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Cannon fodder: audit raises new debate over privatization of state-owned ski area.

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Management practices at the state-owned Cannon Mountain Ski Area are "alarming," according to a recent state audit, but it remains to be seen whether the report will serve as a wake-up call either to improve practices or to initiate an all-out effort to get the state out of the skiing business.

Both sides in the debate over whether Cannon, like Mt. Sunapee, should be leased and operated by a private company agree that the Legislative Budget Office's audit stalls the momentum at Cannon since a new mountain manager was hired. It also comes at a time with a ballooning state deficit and a poor economy that will leave state officials scrambling to balance the budget.

Privatizing the state-run ski operation at Cannon has become a perennial legislative issue. A decade ago, the state hotly debated leasing both the Cannon and Sunapee ski areas to private operators. In the end, Sunapee was leased to Tim and Diane Mueller--owners of Okemo Mountain in Vermont and Crested Butte in Colorado. The goal was for the proceeds of that arrangement to fund capital improvements at Cannon.

Since the Muellers took over operation, Sunapee has been financially successful, notwithstanding the owners' suit against Gov. John Lynch over efforts to block plans to build condominiums on nearby private land.

Last session, Rep. Fred King, R-Colebrook, sponsored legislation that would instruct the commissioner of the Department of Resources Economic Development--which oversees the state park system--to solicit potential leaseholders and put an initial plan to lease the ski operation at Cannon.

The bill was soundly defeated, generally along party lines, with Democrats opposing and Republicans in favor.

Time for a change?

Last March, the nonpartisan Legislative Budget Office completed a performance and financial audit of state parks system, of which Cannon Mountain is a major part. The report was highly critical of management of the system in a wide range of areas, including internal controls, control environment and risk assessment.

The picture drawn by the performance audit is that of a culture of sloppy, careless operations where safes and cash registers are left open, control processes ignored, credit card revenues recorded months after sales, free and discount tickets not recorded and scofflaws allowed to ski freely without question.

The report placed blame on upper management, which it said sets the "tone at the top" by providing little oversight, as well as poorly defined policies and procedures and essentially leaving employees to their own devices to protect cash.

According to a more detailed and professional analysis of the financial audit by two certified public accountants experienced in the field, the control of cash flowing into the state park system is so inadequate that it is impossible to draw an accurate conclusion of the system's financial condition.

The audit, which in the industry is called a "Management Letter" or "112 Letter," described the lack of control of the collection of cash revenues as "alarming." The word has no assigned meaning in accounting literature--for instance, "significant deficiencies" and "material weaknesses"--therefore the auditors must have chosen the word carefully to emphasize their concerns.

It didn't take proponents of privatizing Cannon, like Sen. John Gallus, R-Berlin, and Rep. Edmond Gionet, R-Lincoln, long to renew their efforts in the wake of the audit.

"Cannon has taken every cent we've made from Sunapee and wasted it," said Gionet, who plans to introduce legislation similar to King's bill in the 2009 session. "It's a dead horse."

King, who is retiring from the Legislature, said he believes the audit, as well as the poor economy and the success of Sunapee, will improve the bill's chances. He contends the state is ill-suited to be in the volatile and competitive ski business.

King, a former state senator, said the state lacks the incentives of private industry as well as the will or flexibility to make the kind of capital investments necessary.

Rep. Suzanne Gottling, D-Sunapee, who joined the majority of her colleagues on the House Resources, Recreation and Development Committee--which rejected King's bill last year--said her opposition was partly based on assurances by the Cannon management that, among other things, a business plan would be completed. The audit reported that a business plan had not been finished.

Gottling said her committee "gave them (Cannon management) a good direction to go and they didn't follow it."

Several members of the same committee were surveyed about their position in light of the audit. Most, like Gottling and the committee's chair Judith Spang, D-Durham, refused to completely close the door to privatization, although their rhetoric and records indicate little support for it.

Even Rep. Frank Tupper, D-Canterbury, who has long opposed privatization of state services--including the Mt. Sunapee ski area--refused to absolutely rule out the idea.

According to Spang, nothing is certain as the Legislature faces a budget deficit that could rise above $400 million.

"We can't leave any stone unturned to increase revenues and decrease costs," Spang said, quickly adding, "we won't be leaping at privatizing to get rid of the problem."

People's park

Veteran observers of the Cannon debate, like Dick Hamilton, of Littleton--who for years promoted the region for White Mountains Attractions--said Franconia Notch State Park, where Cannon is located "is so unique because of all the players" and its historical importance to the state and its people.

Because Cannon is part of the 6,000-acre state park, he said, it won't be simple to carve the ski area out. With 3 million visitors a year, he said, Cannon has a broad constituency, even after the collapse of the Old Man of the Mountain.

Hamilton also noted that the successful grassroots fund-raising effort in 1920s by the Society for the Protection of New Hampshire Forests to purchase the Notch was an enduring achievement.

"Little Yosemite," as it was then called, was saved by convincing contributors to adopt trees for as little as $1 each. Some 15,000 people responded, and the state matched the donations with another $200,000 to secure the sale and protect the land.

"The people bought this park. Children put (in) pennies to protect (the Notch) from commercialization," said Rep. Martha McLeod, D-Franconia. A few years later, federal help through the Works Progress Administration made tourist-related investments in the park to spur economic activity. By 1938, after just a decade of ownership, the park boasted North America's first aerial tramway and one of the first ski areas.

The debate over privatizing Cannon is split, with business leaders generally supporting it and environmentalists opposing it.

Kevin Johnson, owner of the Gale River Motel in Franconia, is a passionate supporter of privatizing Cannon because the ski operation is the "economic engine of the winter season" in the area.

A logical, not emotional, approach is necessary, he said. "After all it was the state," Johnson said, "who commercialized the mountain in first place."

In Concord, DRED Commissioner George Bald stays clear of the debate and instead focuses on improving Cannon's operation and finishing a land swap with the federal government to gain land integral to the ski area's expansion plans. He takes full responsibility for the problems cited in the audit, even though he inherited a large deficit at Cannon that required cutbacks in staffing as well as training.

"That is the cause, but not an excuse," he said. Bald has instituted several immediate initiatives to address the problems, including hiring an internal auditor to continuously monitor the financial functions of the parks system, as well as a new retail sales manager and investments in better training programs and technology to improve reporting.

Bald, a seasoned public administrator who is credited with successfully guiding the development of the Pease International Tradeport, didn't bite at the question as to whether the state can run Cannon better than a private operator. "Not better," he responded, "but we can run it as well." Bald said he is certain that his department can "turn things around."

He added: "It's a difficult situation. We are doing what any good company would do."
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Title Annotation:STATE GOVERNMENT
Author:Woodburn, Jeff
Publication:New Hampshire Business Review
Geographic Code:1USA
Date:Oct 24, 2008
Words:1332
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