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A Tighter Rein on Privatization

January 04, 1998

With the continuing squeeze on state and federal park budgets, government officials have increasingly turned to private contractors for functions once performed by public employees. Gov. Pete Wilson, for instance, has pushed privatization of a variety of once-public chores in California. Against that backdrop stands the state park system's sobering experience with Destinet Service Corp. This is shaping up as a cautionary tale about the downside of privatization.

The San Diego-based company has provided reservation services for California' 264 state parks, preserves and historic sites since 1994, handling about 1 million calls annually and collectingfees totaling $20 million for camp-grounds and tours. The company received $6.75 for every reservation made.

Destinet has also collected reservation fees for the National Park Service, but neither federal nor state officials were satisfied with the arrangement--and apparently for good reason. From Sept. 20 to Oct. 22, state officials allege, Destinet withheld about $1 million from the state as it continued to collect reservation fees from thousands of vacationers. In October, the National Park Service canceled its contract with the company at 18 park sites. Park Service officials claimed Destinet defaulted on the contract by "retaining hundreds of thousands of (Park Service) dollars." Late that month, Destinet formally declared bankruptcy but resumed payments to the state under court order. Last month, the company closed its doors, forcing the state to shut down its reservation service until a new contractor takes over. The situations of park visitors and employees, needless to say, have being highly disrupted.

State and federal probes are now underway into alleged financial mismanagement of public funds by Destinet. But the lessons of the episode should be clear: If privatizing publicservices is to work for the public's beneift, state and federal agencies need to be far more vigilant in monitoring the performance of contractors and should step in more quickly when problems like those plaguing Destinet Corp. surface. Performance without oversight is bad public policy.

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