Privatization Gets a New Chance With Cash-Short Local Governments : Recession: Proponents say turning over services to private enterprise is a good alternative to raising taxes. Critics say it’s a quick-fix solution that doesn’t work.

In the midst of recent discussions about balancing Los Angeles’ $3.9-billion budget, City Councilwoman Joy Picus suggested that badly needed funds could be raised by selling the city’s bustling airport to a private company.

The idea of privatizing Los Angeles International Airport did not fly. In fact, the proposal, which backers say would yield the city more than $1.5 billion immediately, had been unsuccessfully grounded before.

Still, the revival of the privatization issue in the midst of L.A.’s budget debate illustrates the persistence of the movement. It is an issue that has gained renewed vigor nationwide as cash-strapped governments seek creative ways to make ends meet.

“Contracting out (by) federal, state and local governments will likely continue in the 1990s, largely as a consequence of fiscal pressures,” predicts the Santa Monica-based Reason Foundation, an organization in the forefront encouraging privatization.

The recession of 1991 has given new impetus to a movement that for decades could count relatively few victories. New York City and Philadelphia, both facing serious deficits, have considered raising revenues by turning some public operations over to private companies.

Many other jurisdictions are considering privatizing some public services--from garbage collection to building and operating prisons. The reason: The estimated annual revenue shortfall for state and local governments at the end of the first quarter of 1990 was $44.9 billion, up from $35 billion a year earlier.

Afraid that they have reached the limit on raising taxes, some officials see the sale of public property as providing a one-time windfall for the municipal purse. Others say privatization may provide a steady source of income from leases or commissions. And there is also the added attraction of putting valuable property on tax rolls.

Recent examples of governments turning to privatization are numerous:

* New Jersey Gov. Jim Florio recently proposed to turn over operation of the state’s motor vehicle inspection program to a private contractor in an effort to save $22 million a year in operating costs and $40 million in savings on pollution control equipment.

* Chicago is turning over management of city parking and drug treatment programs to private concerns.

* Massachusetts is considering hiring private companies to manage a range of services--ranging from state park operations to the collection of court fees.

* In Northern California, Madeira County contracts with private attorneys to provide legal aid to for indigent defendants. The county says it is saving about $250,000 a year.

Outside the United States, recent political reform efforts have spawned efforts to radically transform some nations’ economies, resulting in many more transfers of government-owned industries to private hands.

Unions are probably the most vociferous lobbyists against privatization.

“We think it is a quick fix for financial difficulties. It is not a panacea,” said David Hoffman, public affairs field coordinator for the American Federation of State, County and Municipal Employees, which represents 1.5 million workers. “We think that it frequently does not save money. We also don’t like to see existing jobs in the public sector lost.”

The unions maintain that privatization has a significant social cost. The public sector employs more minorities and women than have private firms, Hoffman said. Thus the people who lose their jobs because of privatization are disproportionately minorities and women.

But public officials are pressing forward because of potential cost savings.

“There is a very large savings in privatization,” said E. S. Savas, professor and chairman of the management department at Baruch University of the City College of New York. “The fundamental issue in going private is not an issue of public versus private but monopoly versus private competition. If you do it correctly you introduce competition.”

While turning public duties over to private concerns has often been viewed as a radical idea in recent years, government domination of many services is relatively new. In the 19th Century, mass transit in the United States was all privately owned and operated. New York state, for example, had more than 200 private road companies that owned 4,000 miles of toll highways. Bridges, ferries and horse-drawn carriage companies were also privately owned.

Slowly, governments scooped up such operations, combining them into larger entities to create the forerunners of today’s big public works and mass-transit operations.

Privatization does not always mean the sale of public property. In some cases, government entities chose to lease facilities, leaving the operations up to the private concern but retaining ownership and control. Many municipal stadiums and publicly owned convention centers are operated in this way.

Salt Lake County last September turned over management of the Salt Palace to Spectacor Management Group. A Spectacor spokesman, Eric Yaillen, said that revenues and profits had been increased significantly through improved scheduling of employees, tighter cost controls and better tracking of expenses so that they are properly charged to people who rent the facility.

But the county also cites Spectacor’s national booking business that has helped to lure additional business to Salt Lake City.

“Government owned and operated centers rarely cover their annual operating costs,” said Edwin S. Mills, director of the Center for Real Estate Research at Northwestern University’s Kellogg Graduate School of Management. “Because governments have few incentives to manage convention centers efficiently, private ownership and operation of these facilities is likely to produce far greater economic benefits for state and local taxpayers.”

Airports are also seen as prime candidates for privatization by management contracts. Proponents argue that private operators could increase revenue by more efficiently managing landing rights and by bargaining more aggressively with airlines. Those are among the reasons airlines, which fear an increase in their overhead costs, are among the strongest opponents of airport privatization.

There are ample precedents for private operation of airports. Burbank Airport is owned and operated by a division of Lockheed Corp., and the company manages 22 airports, or individual terminals, in other states.

Perhaps the most common form of privatization are contracts for private companies to provide public services. According to a survey by the Mercer Group, an Atlanta-based management consulting firm, 82 municipalities, 10 county governments and 10 special districts in 34 states have contracted out some kind of service ranging from janitorial to solid waste collection.

All reported financial savings, and 45% said the quality of the service improved under private management. But all those surveyed had some sort of complaint too, including unreliable service, slow response time, underpaid private workers providing public services, a high employee turnover rate and the private company’s use of illegal immigrants.

The privatization of prisons is a rapidly growing phenomenon and one that has attracted lots of controversy. Private prisons are growing, in part, because governments find it difficult to build facilities fast enough to keep up with the rapid rate at which courts are ordering prison sentences.

Charles H. Logan, professor of sociology at the University of Connecticut and author of a recently-published book, “Private Prisons: Cons and Pros,” said it takes about two years for a government to finance and build a new prison. Private companies usually complete the entire process in about a year, he said, resulting in significant savings.

George C. Zoley, president of the Coral Gables, Fla.-based Wackenhut Corrections Corp., said the 200-bed facility it opened in McFarland, Calif. two years ago for parole violators cost the private company $13,000 per prisoner to build as compared to $20,000 it would have cost the state.

Wackenhut also plans to complete a 200-bed city jail in San Diego later this year. Private prisons also operate at less cost--about 10% to 15% less--than those run by governmental agencies, added Logan, who this year is a fellow at the Federal Bureau of Prisons.

A recent study by the State of Texas of its four privately-operated prisons, each of which house 500 persons, showed a cost $36.76 per day per prisoner. The prisons are operated by Wackenhut and Nashville, Tenn.-based Corrections Corp of America (the largest player in private prisons operations with 19 prisons and jails throughout the nation). The state estimated that if it ran the institutions, its cost would be as much as $43.13 per prisoner per day.

Some experts say private prison managers operate at less cost in part because they tend to be nonunion, pay less and are more flexible in staffing. Private operators say they also use better prison design in order to require fewer guards for security.

Opponents of such privatization claim private often cut costs by cutting corners.