Michigan residents who use — or might someday like to use — a state park should review the disturbing presentations and spreadsheets the Department of Natural Resources has on its Web site. They reveal a system at risk of falling into a death spiral: declining demand, budget pressures, maintenance backlog and very uneven usage.
The DNR’s 2006 $4-per-night "short-term fee hike" for the most in-demand parks is a half-step toward a solution. But what’s needed is a leap that leaves behind the old "first-come, first-served" reservations model. A fee hike, short-term or otherwise, not only fails to solve the park system’s problems, it keeps DNR doing what it does worst: setting fixed year-round prices for campsites whose value varies immensely throughout the year.
One DNR presentation is called "Revenue Enhancement Ideas." Essentially, it offers only two main ideas: raise fees in the parks or find new money outside them (e.g., by diverting lottery money from schools, grabbing a slice of dedicated sales tax, borrowing — as if that were a funding source — or finding "other dedicated funding," such as from tobacco settlement revenue). The presentation does mention — in a single line — the only idea likely to work: using variable pricing to create more revenue by charging more for "utility hookups, prime sites, prime parks and prime seasons."
Despite obvious differences, hotels and public state parks actually have much in common, mainly because they face the same big problem: wildly uneven demand. Worse yet, hotel rooms and campsites can’t be saved when demand drops off, the way butter or milk can be stored. For that reason, hotels and state parks can’t recoup anything from empty rooms or campsites. Once that revenue is lost, it’s gone for good.
When hotels have excess vacancies, they cut prices to fill the empty rooms. At the same time, they raise prices for those rooms and suites that rent quickly, recognizing that those rooms have amenities that the guests value and will pay more to have. This lets the hotel gain more revenue from some guests, while still offering other rooms at lower rates. They constantly adjust their offerings to find the right mix of rates and amenities.
The DNR should learn from this and adopt variable pricing strategies as well. There’s a simple, highly-efficient way to do it: drop fixed-rate charges and auction off campsite reservations instead. Modern auction software lets people offer a minimum and a maximum bid online or over the phone. The software then "runs" the auction, starting at the opening bid and automatically raising bids to their maximum in steps until the high bidder wins.
The system would set the starting bid at half the current fixed rate for each site, with the minimum dropping if no one bids on the campsite as the reservation date approaches. Auctions would generate much greater revenue from high-demand parks (which are already booked solid). But auctions would also yield more revenue from current low-demand parks, because a discount rental still earns more than a vacancy. And auctions would clearly highlight those parks, if any, that don’t have much value as public campsites.
With auctions, instead of the DNR charging the same fixed price for an off-season reservation as it does for Memorial Day, the Fourth of July and Labor Day weekends, campers would determine the site and services they want and how much they are worth.
What about less well-off people? Will they be able to afford a campsite? Yes. Auctions bring prices to the right level. By cutting prices at our less-used parks, more sites will be more affordable and accessible than ever.
And we can also help people of modest means by giving them credit for past unsuccessful bids. Say that, every week, Joe and Jane Camper bid on a popular Lake Michigan park campsite. But, because of their tight budget, they haven’t ever won the auction. By adding a credit — say, a dollar for every past auction where they bid at least today’s rental rate — then Joe and Jane are more likely to win later auctions, while only paying the lower amount that they actually bid.
Ultimately, our parks must either raise revenues or cut costs by deferring maintenance or closing parks. We can only raise revenues in two ways: either we take more money from everyone in Michigan — regardless of whether they use the parks — or we have to get more money from park users, including our many out-of-state visitors.
Auctions are the most efficient way to find the exact right price, which is the one that optimizes both access and revenue, results in fewer vacancies, and generates more money for park preservation. The only hard part is that it requires new thinking. That’s why it’s time for the DNR to park its old thinking about setting prices for reservations in the park.
John M. Gear is an attorney and an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.