News: CJ Exclusives

N.C. Zoo Says Privatization Could Free It From Fiscal Captivity

Officials cite uncertainty of state funding, lack of capital improvements as reasons

A partial privatization plan being explored by the North Carolina Zoo could increase donations, enhance attractions, and speed up needed repairs, its operators say. Free-market advocates hail the move as a step in the right direction, and a consultant says the trend has been prudent policy elsewhere.

“Basically, what we’re looking at is a public-private partnership, which 75 percent of the accredited zoos and aquariums in the country now have,” said Zoo Chief of Staff Mary Joan Pugh.

The state would retain ownership of the zoo, but the more than 250 employees now on the payroll of the state Department of Environment and Natural Resources would work for the private operator, the North Carolina Zoological Society. The nonprofit society already operates gift shops, sells memberships, and does some fundraising for the zoo.

Under a private operator, the state “would cap the amount of money they are giving to the zoo, and the zoo would be freed up to generate the money for its entire operating budget,” Pugh said. “It seems to work in other situations, and what they’ve found is donors are more willing to give to a privately operated nonprofit institution rather than a government-run institution.”

Rick Biddle, vice president of Schultz and Williams, the Philadelphia-based consulting firm conducting the feasibility study, said a report is due for completion by year’s end.

“There’s been a huge uptick” nationally, dating back 15 years but especially in the past five years, for accredited zoos and aquariums to enter into public-private partnerships, Biddle said.

“I think cities, counties, states that have partnered, those leaders look at it as a positive change for their respective institutions,” Biddle said. “Visitations are up, revenues are up, the number of household members are up.”

For example, when the Houston Zoo created a public-private entity 10 years ago, visitation was about 1.2 million to 1.3 million people annually, but “this year will get very close to 3 million visitors,” Biddle said.

“That’s a tremendous growth for a cultural institution,” he said. “We haven’t had an institution that was publicly managed, moved into a private sector (operation) and then come back to the public sector,” Biddle said. “I take that as a good indication that these models are good models for institutions to look at.”

“Governments just are not very good at running businesses. Government should not be in the business of business, from the U.S. Postal Service on down to state liquor stores,” said Leonard Gilroy, director of government reform at Reason Foundation, a Los Angeles-based, free-market think tank.

North Carolina “should be commended” for exploring private operation of the zoo, Gilroy said. The muscled-up private sector involvement will protect the asset from budget cutbacks, deferred maintenance and red tape that often put state-owned attractions in “a death spiral,” he said.

Though it’s not a pure form of privatization, “It’s a big step towards that,” Gilroy said. “In government, you rarely get the full-blown transition from public sector to purely private sector because, primarily, the public sector still wants some say in how that asset is operated or delivered, and that’s what you’re seeing here,” Gilroy said.

“Running a zoo is certainly not necessarily a core function of government. It’s an amenity,” he said.

“If you have limited funds and you’re making decisions between core functions like public safety or infrastructure, if you’re trying to allocate scarce dollars and you’re looking at things like higher education, health care, those are what policy makers would find to be more critical functions,” Gilroy said. “The public-private partnership is a way to preserve those amenities as opposed to shutting them down or curtailing activities.”

Pugh said the zoo currently attracts about 750,000 visitors a year and economic studies suggest it contributes somewhere in the neighborhood of $50 million to the state and local economy annually. The privatization study may reveal greater efficiencies, opportunities for zoo enhancement and higher attendance under a private operator, she said.

Under state ownership and operation, zoo officials cannot plan long-term projects adequately because appropriations are determined annually by the General Assembly.

Cheryl Turner, acting executive director of the Zoological Society, which is paying for the privatization study, believes private operation would be a plus in that regard.

“I think we could let donors know a time and not have to keep moving it a year out” when new attractions will open or capital improvements will take place, Turner said. “I think they would be happier knowing that. I think that would help immensely.”

Pugh agrees. “Right now, the zoo can’t do very much on capital improvements,” she said. “We have to go through all the hoops” required by state rules and regulations.

Adding a new exhibit requires multiple steps, from study phase to design, purchase and construction, each individually dependent on an act of the legislature, Pugh said. That process would be streamlined under private operation.

Currently, the zoo must come up with roughly $6 million towards its $17 million annual operating budget. If the zoo raises more revenue than anticipated, the state may reduce appropriations accordingly.

“That’s what’s happening now,” Pugh said.

In a privately run zoo, there would be no rigid funding formulas. “Then that gives us an incentive to raise money,” Pugh said.

While studies consistently have shown zoos thrive under the public-private arrangement, “We have to make sure we captured all the costs . . .what are the hidden costs, what are the true savings and so forth,” Pugh said.

And care must be exercised to work out retirement and pension benefits when transitioning state employees to a private payroll, Pugh said, though that has not posed problems elsewhere.

Biddle does not believe a for-profit ownership structure would be better. For one thing, the state is unlikely to sell the zoo, he said, and the cost probably would be prohibitive to a buyer if a sale were offered.

“You’re not going to become the affordable, supportable, sustainable place. You’re going to be up in the $30, $40 admission price” under a private, for-profit company, Biddle said. “It needs to have an admission fee, but without responding to shareholders.” And a for-profit setup could cut off some potential funding sources.

“Donors are not going to invest $10 million as a gift for a for-profit,” Biddle said.

Gilroy disputes the impracticality of a for-profit zoo.

“It’s not like they’re out there just trying to maximize rates” to reap enormous profits, Gilroy said. Sky-high admission fees would depress visitor levels. He likened the process to the Walmart business model. The retail giant could charge more for its products, but it would lose on volume sales, he said. “If you want them to come, you have to have something they want to come to.”

“One of the grand examples in this is Central Park in New York City,” Gilroy said. About 30 years ago Central Park was run down and had significant deferred maintenance. It was “a park that was crumbling, and it was a crime haven. People didn’t want to go to the park.”

Then the private sector stepped in and took over operations.

“Fast forward to today and you have well over 80 percent of the funding for Central Park is private,” and it again is a premier attraction in The Big Apple, Gilroy said. “If the model is good enough for Central Park, why isn’t it good enough for the North Carolina Zoo?”

Dan Way is a contributor to Carolina Journal.