National Park Service Concession Contracts; Implementation of Alternative Valuation for Leasehold Surrender Interest in the Signal Mountain Lodge and Leeks Marina Proposed Concession Contract, Grand Teton National Park

Summary:

The National Park Service (NPS) is proposing, subject to consideration of public comments, to utilize an alternative formula for the valuation of leasehold surrender interest under its proposed concession contract GRTE003-11 for operation of the Signal Mountain Lodge and Leeks Marina at Grand Teton National Park (“new contract”).

Dates:

Public comments will be accepted on or before March 3, 2010.

Addresses:

Send comments to Ms. Jo A. Pendry, Chief, Commercial Services Program, National Park Service, 1201 Eye Street, NW., 11th Floor, Washington, DC 20005 or via e-mail at jo_pendry@nps.gov or via fax at 202/371-2090.

For further information contact:

Jo Pendry, Chief Commercial Services Program, 202-513-7156.

Supplementary information:

The standard formula for leasehold surrender interest (“LSI”) value for applicable improvements provided by a concessioner under a National Park Service concession contract as defined in 36 CFR part 51 (“standard formula”) is as follows:

(1) The initial construction cost of the related capital improvement,

(2) Adjusted by (increased or decreased) the same percentage increase or decrease as the percentage increase or decrease in the Consumer Price Index from the date the Director approves the substantial completion of the construction of the related capital improvement to the date of payment of the leasehold surrender interest value;

(3) Less depreciation of the related capital improvement on the basis of its condition as of the date of termination or expiration of the applicable leasehold sulTender interest concession contract, or, if applicable, the date on which a concessioner ceases to utilize a related capital improvement (e.g., where the related capital improvement is taken out of service by the Director pursuant to the terms of a concession contract).

However, Section 405(a)(4) of Public Law 105-391 authorizes the inclusion of alternative LSI value formulas in concession contracts (such as the new contract) estimated to have an LSI value in excess of $10 million. One acceptable alternative methodology identified in Public Law 105 391 calls for the depreciation of LSI value on the basis of Internal Revenue Code requirements as they existed in 1998.

However, NPS is proposing an alternative LSI formula that avoids Internal Revenue Code complexities in LSI valuation. The proposed alternative formula has two components: One for initial LSI value (as of the commencement of the contract) and a second for new LSI value, e.g., that credited during the term of the contract, as described below:

(1) Initial LSI Value. The reduction of the initial LSI value under the new contract on a monthly straight-line depreciation basis, applying a 40-year recovery period regardless of asset class. There is no adjustment of the initial LSI value as a result of the installation (including replacement) of fixtures in the related capital improvements during the term of the proposed contract; and

(2) New LSI Value. The reduction of the leasehold surrender interest value in any new structures or major rehabilitations constructed during the term of the new contract to be based on straight-line depreciation and also apply a 40-year recovery period (on a monthly basis) with no asset class distinctions. The construction cost of new capital improvements will include the costs of installed fixtures. Any installation (or replacement) of fixtures after the initial construction would not alter the established LSI value in the improvements.

In summary, the proposed alternative formula:(1) Depreciates all asset classes composing LSI value over a 40-year recovery period; and (2) Eliminates adjustments of the initial LSI value as a result of the installation (or replacement) of fixtures during the contract term.

The NPS has determined, subject to consideration of public comment and after scrutiny of the financial and other circumstances involved in the proposed contract, that utilization of the proposed alternative formula, as compared to the Standard Formula set forth above, is necessary in order to: (1) Provide a fair return to the Government from the revenues of the proposed contract; and (2) Further competition for the proposed contract by providing a reasonable opportunity for the concessioner to make a profit under the new contract.

The NPS has also taken into consideration the fact that the proposed alternative formula provides a recovery period (40 years) for LSI improvements, which exceeds that which would have been provided by the Internal Revenue Code in 1998. This is because the recovery period of the proposed alternative formula would apply to all LSI improvements, regardless of their Internal Revenue Code asset class and applicable recovery period.

We consider that adoption of the proposed alternative formula will not impact the projected rate of return of the new concessioner under the terms of the new contract (as opposed to inclusion of the standard formula). This is because, in developing the minimum franchise fee to be included in the new contract,we will assess the projected revenues and expense of the business activities we will authorize and estimate a fair return to the new concessioner taking into account applicable industry norms. As part of this assessment, we will calculate the cost to the new concessioner of acquiring the existing LSI (and any required new LSI improvements). The minimum franchise fee, accordingly, will reflect the financial consequences of the proposed alternative formula such that the estimated reasonable opportunity for profit to the new concessioner would be projected to be the same whether the new contract included the standard formula or the proposed alternative formula. The proposed alternative formula will not lower the projected returns to the new concessioner but will reduce the speculative nature of LSI value under the standard formula.

Please note that, in the interest of time, the NPS may issue a prospectus for the new contract in the near future that incorporates the proposed alternative formula. If consideration of public comments in response to this notice causes us to alter the proposed alternative formula, we will amend the prospectus accordingly before the deadline for submission of proposals.

Before including your address, phone number, e-mail address, or other identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.

Daniel N. Wenk,

Deputy Director, Operations.

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