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[Senate Hearing 108-562]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 108-562
 
                         NATIONAL PARK SERVICE 
                          CONCESSIONS PROGRAM
=======================================================================

                                HEARING

                               before the

                     SUBCOMMITTEE ON NATIONAL PARKS

                                 of the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                                   to

    REVIEW THE NATIONAL PARK SERVICE CONCESSIONS PROGRAM, INCLUDING 
  IMPLEMENTATION OF THE NATIONAL PARK SERVICE CONCESSIONS MANAGEMENT 
                        IMPROVEMENT ACT OF 1998

                               __________

                             APRIL 8, 2004

                       Printed for the use of the
               Committee on Energy and Natural Resources

                                _________

                 U.S. GOVERNMENT PRINTING OFFICE

95-296                 WASHINGTON : 2004
_________________________________________________________________
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
DON NICKLES, Oklahoma                JEFF BINGAMAN, New Mexico
LARRY E. CRAIG, Idaho                DANIEL K. AKAKA, Hawaii
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
CRAIG THOMAS, Wyoming                BOB GRAHAM, Florida
LAMAR ALEXANDER, Tennessee           RON WYDEN, Oregon
LISA MURKOWSKI, Alaska               TIM JOHNSON, South Dakota
JAMES M. TALENT, Missouri            MARY L. LANDRIEU, Louisiana
CONRAD BURNS, Montana                EVAN BAYH, Indiana
GORDON SMITH, Oregon                 DIANNE FEINSTEIN, California
JIM BUNNING, Kentucky                CHARLES E. SCHUMER, New York
JON KYL, Arizona                     MARIA CANTWELL, Washington

                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
                                 ------                                

                     Subcommittee on National Parks

                     CRAIG THOMAS, Wyoming Chairman
                  DON NICKLES, Oklahoma Vice Chairman
BEN NIGHTHORSE CAMPBELL, Colorado    DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Carolina
CONRAD BURNS, Montana                BOB GRAHAM, Florida
GORDON SMITH, Oregon                 MARY L. LANDRIEU, Louisiana
JON KYL, Arizona                     EVAN BAYH, Indiana
                                     CHARLES E. SCHUMER, New York

   Pete V. Domenici and Jeff Bingaman are Ex Officio Members of the 
                              Subcommittee

                Thomas Lillie, Professional Staff Member
                David Brooks, Democratic Senior Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Jones, A. Durand, Deputy Director, National Park Service, 
  accompanied by Curt Cornelssen, Director, Hospitality Division, 
  PricewaterhouseCoopers.........................................     4
Naille, Richard Allen, II, Chairperson, National Park Service 
  Concessions Management Advisory Board, Flagstaff, AZ...........    20
Verkamp, Susie, President, Verkamp's, Inc., El Prado, NM.........    33
Welch, Michael F., National Parks Hospitality Association and 
  Vice President, Finance, Xanterra Parks and Resorts; 
  Spokesperson, National Park Hospitality Association, Aurora, CO    25
White, Janet, President, White Sands Concessions, White Sands, NM    31
Thomas, Hon. Craig, U.S. Senator from Wyoming....................     1

                               APPENDIXES

                               Appendix I

Responses to additional questions................................    43

                              Appendix II

Additional material submitted for the record.....................    53

                         NATIONAL PARK SERVICE 
                          CONCESSIONS PROGRAM

                              ----------                              

                        THURSDAY, APRIL 8, 2004

                               U.S. Senate,
                    Subcommittee on National Parks,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Craig Thomas 
presiding.

            OPENING STATEMENT OF HON. CRAIG THOMAS, 
                   U.S. SENATOR FROM WYOMING

    Senator Thomas. I think we'll go ahead and begin. 
Unfortunately, or fortunately, we're going to have a vote here 
in about 15 minutes, so we'll have to take a little break. But, 
in any event, we may as well get started and see what we can 
do.
    Certainly, first of all, I want to welcome all of you here, 
particularly our witnesses, for today's National Parks 
Subcommittee hearing. The purpose is to conduct an oversight 
over the National Park Service concession program. We, of 
course, have been working on this for a good, long time, back 
in our bill in 1998, and so on, and certainly concessions are 
very important, not only to visitors, but also to the Park 
Service and so on.
    So, in 1998, we passed the Park Service Concession 
Management Improvement Act to make--hopefully, to make those 
programs more businesslike and to bring business operations 
into it. Our intent was to improve the efficiency and the 
effectiveness of the concessions, while improving, of course, 
the quality of the visitor service, which is the basic thrust.
    National Park Service and concessioners have worked 
together to achieve the goal, but we're not quite there, and 
we'd like to talk a little bit about where we are, how we get 
further, and what the problems seem to be in getting there. We 
need to look at the May 2000 Park Service regulations and find 
out what's working, what needs improvement. For example, the 
50-percent rule is a disincentive to performing routine 
maintenance. If it is, we need to take a look at that. We also 
need to determine if the threshold level for preferential right 
of renewal is correct; apparently set, I think, at $500,000. 
Some believe raising the threshold will create a more equitable 
playing field for smaller businesses; however, raising it too 
much, of course, would reduce the healthy competition, which is 
put into the 1998 Act.
    In addition to addressing incentives for maintenance and 
preferential right of renewal, the purpose of this hearing is 
to assess how well we're meeting the original goals, any 
disparity between the act and the May 20 regulations, the 
status of recommendations made by the Concession Management 
Advisory Board, the process for evaluating possessory interest, 
and the number and types of concessions awarded since passage 
of the 1998 Act, applying the portions of the Federal 
acquisition regulations to the FAR National Park Service 
concession contracts. So these are some of the things that we 
are interested in talking about, and certainly appreciate your 
being here to talk about them, as well.
    So, as I said, we'll have to take a little break here soon, 
but, nevertheless, we can start. So Mr. Jones and Mr. 
Cornelssen, welcome.
    Mr. Jones, if you'd like to go ahead, why, we can get 
started.
    [The prepared statement of Senator Thomas follows:]
         Prepared Statement of Hon. Craig Thomas, U.S. Senator 
                              From Wyoming
    I would like to welcome our witnesses and guests to today's hearing 
on issues concerning the management and operation of concessions by the 
National Park Service.
    The management and operation of concession facilities within units 
of our National Park System affords us an opportunity to provide and 
utilize innovative, creative, and contemporary management methods in 
the way we do business with the private sector, and at the same time 
serve our park visitors.
    Working with private sector businesses is not a bad proposition, 
nor is it a necessary evil, as a number of folks within the bureaucracy 
claim. It is quite the opposite! It should be a fundamental commonplace 
way of operating, managing, and providing quality services to our 
visitors. The private sector is positioned and tasked to supplement and 
enhance those services offered by the federal government. The private 
sector is also in a unique position to contribute a wide array of 
knowledge, skills, abilities and expertise to assist us; to maintain, 
operate and manage a variety of park facilities successfully, with a 
responsible financial return to individual parks, the Park Service and 
the American taxpayer.
    Unfortunately, it appears in places we have gotten bogged down in 
process.
    Out of the almost 50 larger contracts that gross over $3 million, 
only six have been awarded since the Omnibus Parks bill was signed into 
law. There are approximately 8 of these contracts in the pipeline, but 
they have been subject to the review process for so long, the financial 
information may no longer be valid; they may need to be revised before 
a prospectus can be issued, in some cases an 8 month process.
    In the interim, extensions are issued on a year to year basis, no 
facility investments have taken place, and the infrastructure continues 
to deteriorate significantly. In addition, there is apparently a lack 
of communication with the incumbent concessionaires regarding the 
current status of these contracts. This is not the way to manage 
contracts.
    According to a recent news story, there was a prospectus issued for 
a southwestern park where approximately 15 companies expressed 
interest, but no one actually bid or responded. Apparently the 
conditions and terms of the prospectus did not provide the incentive to 
match the investment required. Unfortunately, this is not the first 
time this has occurred. It is also important to note, that although no 
one responded, those companies still spent a considerable amount of 
money to determine the viability of the contract.
                         it's not all bad . . .
    I am glad to report that it's not all bad. I am very pleased with 
the work accomplished to date by the Concessions Advisory Board, under 
Chairman Allen Naille. They have done a great job tackling the issues 
of depreciation for wear and tear; cross collateralization; sale 
approval; the fifty percent investment level, and pricing which have 
been on the table since the first rules and regulations were 
promulgated.
    All of these matters are better settled in a conference room rather 
than a court room. It is my hope that upon receipt of the Advisory 
Board's recommendations the Park Service will move forward with an 
interim rule, while they proceed on the two-year journey to obtain a 
final rule. It is time to get on with changes that will place us more 
on course with efficient private sector practices.
    When we passed concession reform, I assumed the Park Service would 
adopt the best management and contracting practices available to them. 
I understand the Federal Acquisition Regulations (commonly known as 
FAR) do not apply in every instance, to concession contracts. However, 
there are aspects of FAR which would work well suited for the award of 
concession contracts. The issue of using basic business practices and 
proven methods is something the Park Service has simply not captured or 
fully utilized. We are not taking advantage of opportunities to issue 
prospectuses and contracts that will encourage effective and productive 
partnerships. The true losers because of this failure are our parks and 
the visiting public.
    Under FAR if you surpass the criteria in the performance of a 
contract, you often get rewarded for such accomplishments. More 
importantly, upon the reward of a contract, the agency presents an 
extensive explanation of why one contractor was chosen over another 
contractor. Such a program, according to the Department of Defense, 
contributes to better responses, increased competition, and savings to 
the government and taxpayer in future contracts. It is a winning 
solution, there is no down side. The limited use of FAR has been 
ignored to the detriment of the overall concession program. Keeping 
interested concessionaires in the dark about what the Park Service is 
looking for inhibits all future bidders. Why is there such resistance 
for using a proven government process like FAR?
    It is my hope that the Advisory Board would address the use of FAR 
in their future deliberations, and I encourage the NPS to rethink their 
position on this issue before the Advisory Board's recommendations are 
made on this topic.
    Last, but not least, on October 22, 2003 I sent a TWO PAGE letter 
to Director Mainella requesting some answers concerning concessions 
management and in particular the case of a new contract in Yellowstone 
National Park.
    In March I received a response.
    To my right is that response--a multi-volume collection--worthy of 
special recognition by this committee for its sheer size.
    Unfortunately, in terms of being responsive to my inquiry--the 
content does not match its mass. This may be hard for the public to 
understand--it certainly was to me--but your document is incomplete and 
actually raises more questions than it answers.
    I'm left to draw one of two conclusions:
    One, my questions were not sufficiently focused enough for the Park 
Service to answer directly. Or two, the Park Service chose not to 
answer the questions I posed. Either way, I will give the agency 
another opportunity to satisfy my request completely.
    What we do know from the response is that a contract in Yosemite 
National Park was extended for three years as a result of negotiations 
on a concession contract in Yellowstone National Park. While the law 
does not specifically preclude such transactions, there are many who 
would disagree with the broad interpretation of the Secretary's 
authority to change the terms and conditions of an existing contract. 
This scenario raises a number of important and distressing questions 
that need to be answered so that they aren't repeated in future 
contracts.
    Actions taken by the NPS seem to ignore the existing law which 
provides that 80% of concession fees generated will remain in the park 
unit. In this case the extension has a definitive value which will not 
be realized by the park in which the contract was extended.
    Today, under NPS current rules and regulations, cross-
collateralization by concessionaires is prohibited. Yet, the NPS has 
used a form of cross-collateralization in the contract under 
discussion.
    It also appears the NPS failed to extend the new contract terms to 
the limit allowed by law and then set a franchise fee at 3.5%. The 
extension of contract terms and a lower franchise fee, if any at all, 
could have possibly negated the loss of fees to the second park. In 
addition, it appears a case could be made that the taxpayer may be 
subsidizing a concessionaire under this complicated and unusual 
process. I can guarantee no one involved in the original negotiations 
on concession reform ever envisioned such a scenario.
    I can only imagine what the responses to the prospectus would have 
actually been had the opportunity for an extension of another contract 
been on the table.
    It is not my job to beat you up, I do not like or take any pleasure 
in such activities. However, as the author of the concessions reform 
law, I will hold you accountable. As I already stated, I have a number 
of other questions which may be the subject of another hearing. Today, 
I am going to revise and refine my request to the Director and 
Secretary to narrow the scope of my inquiry in order to bring this 
issue to a proper and appropriate conclusion. I trust the response to 
my request will be timely and complete.
    I apologize to my colleagues for an unusual lengthy opening 
statement, but I believe the circumstances dictate we highlight these 
issues first. Thank you.

        STATEMENT OF A. DURAND JONES, DEPUTY DIRECTOR, 
    NATIONAL PARK SERVICE, ACCOMPANIED BY CURT CORNELSSEN, 
     DIRECTOR, HOSPITALITY DIVISION, PRICEWATERHOUSECOOPERS

    Mr. Jones. Thank you, Mr. Chairman.
    As you stated, the concessions program in the act is 
definitely a work in progress, and I think we have made some 
good accomplishments to date, but we definitely have a ways to 
go. And I'm happy to be here today.
    I also have with me Curt Cornelssen, with the firm of 
PricewaterhouseCoopers, who is one of our private-sector 
consultants in the concessions program, and he's available to 
answer questions you may have for him, as well.
    As usual, I will try to highlight my testimony, and ask 
that the entire testimony be submitted for the record.
    Mr. Chairman, thank you for the opportunity to update you 
on the ongoing efforts in implementing the National Park 
Service Concessions Management Act. We are pleased to report on 
specific issues you have raised with us, including our success 
in recent contracting actions, the makeup and work of the Park 
Service Concessions Management Advisory Board, the process for 
evaluating possessory interests, and the transition to 
leasehold surrender interests.
    The National Park Service concessions program administers 
590 concession contracts in 126 parks. These contracts generate 
over $800 million in annual revenues. Since the passage of the 
act in 1998, we have issued 106 concession prospectuses seeking 
competitive offers, and awarded 255 new contracts under that. 
And as a point of explanation, the reason for that is, for 
example, IN awarding the snowmobile contracts at Yellowstone, 
or horse concessions at Rocky Mountain--we'll issue one 
prospectus and may award as many as a dozen different contracts 
under the one prospectus.
    We still have approximately 256 contracts under temporary 
extensions, but we anticipate having 78 prospectuses issued 
this year, covering an additional 118 other contracts.
    Of the 599 concession contracts in 126 parks, 52 currently 
gross above $3 million. These relatively high-dollar contracts 
represent over 80 percent of the more than $800 million value 
in gross revenue, and we do have a couple of charts that 
illustrate these things that staff will be showing as I run 
through this.
    As a result of a competitive contracting action recently 
taken, we now have four professional firms under our 
indefinite-delivery/indefinite-quantities contracting authority 
to provide us professional assistance, and that level of 
professional assistance will vary with the nature of the 
complexity of a given contract. Mr. Cornelssen, as I mentioned, 
is with PricewaterhouseCoopers, is one of those four firms.
    The National Park Service is focused on developing 
professional and competitive prospectus documents that 
represent the business opportunities for visitor services that 
exist in the national parks.
    One of the key elements in the bill, which is new in our 
concessions management, is the role of the Concessions 
Management Advisory Board, which we have been actually very 
pleased to see, and we've enjoyed our working relationship with 
them, because they provide an excellent forum for discussing 
many issues and, as we're starting to see, I think, resolution 
of many issues.
    The advisory board is composed of seven non-Federal 
individuals appointed by the Secretary of the Interior, none of 
whom have a current business interest in a Park Service 
concession. The professional expertise of each member of the 
board is described in the statute.
    Key issues the advisory board continues to advise us on 
include issues like the evaluation of the rate-approval 
program, the Native American Handicraft Sales program. We're 
currently working with them on the leasehold surrender 
interest, possessory interest determinations, assignments, 
sales, transfers, encumbrances/cross-collateralization issues. 
And we expect on many new issues in the future, including some 
of the ones you've identified, to seek their help in finding 
resolution of these issues. We have found their advice to be 
excellent and, as I said, they provide a wonderful forum for 
discussing and resolving complex issues.
    Concerning the process for evaluating possessory interest 
and transition from possessory interest to leasehold surrender 
interest--possessory interest was the term used in concession 
contracts issued under the 1966 statute to provide a 
contractual right of compensation to park concessionaires for 
improvements to facilities they acquired or constructed for use 
by their businesses. The 1998 statute introduced the concept of 
leasehold surrender interest, to provide a contractual right of 
compensation for capital improvements made by concessionaires 
under a concessions contract.
    One of the challenges we currently have, as you know, Mr. 
Chairman, is the process of going from the current possessory 
interest to the new concept of leasehold surrender interest. 
Recently, several concessionaires have requested negotiation 
with the National Park Service to determine possessory interest 
value prior to the release of a prospectus. And I know this has 
been an issue with you, and it has been a huge issue with us, 
and I want to say, very firmly, we support this process as a 
way to resolve issues of possessory interest with incumbent 
concessionaires. That is the ideal way to go and, I think, it 
can resolve lots of issues that otherwise wouldn't get resolved 
if we do not have agreement. It is a process that provides more 
certainty for both the National Park Service and the current 
concessionaire, and helps provide a clearer offer in the 
prospectus.
    Now, it also has the potential of saving considerable time 
and money for both the concessionaire and the Park Service by 
avoiding what has turned out to be very costly and time-
consuming arbitrations, with unpredictable outcomes for all 
parties.
    Concerning leasehold surrender interest, we are continuing 
to focus on the importance of not only establishing initial LSI 
value, but also tracking the value through the term of the 
contract. This will, among other things, probably involve some 
management revisions, including possible changes to the so-
called 50-percent rule. This rule is codified in current Code 
of Federal Regulations 36 CFR.
    Subsequent litigation on the final regulations that we 
issued upheld the current definition in regulation; however, we 
have agreed to administratively review this rule to determine 
ways in which it can be revised to accomplish the broader 
intent of providing for reasonable compensation and LSI value 
at the end of the contract term, while maintaining the 
competitiveness of future contracts.
    And I also agree with your comments, Mr. Chairman, that the 
rule needs to be looked at to see if we can make sure that 
we're providing fair treatment to concessionaires, but also 
getting the improvements we definitely need for the visiting 
public in these facilities.
    Working with the advisory board, an LSI work group was 
established to look at this issue, along with several other 
regulatory issues we agreed to meet on. This work group, made 
up of representatives of large and small concessionaires, 
interest groups, and key congressional staff, has met four 
times in the last 16 months to help clarify the LSI value 
through the contract term. This goal is to provide an approach 
consistent with a law that is fair, simple, and clear to 
administer, and can be applied consistently with certainty 
through the term of the contract.
    Although LSI is not a concept found in the private sector, 
its resulting value would essentially be equivalent to debt 
owed the concessionaire by the National Park Service. In short, 
the United States is ultimately deferring debt contractually 
owed to a third party; thus, it's an issue we must take very 
seriously, and be very thorough with, in our analysis. 
Consequently, developing a sound method to monitor capital 
improvements, as well as preventative maintenance, in order to 
be able to clearly define LSI throughout the contract term is 
critical for both the concessionaire and the Park Service.
    It's also our understanding that the work group plans to 
make its final recommendations on their ideas of regulatory 
changes in the near future. Once the full board has taken 
action, we will evaluate that recommendation and move 
expeditiously with regulatory policy or programmatic changes to 
implement it.
    Other issues being addressed by the work group are cross-
collateralization, where a concessionaire could pledge 
collateral from one contract for a loan to pay for capital 
projects in another park. Again, these are regulations that we 
agree need to be looked at, and we're working through the 
advisory board to develop new proposals for public review and 
comment.
    Now, preferential renewal--this is my last point--all 
incumbents with a satisfactory rating, grossing no more than 
$500,000 annually, and all outfitters and guides with a 
satisfactory rating, continue to enjoy a preference in renewal 
of their contracts if they were responsive to the requirements 
of a prospectus and are willing to meet the terms of a better 
offer, if submitted.
    While concessionaires in this category may account for over 
80 percent of the total contracts, all of these operations 
combined account for less than 6 percent of the total gross 
revenue of all of Park Service concessions. We believe that the 
preferential renewal exception in the law, as written, creates 
a reasonable balance between providing for competition and 
assuring that visitor services are provided in all of our park 
areas where these services are necessary and appropriate.
    At this point, I will conclude my statement, Mr. Chairman, 
and thank you for giving me the time. I'll be available to 
answer any questions you have.
    [The prepared statement of Mr. Jones follows:]
        Prepared Statement of A. Durand Jones, Deputy Director, 
                         National Park Service
    Mr. Chairman, thank you for the opportunity to update you on the 
ongoing efforts and accomplishments by the National Park Service (NPS) 
in implementing the National Park Service Concession Management 
Improvement Act, Title IV of the National Parks Omnibus Management Act 
of 1998 (Public Law 105-391). We are pleased to report on specific 
issues you asked about, including our success in recent contracting 
actions; the makeup and work of the National Park Service Concessions 
Management Advisory Board; the process for valuing possessory interest 
and the transition to leasehold surrender interest; incentives for 
preventive maintenance; management issues relating to regulations and 
any needed regulatory changes; and the issue of preferential renewal of 
concession contracts.
               contract actions since passage of 1998 law
    The National Park Service concession program administers 590 
concession contracts in 126 parks. These contracts generate over $818 
million in annual revenues. Since the passage of P.L. 105-391, we have 
issued 106 concession prospectuses seeking competitive offers, and 
awarded 255 new contracts. Of these new contracts, 229 (90 percent) 
have been competitively awarded to incumbent concessioners. We still 
have approximately 256 contracts under temporary extensions, but we 
anticipate having 78 prospectuses issued this year covering 118 of 
these extended and other contracts.
    We continue to make progress towards replacing the number of 
expired and expiring contracts with new competitive opportunities and 
contract awards under the terms of P.L. 105-391. Shortly after 
enactment, the NPS contracted with professional firms in the financial 
and hospitality industry to provide us with a review of the NPS 
concession program, among other assistance. We have since divided 
concession contracts into two categories: those with gross receipts 
totaling over $3 million annually, and those with less than $3 million. 
Of the 590 concession contracts in 126 parks, approximately 52 
currently gross above $3 million. These relatively high-dollar 
contracts represent about 80 percent of the more than $818 million 
concession revenues generated annually service-wide. Due to the 
complexity of these over-$3 million operations, NPS has by policy 
required that all prospectuses developed for soliciting new contracts 
be prepared with the assistance of our outside contracting firms.
    As the result of a competitive contracting action recently taken, 
we now have four professional firms under our Indefinite Delivery/
Indefinite Quantities (IDIQ) contracting authority that are available 
to us for professional assistance--not only for the over-$3 million 
category, but for all contracting actions. Working with these firms 
(PricewaterhouseCoopers, Economic Research Associates, Booz Allen 
Hamilton, and Dombush Associates) and their subcontractors, the NPS has 
focused on developing professional and competitive prospectus documents 
that present the business opportunities for visitor services that exist 
in the national parks. All contracting actions over $3 million receive 
both regional and Washington office approval before their release. Of 
the 52 operations currently grossing over $3 million in revenues, five 
are operating under newly awarded contracts, 17 have not yet reached 
their original expiration date, and 30 are currently operating under 
contractual or regulatory extensions (that is, their original 
expiration date has passed). To date, we have awarded five of these 
contracts, at Crater Lake, Glen Canyon, Denali, Glacier Bay, and 
Yellowstone. We have released prospectuses for two others--Mount 
Rushmore and Carlsbad--and we anticipate releasing eight additional 
prospectuses this year at Lake Mead, Death Valley, Olympic, Golden 
Gate, Grand Tetons, and Rocky Mountain. Finally, preparation has begun 
this year under the new IDIQ contracting authority for the development 
of seven prospectuses proposed for release in FY 2005.
               composition and role of the advisory board
    P.L. 105-391 established the National Park Service Concessions 
Management Advisory Board. The role of the Advisory Board is to advise 
the Secretary and the National Park Service on matters relating to the 
management of concessions, including policies and procedures, and ways 
to make National Park Service concession programs more cost-effective, 
efficient, and less burdensome. The Board also makes recommendations to 
the Secretary regarding the timeliness of reviews of concessioner rates 
and charges to the public; the nature and scope of products that 
qualify as Indian, Alaska Native, and native Hawaiian handicrafts; and 
the allocation of concession fees.
    The Advisory Board is comprised of seven non-Federal individuals 
appointed by the Secretary of the Interior, none of whom have a current 
business interest in any NPS concession. The statute specifies that 
appointees represent various aspects of the concessions industry or 
have a particular expertise related to concessions.
    Key issues that the Advisory Board continues to advise us on are:

    (1) The concessioner evaluation and rate approval programs;
    (2) The Indian, Alaska Native, and Native Hawaiian handicrafts 
program, including the development of handicraft regulations (which 
were published in the Federal Register on March 25, 2004, for public 
comment);
    (3) Leasehold surrender interest;
    (4) Assignments, sales and transfers; and
    (5) Encumbrances/cross-collateralization issues.

    Accomplishments of the Advisory Board to date include:

   Recommended the establishment of, and subsequently 
        participated as members in, an evaluation and rate approval 
        task force to review the rate approval process;
   Established a native handicraft work group that made 
        recommendations for the recently published proposed rulemaking 
        regarding native handicrafts;
   Recommended the need for ongoing asset management support, 
        which has resulted in the establishment of a permanent asset 
        manager position in the concessions program;
   Supported implementation of training programs, including the 
        contract with Northern Arizona University for hospitality 
        certification,-as well as training programs for prospectus 
        development offered to the public;
   Established a work group to look at regulatory and process 
        issues regarding the tracking of leasehold surrender interest, 
        cross-collateralization of contracts, and other program issues, 
        in order to make a recommendation from the Advisory Board to 
        the National Park Service;
   Established a work group to review comments received by the 
        National Park Service on proposed regulations regarding 
        commercial use authorizations (CUAs); and
   Assisted in the simplification of the contract language for 
        small concession contracts (Category III contracts).

    The Advisory Board meets three times annually. Its next meeting 
will be early this summer (2004). As in the past, the Advisory Board 
will hold all but one of its public meetings in the field so smaller 
concessioners and others will have a better opportunity to attend. Once 
a year it meets here in Washington, D.C., which occurred this year in 
early March.
  process for valuing possessory interest/transition from possessory 
                interest to leasehold surrender interest
    Possessory interest (PI) was the term used in concession contracts 
issued under the previous concession law, P.L. 89-249, to provide a 
contractual right of compensation to park concessioners for 
improvements to facilities they acquired or constructed for use by 
their businesses. Individual contract language defines the method by 
which PI is valued, and provides for a value determination process 
similar to arbitration--in most cases binding, but in some cases 
advisory to the Secretary of the Interior--to settle differences either 
between the previous concessioner and a new concessioner, or between 
the United States and the new concessioner.
    P.L. 105-391 introduced the concept of leasehold surrender interest 
(LSI) to provide a contractual right of compensation for capital 
improvements made by concessioners under a concessions contract. The 
value of LSI in a capital improvement is the amount equal to the 
initial value of the construction cost of the capital improvement, 
adjusted by changes in the Consumer Price Index, minus depreciation of 
the capital improvement. In a ``Special Rule for Existing Possessory 
Interest,'' P.L. 105-391 also provided that a concessioner that 
obtained a PI under the terms of a concessions contract is entitled to 
receive compensation for such PI improvements as provided in the 
concessions contract. This amount carries over into a new concession 
contract as the initial value of such LSI.
    In practice, we have seen both binding value determination 
processes and negotiations between the current and new concessioner 
establish the ending PI value (and, hence, the initial LSI value). For 
example, binding value determination processes were used at Grand 
Canyon and Yellowstone, and the negotiations between a current and new 
concessioner were used at Crater Lake. Both processes required NPS 
review and approval pursuant to regulations.
    Recently, several concessioners have requested a negotiation with 
the NPS to determine PI value prior to the release of a prospectus. One 
successful negotiation was recently completed for Trail Ridge Store at 
Rocky Mountain National Park. Several others are in process. The NPS is 
looking at requests for similar mutual negotiations in other areas. 
Although existing concession contracts do not provide for the NPS to 
require negotiations, we can choose to enter into such negotiations if 
requested by the current concessioner.
    We are supportive of this process whenever possible. It helps to 
provide more certainty for both the NPS and current concessioner, and 
helps provide a clearer offer in the prospectus. It also has the 
potential of saving time and money for both the concessioner and the 
NPS by avoiding costly and time-consuming arbitrations with 
unpredictable outcomes.
    The NPS has been successful in negotiating with a current 
concessioner on the value of PI in the following cases: Katmailand at 
Katmai; Glacier Bay Park Concessions; Estey Corporation at Oregon Caves 
and at Crater Lake; Marinas of the Future, Franca Foods, and Jamaica 
Bay Riding Academy, all at Gateway; Trail Ridge at Rocky Mountain; 
Grand Teton Lodge; Carlsbad Caverns; and Death Valley. Other 
negotiations have been requested by concessioners, but have not yet 
been consummated.
                      leasehold surrender interest
    The NPS is continuing to focus on the importance of not only 
establishing initial LSI value, but also tracking the value of LSI 
through the term of the contract. This will, among other things, 
probably involve some management revisions, including possible changes 
in the so-called 50 percent rule. This rule, codified in regulations at 
36 CFR Sec. 51.51 states, in part, that ``Major Rehabilitation means a 
planned, comprehensive rehabilitation of an existing structure . . . 
the construction cost of which exceeds fifty percent of the pre-
rehabilitation value of the structure.''
    Although subsequent litigation on the final regulations upheld this 
definition, the NPS has agreed to administratively review this rule to 
determine ways in which it can be revised to accomplish the broader 
intent of providing for reasonable compensation in LSI value at the end 
of the contract term, while maintaining the competitiveness of future 
contracts.
    P.L. 105-391 provides for LSI when a concessioner ``constructs'' a 
capital improvement. It defines capital improvement as ``a structure, 
fixture, or non-removable equipment.'' The law does not suggest that 
the repair or maintenance of an existing structure results in LSI. 
However, in developing the ``50 percent rule'', the NPS considered that 
providing LSI for the major rehabilitation of an existing structure is 
permissible, and considered that such major rehabilitation is 
tantamount to the construction of a new structure in which LSI may be 
obtained. However, the National Park Service has agreed to look at 
better ways to credit and depreciate capital improvements to better 
define over the term of a concession contract the value of LSI.
    Working with the Advisory Board, an LSI work group was established 
to look at this issue, along with several other regulatory issues that 
the NPS agreed to meet on. This work group, made up of representatives 
from both large and small concessioners, key interest groups, and key 
Congressional staff, has met four times in the past 16 months in part 
to help define clarity in LSI value assignment through the contract 
term. The goal is to provide an approach consistent with law that is 
fair, clear and simple to administer, and able to be applied 
consistently and with certainty through the term of a concession 
contract.
    Although LSI is not a concept found in the private sector, its 
resulting value would be.essentially equivalent to debt owed the 
concessioner by the NPS. In short, the United States is ultimately 
deferring debt contractually owed to a third party. Although LSI value, 
by contract terms, will most often be acquired by any subsequent new 
concessioner to a contract, nonetheless, LSI represents an obligation 
of the United States to provide compensation to a concessioner. 
Consequently, developing a sound method to monitor capital 
improvements, as well as preventive maintenance, in order to be able to 
define clearly LSI value throughout the contract term, is critical for 
both the concessioner and the NPS.
    The LSI work group agreed on draft recommendations in 2003, but 
upon preparation of the final recommendation package, one of the group 
members expressed new concerns regarding the agreement. Consequently, 
the Advisory Board asked that the work group meet again to address 
these concerns. It is our understanding that the work group plans to 
make its final recommendation to the Advisory Board in the near future. 
Once the full board has taken final action, the NPS will evaluate the 
recommendation and, if it is accepted, determine what programmatic, 
policy, or regulatory changes would be required to implement it.
    Contractually requiring sound preventative maintenance and repair 
practices, as well as addressing the construction cost of capital 
improvements, keeps park assets and facilities in good condition, helps 
provide better visitor services, and contributes towards keeping a 
concession operation competitive for future contracts. The duties of 
the newly created permanent asset manager will include coordinating a 
``centralized, real-time'' system using the NPS asset management system 
to oversee a concessioner's contractual responsibilities and track the 
conditions of concessioner-managed assets.
          management challenges identified/regulation changes
    Other issues being addressed by the work group are cross-
collateralization (to allow for a concessioner to pledge collateral 
from one contract for a loan to pay for capital projects in another 
park), and sale and transfer of contracts (regarding the level at which 
the NPS needs to approve transfers, particularly upstream ownership in 
corporate reorganizations). In both of these cases, we recognize the 
need to simplify and expedite the review process. The focus of our 
review is on the aspects of a transaction that would have managerial 
and financial implications on the underlying operation, the effect or 
impact a transaction would have on providing quality visitor services, 
the protection of park resources, and the fiduciary responsibility and 
accountability of the NPS for concession operations and government 
assets.
    Transition issues between a current and new concessioner, mostly 
operational in nature, also take resources and careful timing to avoid 
the interruption of quality visitor services. With the assistance of 
our outside contractors, and working with current NPS concessioners, we 
have been looking at actions we can initiate to ease any future 
transitions between concessioners in those instances where an incumbent 
concessioner either chooses not to bid, or is not chosen as the new 
concessioner. We are attempting to allow sufficient time between the 
selection of a new concessioner and the award of a new contract to 
allow time for these transition issues to be settled. This requires 
careful timing of the release of a prospectus prior to an expected 
award date. As each new contract is issued, we are reviewing ``lessons 
learned'' to the preparation of future contracting actions.
                          preferential renewal
    P.L. 103-391 placed an emphasis on competition for concessions 
contracts in our national parks. We believe having competition in the 
renewal of these contracts has been and continues to be a healthy step, 
and one that benefits the concessioner, the visitor, and the NPS.
    However, all incumbents with a satisfactory rating grossing no more 
than $500,000 annually, and all outfitters and guides with a 
satisfactory rating (of which 21 gross more than $500,000) continue to 
enjoy a preference in the renewal of their contracts, if they are 
responsive to the requirements of a prospectus and are willing to meet 
the terms of a better offer if submitted. While concessioners in this 
category may account for over 80 percent of the total NPS contracts, 
all of these operations combined account for less than 6 percent of the 
total gross revenues of all NPS concessioners. We believe that the 
preferential renewal exception in the law as written creates a 
reasonable balance between providing for competition and assuring that 
visitor services are provided in all of our park areas where these 
services are necessary and appropriate.
    Mr. Chairman, that concludes my statement. I would be happy to 
respond to any questions you or the other members of the subcommittee 
may have.

    Senator Thomas. Mr. Cornelssen, do you have a statement?
    Mr. Cornelssen. No, sir. I'll just--I'll be available to 
answer any questions you may have, Mr. Chairman.
    Senator Thomas. Well, maybe the thing to do is to have a 
little recess, and I'll be right back after voting.
    [Recess.]
    Senator Thomas. Thank you for waiting. Darn voting is 
always interrupting what we're doing around here.
    [Laughter.]
    Senator Thomas. In any event, thank you very much for your 
statement.
    You indicated, I think, that you anticipate doing eight 
additional concessions this year.
    Mr. Jones. Yes, sir.
    Senator Thomas. You only did four or five since the law was 
passed. How do you propose eight in the remaining time?
    Mr. Jones. Well, of course, since the law was passed, it 
took us 18 months to develop the regulations, and then we went 
through a period of litigation that delayed jump-starting the 
process. But we actually have lots of contracts in process. We 
see no problems--most of those eight are very close to being 
issued any time now.
    They've been in the works for everywhere from 1 to 2 years. 
We also, at this point, look very good, as far as getting 
hopefully all, but, if not, almost all, of the backlog of 
contracts done by the end of next year.
    Senator Thomas. That will be an increased time.
    Mr. Jones. Yes.
    Senator Thomas. Less than you've been doing it in the past. 
I'm talking about the large contracts.
    Mr. Jones. Yes, the large contracts, but also the small 
ones, as well. As I mentioned earlier, it's definitely a 
learning process--as we go through each one, we do an internal 
review. We've also, in some contracts, already--especially 
smaller contracts--gone through one process of streamlining, 
how we award them and what's required of concessionaires. And 
so it will continue to evolve as we are----
    Senator Thomas. How long have you had these eight contracts 
under review?
    Mr. Jones. The eight contracts, the concept of review--I 
would prefer to say ``development,'' because it's eight 
different answers, because some of the contracts--like at Grand 
Canyon and Yellowstone, where we literally have hundreds of old 
buildings that require condition assessments and appraisals to 
resolve possessory interest issues--that is a process, in 
itself, that can take months. Once all the data comes into 
Washington from our consultants, the review process, depending 
on the contract, usually takes between 2 and 6 months.
    Senator Thomas. Who does the--you talked about consultants; 
who actually does the evaluations and the appraisals and so on?
    Mr. Jones. The appraisals are done through subcontractors.
    Let me actually turn to Mr. Cornelssen, because we're not 
doing the appraisals in-house as a government appraisal. We're 
contracting through private firms and our consultants to do 
them for us.
    Mr. Cornelssen. Yes, Mr. Chairman. We actually----
    PricewaterhouseCoopers has been helping the Park Service, 
sort of, as a--I guess I would say, as a prime contractor to 
put together the--do the due diligence and to put together the 
whole package for the prospectus.
    And, actually, what Mr. Jones was indicating is correct. In 
the case of Yellowstone, for instance, on the condition 
assessments, because of the seasonal nature of the operation 
there, in fact, it took years, not even just months, to get the 
condition assessments done, because it's hard to condition-
assess assets while there are visitors staying in those assets, 
and, of course, that's when you can get to them. So it's--some 
of these contracts have taken quite a long time.
    Mr. Jones. And if I could quickly just supplement his 
comment by also pointing out that the process that we have had 
to go through now is not indicative of how it should go in the 
next round, when the current contracts are up. And by that, I 
mean the process of converting from possessory interest to 
leaseholder surrender interest is probably the most time-
consuming element, especially where there are lots of 
structures that have to be evaluated. But that is a one-time 
snapshot as to where we are now, we'll do the conversion, and 
then have a process in place so it should be much easier when 
the next round of contracts is up, in 10 or 15 years.
    Senator Thomas. Is there an acceptable agreement on the 
values before the prospectus is let out?
    Mr. Jones. There should be. And as we have discussed 
together on numerous occasions, we have had a couple of 
instances that have gone to arbitration. We have, since then, 
put the word out to concessionaires that we are open and 
willing to negotiate possessory interest, because there is no 
doubt it is the--I think, the ideal situation for all parties 
to have a known situation, which means a resolved issue. In the 
last few months, we have had several successful ones--Jackson 
Lake Lodge, Trail Ridge Store, Rocky Mountain National Park, 
with----
    Senator Thomas. Jackson Lake Lodge isn't completed, though, 
is it?
    Mr. Jones. The agreement on possessory interest is totally 
resolved. We have reached agreement. We have signed a contract 
amendment on that value. That prospectus had been put on hold 
to give us time to try to resolve it before we issued the 
prospectus. Now that it's resolved, the prospectus will be out 
shortly.
    Senator Thomas. I guess I don't quite understand that. The 
prospectus ought to go out to prospective bidders; did it not?
    Mr. Jones. Yes.
    Senator Thomas. Well, you've already made an agreement with 
the purchaser, and now you're coming up with the prospectus.
    Mr. Jones. Oh, the agreement was on the value of the 
possessory interest.
    Senator Thomas. I understand. That's the problem, though, 
isn't it? If you're going to bid--if all of us in this room are 
going to bid on something in the prospectus, we need to know 
the value before we do it, don't we?
    Mr. Jones. Yes, and that's what we did.
    Senator Thomas. Yes, but that isn't what you've done in the 
past.
    Mr. Jones. No, and I agree. Now, ultimately, the decision 
as to whether we reach agreement with a concessionaire on 
possessory interest is somewhat up to the concessionaire.
    We have put the word out that we agree we are willing and 
should negotiate those before we do a prospectus, but a 
concessionaire has a legal right, under the old term of the old 
contracts--and many times I'm talking about contracts issued in 
the 1960's--that if they wish to, they may go to arbitration. 
We cannot impose negotiation on them. We are willing to do it. 
Now----
    Senator Thomas. I don't understand that at all. You're 
talking now to the owner, and to establish that value, you have 
to have that done before the rest of us bid, or we don't know 
what we're going to have to pay.
    Mr. Jones. I agree with that, Senator.
    Senator Thomas. But then how can you go to a prospectus 
unless you've already gotten to that agreement?
    Mr. Jones. If we are trying to get to that agreement now--
--and that is a change from how we were doing things a couple 
of years ago----
    Senator Thomas. I hope so.
    Mr. Jones [continuing]. And so we're headed in the right 
direction.
    But, on the other hand, agreement involves agreement by two 
parties. I cannot make a concessionaire reach an agreement with 
us. So under the current law, and under their current old 
contracts, ultimately it's their decision if they wish to 
negotiate with us or go to arbitration. We would prefer to 
negotiate----
    Senator Thomas. I'm not talking about that. I'm talking 
about when you do it. You can't go in and go ahead and put out 
the prospectus and get the bids and get the sale, and then come 
back again under arbitration and have to change it, and have to 
change the fees and everything else.
    Mr. Jones. Well, one of the----
    Senator Thomas. We've been through that before, and I wrote 
you a letter about that and asked for some information.
    Mr. Jones. Yes, sir.
    Senator Thomas. The information I got is over there in that 
box. You see all those things? Which isn't exactly what I had 
in mind, but I think it's very important, and that's part of 
the problem we've had with trying to get moving on Jackson Lake 
Lodge; they don't want to get into the Hamilton Stores thing 
again.
    Mr. Jones. I agree. And, in fact, I do think that that is a 
success story. One of the challenges we have right now, 
however, is that a concessionaire, up until a new contract 
award, is under no requirement to tell us what they think their 
possessory interest is. So we may know. And if we know, and 
they would like to negotiate with us, we would be happy to 
resolve it.
    Senator Thomas. You're the one that decides what it is, 
right?
    Mr. Jones. We have an opinion. But under the contract, we 
are not always the one that decides.
    Senator Thomas. Who decides?
    Mr. Jones. If a concessionaire chooses to go to binding 
arbitration a three-judge panel decides.
    Senator Thomas. Absolutely. That's right. But the 
concessionaire doesn't decide.
    Mr. Jones. No.
    Senator Thomas. Okay. So you have a process that you can go 
through. And I guess the question is, What's the sequence of 
this thing that makes it work properly? I hope you're in that 
sequence now.
    Mr. Jones. I believe we are. What makes it work properly 
is--what you have said, Senator--as we are getting the 
condition assessments done from Pricewaterhouse and our other 
consultants, we develop our opinion of what we think the 
possessory interest is. The ideal sequence that we totally 
agree with is when we sit down with the incumbent 
concessionaire, find out what their opinion is, and discuss 
what the differences are and see if we can reach complete 
agreement, which we did in Jackson Lake Lodge, for example. And 
then we issue the prospectus. There is no doubt that that is 
the ideal way for it to work.
    Senator Thomas. Well, it hasn't always worked that way, so 
we need to make sure that it does.
    There are 30 park operations that are under various 
extensions. How are you going to address those?
    Mr. Jones. We do expect to be able to have those, if not 
all, substantially done by the next year, and so of the 30 
different contracts under extensions that you referred to, it's 
really 30 different answers as to when each one expires, but 
we're hoping to get them done before the expiration of their 
extensions.
    Senator Thomas. Does the Park Service consider franchise 
fees an important criteria in selecting the concessionaires?
    Mr. Jones. The franchise fees are one of the criteria. 
Pursuant to the statute, it is not--and we agree with that--it 
is not to be ranked as high as the other four primary criteria. 
So, for example, in a prospectus there can be points awarded 
for everywhere from five to seven different criteria. Those 
points total everywhere from 25 to 27 points. A franchise fee 
is four out of those 27. So it is important, but it is 
definitely not the deciding criteria. We certainly have awarded 
contracts where the person who bids the highest franchise fee 
is not the winner of the contract. So that is not the primary 
criteria.
    Senator Thomas. So you have different franchise fees for 
different concessionaires.
    Mr. Jones. Pursuant to the statute, we set a minimum 
required franchise fee under the prospectus to be considered a 
responsive bid. And bidders are allowed to bid that up, if you 
will, at their choice. And that is one of the criteria, along 
with economically sound businesses. Are they able to perform? 
What's their previous experience and ability of running 
businesses of this nature, and their ability to protect park 
resources and proposals they may submit on environmental 
management systems?
    Senator Thomas. Just--this is kind of theoretical, I 
guess--the franchise fee has a great deal to do with the 
revenue that comes to the park.
    Mr. Jones. Yes, sir.
    Senator Thomas. If someone was not a business that's 
suitable and doesn't meet these other criteria, why would you 
consider them as a franchise, as one of the contestants?
    Mr. Jones. I'm sorry, I didn't----
    Senator Thomas. You're saying things like not being able to 
have a profitable business, not being financially sound, and so 
on.
    Mr. Jones. Yes.
    Senator Thomas. If that's the case, why would you even 
consider them as the concessionaire?
    Mr. Jones. If a firm does not meet one of the criteria--
say, they do not have--demonstrate the capital resources to be 
able to perform the requirements of the contract, that would be 
considered a nonresponsive bid, and they would not be 
considered.
    Senator Thomas. It's a little puzzling to me. Then why do 
you charge franchise fees?
    Mr. Jones. Well, we set the minimum franchise fee----
    Senator Thomas. I know. But in fairness, it seems like most 
people would expect the same franchise fee, wouldn't you think?
    Mr. Jones. The businesses are not all the same.
    Senator Thomas. Well, of course they're not, but the larger 
ones, the ones that are over $3 million are pretty much the 
same.
    Mr. Jones. I would respectfully disagree with that, and I 
would cite a couple of examples, some of them from your part of 
the world, places like Glacier and Yellowstone with very short 
seasons. They are very different than a park like the Grand 
Canyon that is a year-round operation, or a park like 
Everglades that's a year-round operation. So there are--because 
of either remoteness or, especially looking at places like 
Alaska, incredibly short seasons--substantial differences from 
business to business. Also, we have to assess the economic 
ability for a concessionaire to perform concession operations--
and, again, Yellowstone is a wonderful example, where they have 
this wonderful, but huge, complex of very old structures to 
maintain, which is a challenge for a concessionaire, and 
certainly a more costly place to do business than a concession 
with brand-new facilities that would be much more efficient to 
maintain. And those are factors that affect franchise fees.
    Senator Thomas. Those facilities belong to the park.
    Mr. Jones. Yes, sir.
    Senator Thomas. It's a little different.
    We'll hear, from today's witnesses, some of them, about the 
sheer amount of paperwork in the small business concessions and 
so on, the extraordinary expense that goes with the renewal 
process. What do you think about that, and what are you doing 
to lighten that----
    Mr. Jones. About a year ago, we, for the very smallest 
concessionaires, developed a streamlined process that reduced 
the amount of paperwork. We think, for many of the smaller 
concessionaires, we still need to do more in that area, and 
that's one of those issues that we are going to be talking with 
our advisory board to get some guidance as to how to do it. 
Certainly, I would agree with the concern that we should not 
have the smallest concessionaires go through the same burden 
that the very large concessionaires have to go through.
    Senator Thomas. I would think so.
    Most of these contracts that you have are the small 
contracts.
    Mr. Jones. Very much so, yes, sir.
    Senator Thomas. What do you think about that $500,000 
limitation or level? Do you think that ought to be expanded 
somewhat?
    Mr. Jones. No, Senator. We think the $500,000 cap makes 
sense, we think it works. We think that--you know, right now, 
90 percent of the concession contracts we've awarded to date 
are going to incumbent concessionaires. We think the basic 
concept of the act, which has, for larger concessionaires, 
competition, we're seeing, we think, very good-quality bids, 
very thoughtful bids that, in the end, are going to be 
providing better services for the public. So we think it's a 
process that does work, and think the $500,000 cap is the 
correct one.
    Senator Thomas. How long has that been that way?
    Mr. Jones. It was part of the 1998 statute.
    Senator Thomas. You mentioned several times the--getting 
your advisory committee's involvement. How long has that been 
in place?
    Mr. Jones. It was provided for in the statute, so they have 
been in place--in fact, I have to turn to Allen Naille.
    When were you first established?
    Mr. Naille. 1999.
    Mr. Jones. 1999, after the regulations were developed. And 
we have been throwing a variety of issues--I believe he is one 
of your witnesses today, and can talk in more details--but it's 
a process we're very excited about and we think works and has 
tremendous potential.
    An example I would throw out is one of the issues we're 
looking at, how to amend the regulations, the advisory board is 
a very useful tool as a forum to discuss issues since they are 
a FACA--Federal Advisory Board Committee Act--sanctioned 
organization, so they are allowed to bring in concessionaires 
to bring individual specific opinions to the process, which 
makes it work much better.
    Senator Thomas. So it's 4 years, and you haven't gotten the 
regulations yet in place.
    Mr. Jones. The original regulations were in place, have 
been challenged in court, and we have prevailed in court.
    However, we do agree that some of the regulations need to 
be changed. We've been working with the advisory board in, for 
example, changing the 50-percent rule and seeking their advice 
on that. We, frankly, thought we had agreement last June as to 
what a package should look like. That turned out to be a false 
hope, because we were ready last summer to begin work on the 
formal regulations. The advisory board is continuing their 
work, and we are expecting and hoping for them to get some 
recommendations to us very soon.
    Senator Thomas. It just, I guess, seems like it takes an 
awfully long time to make some changes. The changes, many of 
them, have not ever been made yet, since the 1998 law, and 
that's 5 years.
    Mr. Jones. Yes, sir.
    Senator Thomas. It's not a brand-new issue, either. You 
know? Doing leasing, doing concessions basically is done much 
in the private sector. How many people in the Park Service do 
you have with a business background?
    Mr. Jones. Not enough. We are, in that area, doing two 
things. For example, when I was at Rocky Mountain National 
Park, as the superintendent, and the job of the concession 
specialist of that park was open, I actually recruited and 
hired a new graduate, who had just received her MBA degree, and 
she's one of the rising stars in the concessions program 
nationally. Other parks, like Grand Canyon and Golden Gate, 
have followed a similar path.
    For our existing workforce--and, again, this is a place 
where the advisory board has been very helpful to us--we have 
established a concessions training program for our existing 
employees, through Northern Arizona University, where employees 
can do a 2-year training program to develop their skills and 
improve their knowledge and abilities to work and understand 
business issues. Some of it's on campus, some of it is done 
through the Internet and remote learning. And that's a step 
that we're very encouraged is helping to improve the skill 
level of our employees.
    Senator Thomas. You mentioned employees in the park level. 
What about at the Park Service level, at the top? Who do you 
have--it would seem to me that that's where you would start, 
with people that are into this kind of business experience.
    Mr. Jones. I completely agree with you, Senator. The 
position of the head of our concessions program, Cindy Orlando, 
just recently left and has moved to Hawaii as superintendent of 
Hawaii Volcanoes. We're in the process now of recruiting to 
fill that job. A major criteria that we're looking for in 
candidates is a business or hospitality or hotel or restaurant 
background that can help us in that area.
    Senator Thomas. Okay.
    Mr. Cornelssen, you, in your business, of course, work with 
businesses.
    Mr. Cornelssen. Yes, sir.
    Senator Thomas. And what's your impression of how your 
advice and your counsel being put into place in the Park 
Service? Now, if this is a tough question for you to answer, 
you'll have to say, ``Oh, yes.''
    [Laughter.]
    Senator Thomas. But it seems like there's quite a little 
bit of agency bureaucratic resistance to doing what logically 
is done in the private sector.
    Mr. Cornelssen. Well, I think that the goals and objectives 
obviously are different in the Park Service than they are in, 
for example, the industry I work in, the hospitality industry. 
We're very much focused on bottom line and return on 
investment. The Park Service, obviously, the mission is a 
little different than that. Although, certainly when it comes 
to looking at concessions, the business aspects are important 
to the Park Service, in terms of quality operation and quality 
services for the visitor.
    I would say that change is coming. It may not come as fast 
as maybe I would like it or others would like it, but we have 
seen a lot of change, both cultural change and actual process 
change, within the Park Service. And I think one of the things 
that early on we were successful doing with the Park Service is 
to create, sort of, a corporateness when it came to these large 
contracts, to say, for the large contracts, that those really 
have to be managed on a more corporate basis; and that, for the 
smaller contracts, those need to more simplified. And I think 
that approach is philosophically ingrained within the Park 
Service at this point. You'll hear people in the Park Service 
talk about the ``big 50,'' which are the largest 50 contracts, 
plus or minus maybe two or three. I think that's a significant 
change.
    And I think the other thing that has happened as you--and I 
would ask you to quiz the concessionaires on this--is, as you 
see the new prospectuses coming out I think you see a much more 
businesslike document and a much more businesslike process than 
what was perhaps done in the past.
    Senator Thomas. What do you consider to be the largest 
single issue facing the concessions program?
    Mr. Cornelssen. I would say--if you had asked me, you know, 
2 or 3 years ago, I might have said contracting, but I think 
the train has left the station on that, and it is moving; and I 
know it's been slow, but there has been a lot of change in that 
area. But really contract oversight. Once the new contracts and 
the procedures are in place, it's on the ground where the 
rubber meets the road, ensuring that the expertise and the 
support is there, that's necessary to, day to day, provide the 
asset management and the contract oversight at the park level. 
And I think that's probably the biggest issue facing the agency 
right now in concessions.
    Senator Thomas. Mr. Jones, the Congress has suggested the 
Park Service adopt portions of the Federal Acquisition 
Regulations that pertain in how and why one bidder should be 
selected over another. Why doesn't the Park Service involve 
themselves in that FAR regulation?
    Mr. Jones. If I can separate your question into two issues, 
it has been our position, the position of the Justice 
Department, and certainly consistent with the input we've 
received from the Congress, that the FAR rules do not apply to 
concessions contracting. Separating that issue, however, there 
are concepts and ideas that are in the FAR process--for 
example, notifying the bidders after an award is done as to why 
we selected the bidders, so that all the bidders can learn from 
the process--I think, is a concept that we agree with. And so 
what we're looking at is what ideas and thoughts and processes 
that we've learned from FAR that could be applied to the 
concessions program. We think some of these can be done by 
policy; others might require regulatory changes.
    Senator Thomas. What do you think about the FAR program?
    Mr. Cornelssen. Again, I'd have to say I'm not an expert on 
the FAR, but I think in terms of what Mr. Jones has indicated, 
in terms of some of the concepts of the FAR, in terms of how 
the selection debriefing process works and those types of 
things, might be good concepts that would be applicable to Park 
Service concession contracts.
    Senator Thomas. What is your role? How do you participate 
in this thing?
    Mr. Cornelssen. We have, kind of--we actually have two 
different contracts with the Park Service. It's a two-tiered 
role. One contract, which Mr. Jones alluded to, is our contract 
where we actually get involved in helping to structure each 
individual concession contract, park by park.
    The other contract we have is more of a corporate business 
advisory contract, where we're helping to provide process 
change and corporate policies--not policy, maybe--corporate 
procedures, business procedures. And a sort of a two-tier 
process. It's change at the corporate level and change at the 
contract-by-contract level. You can see immediate progress when 
you're talking about dealing at the park level, where you're 
working on a specific contract. At the corporate level, it 
takes more time, because literally it has to--you know, you're 
creating a whole new programmatic change for the agency. But 
that's really been our role for the past 2 or 3 years. And our 
contracts were just renewed within the past year.
    Senator Thomas. What do you think about the roll-out 
provision, as prescribed in FAR, that permits the public and 
the concessionaires the opportunity to learn more about the 
bids to better meet the standards.
    Mr. Jones. The concept of getting concessioners and bidders 
feedback, I think, is an excellent one that we need to look at, 
and we need to have some provision for.
    Similarly, I think one of the issues we need to take a 
serious look at is having a better and clearer process for 
someone who did not receive the winning bid to appeal that 
decision. And so those are two concepts that are embedded in 
FAR that we are looking at, and we agree something needs to be 
done, and it's something we'll be talking with Mr. Naille, and 
his advisory board, about in the very near future.
    Senator Thomas. Well, that's good. I hope you can get the 
advisory committee more involved more quickly. That's what 
they're for, is to bring in its expertise from the business 
community. And, quite frankly, it shouldn't take 5 or 6 years 
to be able to respond to some of those things. And if the 
advisory committee can't move faster than that, that's also a 
problem. And then once you get it, then it has to move, I 
think, as well.
    If I sound a little impatient, I think I am, because there 
ought to be changes that could happen. The things you're doing 
are not terribly unique to the business community. And that, of 
course, was the reason that we had an advisory committee, to be 
able to use the expertise of these people to participate. And I 
know you'll say you are, but it has taken an awfully long time 
to have much impact. Would you disagree with that?
    Mr. Jones. Actually, I completely agree with you, it's 
taken far too long.
    Senator Thomas. So it's--I guess that's--you know, there's 
a lot of things to talk about. And I appreciate what you do, 
and I know it's difficult. But I do think we need to take a 
look at the smaller concessionaires, having a little less 
paperwork, a little less regulation for those people to go 
into. They act like--at least tell me they have about as much 
work to do as the larger ones, in terms of the paperwork. 
That's too bad. I think we also need to continue to move toward 
the business approach to--this is a business, a big business, 
and should be handled in a businesslike way. And I know that's 
your goal.
    Mr. Jones. It is our goal, Senator.
    Senator Thomas. And I appreciate your doing that. So we 
need to stay in touch. And, frankly, just as aside, when we ask 
a question about something, we don't need to get 50 pounds of 
papers, because that doesn't answer the question. We need to 
have the question answered. And so we'll be following up the 
letter that we talked about, because there was some bad 
experience in the Yellowstone operation, and some things were 
done there that I just--it's difficult to imagine they could 
be, in terms of the fees, in terms of the time, in terms of the 
changes that were made there. And so I presume that we won't 
expect that to happen anymore.
    Mr. Jones. Well, I think across the board, Senator, what 
we're trying to do in the whole process, for example, of now 
going to negotiations with the concessionaires on possessory 
interest, is really something that has evolved in the aftermath 
of what we learned from Yellowstone. And so we certainly have 
had some missteps on occasion, but I would agree--and I hope I 
understand your question--that we need to learn from our 
experiences, and not just stay stuck in one particular mode of 
operation. We need to continue to grow. And I totally agree we 
need to be much more businesslike in how we address some of 
these issues.
    Senator Thomas. Well, we look forward to working with you 
and helping you move in that direction, and I thank both of 
you.
    We'll have our second panel now, Mr. Allen Naille, chairman 
of the Concession Management Advisory Board, from Flagstaff, 
Arizona; Mr. Mike Welch, who is Xanterra--I can't say that 
since you changed your name--Parks and--Hospitality 
Association; Janet White, who's president of the White Sands 
Concessions, from New Mexico; and Susie Verkamp, president, 
Verkamp's, in New Mexico.
    Okay, Mr. Naille, can we start with you?
    Mr. Naille. Yes, sir.
    Senator Thomas. Oh, by the way, all of your statements will 
be complete in the record, and if you want to kind of summarize 
them, why, that would be great.

 STATEMENT OF RICHARD ALLEN NAILLE, II, CHAIRPERSON, NATIONAL 
              PARK SERVICE CONCESSIONS MANAGEMENT 
                 ADVISORY BOARD, FLAGSTAFF, AZ

    Mr. Naille. Thank you, Mr. Chairman.
    My name is Allen Naille, and I am the chairperson for the 
National Park Service Concession Management Advisory Board, and 
I ask that my written statement be put into the record.
    Senator Thomas. It will be.
    Mr. Naille. I should also mention that, among other things, 
I also chair the Grand Canyon National Park Foundation, and 
was, for 25 years, the CEO and president of Fred Harvey, 
otherwise known as AMFAC, now known as Xanterra Corporation.
    Senator Thomas. Great.
    Mr. Naille. I'll skip through the intro part of my talk and 
go straight to some recommendations that this board has given 
to the Park Service. We have met 11 times over the years in 
official capacity. That information is available in full 
minutes and summarized statements. I would also say that 
working groups have been formed from day one on various topics, 
and they have met probably 20 times over that same amount of 
time. Some of those work groups have dealt with small contract 
issues, Native American handicraft issues, LSI issues, and we 
continue to put working groups together as part of this 
advisory board to basically cut to the chase on various issues 
that we and the Park Service and the congressional staff feel 
appropriate.
    Five recommendations that I am bringing forward today to 
just let you know that we have worked on over the last few 
years. Numerous recommendations have been made over that time 
period, but these were the more important ones. One was to 
establish a non-appropriated fund instrumentality, or a NAFI. 
And it was our desire to take franchise-fee money and--that is 
set aside for in-park use, and use that money in a NAFI program 
so they can earn interest and develop a more focused or 
advanced form of funding source for the Park Service.
    This, interestingly, was done as part of a original search 
by the board and recommendations that we received from Congress 
on looking at asset management, and looked at the Department of 
Defense and its asset management operations, and came up with 
this as a side piece that we still think is valuable. We've 
talked to the Park Service about doing experimental projects in 
this. And while that has not been done, we still have hopes 
that it--maybe this summer, we'll get one of these projects off 
and running in the field to see where--to see how it can work, 
because it works very well for the Department of Defense.
    Another one is to adopt a corporate strategy for NPS 
concession contracts. You've heard a lot of discussion already 
this morning, so I think I'll skip through that. I feel that 
the Park Service is moving in a positive direction on working 
on contracts. I think if there's any kind of a serious problem, 
it's that it gets caught up in its own bureaucracy, maybe, 
because it just takes too long once it gets started. I think 
you alluded to that, sir. And I think that once this backlog is 
out of the way, and at least there is a forward motion on it, 
that in the future these contracts should roll over with a 
little more consistency. And I also would say, with the 
expertise that Pricewaterhouse has brought in setting up the 
contract program for the Park Service, it should work smoothly.
    A third area of recommendation was the establishment of an 
associate director for partnerships and business practices. 
This recommendation calls for the creation of a concession 
program position requiring an individual with proven and 
significant private-sector hospitality-oriented asset 
management and financial management expertise and experience. 
The current concession program management function is folded 
into the associate director; administration, business practice, 
and work force development position, which is overloaded with 
responsibility and does not require private-sector hospitality 
asset-management experience.
    The fourth major recommendation that we made refers to 
accountability, and that is that we feel that there is so much 
decentralization in the Park Service that the superintendent is 
in control of their particular unit, and we feel that, in many 
cases, that superintendent is not qualified to oversee the 
concession-management program that's totally under their 
control. And it is our suggestion that those superintendents go 
through a very extensive training program in the hospitality 
concession-management program, so that they know what they're 
managing. And they also would pick up what we consider to be a 
stepchild function of the concession-management role, and put 
more emphasis on that role, along with law enforcement 
interpretation and other issues of resource management in the 
park.
    The last major area that we made recommendations on is the 
creation of a concession-management rate-approval procedure. 
The first part of this is to set standards. The second part is 
to develop a user guide. And the third part of that is to run a 
program using tested programs, such as the Park Service's Core 
Menu process. All of these enable a speedy concession-
management operation on the part of the Park Service approval 
process so that things move in a timely fashion, and the 
concessionaire isn't waiting to find out what their rates are 
going to be for next year, or even during the year.
    The Park Service has many things at its disposal that they 
can run these programs with, and they are working through 
Pricewaterhouse right at the moment on a very extensive 
standards program. And once that's in place, that not only 
helps the Park Service, but I think that'll be a great boon to 
the visitor to the parks, also. They'll know what they're 
getting into on arrival.
    I would like to switch focus now to the working group on 
LSI, since we've talked about that this morning. And I need to 
make some clarifications, in that the first time we were asked 
to take a look at the LSI issue was January of last year. A 
working group was put together, and I personally led that 
working group. You've already heard that it was made up of 
people from the Park Service, from the concession world, 
congressional staffers were involved, and continue to be 
involved, both from the House and the Senate, in that working 
group. I, personally, think that's been one of the more 
effective working groups that we've had. And hopefully when we 
finalize the issues on this, regulations will change.
    You need to know that there have been some problems, in 
that we thought, in June, which I considered 6 months not too 
bad in completing the task, that we had a finalization to the 
issues on changing the regulations; except that, at that time, 
I thought we were going to do a director's orders, and now 
we're going to do a full regulation change. Issues like you 
talked about, sir, on the 50-percent rule, we've worked on 
that. Those issues are going to go away, and we will make these 
changes.
    We also had everything--all of the issues that I felt were 
brought to our attention by the concessionaires and by the Park 
Service had reached agreement in June, except for depreciation. 
And the whole depreciation issue was worked on during the 
summer. And actually, at our meetings in Florida this fall, I--
when the final program on depreciation was presented, I had 
some concerns about that, and felt that probably the 
concessionaires weren't going to be too excited about where 
that was going at the time, so I asked for comments from 
concessionaires to be sent back in 2 weeks, and it basically 
took about 4 months before we got those comments back.
    So the working group met again in early March, and we went 
through depreciation, once again, and clarified all the 
previous issues under LSI that we had differences of opinions, 
and cleared all of that up. We are now working on a final 
depreciation program, and that should finalize everything ready 
for board recommendation to the Park Service, and change in 
regulations. So that should all be taken care of soon.
    And we will--because of our public-meeting requirements, 
we've been trying to find an avenue where we can do this by 
some semblance of a conference call, and I think we have found 
a solution to that problem. So we will--it is my desire to get 
this cleaned up before the summer begins.
    [The prepared statement of Mr. Naille follows:]
 Prepared Statement of Richard Allen Naille, II, Chairperson, National 
           Park Service Concessions Management Advisory Board
    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to testify before you today regarding the National Park 
Service Concessions Program. My name is Allen Naille, and I am the 
Chairperson of the NPS Concessions Management Advisory Board.
    The NPS Concession Management Advisory Board was originally 
chartered on November 13, 1999. The Board's purpose is to advise the 
Secretary of the Interior and the National Park Service on matters 
relating to management of concessions in the National Park System. The 
Board's areas of responsibility center on policies and procedures 
intended to improve NPS Concession Program standards. efficiency, and 
costeffectiveness. Since its inception, the Board has met a total of 11 
times, and has made progress in a variety of concession-related areas.
    The Board's seven members are appointed by the Secretary of the 
Interior, may not be employed by the Federal Government or a 
concessioner. may not have an interest in a NPS concession operation. 
and should represent various components of the NPS concessions 
industry. A Board membership list has been attached as an exhibit to 
this testimony.
    Over the next few minutes, I would like to outline the major 
recommendations that the Board has made over the past three years. I 
will then focus on the Board's working group on leasehold surrender 
interest. Lastly. I will provide the Committee with suggestions for 
improving the effectiveness of the Board.
    Each year, the Board presents a report summarizing its 
recommendations to the Secretary of the Interior. Rather than attempt 
to address all of our reports over the past 11 meetings. I would like 
to focus on five specific recommendations. These include:
1. Establishment of a Non-Appropriated Fund Instrumentality (``NAFI'').
    This recommendation calls for the implementation of new tools and 
procedures to account and manage concession franchise fee funds. The 
Department of Defense and other Federal agencies currently use NAFIs to 
provide efficient revenue management and a mechanism for front-funding 
major capital projects. Since its very first meeting in 2000, the Board 
has recommended implementation of a three-year pilot study to test the 
NAFI concept for use in the NPS.
2. Adopt a corporate strategy for NPS concession contracts.
    This recommendation calls for:
    a. Execution of the concession contract rollover strategy developed 
by NPS business advisor, PricewaterhouseCoopers LLP;
    b. Expanded use of contract expertise to assist NPS in effectively 
negotiating and administering concession contracts;
    c. Implementation of a corporate approach on major concession 
contracts and a more decentralized approach on smaller contracts.
3. Establishment of an Associate Director for Partnerships and Business 
        Practices.
    This recommendation calls for the creation of a Concession Program 
position requiring an individual with proven and significant private-
sector, hospitality-oriented asset management and financial management 
expertise and experience. This individual will allow the NPS Concession 
Program to more effectively carry out its fiscal and program 
responsibilities. and be on an equal playing field with concessioners. 
The current Concession Program management function is folded into the 
Associate Director--Administration, Business Practices. and Workforce 
Development position. which is overloaded with responsibility and does 
not require private-sector hospitality asset management experience.
4. Place full responsibility for park concession management directly on 
        park superintendents.
    This recommendation calls for full superintendent accountability 
for park concession operations. Superintendents should be provided with 
comprehensive concession-related training opportunities. Further, park 
superintendent concession management performance should be measured 
using guest input surveys, concessioner input, and site inspection 
teams to evaluate the quality of concessioner products, services, and 
facilities.
5. Creation of concession management rate approval procedures.
    This recommendation calls for the assessment of relationships 
between asset classifications and rate approvals, the determination of 
best practices for rate approval. and development of standards and rate 
approval recommendations. In essence, the NPS should develop a ``user 
guide'' for Park visitors, which should detail all concession assets at 
each Park and inform visitors of the assets, amenities, and level of 
quality. In addition, expanded use of the tested Core Menu Pricing 
concept in concession restaurant operations is recommended, as is 
development and testing of a Core Menu Pricing concept for retail and 
lodging operations.
    While the Concession Program has made significant progress in many 
of these areas, much work remains. The Concession Management Advisory 
Board urges the National Park Service to seriously consider 
implementation of the Board's past recommendations. and continues to 
work toward the development of new recommendations.
    Next. I'd like to focus on the Board's involvement in a working 
group to address concessioner investments in real property, and the 
related security interests provided by the Law.
    A Concession Management Advisory Board Working Group was 
established in January of 2003 to provide a forum for discussion of the 
issues surrounding the management and crediting of leasehold surrender 
interest or LSI, Comprised of Board members, NPS employees, 
representatives of the concessioner community, the NPS' business 
advisor, PricewaterhouseCoopers LLP, and senior Congressional staff, 
the LSI Working Group was able to:

   Develop private sector ``best practice corollaries'' for NPS 
        asset management and facility investments;
   Propose several options for the treatment of LSI crediting 
        and management of depreciation; and,
   Provide recommendations related to LSI crediting and the 
        associated management of physical depreciation.

    As I understand it. The Board's final recommendation will be 
incorporated into a document that will serve to amend the existing NPS 
Regulations. Upon approval, these new regulations will be incorporated 
into all new concession contracts, ensuring a higher standard of NPS 
asset management.
    The LSI Working Group is one example of how the Concession 
Management Advisory Board has positively impacted the National Park 
Service, its assets, and, ultimately, its visitors.
    Lastly, I'd like to address some ways that the Board could more 
effectively assist the NPS in enhancing its Concessions Program.
    First, much of the emphasis over the past three years has been 
focused on the rollover of concession contracts. While the board 
recognizes the importance of continuing this effort, we also have a 
growing concern about the need for more effective contract oversight. 
known in the private sector as (hospitality) asset management. More 
specifically. through our deliberations on LSI, we realized that the 
NPS is ill-equipped to handle the, complexity associated with effective 
financial, operational. and facility-related contract oversight. The 
board feels that we can add significant value in assisting the NPS to 
enhance its capabilities in this area.
    Secondly, as I understand it, per Public Law 105-391, the NPS is 
required to provide Congress with a report regarding LSI in 2005; and 
the LSI issue will subsequently be revisited in 2007. The Board feels 
it can assist the NPS and the concession community in these endeavors.
    Lastly, on a more specific note, the Board would like to request a 
more official relationship with the NPS outside business advisor. While 
we have had informal access to these professionals in the past. we 
would like express authorization from the NPS.
    The Board intends to continue to positively affect the NPS 
Concession Program. thereby helping to preserve some of our Nation's 
most treasured places for generations to come.
    Mr. Chairman, thank you once again for the opportunity to testify. 
I would be happy to answer any questions that you or the Committee 
members may have.

    Senator Thomas. Good. Fine, sir. Thank you very much.
    Mr. Welch.

         STATEMENT OF MICHAEL F. WELCH, NATIONAL PARK 
          HOSPITALITY ASSOCIATION AND VICE PRESIDENT, 
               FINANCE, XANTERRA PARKS & RESORTS

    Mr. Welch. Mr. Chairman, my name is Mike Welch, and I am 
pleased to be here, part of your oversight hearing on 
concession issues facing our national parks. Thank you for 
submitting my written testimony for the record.
    Senator Thomas. You bet.
    Mr. Welch. As a representative of the National Park 
Hospitality Association that represents most of the visitor 
services provided by the private sector in our national parks, 
I have a keen interest in improving the regulations and 
processes that govern our national park businesses.
    I am the chief financial officer of Xanterra Parks and 
Resorts, which operates both large and small concession 
businesses throughout the National Park System. I am also a 
certified public accountant. I have been a member of the 
working group that Director Mainella established over a year 
ago to explore possible solutions to the problems 
concessionaires have voiced concerning the existing 
regulations.
    The three key areas I would like to address today are, one, 
the cooperative and productive atmosphere in which these issues 
are being addressed; two, leasehold surrender interests and the 
correct method of measuring depreciation; and, three, cross-
collateralization of multiple concession contracts as security 
for a single loan.
    First, I would like to commend the cooperative process that 
has been underway to solve the problems we've been discussing. 
As we talked earlier, there was much disagreement after the 
regulations were published that resulted in very expensive and 
time-consuming litigation. But in early 2003, Director Mainella 
established a cooperative and productive atmosphere to resolve 
the remaining issues by establishing the working group we've 
heard about that included all the key constituencies. This has 
been extremely productive.
    Second, one of the key issues when valuing a leasehold 
surrender interest at contract termination is the method of 
measuring depreciation. As outlined in the statute, NPHA 
believes that the correct way to measure depreciation is to 
assess the degree of physical deterioration or physical 
improvement which occurs during the contract term. By doing 
this, those who employ good maintenance practices are rewarded 
with an increase in their leasehold surrender interest value, 
and those who perform poor maintenance practices are penalized 
in their LSI value.
    There has been much discussion during the working-group 
meetings over an NPS proposal that an alternative method of 
measuring depreciation should be used. This has been termed 
``scheduled depreciation.'' Under this method, each component 
of each building would be assigned an estimated useful life 
when that component is placed in service. Then each year, an 
element of each component would be deemed to depreciate so 
that, at the end of the scheduled life of each component, it 
would have no LSI value, even though the asset might still be 
functioning well and providing service.
    Our policy concern with this approach, aside from the fact 
that we don't believe it is consistent with the statute, is 
that it does not provide any incentive for concessioners to 
take good care of park facilities, since the LSI value of each 
component will be zero at the end of its scheduled life, 
regardless of whether the concessionaire performed effective 
maintenance practices or performed no maintenance at all.
    Finally, another provision of the regulations that is 
proving to be extremely cumbersome, and not in keeping with 
normal business practices, concerns the ability of 
concessionaires with multiple concession contracts to bundle 
them together in order to secure a single loan. This process of 
spreading the costs of financing and the risks associated with 
a single loan across multiple concession contracts is called 
``cross-collateralization.'' It is common throughout the 
business community and was permitted under the previous 
statute. However, the regulations now appear to prevent this, 
even though we have agreed with the NPS and its advisors in our 
working-group discussions that this is a normal business 
practice and a desirable method to lower the cost of financing, 
thereby allowing concessionaires more funds to invest in park 
facilities or pay higher franchise fees. The inability to 
cross-collateralize concession contracts is preventing my 
company from executing a successful and desirable refinancing 
at this very time.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Welch follows:]
   Prepared Statement of Michael F. Welch, National Park Hospitality 
   Association, and Vice President, Finance, Xanterra Parks & Resorts
    Mr. Chairman, I am pleased to have been invited to your important 
oversight hearing on concession issues facing our National Parks. I 
hereby submit my written testimony for the record. As a representative 
of the National Park Hospitality Association (``NPHA'') that represents 
most of the visitor services provided by the private sector in our 
national parks, I have a keen interest in improving the regulations and 
processes that govern our National Park concession businesses.
    I am the chief financial officer of Xanterra Parks & Resorts, which 
operates both large and small commercial enterprises that benefit park 
visitors. I am also a Certified Public Accountant. I have been a member 
of the working group that Director Mainella established over a year ago 
to explore possible solutions to the problems concessioners have voiced 
concerning the existing Regulations. Having lived and worked in 
Yosemite National Park for over 15 years while serving as the chief 
financial officer for the primary concessioner there, I have developed 
a personal sense of the necessary balance between preservation and use, 
the composition and importance of park communities, and what makes our 
National Parks special.
                            i. introduction
    The primary purpose of participation in these hearings is to bring 
the Committee up-to-date on efforts to reconcile problems that have 
emerged in the wake of the passage of the National Parks Omnibus 
Management Act of 1998 (the ``1998 Act''). Although generally these 
relate to the regulations and form contracts that the National Park 
Service (``NPS'') has promulgated to interpret and implement the 1998 
Act, there are other important issues that deal with the administration 
of concessions contracts generally that should be brought to your 
attention and are identified below.
    The regulations (the ``Regulations'') are embodied in 36 C.F.R. 
Part 51, and the three separate form contracts that the NPS has drafted 
(the ``Standard Contracts'') were adopted by the agency and published 
in the federal register on May 4, 2000, and July 19, 2000. To the best 
of our knowledge, one of the Standard Contract forms has formed the 
basis for each prospectus issued by the NPS under the 1998 Act.
    It is no secret that the debate leading up to the passage of the 
1998 Act was spirited. For our industry these debates amounted to 
nothing less than a battle for the survival of a viable concession 
program in the parks. Although much of the debate centered on whether 
concessioners who had faithfully performed under their prior contracts 
should be entitled to retain the preferential renewal rights they 
enjoyed under the application of the prior law, many other issues had a 
potentially devastating impact on the ability of concessioners to earn 
a reasonable return on their operations and investments. Some, we felt, 
would force many prospective bidders for contracts, including 
incumbents, to examine whether they could undertake the potential risks 
inherent in bidding on a concession opportunity. These risks could 
impair their non-concession businesses, to the extent the NPS sought 
rights that went beyond the contracts, or could simply arise from the 
uncertainty associated with ambiguous regulations and contract terms. 
The result was that the 1998 Act included compromises on many of these 
issues.
    The central trade-off that resulted in administration and 
concession industry support for Sen. Thomas' bill, and its ultimate 
passage, concerned the decision to terminate the preferential right of 
renewal for larger contracts, but preserve (in modified form) the right 
of the concessioner to receive a modest positive return on its invested 
capital by replacing the previous concept of possessory interest with a 
new valuation formula called leasehold surrender interest (``LSI''). 
LSI was designed to fix the compensation for the concessioner's 
investment in park improvements at cost as adjusted for changes in the 
consumer price index (``CPI'') and changes in physical depreciation, 
thereby decreasing the uncertainty and potential for disputes 
concerning the valuation of these interests. Although Sen. Thomas moved 
a long way toward the position of the prior administration and sponsors 
of competing legislation in crafting the final compromise, the 
resulting Regulations and Standard Contracts contain restrictions on 
concession contracts and concessioners that the prior administration 
had argued for in the debates, but were excluded from the actual 
statute.
    As a consequence, there remain provisions of these important 
documents that are not in accordance with either the explicit 
provisions or the intent of the 1998 Act. The NPHA and certain of our 
members found it necessary to challenge some of these provisions in 
court, resulting in over 2 years of expensive litigation that 
culminated in a Supreme Court argument on one issue. Although the 
decisions of the courts and certain representations of the NPS made 
during the proceedings have clarified some of the matters challenged by 
the NPHA, other matters in dispute were not decided by the courts, 
either because the courts did not find them ``ripe'' for review, or 
because the NPHA did not raise them in the litigation due to their 
sheer number. Now that the litigation has concluded, it is appropriate 
to complete the remaining task of aligning the NPS regulations and 
contracting procedures with the court decisions and the intent of 
Congress in passing the 1998 Act.
    It is both evident and noteworthy that the NPHA and its members 
enjoy a much better relationship with the NPS since Fran Mainella has 
assumed the Director's role and assembled her staff. It has been 
refreshing for our members to hear that public access to our parks and 
the provision of quality services to park visitors is a priority of the 
NPS and that the NPS considers its partnership with concessioners to be 
among its most important strategic relationships. It is also a positive 
step that the NPS has engaged professional consultants (e.g. 
PricewaterhouseCoopers) to help in assessing its business 
relationships. While the NPS has an impressive staff dedicated to the 
protection of park resources, many--including members of this 
subcommittee and the NPS itself--have acknowledged that not all NPS 
concession employees have the necessary business and financial 
backgrounds to adequately deal with the agency's commercial 
relationships.
    The NPHA is confident that Director Mainella and other senior NPS 
leaders are committed as a matter of policy to attempt to solve the 
problems created by the Regulations and Standard Contracts.In that 
regard, through the auspices of a task force assembled by the National 
Park Service Concessions Management Advisory Board (the ``Board''), 
there have been five ``working group'' meetings and several LSI 
subcommittee meetings among various constituencies to identify some of 
the more important issues and try to devise a framework for resolving 
them.
    Although the NPHA has participated in these meetings with the goal 
of achieving reasonable regulations, in the final analysis, solutions 
need to be crafted that comply with the law, create reasonable 
certainty among concessioners, reflect standard business practices, 
encourage the improvement of visitor services (including operations and 
facilities), increase administrative efficiency, and reduce bureaucracy 
and wasteful disputes between the government and its contractors. We 
believe that the senior levels of the NPS embrace these goals as well.
    Unfortunately, we believe that some of the proposed solutions do 
not achieve these goals. Because of this, we are continuing to identify 
problems in the process. In that regard, the encouragement of this 
subcommittee to address these issues promptly, and to facilitate 
legislative fixes where the regulatory and contracting process has 
failed, would be most welcome. We regard achieving these important 
solutions quickly as critical to the success of the NPS and its 
concession program. We believe the collaborative process initiated by 
Director Mainella is the appropriate vehicle for finalizing these 
regulatory changes in the near future.
                           ii. key challenges
    A. As indicated above, several of the issues that were the subject 
of litigation between NPS and NPHA were not fully resolved by the 
courts. Accordingly, Director Mainella is working with NPHA and other 
interested parties to attempt to cooperatively resolve these issues and 
others of importance. The key areas currently being discussed are: (a) 
award and measurement of leasehold surrender interests; (b) cross-
collateralization of concessioner financing arrangements across 
multiple contracts; (c) NPS oversight of transactions that affect the 
ownership of companies that hold concession contracts(as opposed to 
transactions that only involve the concession contracts themselves); 
and (d) improvement and simplification of the rate approval process.
B. Leasehold Surrender Interests (``LSI'')
    The key element of these discussions, and that of greatest interest 
to both NPS and concessioners,is how LSI is handled under 1998 Act 
contracts. As you know, LSI was conceived in order to provide 
concessioners with investment protection in concession facilities and 
thus attract bidders to National Park contract opportunities. However, 
concessioners believe there are several critical areas where changes to 
existing regulations and contract provisions are necessary. Because all 
the provisions of the Regulations relating to LSI are interconnected, 
we believe a significant number of those Regulations require revisions 
to conform them to the law (including but not limited to the matters 
resolved in the litigation) and improve the administration of 
concession contracts in this area. Conforming changes would also need 
to be made to the Standard Contract forms.
    The primary LSI-related issues are:

            a. Definition of Capital Improvements, including the 50% 
                    rule
    While certain sections of the Regulations correctly call for 
Generally Accepted Accounting Principles (``GAAP'') to be used as the 
benchmark to determine whether capital costs should be accorded LSI 
treatment, there are provisions in Sec. Sec. 51.51 that are contrary to 
GAAP, such as the rejection of building materials for capital 
improvement eligibility except (1) when initially installed as part of 
a structure or (2) when the ``50% Rule'' is met. Thus, for example, the 
conversion of a dormitory to guest lodging, though potentially costing 
millions of dollars, would not necessarily be considered a capital 
improvement eligible for LSI treatment. In that case, only if the 
conversion cost represented at least 50% of the pre-conversion 
replacement cost value would LSI treatment be accorded to the 
conversion. This limitation,not found in the 1998 Act, has been termed 
the ``50% Rule''. Thus, common and sorely needed renovations, 
rehabilitations, and other capital improvement projects in our National 
Parks often would not qualify for LSI treatment under the existing 
regulations and standard contract provisions even though we believe the 
1998 Act intended that they should qualify for LSI treatment. 
Fortunately, the discussions of the task force convened by the Board 
indicate that both NPS and the concessioners are in agreement that the 
50% Rule should be eliminated.
            b. Prevailing cost ceiling
    The Regulations also purport to restrict the LSI values to 
``amounts that are no higher than those prevailing in the locality of 
the project'', which is not a requirement of the 1998 Act. This means 
the NPS could set LSI values on the basis of lower construction costs 
in metropolitan communities outside the National Parks, even though the 
cost of construction in remote park areas is generally much higher. 
NPHA believes the litigation established that this limitation only 
pertains to a comparison with other in-park projects, which of course 
are already subject to strict regulation by the NPS. Thus the 
limitation in the Regulations appears moot. Since concessioners have no 
incentive to ``overpay'' for a project in the hopes of receiving LSI 
that will only grow by CPI, this restriction will only serve to impose 
a needless administrative burden for each project and could create 
confusion and disagreement between the parties. It should be 
eliminated.
            c. LSI consistency and problem resolution
    In our on-going discussions, NPS has stated that there should only 
be occasional or isolated instances where an LSI determination needs to 
occur. On the other hand, NPHA believes these instances will occur on a 
more routine basis as capital investment generally occurs throughout a 
contract term. Since a consistent approach across all contracts would 
be desirable, NPHA believes that a framework should be set up to 
resolve these instances simply and efficiently. Possibly a nationally 
recognized accounting firm such as Price-waterhouseCoopers, acting both 
in a dual role as NPS' asset manager and as an independent financial 
expert, could serve to confirm that the costs presented by the 
concessioners are correctly capitalized under GAAP and thus entitled to 
LSI. These checks could be performed on an annual basis or, to save 
costs and maximize efficiency, only at times when the NPS disagrees 
with a concessioner's treatment of a specific item. This process could 
lead to long-term consistency and stability so that both NPS and 
concessioners would benefit from having a simple set of procedures that 
would be used to evaluate these critical on-going decisions for both 
parties.
            d. Measurement of Depreciation
    Just like the preceding 1965 statute, the 1998 Act requires that, 
when measuring the depreciation related to a capital improvement for 
which LSI was awarded, a physical standard of depreciation be used. In 
other words, it requires measurement of the observed deterioration of 
the facilities during the contract term. In contrast, much discussion 
within the working group has centered on an NPS proposal that a 
``scheduled'' form of depreciation be the measurement tool. 
Conceptually, this means an amortizing schedule similar to what is used 
for tax or financial reporting purposes. The NPS proposal is that each 
and every asset be broken down into its individual components at the 
time it is placed in service and an estimated useful life assigned to 
each component for purposes of ``counting depreciation in the LSI 
calculation. Besides being extremely cumbersome and therefore costly, 
this method would lead to a substantially different result than the 
statute requires. This same distinction formed the basis of the debate 
in Congress over possessory interest that was resolved when Sen. Thomas 
incorporated a concept that included physical depreciation, in the same 
manner as the prior law, as a portion of the LSI formula. The NPHA 
strongly objects to scheduled depreciation on several grounds.

    1. First and foremost, changing the LSI formula from physical 
depreciation to scheduled depreciation would generally have a 
significant and negative impact to the return on investment that 
concessioners would receive. This formula constitutes a critical 
consideration for concessioners in the bidding process, particularly 
for ``capital-hungry'' parks. Since businesses require minimum market 
returns to be attracted to concession opportunities, lowering the 
compensation received at the end of a contract would likely require a 
significant reduction, or even elimination of, franchise fees to the 
government and over time probably require more government 
appropriations to directly fund park facilities. None of these impacts 
appear to be in the best interests of the United States or the visiting 
public.
    2. Second, scheduled depreciation doesn't provide an incentive to 
the concessioner to maintain the asset in good physical condition. 
Since under this scenario the asset will become fully depreciated at 
the end of a specific period of time (the ``scheduled'' life) no matter 
how well (or how poorly) the concessioner takes care of the asset 
during its service life, the concessioner will watch its LSI value 
march downward toward zero irrespective of the level of care devoted to 
it. NPHA considers this to bean unwise policy since, at a time when 
there is so much written about the condition of our National Park 
facilities, we should be trying to upgrade the condition of the assets 
by providing incentives for concessioners to maintain them in top-notch 
condition. If two concessioners spend the same amount of money to place 
an asset into service, but one spends its maintenance funds throughout 
the contract term to keep the asset is good physical condition while 
the other concessioner spends little or no money to maintain the asset, 
both concessioners will wind up with little or no LSI value at the end 
of the ``scheduled'' life of the asset. However, the first concessioner 
will have spent significant maintenance funds so that the asset can 
continue to fulfill its function in providing services to park visitors 
while the second concessioner has ``milked'' the system and left the 
NPS with a run-down asset worth little or no value. Unfortunately, the 
second type of concessioner is likely to become more prevalent 
throughout the parks since they can purportedly afford to bid higher 
franchise fees.
    3. Third, estimating a useful life when an asset is placed in 
service will almost always turn out to be wrong. This result will be 
compounded when trying to estimate the service life of each individual 
component that makes up the overall asset. These variances are caused 
by weather conditions, materials that last longer (or shorter) than the 
manufacturer or engineering estimates, preventative maintenance 
procedures performed (or not performed) over the useful life by the 
owner/operator, and normal human error. Therefore, it seems futile to 
think that one can accurately estimate the useful life of an asset and 
all of its components within acceptable bounds of precision for 
purposes of a contractual LSI measurement, even if it were in 
accordance with the law. The concept of ``scheduled physical 
depreciation'' is inherently contradictory.
    4. Fourth, there is a major administrative burden associated with a 
scheduled depreciation framework that will also lead to increased costs 
for both concessioners and the NPS, a burden that we believe will not 
translate to improved facilities or services in the parks.

    Providing concessioners with an economic incentive to maintain and 
upgrade park facilities over the contract term is desirable. This can 
be accomplished, as Congress intended, by using physical depreciation 
at the end of the contract as the measurement basis for determining LSI 
value.
C. Cross-collateralization of Concession Contracts
    1. Cross-collateralization means the use of multiple assets or 
contracts to provide security for a single or separate loans made by a 
single lender for the purchase or other investment in (or to provide 
working capital for) those or other assets. It reduces a borrower's 
financing costs through the more efficient use of assets by allowing a 
lender to diversify its collateral and reduce its risk.
    2. NPHA, NPS, and PricewaterhouseCoopers have had many discussions 
over the financial benefit to the concession system of allowing 
concessioners with multiple contracts to finance them through a 
``bundled'' approach, thereby lowering the cost of borrowing to the 
concessioners. All parties appear to be in agreement that this is 
desirable. However, although not prohibited by the 1998 Act, NPHA 
believes that Section 51.87 of the Regulations and its tight 
restrictions on the use of proceeds from loans secured by LSI may 
prevent this. NPS originally proposed issuing a Director's Order that 
would clarify that this is permissible, but since the Regulations would 
override this Order and likely render it invalid, NPHA believes this 
should be clarified and memorialized in an amended Regulation. The 
amended Regulation should eliminate restrictions on the use of proceeds 
from a loan secured by LSI.
D. Shareholder Level Transactions
    1. This issue is also of critical importance to any concessioner 
that is part of an affiliated group of companies, or that engages in 
businesses other than National Park concessions.
    2. Although it may be understandable for the NPS to want as broad 
approval rights as possible over transactions involving changes in 
ownership of concessioners and their owners, Congress recognized that 
regulating shareholder behavior would reduce bidding interest and 
create substantial risks to affiliated organizations. Thus the 1998 Act 
regulates only the movement and encumbrances of contracts themselves, 
but not shareholder behavior. NPS and NPHA have been working to clarify 
under what conditions approval by NPS is necessary. There is agreement 
that clarification is advisable and the NPHA is optimistic that the NPS 
will ultimately agree on a solution that complies with the law. 
Again,NPS originally proposed to clarify this guidance through a 
Director's Order, whereas the NPHA believes that the Regulations need 
to be amended to remove the sections that exceed the scope of NPS 
authority under the 1998 Act.
E. Rate Simplification
    1. The statute requires that the rate approval process ``shall be 
as prompt and as unburdensome to the concessioner as possible''. Some 
progress is being made in this area, most notably the food service core 
menu'' concept. This concept provides that a key list of items should 
be included in a concessioner's menu and reviewed by NPS to ensure that 
they are priced appropriately. For all other menu offerings, the 
concessioner would have the flexibility to design the offering and 
establish a reasonable price. This would allow for more variety and 
innovation in menus since there would be no administrative overhead 
outside the core menu requirements.
    2. Simplification is underway in pricing retail products through a 
2-year test period of an ``open market declaration'' concept. This 
greatly minimizes NPS review of pricing for gift and souvenir products 
by relying on market conditions to establish prices (versus the 
previously required percentage markup method that varied for each class 
of merchandise). It also simplifies the process for tracking freight 
costs and allows concessioners to use industry-standard merchandise 
pricing techniques. Traditional NPS pricing reviews are still completed 
for grocery and convenience items.
    3. Very preliminary discussions have begun on how this ``core'' 
concept might be applied to lodging, but nothing firm has been 
determined. The NPHA has long argued that the current ``comparability'' 
approach could be dramatically improved. If a ``core'' concept can be 
implemented that would permit non-core lodging units to better reflect 
market conditions, both the NPS and concessioners would benefit, and 
bureaucracy can be virtually eliminated in this contentious area.

    NPHA wants to ensure that the changes to the Regulations or the 
Standard Contracts discussed above are made in a clear, permanent, and 
enforceable manner through modification of the Regulations and Standard 
Contract language, rather than through a less permanent solution such 
as a Director's Order. Employing a Director's Order in the face of 
published Regulations that reach an inconsistent result would at best 
create ambiguity and confusion, but would more likely be invalid as 
being a policy position that is inconsistent with the published 
regulations. Moreover, a Director's Order can be easily modified by the 
NPS without notice and formal rulemaking and thus may only be a 
temporary accommodation. Since our membership and their banks could not 
fully rely upon a Director's Order in the face of contrary regulations 
and standard form contracts, this could not be a permanent 
solution.However, a Director's Order might be used as a very short-term 
temporary solution if there were a full commitment on the part of the 
NPS to quickly implement the permanent solutions via 
regulation.Although the NPHA acknowledges that modification of the 
Regulations will entail additional time and effort, it is critical that 
the published Regulations in the Code of Federal Regulations are clear, 
workable, well-reasoned, and in compliance with the law. Therefore, we 
are opposed to efforts to solve any of these issues through Director's 
Orders where they have already been addressed by the Regulations.
    There are other improvements that could be made to the Regulations 
and the Standard Contracts to resolve inconsistencies with the law, 
ambiguities in the language, or unnecessary administrative 
requirements. Although not addressed here or currently under discussion 
with the NPS, addressing these could further enhance the NPS concession 
program and attract more competitors for concession opportunities.
    Thank you for the opportunity to participate in this important 
hearing.

    Senator Thomas. Thank you, sir.
    Ms. White.

 STATEMENT OF JANET WHITE, PRESIDENT, WHITE SANDS CONCESSIONS, 
                        WHITE SANDS, NM

    Ms. White. Thank you, Mr. Chairman. I appreciate the 
opportunity to testify before your committee today.
    My name is Janet T. White. I am the president and co-owner 
of White Sands Concessions at White Sands National Monument, 
New Mexico. I am here to testify on behalf of myself and other 
small single-operation concessionaires as to the effects of 
P.L. 105-391, known as the National Parks Omnibus Management 
Act of 1998. I will refer to it as ``the '98 Act'' or ``this 
act.''
    I started at White Sands Gift Shop 23 years ago as a sales 
clerk. I worked my way up to manager, and purchased this 
business in 1998, 1 month before this act was passed. Section 
403 of this act states, in paragraph 1, ``Such competitive 
process shall include simplified procedures for small, 
individually owned concession contracts.''
    Small, single-operation concessions, such as mine, which 
grosses around $650,000, do not have in-house attorneys, staff 
accountants, in-house environmental management experts, nor do 
we have employees who can respond to the onerous, paper-
generating requirements found in our current prospectus.
    There is, I believe, a whole new industry of former 
National Park Service employees and consultants who are willing 
to assist small, single-operation concessions prepare responses 
to their prospectuses for a fee or for a percentage of the 
business. Fees I have been quoted are far beyond my ability to 
afford, and that is not right. It is not right to have to pay 
to be able to respond to a National Park Service prospectus.
    There are no simplified procedures for me, or for other 
small, single-operation businesses, as are called for in the 
act. This would appear to be in violation of section 403 and is 
an issue that I call on this committee to address. What I have, 
as a small, single-operation concessionaire, is experience. 
Twenty-three years of proudly providing excellent service and 
interpretation of White Sands has earned my satisfactory 
ratings and compliments of visitors and the National Park 
Service. I believe that you are aware that the Park Service can 
remove an unsatisfactory concessionaire anytime they choose. My 
health and safety ratings are admirable.
    Now along comes the National Park Service with a desire to 
change the use of my operation into National Park Service 
administrative offices, and require me to build a new 
concession in which to operate. The Park Service is using this 
act to eliminate those of us who cannot ante up new buildings 
because the Park Service wants office space and doesn't want to 
pay for it out of their budget.
    The Park Service has used this act as a shield to exclude 
me from the section 106 process required by the National 
Historic Preservation Act. This act, the '98 Act, ``embolds'' 
the National Park Service to create a pay-to-play system. Some 
of the prospectuses generated after the '98 Act are so 
expensive that no one bids on them, even if they benefit from 
the economies of scale, unlike small, single-operation 
concessions.
    The prospectus generated for White Sands National Monument 
should have been entitled ``Small Business Need Not Apply,'' 
because of the capital improvements, plus the demolition costs, 
plus the money necessary to prepare a responsive bid make it 
impossible for me to compete. This is wholly contrary to the 
'98 Act. I am certain the authors of the '98 Act did not 
anticipate that Park Service units would use this act to 
eliminate small, single-operation concessions by burying them 
under voluminous prospectuses that require voluminous 
responses.
    I am also positive this act did not anticipate that 
National Park Service, lacking in general management plans, 
environmental management plans, commercial services plans, 
would go against their own controlling documents--or master 
plans, in our case--in order to try and convert concessions 
into their offices.
    In 1996, the superintendent wanted to use a 1987 concession 
addition for a Park Service theater. He implemented a capital 
account wherein White Sands Concessions deposited franchise 
fees to help pay for future concession improvements.
    In 2000, his successor had a different idea. He did not 
want to change the footprint of the buildings in the White 
Sands Historic District. He required that we turn over the 
capital account moneys to the Park Service to be used for other 
projects.
    In 2002, the next superintendent had the most radical idea 
yet. After all the capital account moneys were spent--and on 
what, we are not sure--he implemented this prospectus, which 
includes a new concession and tearing down the 1987 concession 
addition the Park Service coveted for their theater in 1996.
    One could get whiplash from the opposing views of 
successive superintendents. It is impossible to make plans 
essential to small business based on the Park Service's ever-
changing ideas.
    Had these superintendents followed the master plan or 
produced a general management plan, perhaps I would be able to 
compete. But because of the lack of following planning 
documents and laws, such as NEPA, section 106 of the National 
Historic Preservation Act, I am prohibited from fair 
competition.
    The '98 Act was enacted to ensure competition and 
diversity, and not place small, single-operation concessions on 
the fast track to the endangered species list. This committee 
has the power to enforce section 403 of this act, whereby the 
process shall include simplified procedures for small, 
individually owned contracts. I implore this Committee to take 
action on section 403 before it is too late.
    Another urgent appeal to this subcommittee is that parks 
not in compliance with 1978 National Parks and Recreation Act 
be required to obey that law prior to the issuance of any 
concession's prospectus. If they do not obey the 1978 Act, a 
law requiring parks to have plans, the result is chaos, waste, 
and abuse. The human toll exacted by the National Park Service 
actions as a result of their misuse of this act is 
unconscionable.
    Thank you to all those who wrote to their Senators and 
Congressmen asking that this day happened. Thank you, again, 
Mr. Chairman, for giving me the opportunity to tell my story. I 
will answer any of your questions, because, in the allotted 
time, I could only cover the tip of the iceberg.
    Senator Thomas. Thank you very much.
    Ms. Verkamp.

            STATEMENT OF SUSIE VERKAMP, PRESIDENT, 
                 VERKAMP'S, INC., EL PRADO, NM

    Ms. Verkamp. Thank you, Mr. Chairman and members of the 
committee. I really appreciate the opportunity to come here 
today and your willingness to provide oversight and attention 
to our concerns.
    I did submit a longer testimony, which I would like 
entered.
    Senator Thomas. It will be in the record.
    Ms. Verkamp. Thank you.
    My name is Susie Verkamp, and I am president of Verkamp's.
    We are the oldest continuously run family operated 
concession in the National Park System. Our business is a gift 
shop on the South Rim of the Grand Canyon, located in a 
building which my grandfather built in 1906, and it was also 
the place where I was born and raised.
    Over the past century, we've maintained the highest level 
of service to the visiting public, while providing high-quality 
Native American handicrafts and souvenirs.
    I'm testifying today on behalf of my family, but also other 
small concessionaires.
    I'd like to focus my remarks on three main areas in regard 
to the '98 Act, issues of fairness, inconsistencies, and also 
the potential loss of one historic legacy of the national 
parks, which is the small, locally-owned, family-operated 
concession.
    We have a well-proven history of positive collaboration 
with the Park Service. We've worked with 25 different 
superintendents, and have seen the coming and going of 15 
National Park Service directors. Really, we'd like to continue 
that for another century, if possible.
    From our point of view, unfortunately we know that the 
intention of the act was just to improve some of the abuses 
that occurred here and there, and, you know, to solve some 
problems that existed. But from our point of view, there's 
been, sort of, a widening gap between the original positive 
intent of the act and some of the actual implementation.
    For example, one of the intentions was to increase 
competition. But the bidding process discriminates against 
small operators. I'd like to--I can sort of reiterate what 
Janet said, is that the process just requires enormous amounts 
of time, money, and effort, which we have to manage along 
with--juggling that with the everyday business of our 
operations--keeps us in a prolonged sense of uncertainty. 
Because the process has been, sort of, plugged up and slow, 
we've been operating on short-term extensions now for 7 years. 
And it really is difficult to plan, you know, for the future of 
your business if you don't even really know if you're going to 
have one.
    I think another challenge that's been really significant is 
that the requirements and the definition of the selection 
factors and the format of the prospectus are constantly 
changing, so we're--we sort of have a moving target, in terms 
of how we prepare to respond. And we really have to track and 
respond to all these details, because many of the bids have 
been decided over very minute differences between the bidders. 
So it's not something we can just hope that we're going to be 
able to respond to well.
    Another one of the goals of the acts, as I understand it, 
was to increase revenues. We currently pay almost double the 
franchise fee of our competitors within the park, but we can 
imagine a scenario in which this competitor offers a higher fee 
than us and wins the contract, even though consideration of the 
fee is supposed to, by the law, be subordinate to other 
factors, such as environmental stewardship. They could then 
turn around, in the next contract negotiation, and roll our 
operation into their overall fee, and the result would be that 
the park would receive less, not more, income than they 
currently receive from us. Not to mention that the higher-
percentage fees established during this extra legal bidding 
wars significantly impact our right to a reasonable profit. 
We're very concerned about the role that the fee has played in 
some of the other parks.
    We also feel that we're subject to regulations that really 
should apply only to much larger operations. You know, we 
basically have one main building; it's an historic structure. 
We're very committed to maintaining it. And we even 
participated in a complete renovation back in 1989, right after 
we signed a 10-year contract, in order to really bring that 
building back to its historic condition.
    We recently learned that there could be a very complex 
computerized maintenance management system put in place. And 
while we realize that has value for managing the whole system, 
it could well be overkill for us, and buying the software 
necessary to implement that could be a big expense. So there's 
these constantly changing potential requirements.
    I think the other main concern is that there's been a lot 
of inconsistency. In different regions, different parks have 
gone about developing the prospectuses in different ways, and 
that's--I'd like to reinforce. I think Chairman Naille 
addressed that also, the issue of inconsistency.
    And, finally, I guess the very last thing is just that I 
feel that there really is the potential loss here of, you know, 
kind of a unique American institution, which is the small, 
family owned operation. We're really involved in our community. 
Our history is interwoven with the history of the region, and 
there's a lot of contributions that we make to the local 
economy, including local jobs, well-paying, you know, good 
jobs. And we feel like this could be lost if we were out-
competed and a larger corporate entity were--replaced us.
    Thank you.
    [The prepared statement of Ms. Verkamp follows:]
            Prepared Statement of Susie Verkamp, President, 
                     Verkamp's, Inc., El Prado, NM
    Thank you, Mr. Chairman and members of the committee. I truly 
appreciate the opportunity to testify before you today.
    My name is Susie Verkamp. I am President of Verkamp's, Inc., the 
oldest continuously run family-owned concession operation in the 
National Park system. Our business is a gift shop on the South Rim of 
the Grand Canyon, located in a building which was built by my 
grandfather in 1906--13 years before the area became a National Park. 
Over the past century we have maintained the highest level of service 
to the visiting public while providing high quality Native American 
crafts and souvenirs for sale.
    I am here on behalf of my family and other small, family-owned, 
single site concessioners to testify about the effects on us of Public 
Law 105-391 (the ``1998 Act'') and to explain why the earned 
preferential right of renewal that was eliminated by the 1998 Act 
should be restored to small concessioners.
    I was born and raised in Grand Canyon, living in our family 
residence above the store. Needless to say, I have a great love for the 
Canyon, a firm commitment to its protection and preservation, and a 
growing awareness of what a privilege it has been for our family to 
live and work there for nearly a century. Our pioneer family history is 
completely interwoven with the economic, social and cultural history of 
northern Arizona and Grand Canyon National Park. We are one of the 
cultural resources the park professes to protect, and yet, we are at 
great risk of extinction.
    We have a well proven history of collaborative partnership with the 
Park Service. Our family has witnessed the coming and going of fifteen 
National Park Service directors and twenty-five park superintendents. 
We have managed to survive and flourish through depressions, 
recessions, world wars and the constantly changing American political 
landscape.
    Over the years, we have responded to, and been compliant with, a 
myriad of legal, legislative, administrative, and regulatory 
requirements and constraints. But I can honestly state that we have 
never felt more at risk of losing our livelihood and the opportunity to 
serve the public than we do today.
    The last of our five long term contracts was signed under the 
conditions of the 1965 National Park Concessions Policy Act, Public Law 
89-249 and expired on December 31, 1997. We have been operating under 
short term extensions of that contract for the past seven years. The 
1965 Act stated that ``the Secretary . . . shall take such action as 
may be appropriate to encourage and enable private persons and 
corporations . . . to provide and operate facilities and services which 
he deems desirable for the accommodation of visitors.'' But these days 
we are feeling not encouraged and enabled, but rather, dis-couraged and 
dis-abled, and that is why I am here before you today.
    My grandfather began his business under an arrangement with the 
U.S. Forest Service, when Grand Canyon was still a Forest Reserve, 
created in 1893. The Forest Service was issuing permits rather freely 
during that time and competition was unregulated. The Yellowstone Act 
of 1872 also allowed the leasing of parcels of land, but after the 
National Park Service was established in 1916, the first director 
Stephen Mather and his assistant Horace Albright decided that such 
unrestrained competition did not enhance, but actually reduced the 
pleasure of the visitor's experience of the parks.
    To avoid the destruction of the parks caused by the allocation of 
too much land and unrestrained competition, they introduced the concept 
of an authorized prime concessioner and promoted the concept of the 
preferential right of renewal. In addition to Stephen Mather and Horace 
Albright, other visionary park service leaders, numerous review 
commissions, citizen advisory panels and departmental policy studies 
recognized the destructive affects of too much unregulated competition 
in the newly developing national parks and determined that continuity 
and quality of service would be best served by concessioners with an 
established record of satisfactory performance.
    Thus, there is a certain irony that the preferential right of 
renewal was taken away in the 1998 Act with the expressed purpose of 
increasing competition and improving the quality of services, when the 
visionary founders of the National Park Service themselves saw certain 
dangers inherent in such a free for all approach. Indeed, the 
preferential right was not something cooked up by profit hungry 
concessioners or designed to eliminate fair competition, but rather, a 
way of insuring the best possible services from experienced providers.
    We believe that the original intent of the preference right is 
consistent with the goal stated in the first line of the 1998 Act: ``to 
provide for improved management and increased accountability''. The 
Act, according to my understanding, also sought to professionalize 
procedures, increase competition, address maintenance backlogs, and 
raise revenues.
    From our point of view, there is a widening gap between the 
original intent of the 1998 Act and its actual implementation in the 
nation's parks. For example, one of the stated intents of the 1998 Act 
was to increase competition for concessions contracts and improve 
visitor services. But because the bidding process created under the Act 
so clearly discriminates against small operators, the end result likely 
will be the gobbling up of small businesses by a few large corporate 
entities that will essentially have a monopoly on park concessions.
    Another goal was to increase revenue to the parks. We currently pay 
almost double the franchise fee of our competitors within the park. We 
can imagine a scenario in which this competitor offers a higher fee 
than us and wins the contract, even though consideration of the fee is 
supposed to be subordinate to other factors, such as environmental 
stewardship of the park's resources. They could then turn around in 
their next contract negotiation and roll our operation into their 
overall fee. The result would be that the park would receive less, not 
more, income than they currently receive from us. Not to mention the 
fact that higher percentage fees established during the extralegal 
bidding wars significantly impact our right to a reasonable profit.
    Additionally, while the Act sought to improve visitor services, the 
legal and administrative quagmire created by the new law and constantly 
changing regulations have placed significant burdens on small 
concessioners, which have impacted their ability to provide quality 
services.
    For example, the numerous and varying regulations have caused 
ongoing delays in the issuance of prospectuses. We have been operating 
on extensions for seven years. As any business person can tell you, it 
is very difficult to plan for your future when you are not even sure if 
there will be one. The level of stress and uncertainty this creates for 
ourselves, our employees, our vendors, and even our communities should 
not be ignored.
    It is almost impossible to anticipate the exact requirements or 
format that will appear in a prospectus. There has been a great deal of 
inconsistency in how the 1998 Act and the bidding process have been 
implemented in different parks and different parts of the country. The 
current process, rather than being clear and predictable, has become 
more like a park by park version of ``let's make a deal.''
    Moreover, the complexity of the bidding process requires enormous 
amounts of time, money and effort. Unlike large corporations who have 
entire departments dedicated to financial analysis, environmental 
management, legal research, and marketing/prospectus response, we have 
to juggle the day to day maintenance of our operations with all the 
demands of the bidding process. We have been told for the past three 
years that our prospectus will be out within months, but we are still 
waiting. We fear that the prospectus will appear in the midst of our 
busy season. Our appraisals and financial analyses have to be 
constantly updated. We struggle with decisions over maintenance 
projects, not knowing if we will be able to recover our costs should we 
fail to win a contract.
    Another major difficulty in preparing to respond to the 
prospectuses is that the requirements, definitions of selection factors 
and format are constantly changing, often in response to private 
contractors who advise park officials, yet stand to gain from the 
changes. Much of this maneuvering goes on behind the scene, 
unofficially, without public knowledge.
    For example, even though we are a small organization, environmental 
ethics have always been an integral part of our philosophy and actions. 
Over the last several years we have spent large amounts of staff time 
in formalizing our environmental programs and bringing them to the 
highest certifiable standards, at significant expense and with great 
pride at what we have accomplished. And yet only last month I was told 
by a person with decision-making authority from the national 
concessions office that the international certification which we have 
worked so hard to accomplish ``may not be necessary''. This in spite of 
the fact that the international certification (known as ISO14001) we 
have achieved is being adopted by most Federal agencies in response to 
Presidential Executive Order 13148.
    If we had been discouraged from pursuing the highest measurable 
standards, and been outbid by a large corporation who had such a system 
in place, we could have been at risk when our response was evaluated. 
This is a very significant issue because one third of the points to be 
earned in a response are related to environmental issues, and many bids 
have been decided on minute differences between bidders. Evaluations of 
responses to the requirements are very subjective and based on the 
interpretation of the reviewers. It should be noted that a private 
consulting firm, who has developed their own certification process as 
an alternative to the ISO14001 process and marketed it to national 
concessions staff will provide guidance to the evaluation committees.
    In addition to constantly changing regulations, we also are subject 
to regulations that should only apply to much larger operators. For 
example, we recently learned that the NPS is using a computerized 
maintenance management system for their inventory of park buildings. 
While we see the value of such a system for managing the system as a 
whole, we are worried that this could translate into a prospectus 
requirement that we purchase and use software costing thousands of 
dollars. Our building is on the National Historic Register, and it was 
also our family home. We did not need a computerized system or a 
capital project requirement to completely restore the building in 1989, 
at our own cost, shortly after our last 10 year contract was signed. 
None of this restoration was aimed at enhancing sales or increasing our 
leasehold surrender interest but was directed at preserving our history 
through careful replication of structural details. These regulations 
impose a significant financial burden on small operations making it 
extremely difficult to operate our businesses effectively and, at the 
same time, compete with large operations that do not face similar 
financial constraints.
    Losing small, family-owned concessioners would result in great 
disservice to the parks, park visitors, and local communities. There 
are many ways in which we contribute to the well-being of our community 
that will vanish should we be outbid by a large corporation.
    For instance, our company employs 12 people. We have always offered 
a competitive wage and benefit package, and we have always hired 
locally. We did not lay off any employees during the economic aftermath 
of September 11, 2001 even though our business dropped off 
significantly. We shared the burden of our losses with our employees by 
keeping them employed. This concern for our employees is in stark 
contrast to a recent case in which a large corporation outbid a family 
based operation and cut the work force by 35% within months of taking 
over. Are these the desired results of increased competition?
    Another example: In the 1950's my aunt worked tirelessly in 
cooperation with Senator Carl Hayden to obtain legislation and funding 
for a high school in the park. It is the only high school located 
within park boundaries in the nation. The school relies upon county 
taxes for a significant part of its budget. A recent Court of Appeals 
ruling said that concessioners would no longer be required to pay 
property taxes because property ownership rights are merely possessory. 
Our large corporate competitor in the park has chosen to take advantage 
of the ruling. This will cost the county about $580,000/year. The 
company has also filed a claim to be reimbursed by the school district 
for prior taxation to the tune of about $2.5 million. My siblings and I 
all attended the school from first grade through graduation and feel a 
strong obligation to continue supporting it. For us, there is more to 
life than the bottom line.
    In sum, the 1998 Act, as applied, will lead to the extinction of 
small business like ours and result in a great disservice to the parks, 
park visitors and local communities. Accordingly, we are asking 
Congress to restore the preferential right of renewal to our small 
businesses so that we may continue to provide quality services to 
visitors of our nation's parks and contribute to our local communities.

    Senator Thomas. Thank you very much. I appreciate all of 
you being here.
    Mr. Naille, what is your general impression of the 
implementation and the rate of implementation, and the 
willingness to implement the recommendations that come from 
your group?
    Mr. Naille. Mr. Chairman, I would say, for the most part, 
the Park Service has been very receptive to what goes on in the 
way of our recommendations. We try to run those meetings in--
what I would call an arena of communication, in that we sit at 
a table in the round and we talk about ideas and concepts. And 
I would tell you that it isn't like the board sits there and 
comes up with ideas. The Park Service sits there and comes up 
with ideas. And it's the board's desire to encourage that type 
of development on the part of the Park Service, where they come 
up with ideas, and they implement those ideas.
    So I would, therefore, have to say, for the most part, I 
think they're very positive about them. They've been resistant 
to some things. The NAFI issue is one that we keep pushing, and 
I doubt that we ever give up on that particular area of desire. 
But, you know, you heard some today, that there is a major 
problem in the Park Service, in that they don't have what I 
would call the correct business expertise, internally.
    To be honest with you, I think--when the public law was put 
together, I think there was a desire on Congress's part to look 
at an outside asset-management organization of some sort to 
take over the function. And I would tell you that I have major 
problems with that, being involved with Park Service activities 
from the other side, the hotel side of it, for almost 30 years 
of my life. The Park Service has a mission that's different 
than any other organization in the Government, and that's to 
preserve and protect. And I would question an outside 
organization taking over.
    However, what we, as a board, have found over the last few 
years is, organizations--and the bidding process holds, but 
I'll just say that Pricewaterhouse is an organization that they 
hired, and they bring tremendous business expertise to the Park 
Service that's missing, internally.
    And the desire on the part of the Park Service to utilize 
that avenue, I think, is all important.
    Senator Thomas. Okay. Well, I don't think there's 
overwhelming interest in having outside management of the whole 
proposition, because there are differences, but I think there 
is a strong feeling that this is a business function within the 
parks, and needs to be managed in a businesslike way.
    Mr. Naille. Exactly.
    Senator Thomas. And the park has to be receptive to doing 
that.
    Mr. Welch, the depreciation thing you talked about.
    Mr. Welch. Yes.
    Senator Thomas. I guess that the fact is--why does it 
take--it takes 50 percent of the value of refurbishing in order 
to get some depreciation benefits, is that it?
    Mr. Welch. The 50-percent rule.
    Senator Thomas. Yes.
    Mr. Welch. Well, the 50-percent rule is separate from the 
depreciation argument; but the 50-percent rule, as it currently 
is stated in regulations, says that if you don't spend at least 
50 percent of the replacement cost of the building, then you're 
not entitled to leasehold surrender interest.
    So you could spend 40 percent--that might be a million or 
two-million dollars--but you would not be awarded leasehold 
surrender interest in that case.
    Senator Thomas. It basically has to do with depreciation, 
then, doesn't it? Values.
    Mr. Welch. Yes, the net number is definitely the result of 
both the initial leasehold surrender interest and the ultimate 
depreciation.
    Senator Thomas. Tell me a little about the cross-----
    Mr. Welch. Collateralization?
    Senator Thomas [continuing]. Collateralization.
    Mr. Welch. Yes.
    Senator Thomas. I presume that originally it was designed 
to limit the amount of activities one company could have in the 
total Park Service. Is that true?
    Mr. Welch. Not that I'm aware of, but--I couldn't say what 
the original intent necessarily was. But I think the intent was 
to not expose, overly expose, one park at the expense of either 
another park building-improvement program or a non-national 
park building program, because many of the companies that 
operate in the national parks have non-national park interests, 
as well. And, generally, those companies are not going to have 
loans specifically related to just a single-park contract or 
just their national park operations; they're going to go to a 
lender or a group of lenders and get an overall consolidated 
loan that would be partially secured by park assets and 
partially secured by non-park assets, which is typical.
    Senator Thomas. Yes. I think there are people who believe 
that if there wasn't some limitation, that you'd end up over--
after all, with one concessionaire having all the major--I 
don't know that that's the relationship. That's interesting.
    Ms. White, what would you think--now, is part of your 
problem because you exceed the $500,000 gross?
    Ms. White. That's part of it, Senator Thomas.
    Senator Thomas. I mean, are you treated differently than if 
you had less than $500,000?
    Ms. White. Well, this prospectus would witness to the fact 
that it's very time-consuming--the expertise involved in order 
to respond to this, is--it's just daunting.
    Senator Thomas. Somebody help me with that. Is this 
different than if it were below $500,000?
    Mr. Naille. Yes.
    Senator Thomas. So you don't fall in the category of----
    Ms. White. I'm at $650,000. I am $150,000 above.
    Senator Thomas. I see, okay.
    So you, then, are dealing with the same sort of regulations 
and so on as a $3 million operation.
    Ms. White. Right.
    Senator Thomas. I see.
    Ms. White. And I am a small, single-location operation. And 
the law, itself, talked about a simplified version to respond. 
And if this is simplified----
    Senator Thomas. What would be your suggestion as to how it 
should be changed?
    Ms. White. Let me ask you a question, first, if I may, sir. 
What should be changed? Are you talking about the process or 
the----
    Senator Thomas. Your situation. What would you see that 
ought to be changed to eliminate or reduce your problem?
    Ms. White. Okay. My first suggestion would be that--in my 
particular case, that the park come in compliance, and have a 
plan that they're going to follow. What I testified to, this 
going back and forth, is very detrimental to a small business.
    Senator Thomas. So consistency over time.
    Ms. White. Consistency by having a general management plan. 
Those plans are--I believe, are there for a reason, and it's to 
keep the park on a pathway so that the resources are protected, 
and not getting off on tangents and empire-building that can 
occur. You have a plan, and one superintendent starts it, then 
the next guy will follow up until it's finished, and so on. 
It's just common sense. So I would say, have plans. Require 
that these plans be in place before the Park Service can put 
out a prospectus. That way, anybody who bids, they're all on 
the same page, we're all headed in the same direction.
    Senator Thomas. Okay. Sounds good.
    Ms. White. I have a whole laundry list. Is that enough?
    Senator Thomas. You can submit it in your statement.
    Ms. White. Okay. Be happy to.
    Senator Thomas. Ms. Verkamp, what would be your suggestion? 
Now, I understand you're probably the same situation, you're 
over the $500,000, but still relatively small.
    Ms. Verkamp. Well, I think this hearing is a positive 
development, because I think one of the things that I have felt 
has been really needed all along is some oversight as to what 
has occurred since the law was in place. So I would hope that 
continuing oversight would continue. I'm not sure whether it's 
possible to raise that threshold on the preferential right, but 
I find that there are some ironies, as I pointed out in my 
statement, that the preferential right in the early days of the 
park, was put in place to--by some of the early leaders, Mather 
and Albright, to discourage what they saw as the negative 
effects of unregulated competition. Then there's an irony that 
the law was put in place to encourage competition, and yet the 
end result may be different. So I'm not sure--of course, we'd 
like to see that threshold raised, and I'm not sure if it's 
possible for there to be regulatory reform without that 
occurring, because then it would come into conflict with the 
actual statute.
    I think the issue of consistency is very important, because 
the Park Service has said, over and over, they want a system 
that's fair, simple, consistent, and I think that's really not 
what we have in place now.
    Senator Thomas. So consistency under several 
superintendents and so on would be good.
    Ms. Verkamp. Right. And I think the issue--one of the 
issues that--where there's a little bit of a discrimination 
against us, I think, is that we just have one site, and we 
can't--you know, whereas the issues of cross-collateralization 
and stuff may be--that's a large concern for some of the larger 
operators. For us, we don't really have that advantage to take 
a loss on our business outside the park and maybe use the 
collateral here for something else. We just have that one site, 
that one operation that our livelihood depends on. We lose 
that, we lose it all.
    Senator Thomas. I understand.
    Mr. Naille, have you all ever talked about this $500,000 
limit? As time goes by, should that be changed, or is that an 
issue?
    Mr. Naille. The only thing we ever talked about was 
reviewing the contract for the $500,000 or less, which I'm 
going to--I can't remember--ten pages, something like that, a 
lot smaller than this document. So that's part of the issue on 
it. Whether or not that should be changed, I heard Randy Jones' 
comments, and I have heard the statement that maybe we should 
go to two million or something like that on a concept. I don't 
know what that magic number is.
    You know, if you get to two million, is somebody going to 
want it at three million? I don't honestly know where to draw 
the line, myself. The ones that hurt are like Ms. White's, that 
is so close over the threshold there, that it's almost--I knew 
when she held that book up--I thought, ``Oh, wow.''
    Senator Thomas. Well, it is kind of difficult, because, on 
the one hand, obviously you want to treat those smaller ones 
differently; on the other hand, this is--the parks are public 
arenas, and when you get into meaningful businesses, why, 
people ought to have an opportunity to deal with it. It isn't 
somebody's----
    Mr. Naille. I might add, sir, that we have not looked at 
numbers of contracts in those dollar ranges. I assume that the 
Park Service has, and that would be one way to analyze it, is 
to look how many are in that basic range, and work that number 
backward from that.
    Senator Thomas. There might also be a way to reduce the 
paperwork without that.
    Well, I appreciate your being here. As I said, all of us, 
and, I guess, I particularly am interested in the concession 
aspect of the parks, and--because they are an important part of 
it. But we do need to continue to work at it, and I appreciate 
your input and thank you all for being here. If you have any 
other suggestions, please let us know.
    The committee's adjourned.
    [Whereupon, at 4:10 p.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

                             White Sands Concessions, Inc.,
                                    Alamagordo, NM, April 21, 2004.
Hon. Craig Thomas,
Chairman, Subcommittee on National Parks, Committee on Energy and 
        Natural Resources, U.S. Senate, Washington, DC.
    Dear Senator Thomas: Thank you for the opportunity to answer the 
follow-up questions you sent. I was grateful to get the opportunity to 
testify before your subcommittee hearing and I thank you for your 
courtesy and your interest in my plight.
    I would like to make you aware that the response to the prospectus 
released for White Sands National Monument is due June 18, 2004. I have 
very little time left as a concessionaire. The current prospectus 
requires capital investments of over $550,000, money I do not have and 
cannot get. The capital investment in this prospectus essentially 
provides office space for the National Park Service. It is a huge, 
unnecessary undertaking which does not comply with the park's planning 
documents.
    As a small concessionaire that grosses about $650,000, I cannot 
compete for my business.
    That said, I will be glad to answer your specific questions.
    Question 1 asked at what level should the preferential right of 
first refusal (PRFR) be set.
    My answer is $3,000,000. Here is why. That is the level the NPS 
chooses to use outside consultants in preparing a prospectus. In a way, 
however, that question is a little difficult because ANY raising of 
that level would cover us, whether $1,000,000, $2,000,000 or 
$5,000,000.
    I feel compelled to add, that in my case, even if I had PRFR I 
still could not match this specific prospectus because the NPS chose to 
load it up with ``goodies'', or what a PricewaterhouseCoopers 
representative termed ``wish list items'', referring to what 
superintendents want built by concessionaires that have nothing to do 
with concessions.
    So, raising that level MAY deter the NPS from producing 
prospectuses that the incumbent cannot afford, or it may not. Either 
way, it is too late for me unless the subcommittee can help me.
    Question 2(a). I would wish that the NPS be required to follow 
THEIR own rules for concessions. Again, in my case, the NPS came up 
with new capital improvements that violate their own planning document, 
the 1976 Final Master Plan. They also, in my opinion, did not follow 
the letter and spirit of NEPA. The NPS Director's Order 12 requires 
that that NEPA be followed. In my case, I do not believe it was.
    Since 1990 or so, White Sands National Monument has a sad history 
of skipping the NEPA process. They take a piece-meal approach on all 
their projects, whether concession-related or not. That is a real 
concern for me because the latest scheme is about to put me out of 
business.
    I would also ask that when the NPS begins a Capital Account (CA) 
for Concession Improvements, as White Sands National Monument (WSNM) 
did, they be required to follow through and use the money for its 
intended purpose.
    In my case, a CA was set up in 1996 through 2001, through which I 
kept up my end by contributing to the CA. In 2001 superintendent did 
not want new construction in the upcoming prospectus. I was told to 
turn those monies over, which I did. Then, in 2002, yet another 
superintendent came up with the current prospectus which I have 
described to you.
    This one is double the original cost estimations and of course, 
those CA monies are no longer available for me or any concessionaire to 
use. So, I would ask that the NPS not be allowed to pull this kind of 
switch-a-roo on concessionaires.
    Had the NPS kept its word, perhaps I would be able to compete for 
this current prospectus. But, with the CA monies long spent on other 
things by the NPS, I cannot compete.
    As I mentioned, WSNM has a history of doing such things. In 1997, 
WSNM had the approval to build a modular office building that was 
temporary. They created a categorical exclusion (CE) document for this 
1997 building because it was termed a temporary building. However, with 
that CE, WSNM built a permanent office building so large in scale that 
it was repeatedly criticized by a NPS report called a Cultural 
Landscape Inventory. Clearly, the NPS and WSNM should have done an 
Environmental Impact Statement for their 1997 Administration building. 
Yet, they did not.
    That is just one example of bending the rules, skirting around the 
laws that takes place here.
    I just feel like the NPS should have to follow their own planning 
documents, or change them as the 1978 National Parks and Recreation Act 
requires. As you know, that Act requires all NPS units to have an up-
to-date General Management Plan (GMP).
    So, I ask that your committee, in its oversight capacity, see if 
the NPS is doing what it is supposed to regarding these capital 
improvements. I know I have the proof that they are not.
    Part (b) of question 2 is easy to answer. If that PRFR is raised to 
some number, the incumbent concessionaire still has to be deemed 
satisfactory by the NPS. Also, all of those covered would be single 
location small businesses, like mine. All of us put service first. It 
is our livelihood, it is our life. To do otherwise would hurt our 
business.
    In fact, the time and money required to prepare a prospectus 
response is the biggest barrier to good service I can think of I am not 
an absentee owner. I watch the day-to-day operations of my business 
first-hand. The huge prospectus and huge required response would do 
more damage than anything. The man-hours involved would require me to 
spend less time in the store and more time on the computer.
    Customer service will be aided by owners spending time running 
their business rather than spending time trying to defend it from the 
burdensome process now in place.
    I cannot tell you the heartache I have suffered over that last year 
and a half over this NPS fiasco. I have still, in the midst of all 
this, put customers first. However, the level of exhaustion I have as a 
result of this process has taken a mighty toll.
    Again, thank you for this chance to convey my answers and share my 
concerns. It is clear that the NPS does not consider mine to be a small 
business. The prospectus issued on February 18, 2004, and due on June 
18, 2004, should have been entitled ``Small Business Need Not Apply''. 
The phone book sized document, not including two CD-ROMs, amounts to a 
small business disqualifier.
            Sincerly,
                                            Janet T. White,
                                                         President.
                                 ______
                                 
  Responses of Michael F. Welch to Questions From Senate Committee on 
                      Energy and Natural Resources
    Question 1. The National Park Hospitality Association and several 
concessioners have reported disparities between the 1998 Act and the 
May 2000 Park Service Regulations. For that reason, they have asked 
that the regulations be changed.
    Question 1a. What do you consider the most obvious disparity 
between the law and the regulations?
    Answer. We have identified many disparities between the 1998 Act 
and how it is being administered through the Regulations and Contract 
forms. It is important to recognize that many of the provisions 
interact with each other and thus changes to one section would in many 
cases necessitate changes to others. Although we hope that all 
disparities are ultimately addressed, we believe there are three 
critical issues that most affect the concessions program.
    1. The first critical issue relates to encumbering leasehold 
surrender interests and ensuring that concessioners can access the 
financial markets for loans at a reasonable cost. For example, Section 
405 (a) (2) of the statute states ``A leasehold surrender interest may 
be pledged as security for financing of a capital improvement or the 
acquisition of a concessions contract when approved by the Secretary 
pursuant to this title''. Section 51.87 of the regulations adds the 
qualifier, that the LSI to be encumbered be ``in the applicable park 
area''. This restriction, found in the regulations, but not the 
statute, will have a chilling effect on competition if not revised.
    First, a concessioner with operations in several parks is 
prohibited under the current rule from wrapping all of its LSI into a 
single collateral package. Creating separate loans for each park 
secured by each park's LSI will significantly raise financing costs, 
and therefore lower the amount a concessioner is able to bid to renew 
its existing contracts. Second, lenders won't finance the buyout of new 
contracts on the basis of prospective LSI alone, but they also require 
historical financial results. Since these are rarely available to 
anyone but the incumbent, cross-collateralization is essential to 
securing contingent financing for new contracts. My company has spent 
literally millions of dollars on legal fees trying to structure a debt 
agreement that complies with the current regulations. We remain hopeful 
that we can gain National Park Service approval in the very near 
future.
    2. The second critical issue concerns the identification of 
expenditures that are entitled to Leasehold Surrender Interest and the 
measurement of Leasehold Surrender Interest value. To summarize, we 
believe the 1998 Act clearly provides that all capital improvement 
expenditures made to park facilities by concessioners are entitled to 
LSI credit. As you know, virtually all businesses identify capital 
costs by reference to Generally Accepted Accounting Principles 
(``GAAP''). However, the NPS has interpreted the language governing LSI 
credit far differently. Based on our discussions in the ``working 
group'' so far, this could result in a very labor intensive and costly 
tracking method. The purpose of creating LSI was to simplify how credit 
was to be given for making capital commitments in the parks and reduce 
the potential for disputes. Instead, the Regulations make the system 
much more complicated and increase the potential for disputes. I have 
included edited excerpts from my written testimony submitted at the 
hearing below.
    The primary LSI-related issues are:

a. Definition of Capital Improvements, including the 50% rule
    While certain sections of the Regulations correctly take their 
guidance from GAAP as the benchmark to determine whether capital costs 
should be accorded LSI treatment, there are provisions in Section 51.51 
that are contrary to GAAP, such as the rejection of building materials 
for capital improvement eligibility except (1) when initially installed 
as part of a structure or (2) when the ``50% Rule'' is met. Thus, for 
example, the conversion of a dormitory to guest lodging, though 
potentially costing millions of dollars, would not necessarily be 
considered a capital improvement eligible for LSI treatment. In that 
case, only if the conversion cost represented at least 50% of the pre-
conversion replacement cost value would LSI treatment be accorded to 
the conversion. This limitation, not found in the 1998 Act, has been 
termed the ``50% Rule''. Thus, common--and sorely needed--renovations, 
rehabilitations, and other capital improvement projects in our national 
parks often would not qualify for LSI treatment under the existing 
regulations and standard contract provisions even though we believe the 
1998 Act intended that they should qualify for LSI treatment.
b. Prevailing cost ceiling
    The Regulations also purport to restrict the LSI values to 
``amounts that are no higher than those prevailing in the locality of 
the project'', which is not a requirement of the 1998 Act. This means 
the NPS could set LSI values on the basis of lower construction costs 
in metropolitan communities outside the national parks, even though the 
cost of construction in remote park areas is generally much higher. 
NPHA believes the litigation established that this limitation only 
pertains to a comparison with other in-park projects, which of course 
are already subject to strict regulation by the NPS. Thus the 
limitation in the Regulations appears moot. Since concessioners have no 
incentive to ``overpay'' for a project in the hopes of receiving LSI 
that will only grow by CPI, this restriction will only serve to impose 
a needless administrative burden for each project and could create 
confusion and disagreement between the parties. It should be 
eliminated.
c. LSI consistency and problem resolution
    In our on-going discussions, NPS has stated that there should only 
be occasional or isolated instances where an LSI determination needs 
to, occur. On the other hand, NPHA believes these instances will occur 
on a more routine basis as capital investment generally occurs 
throughout a contract term. Since a consistent approach across all 
contracts would be desirable, NPHA believes that a framework should be 
set up to resolve these instances simply and efficiently. Possibly a 
nationally recognized accounting firm such as PricewaterhouseCoopers, 
acting both in a dual role as NPS' asset manager and as an independent 
financial expert, could serve to confirm that the costs presented by 
the concessioners are correctly capitalized under GAAP and thus 
entitled to LSI. These checks could be performed on an annual basis or, 
to save costs and maximize efficiency, only at times when the NPS 
disagrees with a concessioner's treatment of a specific item. This 
process could lead to long-term consistency and stability so that both 
NPS and concessioners would benefit from having a simple set of 
procedures that would be used to evaluate these critical on-going 
decisions for both parties.
d. Measurement of Depreciation
    Just like the preceding 1965 statute, the 1998 Act requires that, 
when measuring the depreciation related to a capital improvement for 
which LSI was awarded, a physical standard of depreciation be used. In 
other words, it requires measurement of the observed deterioration of 
the facilities during the contract term. In contrast, much discussion 
within the working group has centered on an NPS proposal that a 
``scheduled'' form of depreciation be the measurement tool. 
Conceptually, this means an amortizing schedule similar to what is used 
for tax or financial reporting purposes. The NPS proposal is that each 
and every asset be broken down into its individual components at the 
time it is placed in service and an estimated useful life assigned to 
each component for purposes of ``counting'' depreciation in the LSI 
calculation. Besides being extremely cumbersome and therefore costly, 
this method would lead to a substantially different result than the 
statute requires. This same distinction formed the basis of the debate 
in Congress over possessory interest that was resolved when Sen. Thomas 
incorporated a concept that included physical depreciation, in the same 
manner as the prior law, as a portion of the LSI formula. The NPHA 
strongly objects to scheduled depreciation on several grounds.

   First and foremost, changing the LSI formula from physical 
        depreciation to scheduled depreciation would generally have a 
        significant and negative impact to the return on investment 
        that concessioners would receive. This formula constitutes a 
        critical consideration for concessioners in the bidding 
        process, particularly for ``capital-hungry'' parks. Since 
        businesses require minimum market returns to be attracted to 
        concession opportunities, lowering the compensation received at 
        the end of a contract would likely require a significant 
        reduction, or even elimination of, franchise fees to the 
        government and over time probably require more government 
        appropriations to directly fund park facilities. None of these 
        impacts appear to be in the best interests of the United States 
        or the visiting public.
   Second, scheduled depreciation doesn't provide an incentive 
        to the concessioner to maintain the asset in good physical 
        condition. Since under this scenario the asset will become 
        fully depreciated at the end of a specific period of time (the 
        ``scheduled'' life) no matter how well (or how poorly) the 
        concessioner takes care of the asset during its service life, 
        the concessioner will watch its LSI value march downward toward 
        zero irrespective of the level of care devoted to it. NPHA 
        considers this to be an unwise policy since, at a time when 
        there is so much written about the condition of our national 
        park facilities, we should be trying to upgrade the condition 
        of the assets by providing incentives for concessioners to 
        maintain them in top-notch condition. If two concessioners 
        spend the same amount of money to place an asset into service, 
        but one spends its maintenance funds throughout the contract 
        term to keep the asset in good physical condition while the 
        other concessioner spends little or no money to maintain the 
        asset, both concessioners will wind up with little or no LSI 
        value at the end of the ``scheduled'' life of the asset. 
        However, the first concessioner will have spent significant 
        maintenance funds so that the asset can continue to fulfill its 
        function in providing services to park visitors while the 
        second concessioner has ``milked'' the system and left the NPS 
        with a run-down asset with little or no value. Unfortunately, 
        the second type of concessioner is likely to become more 
        prevalent throughout the parks since they can bid higher 
        franchise fees than more responsible operators.
   Third, estimating a useful life when an asset is placed in 
        service will almost always turn out to be wrong. This result 
        will be compounded when trying to estimate the service life of 
        each individual component that makes up the overall asset. 
        These variances are caused by weather conditions, materials 
        that last longer (or shorter) than the manufacturer or 
        engineering estimates, preventative maintenance procedures 
        performed (or not performed) over the useful life by the owner/
        operator, and normal human error. Therefore, it seems futile to 
        think that one can accurately estimate the useful life of all 
        the components of an asset within acceptable bounds of 
        precision for purposes of a contractual LSI measurement, even 
        if it were in accordance with the law. The concept of 
        ``scheduled physical depreciation'' is inherently 
        contradictory.
   Fourth, there is a major administrative burden associated 
        with a scheduled depreciation framework that will also lead to 
        increased costs for both concessioners and the NPS, a burden 
        that we believe will not translate to improved facilities or 
        services in the parks.

        We strongly believe that depreciation can be measured in a fair 
        and straight-forward manner without unneeded procedural steps. 
        In particular, as noted above concerning the administrative 
        burden associated with attempting to measure scheduled 
        depreciation using a component-by-component basis would be just 
        as burdensome to do so when measuring physical depreciation. 
        Instead, the evaluation should look at the level of physical 
        depreciation of each building or other improvement as a whole 
        as compared to the level of physical depreciation at the 
        beginning of the contract to determine the amount of 
        depreciation deduction to be taken. Providing concessioners 
        with an economic incentive to maintain and upgrade park 
        facilities over the contract term is desirable. This must be 
        accomplished, as Congress intended, by using physical 
        depreciation at the end of the contract as the measurement 
        basis for determining LSI value. However, once that conclusion 
        is reached, it is equally critical to focus on how physical 
        depreciation will be determined for purposes of arriving at an 
        LSI value at the end of each contract. It is relatively simple 
        (even though appraisals would still be required) to measure 
        physical depreciation on a building level basis since the 
        initial cost of acquisition at contract inception can be 
        readily allocated among buildings and other improvements, but 
        would be much more difficult and costly to allocate among the 
        myriad of building components. We encourage the NPS to follow 
        the more straightforward and efficient method of a ``unit by 
        unit'' assessment as was done under prior law, rather than the 
        needlessly complicated ``component by component'' approach.

    3. The third item of critical importance concerns NPS approval of 
shareholder transactions. This issue is also of critical importance to 
any concessioner that is part of an affiliated group of companies, or 
that engages in businesses other than national park concessions.
    Although it may be understandable for the NPS to want as broad 
approval rights as possible over transactions involving changes in 
ownership of concessioners and their owners, Congress recognized that 
regulating shareholder behavior would reduce bidding interest and 
create substantial risks to affiliated organizations. Thus the 1998 Act 
regulates only the movement and encumbrances of contracts themselves, 
but not shareholder behavior.
    Question 1b. Have you expressed your concerns to the Concessions 
Management Advisory Board and the National Park Service?
    Answer. Yes, we have. In addition, when Director Mainella 
established the ``working group'' during early 2003 to address the most 
critical difficulties concessioners have voiced concerning the 
Regulations, she included in this group members of the Concessions 
Management Advisory Board, including Chairman Naille, as well as 
appropriate members of the senior NPS staff.
    The discussions of the working group indicate that both NPS and the 
concessioners are in agreement that the ``50% Rule'' will be 
eliminated.
    NPS and the working group have also been working to clarify under 
what conditions approval of shareholder transactions by NPS is 
necessary. There is agreement that clarification is advisable and we 
are optimistic that the NPS will ultimately agree on a solution that 
complies with the law. NPS originally proposed to clarify this guidance 
through a Director's Order, whereas we believe that the Regulations 
need to be amended to remove the sections that exceed the scope of NPS 
authority under the 1998 Act.
    Question 1c. Has any progress been made in the past year to address 
these concerns?
    Answer. Although we have had some productive discussions within the 
working group and believe that some of the key issues can potentially 
be resolved by this group, we have not yet reached agreement on any of 
the key issues identified above.
    Question 2. What are the two or three most important skills for an 
NPS Concessions Program manager to possess?
    Answer. Because the Concessions Program Manager only has an 
indirect reporting relationship with field level staff, success 
requires considerable skill at building relationships. We also believe 
that this person must share the NPS' commitment to a strong private 
concessions program within the parks where concessioners are regarded 
as business partners for the public benefit.
    A degree of business acumen is essential to understanding, and 
therefore being able to manage, private enterprises in the national 
parks. In particular, in an environment where the government is looking 
to the private concessioners to invest in park facilities and maintain 
them for the public benefit, it is imperative that a Concessions 
Program Manager has a basic understanding of accounting principles and 
a firm understanding of how investment decisions are made (including 
the importance of return on investment), as well as how businesses 
attract capital from the financial markets to make those investments 
possible.
    The financial consultants that NPS has engaged to help with the 
concession bid process and other matters bring specialized expertise 
(some more so than others), but in general not much experience with 
national parks. Financial skills would therefore be very useful to a 
Concessions Program Manager to effectively evaluate the consultants' 
work.
    Question 3. In what key areas has the NPS been successful in 
implementing the 1998 Act? In what areas has the agency been 
unsuccessful in this regard?
    Answer. NPS has placed a great deal of emphasis on promoting 
environmental best practices in concession operations. Although my 
company, and others, embraced recycling and similar measures early on, 
there's no doubt that many concessioners are now focused on integrating 
environmental protection into every aspect of their business.
    We also think progress has been made toward simplifying the pricing 
function as required by the 1998 Act, by taking a variety of goods and 
services out of the traditional comparability analysis. This includes 
the ``core menu'' concept for food and beverage items and the ``open 
market declaration'' concept for retail items. More work can and should 
be done in this arena to simplify the lodging rate approvals.
    We believe the 1998 Act was designed to increase competition in the 
National Park system, while still treating previous and future 
investments made by concessioners in park facilities in a manner that 
can provide a concessioner with a modest return on those investments. 
To date, our experience in trying to apply the Regulations to real-
world situations has been inefficient, expensive, and not in accordance 
with normal business practices. We would like to see the Regulations 
and standard contract language rewritten in the near future so they 
conform to the 1998 Act.
                                 ______
                                 
    Responses of Richard Allen Naille, II to Questions From Senate 
               Committee on Energy and Natural Resources
    Question 1. Since being chartered in 2000, the Concessions 
Management Advisory Board (``CMAB'') has met eight times and issued two 
annual reports containing recommendations for improving concession 
management.
    Question 1a. Has the National Park Service (``NPS'') implemented 
any of your recommendations for improving the concessions program?
    Answer. Respectfully, I must tell you that the CMAB has met a total 
of 11 times since its inception. Four of these meetings were held in 
Washington, DC. The remaining seven were held in the field (at or near 
an NPS unit). In addition, we have issued three reports, each of which 
includes minutes from each CMAB meeting and an executive summary of the 
year's CMAB activities and recommendations.
    The NPS is presently working on all of our recommendations except 
two: Associate Director of Partnerships and Business Practices, and a 
pilot version of a Non-Appropriated Fund Instrumentality (``NAFI''), 
which is considered a best practice within the federal government for 
managing fee- and concession-related revenue. We do hope for a positive 
move on the NAFI concept in the near future.
    Question 1b. Following implementation, did the recommendations 
produce the desired results?
    Answer. Results have been slow but positive. The best part is that 
the NPS is moving forward. The inclusion of PricewaterhouseCoopers 
(``PwC'') has been a significant positive step.
    Question 2. What do you consider the single greatest issue facing 
the National Park Service Concession Program (``NPSCP'')?
    Answer. The single greatest issue facing the NPSCP is the lack of 
internal management accountability from superintendents to concession 
chiefs. There is too much decentralization down to the superintendents, 
who do not seem to honor previous superintendents' agreements, GMPs, 
etc.
    This problem is endemic to many government organizations, and is 
not new to the NPS. It has been a problem for at least 20-30 years. 
Constant movement of superintendents has resulted in inconsistent 
follow-through on projects and programs. In addition, new 
superintendents do not always adhere to policies and procedures 
developed by their predecessors.
    Further, superintendents and local park concession management 
personnel really have no concrete reporting relationship to the Chief 
of Concessions in Washington, D.C. Things only happen when there is a 
``friendship'' between the parties. In a business organizational 
structure, there are straight-line and dotted-line reporting 
relationships; and corporate offices set rules for the field. Within 
the NPS, the opposite appears to be true.
    Part of our intention for the creation of the Associate Director of 
Partnerships and Business Practices was to provide the NPS with someone 
that would spearhead the development of new and proper business 
practices for the agency. The person chosen to fill this position would 
have substantial private-sector management experience, and would help 
the NPS to internalize asset and contract management expertise.
    In addition, other federal government organizations such as the 
Department of Defense have effectively used the NAFI to establish a 
virtual corporate structure for the management and accounting of non-
appropriated fund revenues.
    However, the NPS has chosen not to create the Associate Director of 
Partnerships and Business Practices position. They have also not yet 
moved ahead with a pilot NAFI. Both of these initiatives would help 
improve the NPSCP oversight issue. Therefore, the lack of 
accountability within the NPSCP will remain the program's greatest 
issue for the foreseeable future.
                                 ______
                                 
      Responses of Susie Verkamp to Questions From Senator Thomas
    Queston 1. Ms. Verkamp, you mentioned several instances in which 
your smaller business can offer benefits to the park visitor that 
larger companies cannot. Aside from increasing the $500,000 threshold 
for preferential right of renewal, what other suggestions would you 
make for ensuring the ``value added'' of the small concessioner is 
adequately reflected in the prospectus and review process?
    Answer. There should be some way to reflect and give credit in the 
prospectus and review process for the role that small park 
concessioners play in the life of the park community itself and in the 
surrounding local economy. Many local concessioners are highly valued 
and respected members of the community, serving on school boards, 
donating to charities, participating in service organizations, and most 
importantly, providing an historical continuity that cannot be provided 
by the NPS staff, who by their nature as civil servants move into and 
out of different parks as their career paths dictate. Local history and 
local culture and local aesthetics are best shared with visitors by 
``locals''.
    Large corporate concessioners generally have no historical ties to 
the parks and, therefore, can offer no history to visitors of the 
parks. Additionally, large corporate concessioners frequently lack ties 
to local business communities. Consequently, large operations tend to 
hire seasonal employees who are offered no continuity or benefits, 
which makes it difficult to attract and retain qualified, experienced 
employees to provide visitor services. Some account should be made for 
decisions made on factors other than the bottom line.
    To ensure that the ``value added'' by the small concessioner is 
adequately reflected in the prospectus and review process, I suggest 
adding several evaluation criteria that specifically address the 
potential bidders' relation to the local economy and community, the 
longevity of staff, improvements to the park property over and above 
those required by the prior contracts, and comments from visitors 
regarding the service received. In addition, the NPS should consider 
the bidders' capability to interpret the park's culture and history, 
particularly in light of the fact that a majority of visitors to the 
parks currently identify their main interests as history and culture.
    When people visit the national parks they are looking for an 
experience that is different from a trip to their local shopping mall. 
They enjoy the unique historic and aesthetic qualities of the parks. 
While it is hard to quantify the ``character'' of the parks that makes 
them such a beloved part of the American cultural experience, a process 
that doesn't take these intangible qualities into account could to lead 
to the ``Walmart-ization'' of our national parks.
    Question 2. If the threshold for the preferential right of renewal 
were raised to $6 million, a fraction of the existing 600+ 
concessioners would be required to compete for contracts. What 
incentives would there be for companies, with a preferential right of 
renewal, to provide the highest quality possible in visitor services?
    Answer. The most obvious incentive is that our operations represent 
our livelihood. If we don't do the best possible job, we lose customers 
and the good reputation we have worked so hard to earn. Providing the 
highest quality visitor services is, quite simply, good for business. 
Moreover, as long term residents of our local communities, we do not 
want to lose the respect of our friends and neighbors by running a 
shoddy operation. It is hard to quantify the pride and commitment to 
excellence that many small operators have, but the annual evaluations 
performed by the NIPS provide clear evidence of a job well done. (Or 
not, as the case may be.)
    In addition to earning a profit and maintaining a good business 
reputation, small concessioners must provide quality services or risk 
losing their contract. The NPS has always had the authority to 
terminate unsatisfactory concessioners, including concessioners with a 
preferential right of renewal. Thus, all concessioners, including 
concessioners with a preference right, must continue to provide 
satisfactory services.
    Further, because concessioners must earn the preference by 
providing quality services, the preferential right of renewal in and of 
itself creates an incentive to provide high quality services. Only 
concessioners with satisfactory records are given the opportunity to 
match the terms and conditions of the best competing proposal.
    Without this preference, concessioners are faced with uncertainty 
as to whether they will be awarded the contract the next term and, 
therefore, tend to forgo investing in costly improvements that could 
improve visitor experience for fear of losing the contract the next 
term and, in turn, losing their investment. Without some assurance of 
continuity, the incentive to maximize services beyond what is required 
by the contract is seriously threatened and visitor services and 
facilities will progressively erode. Thus, the question should be what 
incentive is there for companies without a preferential right to 
provide the highest quality possible in visitor services?
    When a concessioner does a great job, it enhances its profits, 
which in turn enhances the park's revenues through increased franchise 
fees. Increased park revenues enhance the park's ultimate goal of 
maximizing visitors' experience and enjoyment. Creating a stable and 
predictable business environment as well as clear guidelines for 
operating our business, will enable us to do our jobs well and 
ultimately enhance visitors' enjoyment of the park.
    Question 3. Would a standard format for proposals, with limits on 
the number of pages, number of illustrations or a standardized format 
for financial reporting, result in a more equitable bidding process? 
What suggestions do you have for making the bidding or proposal process 
more equitable between large and small concessions?
    Answer. I am not sure if standardization is as important as are 
clarity, consistency, objectivity and transparency in the entire 
bidding process. Rather than developing a standardized prospectus for 
all parks, I believe that, in some cases, tailoring the prospectus to 
the specific site may be in the best interest of the park, the 
concessioner and the public.
    As I stated in my written testimony, the guidelines and criteria 
used in the bidding process have been a constantly changing target. The 
reasons for these changes are difficult to discern and often appear to 
be the result of personal or political agendas. As we are discovering 
from past competitions, the NPS does not have a quantifiable evaluation 
process. It is very subjective and often shaped to support a desired 
outcome. We have seen this most recently in the Jamaica Bay competition 
and the final decision of the GAO. If a quality incumbent loses because 
of an overly subjective evaluation process and for no other reason, it 
is ultimately the public's loss.
    Proper oversight, well-structured contracts, and clearly stated 
expectations from both the NPS and the concessioner are the best tools 
for ensuring quality services. Unless there are clear guidelines, the 
responsibility for deficient visitor services must be shared with the 
local park staff, who have oversight authority over all concessions 
contracts. In many instances, small operators have been operating on 
one year extensions for decades, with no annual evaluations and no 
ongoing, interactive support from their local park officials. We cannot 
read the minds of NPS officials. If the NPS and the concessioners are 
truly equal partners in providing quality visitor services, then they 
must communicate effectively and both act to address problems before 
they get out of hand. The overly complicated and costly bidding process 
mandated by the law is not the answer to improving services where they 
have fallen below acceptable standards.
    In addition to changing guidelines, small concessioners are placed 
at a competitive disadvantage due to the cost associated with 
responding to a prospectus. In many instances, small concessioners are 
discouraged from bidding when competing with large corporations. There 
are several examples of factors that contribute to excessive costs to 
small concessioners.
    For example, concessioners earning at least $1 million are required 
to submit audited prospective financial statements by an independent 
accounting firm. The cost to obtain an independent audit has increased 
significantly over the years and is prohibitive for small 
concessioners. This additional cost must be passed on to the visitor by 
increased rates. Accordingly, I believe that the threshold for the 
audit requirement should be increased from $1 million to $4 million and 
should also be indexed to an annual consumer price index (CPI).
    Another example of overly burdensome costs is the requirement for a 
formal environmental plan. In fact, preparing a formal environmental 
plan often requires hiring a professional to write the plan, another 
cost which can be prohibitive to a small concessioner. Moreover, no 
matter what the format of the prospectus, it is hard for small 
concessioners to compete with large companies with dedicated proposal 
writers, marketing departments, and environmental staff. Accordingly, I 
would strongly recommend greater oversight on the role of support 
contractors in developing criteria, particularly in the environmental 
area. The standards of expectation of environmental management, in 
particular, should be subjected to peer review and objective discussion 
and compared to standards adopted by most other federal agencies.
    In addition to having more money to pay dedicated proposal writers, 
marketing departments and environmental staff, large concessioners also 
have more money to offer the NIPS in franchise fees. The present 
bidding process encourages franchise fee bidding and should be 
eliminated because it serves no public interest. The only result is the 
placing of small concessioners at the mercy of wealthy corporations or 
conglomerates, some of whom are willing to purchase a small 
concessioner even if they know it will lose money in the short term. 
The franchise fee should be set by the park prior to issuing the 
prospectus so that the concessioner can prepare its budget and proposal 
based on a set fee.
    Another problem incurred by small concessioners is unanticipated 
costs. We are incurring costs that were not predicted when we signed 
contracts under the law that protected our preferential right to 
renewal. For example, if I am not planning to put my business on the 
open market, there is no need to spend tens of thousands of dollars to 
have an appraisal done. An appraisal is only necessary if I am placed 
in the position of having to negotiate my leasehold surrender interest 
with another party. However, under the current NPS policy, I must pay 
for an appraisal even though there is no need for one. These 
unanticipated and unnecessary costs and complications discriminate 
against incumbent small concessioners because they were not known at 
the time we signed our contracts and make it nearly impossible to plan 
and effectively operate our businesses.
    The lack of clarity, predictability and objectivity in the current 
prospectus process is costly to both potential bidders and the NPS. To 
fully appreciate the scale of this problem, I think it would be very 
instructive to quantify the amount of money and staff time that small 
concessioners have had to spend preparing for this process. I would 
also strongly recommend an accounting of the immense resources that the 
NPS has spent on this process. For example, I have heard that the NPS 
recently spent $300,000 developing one prospectus for one operation 
that grosses under $3 million annually. Wouldn't it have been more cost 
effective to just renegotiate a well structured contract for higher 
franchise fees, increased capital outlays and better environmental 
standards, if that was the desired outcome?
    Question 4. Do you feel that you have been well represented by the 
Concessions Management Advisory Board? What suggestions would you make 
for improving the Board?
    Answer. Because the industry representatives on the board are from 
large corporations, they have very different experiences and concerns 
than the small concessioners. There are some issues in which small and 
large concessioners have a common interest and others in which our 
perspectives and concerns are very different. For example, the board 
has focused a great deal of attention on the issue of cross-
collateralization. For those of us having small, single site operations 
cross-collateralization is not a particularly significant issue. In 
fact, because it is a potential benefit that we are not able to take 
advantage of, it could be seen as discriminatory. Having large 
concessioners in key positions allows them the opportunity to shape 
outcomes for their strategic purposes.
    That being said, I have appreciated the openness of the meetings 
and the tone which has been set by the chairman. Because it is 
prohibitive for small companies without huge travel budgets to attend 
meetings at great distances, it has been helpful to have the meetings 
coincide with the NPHA meetings. However, 1 believe that greater 
efforts could be made to get input from small concessioners when 
specific issues are to be discussed and decided upon.
    Additionally, the minutes of the board meetings have not been made 
available until months after the meeting, and they have been somewhat 
difficult to obtain. This is unfortunate because they often explain 
developments that are critical to preparing for the competitive bidding 
process.
    To help elevate small concessioners' representation by the Board, I 
suggest that small concession representatives be added to the working 
groups, where much of the creative problem solving and decision making 
are taking place. I also suggest that a working group be established to 
look into inconsistencies and discrepancies in how the bidding process 
has been implemented in different localities.

                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

  Response of John Turney, Cavern Supplies, to Testimony of A. Durand 
             Jones, Deputy Director, National Park Service

    In response to comments made by Mr. A Durand Jones, Deputy 
Director, National Park Service to the Senate Subcommittee on 
National Parks of the Committee on Energy and National 
Resources on April 8, 2004 regarding the status of the National 
Park Service Concessions Management Program that were 
misleading, I feel that it is important for the members of this 
Committee to understand the truth.
    Mr. Jones stated that ``[o]f the 52 operations currently 
grossing over $3 million in revenues, five are operating under 
newly awarded contracts, 17 have not yet reached their original 
expiration date, and 30 are currently operating under 
contractual or regulatory extensions (that is, their original 
operating date has passed). To date, we have awarded five of 
these contracts, at Greater Lake, Glen Canyon, Denali, Glacier 
Bay, and Yellowstone. We have released prospectuses for two 
others--Mount Rushmore and Carlsbad.''* He failed to mention 
that Carlsbad Caverns Concession Contract is less than $3 
million and with the statement he made above indicates that 
Carlsbad is in the over $5 million group of 52 operations. He 
also failed to mention that the prospectus issued was called 
back within about a month because it contained points that were 
not legal and were contrary to the law. He also failed to 
mention that the second prospectus was issued and there were no 
bidders because of the requirements that were placed on the 
concessionaire. He failed to mention that a third prospectus 
for the Caverns has not been issued as yet, therefore his 
statement concerning releasing a viable prospectus and 
misleading the committee into believing that Carlsbad has a 
workable prospectus is not true. Mr. Jones' statement makes it 
sound like a contract will be issued soon, and that is not 
true, at least until the new third prospectus is issued that is 
acceptable to the bidding concerns.
---------------------------------------------------------------------------
    * This quote is taken from Mr. Jones' written statement to the 
subcommittee.
---------------------------------------------------------------------------
    It appears that the passage of P.L. 105-391, the National 
Park Service has taken the stand that the concessionaires can 
fund many of the projects that they can not or are not willing 
to fund themselves. In our situation at the Caverns, the Park 
Superintendent could not control her staff during their breaks, 
so her solution to the problem was to issue a memo stating that 
no Park Service employee is allow to go to the concession 
restaurant for their breaks. As a further control measure, in 
the remodeling of the Visitor Center, she has taken all of the 
storage space and some space used for merchandising and 
restaurant seating to be converted into a break room for the 
Park Service. This will keep the employees out of the public 
eyes and will have a very bad negative effect on the areas of 
the concessionaire. No storage, no access to the Gift Shop 
except through the kitchen and seating area of the restaurant. 
Asking the concessionaire to invest $3.28 million in remodeling 
the building that will not be a workable building makes little 
to no sense at all. As long as the concessionaire owned the 
building, Park Service could not do what they wanted, so they 
bought out the possessory interest in the building so they 
could do what they wanted to do. Destroy the usefulness of the 
building because they could not control their employee and they 
needed additional space on the visitor center side and could 
not work it into what space they had felt. With them putting 
their break room in the concessions building, it is easier to 
use the franchise money that the park has kept to on such 
things as air condition and heating, which they plan us use in 
the entire visitor center complex.
    The Park Services lack of knowledge of the business world 
is shown in their proposing the increase of the franchise fee 
increases in the first contract prospectus, from 6.5% to 15% to 
25% as your gross sales go up does not indicate a understanding 
on how to operate a successful business, especially with a 15 
year contract. When the second prospectus was issued the term 
of the contract was 10 years with the franchise fee from 10% to 
15% to 25% as your gross sales go up, also does not indicate 
business knowledge, only greed on the part of the Park Service.
    There are also some three-quarters of a million dollars of 
hidden cost in the prospectus that are not included in the 
$3.28 million, plus the purchase of the possessory interest of 
the current concessionaire. Total figure will be $4.3 million 
at least, but nothing is said that a large part of that 
investment will not qualify for Leasehold surrender interest.
    Mr. Jones' comment concerning the Advisory Boards meetings 
being held where the smaller concessionaires can attend is 
stretching the truth somewhat. On at least 2, possibly 3 
different times the Advisory Board scheduled a meeting the 
following week after the National Park Hospitality Association 
Meeting. This was very convenient and plans were make to attend 
their meetings, only to have their meeting canceled at the last 
moment and rescheduled at a later date. Travel funds are not as 
readily available to the small Concessioner as they are to the 
Park Service.
    As the new law became more and more entrenched, it was 
evident that the Park Service had to do something to make the 
pill not so bitter. They began to mislead the concessionaire as 
to what would be expected. We were told early on that the 
contract would be a status-quo contract. When the planning was 
completed and the money spent on preparing for the ``Status-
quo'' contract, were we ever surprised when almost $4 million 
had to be spent to keep the facility. I cannot help but wonder 
what it would cost if it were not a ``Status-quo'' contract?
    Because of the Park Services desire to implement the new 
law and take away our preference in renewal, even though we 
have it in writing from the Regional Director, we have been 
under extensions now for 13-14 years. We have not been able to 
retain our key employee because of the uncertainty of year to 
year extensions. We have not been able to invest in the 
business like we would like because again of the uncertainty of 
the contract.
    The new law and the way Park Service has interpreted it has 
just about ruined our future and has limited our ability to 
provide the visitor services that were contracted to do. 
Because of their greed and unwillingness to serve the visitors, 
two of our contractual rights were taken away without even a 
good reason being given. One day we were told that we would no 
longer provide those services. No amendment, no reduction in 
franchise fee, no nothing, just you will not offer those 
services again. Now they are trying to remove the Underground 
lunchroom from the Caverns by circumventing the law and reduce 
the activity so much that sales will be reduced by 80% or so 
and it will not be profitable to operate the facility, a 
facility that the public wants and has expressed their wishes 
more than once,but those wished have fallen on deaf ears.
                                ------                                

         Prepared Statement of the Small Concessions Coalition
        restoring the right of preference to small concessioners
                              introduction
    For over 50 years, performing concessioners could earn a 
preferential right to renew their concessions contracts\1\ by providing 
quality services to National Park visitors. In 1998, Congress limited 
this right to ``small'' concessioners (grossing less than $500,000 
annually) or those providing guide and outfitting services (regardless 
of income). It was thought that limiting the preference right would 
spur competition leading to better visitor services. But from an on-
the-ground perspective that has not been the case. Instead, the threat 
of takeovers and the burden of a paperwork-laden prospectus process are 
creating instability and apprehension diminishing the quality of 
visitor services provided by many smaller concessioners. Accordingly, 
the concerned concessioners recommend that Congress change the 
threshold to restore the earned preference to ``small businesses'' as 
defined by the Small Business Act, 15 U.S.C. Sec. Sec. 631-657, Pub.L. 
85-536 (i.e., $6 million).
---------------------------------------------------------------------------
    \1\ Concessions contracts are issued by the National Park Service 
(``Park Service'') and authorize concessioners to provide 
accommodations, facilities, and services to visitors to the National 
Park System.
---------------------------------------------------------------------------
                               background
    Approximately 600 concessioners hold an estimated 640 contracts to 
provide services in the National Park System. These concessioners fall 
into three categories.
    One group consists of large operators, some of which are 
subsidiaries of national corporations. Of these large concessioners, 
there are approximately 17 companies that hold 28 concessions contracts 
exceeding $6 million in annual revenue. Four of these companies also 
hold another 23 contracts of lesser value. These large concessioners, 
who pay approximately 90 percent of the fees generated by the program, 
would remain ineligible for the preference if the threshold were 
increased to $6 million. This group of large concessioners is 
collectively referred to as the ``big 50.''
    A second group consists of the smallest businesses. This group 
constitutes the majority of concessioners that gross less than $500,000 
annually and have retained the preference.
    The final group consists of approximately 60 concessioners that 
fall into the ``in-between'' category: not part of the big 50, but have 
revenues greater than $500,000. These are the concessioners defined as 
``small businesses'' by the Small Business Administration (``SBA'') and 
that would have their preferential right of renewal restored if the 
threshold is changed to reflect SBA standards. This group of 
concessioners is collectively referred to as the ``Small 
Concessioners.''
    Historically, the Park Service granted performing concessioners a 
preferential right to renew their concessions permits. See National 
Park Service Concessions Policy Act of 1965, 16 U.S.C. Sec. 20 (``1965 
Act''), Pub. L. 89-249. This so-called ``preferential right of 
renewal'' or ``preference'' granted incumbent concessioners with 
satisfactory past performance the opportunity to match the terms and 
conditions of the best competing proposal. Accordingly, the preference 
provided a critical incentive for concessioners to provide quality 
visitor services. Additionally, the preference offered stability and 
continuity to performing concessioners and facilitated long-term 
planning and investment, which improved the quality of visitor 
services. Absent the preference, incumbent concessioners, even those 
providing quality services, faced extreme uncertainty as to whether 
they would hold the contract the next contract term.
    Leading up to 1998, there had been some noteworthy cases involving 
big 50 contracts where poor services were provided and the financial 
return to the Park Service was minimal (e.g., approximately one percent 
return on a $50 million contract). Furthermore, prospective new 
concessioners were reluctant to incur the costs associated with 
submitting a competing bid proposal for these very large contracts 
knowing that the existing concessioners would likely retain the 
contract by matching the terms of a proposal.
    In 1998, Congress reacted by amending the Concessions Act to 
improve visitor services and increase the financial return on 
concessions. See National Park Service Concessions Management 
Improvement Act of 1998 (``1998 Act''), 16 U.S.C. Sec. Sec. 5951-5963, 
and Title IV of the National Parks Omnibus Management Act of 1998, Pub. 
L. 105-391. Congress eliminated the preferential right of renewal for 
many concessioners and implemented a revamped competitive selection 
system that included a franchise fee bidding component.
    The selection process begins with the Park Service issuing a 
prospectus inviting proposals for the contract. 36 C.F.R. Sec. 51.4. 
The Director then identifies a ``best'' proposal based on specified 
criteria. Each criterion is scored and the proposal with the highest 
cumulative point score is designated as the ``best.'' Secondary 
selection factors also may be considered which include protection, 
conservation and preservation of park resources and minority 
employment.
    All concessioners must submit bids under this system; however, the 
1998 Act allows performing concessioners providing outfitter and guide 
services and those with annual gross revenues of less than $500,000 to 
match the best competing proposal. By restricting the preference, 
Congress sought to encourage possible new concessioners to bid on 
existing contracts, which (in theory) would increase competition and 
improve the quality of services. While Congress recognized the need to 
provide some degree of continuity to small businesses, the $500,000 
threshold took the earned preference from many small concessioners that 
also need the assurance of reasonable continuity.
  preferential right should be restored to concessioners with annual 
                  gross receipts of $6 million or less
    Increasing the threshold is consistent with the goals of the 1998 
Act. Congress's explanation for limiting the preference is found in 
each committee report from both the House and Senate:

        The Committee considers it appropriate to extend a statutory 
        preference in renewal to these two categories of concessioners. 
        With respect to outfitter and guide concessioners, it is 
        important to encourage the continuity of concessioner 
        operations because of the need to encourage the retention of 
        the highly skilled guides needed to provide a safe and 
        enjoyable experience to back-country visitors in need of expert 
        assistance. With respect to concessioners where the 
        concessioner contract is expected to gross less than $500,000, 
        the committee considers that encouragement of operations of 
        concessioners with this modest level of revenue is appropriate 
        and that, in light of the small investment generally necessary 
        to make a proposal for such a business, there will be an 
        adequate level of competition for such a concession contract 
        even under the preference of renewal. Senate Report 105-202 
        (June 5, 1998); House Report 105-767 (October 2, 1998).

    This rationale should extend to ``small'' concessioners as defined 
by the SBA. For instance, competition will likely continue for 
contracts valued between $500,000 and $6 million. There are major 
differences in costs associated with bid preparation and buyout of 
leasehold surrender interests on big 50 contracts compared to the 
others. The lower costs related to contracts under $6 million will 
assure a level of competition consistent with Congressional intent. 
Additionally, the need for continuity of concessioner operations is 
fully applicable to most small business concessioners.
    Increasing the threshold to $6 million is also consistent with the 
Department Pot Commerce, U.S. Small Business Administration 
classification for small businesses in the service industry and many of 
the justifications for assisting small businesses apply here. See 36 
C.F.R. Sec. 121.201. The Small Business Act states:

        The essence of the American economic system of private 
        enterprise is free competition. Only through full and free 
        competition can free markets, free entry into business, and 
        opportunities for the expression and growth of personal 
        initiative and individual judgment be assured. The preservation 
        and expansion of such competition is basic not only to the 
        economic well-being but to the security of this Nation. Such 
        security and well-being cannot be realized unless the actual 
        and potential capacity of small business is encouraged and 
        developed. It is the declared policy of the Congress that the 
        Government should aid, counsel, assist, and protect, insofar as 
        is possible, the interests of small-business concerns in order 
        to preserve free competitive enterprise, to insure that a fair 
        proportion of the total purchases and contracts or subcontracts 
        for property and services for the Government (including but not 
        limited to contracts or subcontracts for maintenance, repair, 
        and construction) be placed with small-business enterprises, to 
        insure that a fair proportion of the total sales of Government 
        property be made to such enterprises, and to maintain and 
        strengthen the overall economy of the Nation. 15 U.S.C. 
        Sec. 631.

    The Small Business Act further sets forth Congress's small business 
economic policy as follows:

        For the purpose of preserving and promoting a competitive free 
        enterprise economic system, Congress hereby declares that it is 
        the continuing policy and responsibility of the Federal 
        Government to use all practical means and to take such actions 
        as are necessary, consistent with its needs and obligations and 
        other essential considerations of national policy, to implement 
        and coordinate all Federal department, agency, and 
        instrumentality policies, programs, and activities in order to: 
        foster the economic interests of small businesses; insure a 
        competitive economic climate conducive to the development, 
        growth and expansion of small businesses; establish incentives 
        to assure that adequate capital and other resources at 
        competitive prices are available to small businesses; reduce 
        the concentration of economic resources and expand competition; 
        and provide an opportunity for entrepreneurship, inventiveness, 
        and the creation and growth of small businesses. 15 U.S.C. 
        Sec. 631a.

    As further explained below, concessioners classified as small 
businesses under the SBA should receive similar support from the 
government in order to compete effectively. Moreover, restoring the 
preferential right to performing Small Concessioners will improve the 
quality of visitor services in the parks.
    increasing the threshold to $6 million would improve competition
    Congress's decision to eliminate the preferential right of renewal 
for SBA-defined Small Concessioners places these small enterprises at a 
substantial competitive disadvantage inconsistent with Congressional 
policy to increase competition. By only protecting the very smallest 
operations, Small Concessioners (usually family and local enterprises) 
are left to compete with large, sophisticated national corporations. 
Thus, rather than increase the pool of qualified concessioners, the 
1998 system reduces the supply of concessioners to only the very 
smallest and very largest operators. Failure to restore the preference 
to the 60 Small Concessioners assures that the 17 companies currently 
holding the big 50 contracts will soon hold 110 contracts. Such 
concentration of the largest contracts does not enhance competition, 
but creates the opposite result.
    One competitive advantage larger concessioners have over Small 
Concessioners is their ability to acquire contracts held by incumbent 
concessioners based on revenue generated from their multiple 
operations. Small Concessioners often are dependent on the tourism 
market from year to year and do not typically possess other holdings 
that spread their risks. In contrast, large concessioners are not as 
financially dependent on the revenues generated by an individual 
concessions opportunity. A loss in one concessions operation does not 
have as significant an impact on larger operations concessioners with 
multiple and diversified operations. Thus, large concessions operators 
may take on a contract, even if it will incur a loss initially, because 
the company's other operations carry it through losing years. Small 
Concessioners do not have this luxury and cannot operate at a loss or 
break-even point just to acquire the contract.
    Further, because the cost to prepare a proposal is fixed despite 
the disparity of revenue generated among concessioners, the proposal 
cost represents a larger proportionate share of costs to Small 
Concessioners as compared to the large national entities. Requiring 
Small Concessioners to spend a disproportionate share of their 
resources to compete with the larger concessioners places Small 
Concessioners at a substantial competitive disadvantage. Consequently, 
the ``cost to compete'' is driving up Small Concessioners' costs and 
driving down their revenues at a more significant rate than the larger 
concessioners.
    Additionally, the franchise fee factor places Small Concessioners 
at a competitive disadvantage. In the 1998 Act, Congress reacted to a 
few high profile cases where very large concessioners were paying 
absolutely minimal fees. Congress sought to increase the government's 
return by allowing a measure of fee bidding, especially for the big 
contracts that generate the majority of revenue to the government.
    Initially, the franchise fee factor was intended to serve as a tie-
breaker when opposing bids were otherwise evenly scored. Based on 
concerns that the tie-breaking concept might lead to franchise fee 
bidding, the Park Service removed the tie-breaking concept from the 
final rule, but retained the franchise fee consideration as one of the 
scored criteria. See 65 Fed. Reg. 20641 (April 17, 2000). Congress also 
added language to clarify that the primary purpose of the 1998 Act is 
to improve visitor services and park resources, not solely to generate 
more revenue to the government.\2\
---------------------------------------------------------------------------
    \2\ Consideration of revenue to the United States in this 
determination and in scoring proposals under principal selection factor 
five will be subordinate to the objectives of protecting, conserving, 
and preserving the resources of the park area and of providing 
necessary and appropriate visitor services to the public at reasonable 
rates. 36 C.F.R. Sec. 51.16.
---------------------------------------------------------------------------
    Despite Congress's attempt to prevent fee bidding, fee bidding has 
occurred. While the larger concessioners can afford to pay higher 
franchise fees to the government in order to secure their bids, Small 
Concessioners simply do not have the resources to successfully compete 
in fee bidding and, therefore, are at a competitive disadvantage. 
Squeezing smaller qualified concessioners out of the market for the 
sake of increasing government's revenues is inconsistent with the 1998 
Act's purposes. It tilts the scales to national corporations able to be 
the highest bidders. Restoring the preference to SBA-defined small 
businesses will help level the playing field in this area.
    Moreover, restoring the preference to Small Concessioners will have 
a minimal impact on revenue collection. Based on Park Service financial 
reports, in 2003 all concessioners paid approximately $25.1 million in 
fees. The Park Service estimates that the big 50 group was responsible 
for approximately 90 percent of those fees. Further, that amount does 
not include the $25-$30 million in special accounts (facility 
construction, etc., in lieu of fees) the government receives primarily 
from the big 50. Thus, restoring the preference to Small Concessioners 
would not adversely impact Congress's fee collection goal.
 increasing the threshold would improve the quality of visitor services
    In the 1998 Act, Congress identifies competition as a means of 
improving visitor services. Restoring the right of preference to Small 
Concessioners would advance this quality of services goal.
    First, most Small Concessioners have a vested interest in the well-
being of the parks in which they operate and, therefore, are more 
likely to provide quality services. Small Concessioners are typically 
local family-owned businesses that have provided quality services to 
visitors of our nation's parks for many years. In some cases, the 
operation pre-dated the park's establishment and, consequently, 
constitutes a significant historical aspect of the park. Additionally, 
in marked contrast to the big 50, most Small Concessioners consist of 
only one local business. These family enterprises contribute 
substantially to their local communities and are frequently a vital 
part of rural economies. Small Concessioners also recognize that they 
must operate in an environmentally sound fashion to make the parks a 
pleasant place to visit.
    Second, restoring the preference to Small Concessioners would 
improve visitor services because only concessioners that have performed 
satisfactorily under their previous contract earn the preference. See 
16 U.S.C. Sec. 5952; Pub. L. 105-391 Sec. 403; 36 C.F.R. Sec. 51.42. If 
concessioners do not perform and provide quality services, they do not 
earn the chance to match the best competing offer. The preferential 
right of renewal offers a substantial ``carrot'' to Small Concessioners 
to provide quality services so that they may earn the preference the 
next contract term. On the other hand, a system without this preference 
offers no incentive to provide quality services, especially when 
concessioners know it confers no benefits at the time of renewal. The 
current system encourages small concessioners to obtain a contract, 
make money and get out. The lack of the earned preference is a 
particular disincentive near the end of a contract. Small concessioners 
are unable to make capital investments in facilities and maintenance 
since they may not be able to recover those costs. The presence of the 
renewal right provides the incentive and assures continuing investment 
in quality visitor facilities.
    Third, restoring the preference to Small Concessioners would allow 
more continuity, which experience demonstrates leads to better 
services. Restoring the preference would extend a measure of security 
to Small Concessioners allowing them to engage in long-term business 
planning and providing an incentive to make visitor beneficial 
investments throughout their contract terms--investments they are 
unlikely to make, especially in the final years of their contracts. 
Additionally, restoring the preference would help Small Concessioners 
retain qualified employees because of the assurances that their 
positions will continue.
    Lack of continuity, on the other hand, is inefficient and adversely 
affects visitor services. Whether turnovers in concessions contracts 
has increased significantly since 1998 has yet to be determined; 
however, what is known is that when a turnover occurs, the contract 
award is either contested in a lawsuit or subjected to Congressional 
review. Visitor services are impaired by the uncertainty created as to 
which concessioner will be providing services the next term.
                                summary
    Restoring the preference to Small Concessioners is consistent with 
the goals Congress articulated in the 1998 Act. Restoring the 
preference would provide performing Small Concessioners an opportunity 
to compete in the selection process on a level playing field, which 
would promote competition at all levels, not just among the smallest 
and largest operators. Restoring the preference would also provide the 
assurance of continuity Small Concessioners need in order to operate 
effectively, which in turn, will lead to improved visitor services. 
Accordingly, Congress should increase the threshold for the preference 
right consistent with the SBA standard for small businesses.

                                    
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