L.A. City Controller Urges Broad Privatization Agenda to Shore Up Fiscal Health

This may be the most sensible set of proposals to come out of Southern California in some time…

The city of Los Angeles should consider privatizing dozens of major operations, including Ontario International Airport, according to a report commissioned by the office of City Controller Laura Chick and released on Monday. The privatization would generate revenue for the city in the face of current and projected budget deficits in the hundreds of millions of dollars. The report, which Chick commissioned from L.A.-based Public Financial Management Inc., recommended that the city privatize operations in nine broad areas, including animal shelters and city-owned golf courses. The report also proposed joint development with private partners of vacant or underutilized city parcels. The report identified privatization of Ontario International Airport as the item that could generate the most revenue for the city. Also on the potential privatization list: some residential solid waste collection, operation of the Hyperion Waste Water Treatment facility, fleet maintenance services and joint development of some underutilized city parking facilities. In a letter to Mayor Antonio Villaraigosa and the City Council prefacing the report, Chick wrote, “The cost of delivering essential services keeps growing at a rate that exceeds the city’s ability to generate revenue, and is a major reason we’ve had a structural deficit for years now. When it comes to looking at how the city can fulfill its obligations to the public, and pay for it, no subject should be taboo.” Privatization of city services is not unprecedented. Private contractors manage scores of operations for the city, such as street repairs. Also, the city entered a public-private partnership arrangement with TrizecHahn Inc. to build the Hollywood & Highland shopping center. There have been several previous attempts to privatize more city services, particularly during the administration of former Mayor Richard Riordan. Those attempts met with stiff opposition from public employee unions. As a result, only a fraction of the additional services recommended for privatization were ever implemented. Similar opposition is expected to many of these recommendations. “I know that many suggestions in this report will touch a nerve with the good men and women that work for our city and their union leadership,” Chick wrote. “That is why the report calls out that any steps, must include, at the front end, labor as a partner.”

More here. A great editorial from the Daily Breeze suggests that:

The controller’s report lists many intriguing opportunities for the city to reduce financial risks and economize using the public-private partnership model. Among the suggestions: * The operation of Ontario Airport could eventually be turned over to the private sector using a long-term lease arrangement — in exchange for a large up-front payment. * Nonprofit groups or other entities could be enlisted to take over some of the city’s animal shelter operations. Such a partnership might be able to attract more volunteers and private donations and thus reduce costs. * Private companies could be tapped to offer vehicle rental services, replacing some of the city’s existing vehicle fleet. * The report notes that several of the city’s 13 golf courses are in highly valued areas that could command much higher fees from patrons. Leasing some courses to private operators, which would charge market prices, could net the city a greater revenue stream. * City parking lots and parking structures could be leased as concessions, with private operators taking responsibility for operations and upkeep. * Municipal water and wastewater systems could also be restructured. The report mentions how the city of Hawthorne more than a decade ago signed a long-term lease with California Water Service Co. to operate its water system. The deal netted the city a $6.5 million up-front payment and lease payments of $100,000 annually for 15 years. The report cites the experience of Los Angeles County, which saved millions of dollars annually by allowing private contractors to perform custodial services. Obviously, such proposals should require that the city retain adequate controls and oversight to assure that new public-private partnerships act in the public interest. But there’s ample reason to investigate how these ideas could make the city leaner and better able to deliver public services during tough economic times. A business would not hesitate to experiment along these lines. Neither should local governments.

As I’ve written about extensively lately, urban leaders should take a close look at what Mayor Daley’s doing in Chicago for ideas on how to use privatization to improve the quality of services, control costs, and do more with less as they stare down their growing fiscal crises. Reason’s Annual Privatization Report 2008 Reason’s Privatization Research and Commentary