract Management Association and the 

American Defense Preparedness Association. 

Arthur Andersen is the leading provider of professional services in the world. With 

more than 82,000 personnel in 76 countries, the Firm divides its business into two units: 

Arthur Andersen for audit, tax, business advisory, and specialty consulting services; 

and Andersen Consulting for global management and technology consulting. 

Andersen Worldwide is the coordinating organization. Financial and Economic 

Consulting is a natural outgrowth of the tax and audit expertise for which Andersen is 

renowned. 

II. Goals/Purpose of Review 

A. Identify opportunities to improve and simplify franchise fee determination 

and return to the government from National Park Service (NPS) concession 

operations. 

B. Improve and simplify the Annual Financial Report (AFR) process and form 

This project was approached from the following perspectives and mindset: 

1. Constraints- Working within existing laws and regulations 

2. Focus: 

a. Franchise Fee Calculation 

b. Reconsideration process 

c. Needs for and uses of AFRs 

- 1 -
37 

We were concerned primarily with the process for determining the amount of 

the franchise fee or return to the government and not with the ultimate use or 

designation of those funds (i.e. Treasury, capital improvement accounts, etc.). 

Therefore, our use of the term franchise fee is for the sake of identifying the 

probable value of the concession contract and not for determining how those 

funds are eventually used. 

We worked closely with NPS personnel in a joint-project team fashion. 

III. Work Performed 

A. Interviews 

B. Site Visits 

C. Research 

D. Process Mapping 

E. Roundtable Discussions 

F. Det~iled Analysis 

Our AA team of four consultants performed the above tasks with the following groups 

who were intimate with the processes under review: 

A. Concessions Division- Contract Operations Branch- Washington Office 

(WASO) 

B. Concession Program Center- Denver 

C. Field Areas -National Capital, Intermountain, Southeast, Pacific West, 

Northeast Capital, Alaska, Midwest 

D. System Support Offices- Columbia / Cascade and Chesapeake / Allegheny 

E. Individual Parks- Yosemite, Sequoia, Kings Canyon, The Presidio, Golden 

Gate National Recreation Area, Lake Mead, and Muir Woods 

F. Concessioners- ARAMARK, Gettysburg Tours, Guest Services, Evelyn Hill, 

Tourmobile, AMFAC, and other 

G. Arthur Andersen Experts- Franchise Services, Licensing and Patent, 

Economic Consulting, Valuation Services Group, Hospitality Group 

Deliverables: 

Although the bulk of our work is completed, the current report is still being 

finalized and is thus, still in draft form. We will hopefully issue a final report 

within the next 30 days. 

-2-
38 

IV. Summary of Issues/Recommendations 

A. Franchise Fee Calculation 

Current calculation is subjective, complex, and does not utilize potentially 

valuable information from the NPS' AFR database. 

,. We recommend NPS consider a simplified, alternative methodology that is more 

objective and broad-based, allows for input of Park and Field level personnel, and 

reduces concessioner uncertainty -one of their primary concerns. 

B. Franchise Fee Determination/Reconsideration Process 

Lack of specific organizational responsibility for administering and monitoring 

fee determination/process. 

,. We recommend NPS consider a new process flow that allows NPS to decentralize 

decision-making while maintaining control through program direction. 

C. Annual Financial Reports 

Database of AFR information is not fully utilized. Information is inaccessible to 

some and is used inconsistently across various NPS levels. 

Information currently requested of concessioners is too onerous and yet may not 

provide the information needed by the proposed methodology to calculate 

franchise fees. 

,. We recommend that NPS identify their needs for AFRs and cater the form and 

process to meet those needs. For franchise fee purposes, AFRs should provide 

only that information necessary to perform a new, proposed methodology. In 

most circumstances, that would be the same information and format as provided 

by industry comparables. 

D. Competition 

• Preferential right of renewal, possessory interest, and uncertainty likely reduce 

competition for concessions contracts. 

The importance of the franchise fee in the evaluation of bids is not as great as it 

could be. 

,. We recommend that NPS consider removing or reducing the impact of these 

issues to incentivize more potential concessioners to bid. 

,. We recommend that NPS consider increasing the weight of bid franchise fees as a 

factor in the selection process (while still maintaining secondary status). 

E. Other 

-3-
39 

We made additional observations and recommendations in the areas of 

Organizational Structure, Pricing/ Comparability Studies, Contracting, 

Evaluations/ Incentives, Park Incentives/ Special Accounts, and Resource 

Constraints. 

-4-
40 

July 17,1996 

The following is a professional opinion by Robert L Andlcws of the statistically rel.alcd procedures in 

NPS-48 and the way they are applied in managing the contractual relationship between the National 

Park Services (NPS) and concessioners. Specific reference is made to the Franchise Fee Analysis 

(FF A) for Fon Sumter Tours, Inc. (FST) because it illustrates some of the major problems. These 

procedures appear to be counter to trends in other arenas where deregulation has been implcmenll:d to 

improve quality of service. 

The conunents below address two primary questions relative to NPS-48. 

A. Does the government want to amtrol profitability of NPS coocesrionen to near the middJe 

of a peer p-oup of business enterprises by adjusting franchise fees? 

NPS-48, Olapter 24, Financial Administration, page 19, states, "If this fee is in a comparable 

range with industry statistics, then this percentage franchise fee will be the determined fee and 

presented to the Regional Director for presentation to the parties." Adjusting profitability 

measures to be comparable to the middle of a distribution means that a concession provider has 

little or nothing to gain by performing well. This procedure takes away any incentive to 

perform well. Central control of profits does not provide incentives for good performance, 

which has an economic impact The current situation in the former Soviet Union is an example 

of the result of management that controls profits at the central level Worldng closely with 

business partners is a part of the philosophy in managing for quality espoused by Dr. Deming 

and other recognized ex pens. If one member of a business activity has been particularly 

profitable then it may make sense to encourage that partner to share some of the gain with 

another entity involved in the activity. However, reducing profitability to the middle level for 

the industry removes the incentive to perform well and has serious long-term implications 

financially for the NPS and for the quality of services provided by concessioners. This 

procedure is not a profit sharing procedure, it is a profit grabbing procedure. In effect, NPS48 sets up a range of profitability that taxes enterprises 100% of the profitability in this range. 

H the NPS intends to adjust profitability for individual concessioners to the middle of the 

industry norm then to be equitable, the NPS would also be required to decrease fees for 

companies below the middle. Consequently, the NPS would be taking on risk associall:d with 

the operation of a business over which the NPS has no direct management control This is of 

particular concern because the NPS is at the same time taking away incentive for the 

concessioner to perform well. This policy may increase short-term income for the NPS but has 

serious consequences long-term. 

B. If government does want to control profitability of NPS concessioners, then is the NPS-48 

procedure as outlined and applied a fair and equitable way to JUXOmplish this? 

I fmd this procedure as outlined and applied to be flawed in several ways. SpecifiCs will be 

drawn from how the procedure in NPS-48 was used to perform the Franchise Fee Analysis by 

the National Park Services (NPS) for Fon Sumter Tours, Inc. (FST). In this procedure the 

profitability data from FST were compared with industry norms for the SIC Code 4489. The 

fee charged to FST by the NPS affects profitability. In the analysis for FST, the fee charged by 

the NPS was adjusted until the profitability for PST was comparable to the median of the 

industry norm. 
41 

2 

1. Companies in an SIC code and the norms obtained can provide a very questionable 

peer group. 

I would argue that data from all NPS concessioners would be a more appropriate peer group 

than trying to use SIC codes to determine a peer group. Data on this group are available to 

NPS. Even if those in the SIC code do provide an appropriate peer group, there is no check to 

determine if those in a SIC code who did not respond to the survey have introduced nonresponse bias in the reported quartile values. Non-response bias is not an easy problem to 

tackle but if ignored it can produce very questionable results. 

To illustrate how this can be a problem the quartiles used by the NPS for the FFA for FST 

represent what I find to be questionable norms. 

1st Quartile Median 3rd Quartile 

ROG -0.5 3.2 8.7 

ROE -13 . 3 5 . 7 3 5 . 0 

ROA -2.9 4. 7 11.6 

Return on Gross 

Return on Equity 

Return on Assets 

These quartile values alone mean that over one quarter of the firms in this group operate at a 

loss. In fact, if one fits a bell-shaped normal distribution to these data then about one third of 

the companies would be operating at an annual loss. This.does not pass as being reasonable to 

me. Surely the NPS does not expect one third of its concession providers to operate at a loss. 

Unrealistic results generally come from incorrect analysis or data or both. 

2. No consideration is given to either measurement error or sampling error when using 

the norms. 

Characteristics calculated from sample data are subject to variation from the population 

characteristics due to the fact that only a portion of the population has been selected and this is 

known as sampling error. NPS-48 makes no attempt to recognize the existence of sampling 

error which is a violation of the foundation of statistics. 

The measurements obtained in the sample used to create the norms are self-reported with no 

control for uniformity. This can be a source of significant deviation. The NPS adjusted the 

PST self-reported value for equity by 47. 7%. However, the norms obtained from self-reported 

data from other businesses are treated as absolute troth. 

3. There is an inconsistency in comparison when the NPS adjusts the self-reported 

values provided by a concessioner and compares them to the unadjusted selfreported values for the industry norDL 

As stated above the NPS adjusted the PST self-reported value for equity by 47.7%. After the 

NPS adjusted the equity value for PST they then compared the adjusted measure of 

profitability to norms obtained from unadjusted self-reported data. 

4. There is an apparent inconsistency in following NPS guidelines 

NPS 48, Chapter 24, Section D "Franchise Fee," Financial Administration, Exhibit 3, page 1, 

states, 'The review of the concessioner's results will consist of a search for overstated or 

understated expenses and for evidence of good or poor management" 
42 

I found no indication of a search for evidence of good or poor management to accompany the 

adjustments of financial data by the NPS. Calculations and statistics are guides to be used 

along with knowledge of the process being analyzed. Good or poor management clearly has 

an effect on productivity and profitability . The process used by the NPS seems to be more 

intent on penalizing good management rather than encouraging il 

S. The NPS is effectively taxing at 100% profitability above an undel'med and 

apparently naJTow band around the median. 

3 

In a country that developed its greatness on a ~nteiprise system and which currently has a 

graduated income tax, it is impossible for me to view a procedure being fair that effectively 

takes away all profit above a specified level 

6. No focus on quality of service being provided 

The concessioners have a contract with the National Park Service to provide services to 

customers. How can an enteiprise adjust the profitability of a service provider without taking 

into consideration the quality of services provided to the customers? NPS-48, Chapter 24, 

Fmancial Administration, page 12, SEC. 3(d) states, "Consideration of revenue to the United 

States shall be subordinate to the objectives of protecting and preserVing the areas and of 

providing adequate and appropriate services for visitors at reasonable rates." The NPS-48 

restructuring of fees totally ignores the quality of service provided even though the document 

itself says that revenue shall be subordinate to service to visitors and protecting the area. 

Summary Statement 

I understand the idea of creating a mechanism that would have financially successful concessioners to 

share some of their gain with the National Park Service, who is a collaborator in their concession 

business. However, the fee revision process outlined in NPS-48 is not a fair process for the 

concessioners and its implementation has serious long-term fmancial implications fOF the National Park 

Service. If the government believes that it is essential to implement some type of profit-sharing for 

concessioners then the National Park Service needs to go back to the drawing board to create a 

mechanism of sharing gain that would be rusonable for the concessioners and would not have 

potentially detrimental long-term effects for the National Park Service. 

Background and Experience of Robert L. Andrews 

I am an Associate Professor of Management Science in the School of Business at Virginia 

Commonwealth University. I hold a Ph.D. in statistics from Virginia Tech, 1971. I have 20 years 

experience teaching statistics and related topics in business schools. Courses taught have been at the 

undergraduate, masters and doctoral levels. My work has been published in a variety of professional 

journals. I have been recognized professionally by my peers by being elected to numerous positions 

including the Board of Directors of the Decision Sciences Institute, an international organization of 

primarily university faculty who teach statistical and quantitatively related topics. 
43 

National Parks 

and Conservation Association 

STATEMENT OF 

WILLIAM J. CHANDLER 

VICE PRESIDENT for CONSERVATION POLICY 

NATIONAL PARKS AND CONSERVATION ASSOCIATION 

TO THE 

SUBCOMMITTEE ON NATIONAL PARKS, FORESTS, AND LANDS 

ON 

OVERSIGHT OF CONCESSIONS FEE MANAGEMENT IN THE NATIONAL PARK 

SYSTEM 

JULY 18, 1996 

Mr. Chairman and members of the Subcommittee, thank you for the opportunity for the National 

Parks and Conservation Association to testify again on the issue of National Park Service 

concessions management. The purpose oftoday's hearing, as I understand it, is to investigate the 

methods used by the National Park Service in setting and adjusting the franchise fee rates paid by 

park concessioners. Also testifying this morning are Arthur Anderson, which is under contract to 

the NPS to advise the agency on methods of improving their concessions system, Dunn and 

Bradstreet. which produces industry statistics used by the NPS in setting and adjusting fees. and 

the Director of the National Park Service. With these three witnesses present. there is little in the 

way of technical advice or comment on the issue of tee setting that I can provide the 

Subcommittee. 

Also testifying, however. are representatives of the General Accounting Office, which has 

recently released a document, "Govemmentwide Rates of Rerum." The results of this report are 

important for Committee members to digest. and they lead to one and only one conclusion: ~ 

National Park Service is crippled in its abilitv to mana~e concessions in a way which reflects 

market conditions because of a 30 vear old law which ~ives everv conceivable advantage in 

contract ne~otiations to incumbent concessioners. The 1965 Concessions Policy Act requires the 

National Park Service to follow a set of rules which guarantee lower than expected returns to the 

government. Nonetheless. the National Park Service has made sincere efforts since !992 10 

improve the fee return for the government. 

1776 MassachusettS Avenue, N .W ., Washington, D.C. 20036-1904 

Telephone (202) 223-NPCA(6722) • Fax (202) 659-0650 
44 

Though the NPS has achieved marginal improvement in the fee return over the past few years, 

this improvement has not come without cost. On several occasions, incumbent concessioners 

have challenged fee increases, and in one case, involving the concessioner operating at Fort 

Sumter National Monument, the concessioner sued the NPS over its authority to raise the 

concessioner's fee. I am not suggesting that there is anything wrong with these challenges; it is 

well within the right of concessioners to do so. But the process is very cumbersome and it 

consumes time and resources. A market-directed system would substantially obviate the need for 

all of this wasted time and wasted resources. 

The GAO report reviews many of the reasons why fee return from NPS contracts lags so 

significantly behind the return experienced by any of a variety of other government entities. 

Notably, the report makes the following statements: 

Analysis ... showed a rate of return of2.8 percent for the six land management 

agencies' concessions and 9.2 percent for non-land management agencies' 

concessions 

When the federal agencies reported that they competed fees for concessions 

agreements, the rate of return was 5.1 percent, compared to a 2.0 percent rate when 

agencies reported that they did not use competition 

Other governments ... including Canada, California, Maryland, Michigan and Missouri 

reported receiving on average a 12.7 percent rate of return on a range of concessions 

that were similar 

The rate of return on agreements (that allowed agencies] to retain over 50 percent of 

the fees was 3.3 times the rate on agreements (where] over 50 percent... was to be 

deposited into the Department of the Treasury as general miscellaneous receipts. 

The report also comments on some of the reasons for the above findings, specifically, that both 

the statutory right of preference contained in the 1965 Concessions Policy Act and the provision 

for granting possessory interest have a bearing on the ability ofNPS to increase the fee return to 

the government. The report includes these additional statements: 

On preferential right: 

Businesses are reluctant to expend time and money preparing bids in a process where 

the award is most likely going to the incumbent contractor. 

New agreements with preferential right... resulted in a 3.8 percent rate of return. and 

those without... resulted in a rate of return of 6.4 percent. 

On possessory interest: 

Officials from the four states·and Canada said their regulations do not allow 

concessioners to acquire possessory interests. According to the officials, 

concessioners are given enough time to make a profit and amortize their investments. 

but the maximum term of the contract is 20 years. 

New and extended agreements granting possessory interest resulted in a rate of return 

of3.8 percent, and those without... resulted in a rate of return of -1.5 percent. 
45 

Like a large nwnber of reports which have come before, from the Grace Commission, from the 

Department of the Interior Inspector General, and from the General Accounting'Office, this 

report suggests that the only route to better fee returns js throu~:h reform. 

In the House, there are two primary vehicles for park concessions reform, HR 773, introduced by 

Rep. Jan Meyers, and HR 2028, introduced by Chairman Hansen. To be sure, there are 

differences between the two pieces of legislation. But the need for reform is clear and has been 

repeated often enough. 

What we need now is legislative action. Whatever differences in perspective about the two 

pieces of legislation can be worked out on the floor of the House, or before legislation reaches 

the flo.Qr .. But if no legislative vehicle moves to the floor for a vote, there will be no reform, 

whether large or small, in this Congress. The issue will drag on for yet another Congress, with 

America's parks the loser. 

My plea today, Mr. Chairman, is a plea to get the process moving. You know as well as I that 

time is short and the clock is running. I know that your interest in providing for a reform of the 

concessions system is sincere. Though we may differ on a variety of specifics, there is room in 

the legislative process to arrive at an agreement which achieves real, meaningful reform, but only 

if the process is directed to move ahead. Fee returns to the federal government can, and should 

be considered as a part of the process of reforming park concessions with an eye toward greater 

competition. Much of the concern for arriving at appropriate and equitable concessions fees will 

be resolved with that reform. 

Mr. Chairman, thank you again for the opportunity to testify. 
46 

STATEMENT BY ROGER KENNEDY, DIRECTOR, NATIONAL PARK SERVICE, BEFORE 

THE SUBCOMMITTEE ON NATIONAL PARKS, FORESTS, AND LANDS, HOUSE 

COMMITTEE ON RESOURCES, CONCERNING THE MANAGEMENT OF THE NATIONAL 

PARK SERVICE CONCESSIONS PROGRAM. 

JULY 18, 1996 

Mr. Chairman and members of the subcommittee, I appreciate the 

opportunity to appear before you today at this oversight hearing on 

the management of the National Park Service concessions program. 

The National Park Service understands the importance of the role of 

concessions in the National Park system. Stephen T. Mather, the 

first Director of the National Park Service, once said, "scenery is 

a hollow enjoyment to the tourist who sets out in the morning after 

an indigestible breakfast and a fitful night's sleep on an 

impossible bed". Director Mather understood that the quality of a 

stay in a park hotel, or the quality of a meal in a park 

restaurant, could determine how a visitor feels about that . park or 

about the park system in general. 

We are mindful of this, and strive to provide visitors with the 

best possible concession operations. Administrative reform of the 

of the concessions program began in earnest i n the 1970's, with the 

development of the "standard form contract", and annual performance 

evaluations of each concessions operation. Previously, concession 

contracts did not have consistent terms, and while contract renewal 
47 

was tied to performance, the elements of the performance evaluation 

system were inconsistently applied. 

The Department of the Interior continued the process of improving 

the concessions program in 1992 by promulgating new regulations and 

revising the standard concessions contract. The primary purpose of 

these changes was to promote competition for concessions contracts 

and to ensure that a portion of the return to the government under 

concessions contracts was made available to the generating park 

through concession improvement accounts. We have continued 

implementing these and other changes, and have found that they have 

improved competition for concessions contracts. Nevertheless, the 

concessioner's trade association, the National Parks Hospitality 

Association, sued the National Park service over the legality of 

these regulations. This case was recently dismissed on procedural 

grounds but is expected to be reinstituted. 

We have also worked toward enhancing the professionalization of 

the Concessions Division of the National Park Service. We have 

instituted training programs for our staff, hired individuals with 

financial and hospitality industry experience, engaged the services 

of private sector professionals, and are developing upgraded 

operating standards, to help us better serve the taxpayer. We also 

recently introduced a special account tracking system that should 

improve the accuracy and consistency of data on concessioner 

special accounts. 

2 
48 

This effort has produced results. Concessioner service to visitors 

has improved, and the return to the government under concessions 

contracts has risen significantly over the past several years. 

System-wide, the return to the government increased from about 2 

percent of gross sales in 1992 to 4 percent in 1993 and 5.5 percent 

in 1994. This percentage will continue to grow as the current 

backlog of concessions contracting actions is processed during the 

next 3 to 4 years. Most of the recent increases have been in the 

form of payments into concession improvement accounts rather than 

higher franchise fees. 

Fees have also risen through fee reconsiderations. Under the 

Concessions Policy Act, and the standard concessions contract, we 

are required to review a contract's franchise fee at least every 

five years. In doing this we compare a concessioner's financial 

performance with the performance of similar businesses that operate 

outside of parks, and set the fee at a level that provides a 

concessioner a "reasonable opportunity for profit". The 

overwhelming majority of our concessioners do not contest the 

reconsidered fee. In recent years, though, three concessioners, 

located in Blue Ridge Parkway, Glacier National Park, and Mesa 

Verde National Park, have exercised their contractual rights to 

contest the reconsidered fee by asking for the recommendation of a 

neutral arbitrator. One of these arbitrations is pending. The other 

two resulted in fees that were significantly higher than the fees 

advocated by the contesting concessioners. Most importantly, each 

3 
49 

of these concessioners continues to operate profitably . 

In addition, the Federal District court for the Southern District 

of South Carolina and the 4th Circuit court of Appeals recently 

rejected a concessioner's legal challenge to the validity of our 

franchise fee system. The Court found the system to be a "reasoned 

process", stating that the "profit of others in the industry is a 

valid factor for NPS to include as a consideration in the fee 

determination." The Court also stated that the use of industry 

statistics is entirely appropriate in determining franchise fees. 

Although fees have risen under some concession contracts, they 

remain eminently fair to concessioners. There is no danger of a 

concessioner going out of business as a result of our fees . In 

fact, to our knowledge, in the 75 year history of National Park 

concessions, only one concessioner has ever failed financially. 

This one failure, however, the concession operation in Lake 

Meredith National Recreation Area), was probably not due to the 

r equirements of the concessions contract or a lack of business, as 

this authorization has operated successfully since this failure. 

This almost complete absence of business failures is astounding, 

considering that thousands of contracts have been processed over 

the past 75 years, and the failure rate for similar businesses 

ope rating outside of parks can reach as high as 30 to 40 percent. 

To ensure that our fees remain fair, we recently contracted with 

4 
50 

Arthur Anderson & Co. to review our franchise fee system. We expect 

their report to be sent to us some time next month. 

Despite our successes in raising fees, we are convinced that open 

competition is the only way to ensure that the return to the 

government is fair. Open competition will also ensure that we are 

getting the best concessioner under each concessions contract. As 

I stated in the July 1995 hearing on the various concessions bills 

before this Subcommittee, the existing law that governs the 

concessions contracting process, the "Concessions Policy Act", 

constrains our ability to attract the widest range of competitors 

for concessions contracts. Under this law we are required to offer 

a "right of preference in contract renewal" to existing 

concessioners that perform to the satisfaction of the Secretary. 

This anti-competitive requirement deprives the public of a 

competitive process that would ensure that the best possible 

concessioner is operating a park concession. 

The present concessions contract for Yosemite National Park, for 

example, provides a healthy return to the government that is the 

equivalent 15-17 percent of gross receipts. This contract is an 

anomaly under existing law, however, because offers for the 

contract were solicited following the buyout of the previous 

concessioner's operation. As a result, the solicitation did not 

involve a right of preference in contract renewal. Thus, the 

contract was offered to the public through a competitive process, 

5 
51 

which generated serious offers from 6 applicants. The result was a 

contract that is significantly better for the park and the public 

than the previous Yosemite concessions contract, which earned 

franchise fees of only three-quarters of one percent of gross 

receipts. For this and other reasons we support legislative reform 

that would enhance the competitive environment for concessions 

contracts. 

This concludes my statement. I would be happy to answer any of your 

questions. 

6 

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ISBN 0-16 -053449-6 

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