Grand Canyon Debt Could Cause Cuts

September 02, 2014
One
Laurel Morales
One of the most profitable contracts in the national parks is going out for a third time at the Grand Canyon. This time the park hopes to sweeten the deal.

We all know the Grand Canyon as a place of breathtaking beauty. It also offers a slew of environmental, educational and science programs.

In coming months though park officials are making widespread cuts to those programs. And it’s not due to federal funding cutbacks this time. It’s something much more complicated.

You could say the problem started back in 1998. That’s when Congress enacted term limits on concessions contracts.

Laura Shearin is a longtime park official at the Grand Canyon.

"We have to have competition for new contracts for commercial services that serve visitors to parks," said Shearin, a Grand Canyon Concessions Specialist. "And in this case we’re talking about lodging, gift shops, restaurants."

This means at least every 10 years these contracts must open up to bidders. It’s the Grand Canyon’s turn and it’s a lucrative contract. The successful bidder stands to make as much as a billion dollars in gross revenue over 15 years. But so far there have been no successful bidders.

Dave Uberuaga is the Grand Canyon’s superintendent. He said the lack of interest is because of a debt.

"We were ignoring a debt that was accruing in the park," Uberuaga said.

A big one — the park owes the current concessioner $157 million.

"We were accumulating more debt every year than the concessioner was paying us," Uberuaga said. "It was like your credit card when you pay the minimum. Yeah, you can get by, you can pay the minimum, but there’s that big number at the end somebody’s got to make up."

El
Laurel Morales
El Tovar was built in 1905 to look like a Swiss chalet perched on the Grand Canyon's south rim. For the hotel's centennial Xanterra gave it a $5 million renovation.

But what’s that have to do with potential bids? Well, it turns out under federal law the winning bidder for the new contract assumes this debt. If you’re wondering what that debt is for just ask the current concessioner, Xanterra. This company has operated the Grand Canyon’s hotels and restaurants for more than a century.

"It takes a lot of work and a lot of money to maintain these historic properties and keep these properties in shape," said John Streit, who manages Xanterra operations at the canyon's south rim.

And keeping those historic properties in shape is what accounts for the $157 million bill. 

Currently Xanterra pays only 3.8 percent back to the park in franchise fees. Shearin said for the new contract the park will raise those fees to at least 14 percent.

"And that’s a minimum, and so offerers could offer more," Shearin said.

These additional revenues will go toward paying down the debt. 

But first the park needs a new concessions contract and the $157 million debt is scaring away potential bidders. So the park has come up with a plan. It will sweeten the deal by paying two-thirds of the tab down.

Where is it going to come up with that hundred million? Uberuaga said they’ll borrow 75 million dollars from other parks.

Grand
National Park Service
Grand Canyon Park Superintendent Dave Uberuaga says in the next two weeks park officials will decide which programs and staff to cut.

And the rest?

"I’m not sure exactly but there will be personnel impacts," Uberuaga said. "There will be program impacts." 

It could be anything from educational programs that allow inner city kids to experience the canyon to science programs that help visitors understand the park’s fragile ecozones.

Some park advocates say the plan is a necessary evil. 

"The devil is in the details," said David Nimkin, the regional director of the National Parks Conservation Association.

"When you look at this in the abstract and you’re sort of saying well, 'gosh you’re going to cut services and you’re going to have to reduce the number of employees already operating below the margin. How can you think that’s a good thing?'" Nimkin said. "I don’t think it’s a good thing. But it’s a real serious problem and one that only is growing and has to be addressed."

The park hosted a recent open house for prospective bidders. It’s hoping this time it gets some bites. Scott Gold, the regional vice president of Forever Resorts, came to check it out. He said yes, operating in the Grand Canyon can be expensive given the high maintenance costs.

"But gosh, the Grand Canyon is the Grand Canyon," Gold said. "There’s not too many people on the globe that don’t know what the Grand Canyon is. So I think any operator that would be able to come in and take over an operation like this I can see where it would be a huge benefit and feather in their cap."

All bids must be received by Oct. 8 and the park will announce the winning concessioner in December.