L.A. URGED TO PRIVATIZE WATER OFFICE\Report says move would save money.

Byline: Rick Orlov Daily News Staff Writer

The Reason Foundation, a Santa Monica-based conservative think tank, is recommending the city of Los Angeles get out of the water business.

"For a long time, people assumed that government-owned water companies, because they don't have to pay taxes, had lower rates and were more efficient than investor-owned water companies," Reason Foundation President Robert Poole said. "Our findings are the opposite of that. When we look at comparable investor-owned companies, we find the municipal agencies have higher costs."

The foundation is releasing its report, "Restructuring America's Water Industry," today. It did not provide a breakdown of savings other than to say they would be substantial.

William McCarley, general manager of the Department of Water and Power, defended the city agency, saying it has cut workers to become more competitive. He also said the city would consider some of the foundation's recommendations.

Mayor Richard Riordan said he'd review the report, but was noncommittal on the privatization recommendation.

"We should be willing to keep an open mind and look at all aspects," he said. "But, we also have to look at the realities of such a change and the politics of it."

Patrick Maloney, one of the study's authors, said the savings would result from efficiencies demanded by competition.

Poole said privatizing the city's water operation also would give Los Angeles a steady stream of tax revenue rather than the current system where the DWP is supposed to return 5 percent of its revenue to the general fund. But, this year the DWP reduced the transfer amount due to a drop in sales.

Councilman Joel Wachs, who has been one of the DWP's harshest critics, said he'd support privatization.

"We should look at privatizing all services - water, power and the sewer system - to be more efficient," Wachs said.

Councilwoman Laura Chick, however, questioned how well thought out the proposal was.

"Sure we should look at ways of improving things, but it's one thing to say go ahead and privatize without providing any of the details of how it would work," she said.