A Public Utility Recreation Model

by Tom Quinn

Table of Contents

Congressional funding of federal lands agencies has not kept pace with burgeoning recreation demands. Public land managers seeking alternative means of meeting these demands have increasingly turned to private concessioning of recreation goods and services.

Concessioning is not a panacea but is in fact often implemented because potentially superior alternatives, such as direct government provision, are unavailable. Given the growing popularity of concessioning, it is essential that agency managers recognize their responsibility to manage public land recreation in the interest of the land owners and not simply "turn over the keys" to private enterprise.

Public lands recreation enterprises are a form of public utility to which all applicable economic theory and judicial precedent are relevant. Current agency policies fail to recognize the public utility nature of concessions. The result is that public land owners and users both lose.

Recreation concessions on public lands is big business, generating over $1.3 billion on national forests--mostly from ski areas--and $700 million on national parks. National forests and parks account for nearly 65 percent of all federal recreation concessioners (the term traditionally used by the Park Service) and approximately 90 percent of total gross concessioner revenue. In addition, the vast majority of government-operated recreation facilities also occur within the national parks and forests.

Most past criticism of federal management of concessioners has focused on the franchise fees collected by agencies from concessioners. While an easy target that plays well in the media, this narrow focus obscures a key issue: pricing. This has not always been the case.

Historical Concern Over Pricing

Much of the early discussion over the designation of open spaces in the western United States as national parks centered on the issue of keeping access to these lands a matter of public policy as opposed to a function of the laws of supply and demand as applied to unique natural resources.

The debate over the 1872 establishment of Yellowstone National Park portends a philosophical rift that exists to the present time. Discussions of states' rights, private properly rights, "land grabbing," waste of resources and land, and the role of the federal government might just as easily have come from a 1997 newspaper as one from 1872.

Arguing in favor of designation of Yellowstone, Senator Trumball of Illinois noted:

It is possible that some person may go there and plant himself right across the only path that leads to these wonders, and charge every man that passes along between the gorges of these mountains a fee of a dollar or five dollars. He may place an obstruction there, and toll may be gathered from every person who goes to see these wonders of creation.
How prophetic Trumball's words turned out to be. Public ownership has not prevented the tolls he grimly forecast. Nor did park designation preclude the opportunity for private entrepreneurs to profit from the public lands. As Joseph Sax notes, after establishment in 1872, "Yellowstone was quickly invaded by as nefarious a bunch of promoters as the West had yet seen."

Concerns over commercialization and pricing continued to emerge throughout the public lands system. After an inspection of Yosemite Valley in 1892, a special agent of the U.S. General Land Office reported, "Speculation, traffic, and gain are the dominant features of the management."

A report of the Secretary of the Interior in 1892 declared that the "hotel charges were high, for primitive accommodations, the charges for stabling or hiring vehicles or saddle animals way beyond all reason, and as a result the park was inaccessible except to persons of ample time and means." This clearly articulates an early concern over the prices charged by private enterprises operating on public lands.

Such concerns continued to surface throughout the early 1900s and at least partially led to the establishment of the National Park Service in 1916. A 1918 policy statement from Interior Secretary Franklin Lane to the first Park Service director, Stephen Mather, noted that, "concessioners should be protected against competition if they were giving good service; and they should yield a revenue to the government, but the development of the revenues should not impose a burden on visitors."

Mather's primary focus was on luring private capital into the parks. Mather clearly understood that bringing more tourists to the national parks was important for gaining Congressional support for park acquisitions and increased appropriations. Perhaps Mather's personal philosophy was best summed up in his oft-quoted remark that "scenery is a hollow enjoyment to a tourist who set out in the morning after an indigestible breakfast and fitful sleep on an impossible bed."

Around the same period, in 1915, Congress authorized the Forest Service to issue special-use permits for private recreation facilities on the national forests, the first Congressional recognition of private recreation development on the forests. The act allowed summer homes (which the Park Service forbade), hotels, stores, or other recreation-related facilities.

In order to attract private capital into recreation development, it was necessary to assure developers that their investment was secure. This sometimes meant limiting or even removing competition; in effect, the government established monopolies.

Some park managers before Mather used competition to keep prices down and quality up. This led to so many concessioners that few profited and service remained poor. Mather decided instead to rely on regulated monopolies.

Mather believed that the federal parks were perfect settings for regulated monopolies. He had personal experience with Chicago municipal reform societies that advocated regulated telephone monopolies. Public utilities were generally considered "natural monopolies" by most economists at the time; to Mather, national park recreation concessioners were simply another form of public utility.

Mather pursued his "public utility" policy with characteristic fervor. He never once used the word "concessioner" as a heading for the concession section of his annual reports to the Secretary of the Interior, instead titling the subject "Public Utility Services." While the Park Service no longer uses this term, it remains a valid label.

The New Deal led to increased federal spending on public works in the national parks and forests as well as a renewed interest in regulating private concessioners. A 1940 Forest Service recreation policy directed that

the Government will install and operate simple, moderate-rate resorts in order to insure appropriate and timely developments and provision of adequate service at the lowest feasible rate. Where public funds are not available for this purpose, such installations will be permitted by private enterprise, but under permit requirements which retain government control of the type of development and the quality and cost of services rendered.
"Some believe that the concessions should pay more into the government treasury," commented Newton Drury, who became Park Service director in 1940. "My own opinion is that even more important is the obtaining of moderate rates for the public patronizing the concessions."

Here, then, is the dual nature of government's financial oversight of concessions: reasonable rates versus returns to the Treasury. Policy-makers might legitimately claim that one or the other is more important. But it is not legitimate for agencies to relinquish their responsibility to assure either moderate rates to the public or equitable returns.

The debate over concessions continued after World War II. While this debate usually focused on the highly visible park concessions, its points are equally valid for the forests. Studies in the 1950s and early 1960s questioned park concessions policies. One concluded that concessions contracts "made little economic sense and that the government's policies amounted to subsidization of an industry that no longer needed it."

Due to the clout of the concessions industry, however, the Concessions Policy Act of 1965 merely solidified past administrative policies into legislative form. Although President Johnson called for federal land agencies to adopt concession policies that "preserve the competitive forces which give vitality to our whole nation," Mather's monopolies prevailed. A USDI Inspector General audit found that, of 29 contracts renewed between 1985 and 1989, 28 were awarded to the existing concessioner who submitted the only offer for the contract.

Even without a legislative mandate, the same result is found within the Forest Service. Over time it has come to be considered a "right" of the existing permittee to keep their permit as long as they want if they are providing satisfactory services. Yet the agency has avoided scrutiny in part by declaring that, unlike the Park Service, it does not have a formal policy granting preferential rights to existing concessioners.

There is a sound rationale for Mather's idea of concessions as regulated public utilities. One economist notes that the,

economic basis of a monopoly may be found in the natural limitations on the supply; in the limitations on the number of locations suitable for the business. . . ; in the character of the product which limits the area of distribution. . . ; in the immediacy and urgency of the need for the service (the innkeeper, the taxicab); or in the superiority of service by a monopoly which leads to a public policy of restricting entry.
These criteria are clearly applicable to public lands recreation facilities. The same economist goes onto say that,
Public utilities are distinguished from other businesses by the formal obligations to the public which are exposed upon such companies. . . Utility enterprises must be prepared at all times to render a service that is adequate both in quality and in quantity. . . In the absence of an alternative, the consumer must take the service from the only utility available, and it is, therefore, appropriate that the company should be under a legal obligation to provide the service at a reasonable price.
Unfortunately, neither the Park Service nor the Forest Service have fulfilled their duties as public utility regulators: They have not insured that concessioners provide their services at reasonable prices or that they pay reasonable fees to the Treasury. An example of this problem can be found in the Sabino Canyon Recreation Area of the Coronado National Forest.

Sabino Canyon Shuttle-Bus Service

Located on the outskirts of Tucson, Arizona, Sabino Canyon has long attracted both local residents and visitors from throughout the United States. The area receives more than one million visitors annually, making it one of the most heavily visited developed recreation sites in the National Forest System.

New Deal projects in the 1930s included a four-mile paved road with nine stone bridges as well as dams creating pools for recreationists and extensive camping and picnicking facilities. In the 1960s and 1970s, the Forest Service built new roads, installed electricity and water/sewer lines, constructed many new restrooms and recreation facilities, and erected the first visitors' center in the Forest Service's Southwest Region. Recreation use skyrocketed.

By 1975, traffic jams, car exhaust fumes, noise, litter, and vandalism were commonplace on weekends and holidays. The very experience that many people were coming to enjoy was being destroyed. A draft environmental statement recommended that a shuttle-bus system be used to enhance visitor experiences and protect the natural ecosystem.

In 1977, an "Invitation to Provide a Public Transportation System in Sabino Canyon Recreation Area" was sent to twenty-two prospective providers. TWA Canteen Services was awarded the permit, and it began operations in June of 1978. The road accessing the main body of Sabino Canyon was closed to private vehicles and all motorized public transport was thereafter provided by the shuttle bus. The remainder of the roads in the recreation area were closed in 1981.

Needless to say, many people used to driving in the area were not pleased with this decision. The Forest Service assured them that shuttle buses would keep the canyon accessible and affordable to nearly everyone. Initially, fares were 85 cents for adults and 50 cents for children. On Wednesdays, fares were reduced to 40 cents and other discounts were occasionally offered during slow periods. This was not to last, however.

As a result of the initial capital investment burden of starting up a new service and of the Forest Service's apparent initial insistence that the price remain at very low levels, TWA Services did not realize what they considered to be an adequate return and they sold the business in 1980 to Sabino Enterprises, Inc. The Forest Service approved this transfer without competitive bidding.

From 1980 to 1985, the adult fare increased steadily to $3.00. In 1985, the service changed hands again, having been sold to Sabino Canyon Tours, Inc. (SCT). This transfer was also allowed by the Forest Service without competitive bidding. Sabino Canyon Tours was granted a ten-year for "operating and maintaining a public transportation system." The fare was immediately raised to $4.00 for adults and $2.00 for children.

During the 1980s, the agency and the concessioner began to view the transportation system as simply a tourist attraction. An additional fare increase to $5.00 per adult was granted in 1989 based on a comparison to other entertainment/tourist attractions in the Tucson area. There is no logical basis for these comparisons. Although a simple interpretive narration is provided as required by the Forest Service, the primary function of the shuttle is a public land transportation system.

Furthermore, if a conscious decision was made to change the purpose of the shuttle from a public transportation system to a "tourist attraction," a new prospectus should have been issued allowing other potential operators an opportunity to compete for the service. It is entirely possible that TWA Services, which did not want to run an 85cents mass transit system, would have gladly operated a $5.00 tourist attraction.

The public has been relatively silent through these fare increases. This is partly because the increases have been gradual, and partly because most people believe the bus is run by the Forest Service and that its revenues support the canyon's other recreation facilities. In fact, the concessioner pays the Treasury less than 2.5 percent of its gross receipts.

The Sabino case example is representative of many public lands recreation service enterprises. In such public utility-like cases, a single provider, protected from competition, may be the most effective and efficient means of meeting agency objectives. However, with this structure come associated responsibilities, such as a responsibility to produce adequate returns to the Treasury or to provide services at a reasonable cost.

The Forest Service has not met its share of this responsibility. Requests by the Coronado National Forest for an audit of the Sabino Canyon shuttle provider were denied by the regional office. Although such audits are perfectly legal, the region said that any attempt to determine "excess profits" would be an "interference with the [permit] holder's rights."

This is not an isolated case. The Forest Service's California region, which has the largest recreation program of the agency's nine regions, decided in 1993 to no longer evaluate the fees charged by concessioners. This was in response to direction from Washington that the Forest Service should make no attempt to control such fees.

The Forest Service collects minuscule returns from concessioners for the Treasury, yet its stated policy is to make no attempt to control the prices charged of recreationists. In short, the agency has given up both of its responsibilities as a regulator of the concession monopolies.

The U.S. has a long legal history of regulating natural monopolies as public utilities. Beginning in 1877, a series of Supreme Court rulings established substantial legal precedent for government to regulate private enterprises. There has been agreement in Supreme Court rulings that regulation is not only permissible but in fact necessary when the business in question was "affected with a public interest."

Although few today to refer to recreation concessions as public utilities, the parallels with traditional utility regulation are evident. Yet the Forest Service does not acknowledge a role in regulating prices charged by private enterprises on national forest land. In fact, as noted above, it has recently contended that such regulation is legally "indefensible." This policy greatly restricts the ability of agency managers to improve recreation enterprises. The position itself is legally indefensible, since numerous court rulings allow regulation of monopolies.

It is worth noting that the Park Service does not accept unsolicited business proposals, but only issues a prospectus or otherwise approves a business venture if the agency deems it is in the public interest and commensurate with park values. Although the Forest Service does review unsolicited proposals, it will similarly only approve new businesses if they are considered to be in the public interest. This should not be surprising since these are publicly-owned lands; it is therefore safe to conclude that recreation enterprises on public lands are "affected with a public interest."

Given the rulings of the Supreme Court, it appears indefensible for the Forest Service to protect the interests of the recreation industry at the expense of the recreationists and owners of the public lands. The agency is clearly within its rights and responsibilities to regulate prices for recreation enterprises.

Recommended Strategies

A fundamental change is needed in the way in which agencies and elected officials view public lands businesses. Debate over the amount of money concessioners return to the Treasury sheds little light on the larger policy considerations. A new paradigm must recognize the ownership rights of the public and the utility-like nature of many recreation businesses on public land.

Several different strategies should be considered as a part of this new paradigm:

Strategy #l--Retention of User Fees at the Local Level: Until the recreation fee demonstration program, most user fees collected by federal land agencies have gone to the Treasury. This provides no incentive for innovated, entrepreneurial thinking on the part of agency managers and ultimately results in fee areas being turned over to private operators who are allowed to keep 90 to 99 percent of their fees. As the fee demo program is showing, allowing agencies to keep at least 75 percent of fees immediately improves performance.

Strategy #2--Financing for Public Enterprises: In conjunction with retention of user fees, agency managers should be allowed to acquire financing for recreation investments. Loans would be repaid out of user fees. This would move the agencies into meaningful partnerships with the land owners. Financing might be done through bond issuance, possibly through non-profit entities.

Strategy #3--Policy Consistency: Whether the above strategies are adopted or not, consistent policy is needed across agencies for dealing with private concessioners. This point has been made repeatedly for decades, yet major differences persist. Despite vague statements from the Forest Service that their "mission" is different from the Park Service and other Interior agencies, there is simply no basis for significant differences in concessioner policies. There is even less justification for variations in policies within an agency, as has been shown to be common. Acceptance of the public utility paradigm would be an important step towards achieving policy consistency.

Strategy #4--Regulation of Pricing: While government regulation is currently unpopular, it makes sense for most public lands recreation concessioners. If a concession is selling products in a clearly competitive market, such as t-shirts or hot dogs, then market prices are fine. But when concessioners are providing unique public land experiences where the land and facilities are owned by the users, prices can't be compared with "similar" services on private land. At a minimum, prices should insure that the government gets a reasonable share of the profits.

Strategy #5--Franchise Bidding: To avoid the pitfalls of traditional regulation, federal land agencies should consider franchise bidding of recreation concessions. Franchise bidding simulates the effects of market competition by awarding the franchise to the firm willing to provide the service at the lowest price to users. No agency currently uses franchise bidding; in fact, some agency policies actually encourage high prices.

Strategy #6--Remove Inappropriate "Price Floors": Price floors, such as a requirement that prices be based on non-comparable private-sector operations, should be eliminated. Such policies exacerbate efficiency and equity problems in public land recreation pricing, have no economic basis, and (as noted by two economists) are a "perversion of the idea of competition."

Strategy #7--Public Provision of Recreation Services: Strategies 1 and 2 fix the funding problems that often prevent agency managers from providing recreation services themselves. While there will always be a role for concessioners, concessions are not the only way to provide recreation services. Many agency land managers strongly support direct provision of many recreation services, including picnic areas, campgrounds, and general access control.

Strategy #8--Non-Profit Provision of Recreation Services: In instances where government provision is not appropriate, greater emphasis could be placed on the option of letting non-profit organizations manage public lands recreation enterprises. Non-profit organizations with social goals are often well-received by recreationists. Complaints over user fees are significantly reduced when recreationists recognize that their payment is going to support a worthwhile social program as well as to supporting the recreation facilities.

Strategy #9--"Corporate" Non-Profit Provision: When a large, capital-intensive recreation facility is needed, small non-profit organizations will generally not be likely to effectively compete. Here it may be appropriate to revive Stephen Mather's policy of asking major corporations to provide minimum profit, or even non-profit, "showcases." Corporate sponsorship of the Olympics, the Statue of Liberty renovation, and similar causes provide examples of such support.


Public land recreation in the United States is quickly evolving towards a loosely regulated network of private entrepreneurial ventures. The movement away from direct agency provision and the loss of early Park Service recognition of concessioners as a form of public utility has shifted the "rights" away from the user and owners of the public lands to those who stand to profit from controlling access to these lands.

This shift was not based on any carefully developed policy analysis but is simply the result of the agencies' inability under existing law and policy to manage recreation facilities effectively. Those that feel good about for-profit concessioning as the solution to public facility operation problems have not paused to consider the broader policy issues which this "solution" has brought to light. Most notably, or at least most succinctly, whose interests count?

The people who own the public lands have rights that count at least as much as those who have concession contracts. Regulation of the concessions as a public utility is one way to protect the rights of the owners and users. But direct provision of recreation by the public agencies themselves, or by non-profit organizations, also can work. This requires changes in policies and funding structures that today prevent managers from providing recreation themselves.

Tom Quinn is currently a staff director with the Santa Fe National Forest and a member of the Forest Options Group. This is an adaptation of a longer unpublished article.

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