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Byline: Robert W. Poole Jr.

SHOULD the Los Angeles city government be running a major airport and a huge electric and water utility? Our 72-year-old charter makes these businesses city departments. Yet major cities all over the world are divesting these functions to the private sector.

That's what's been happening in Rome this summer, as the airport and the municipal water and electric system head for privatization. It's as if Los Angeles sold off Los Angeles International Airport and the Department of Water and Power.

In a June referendum in Rome, voters approved the sale of the municipal electric and water utility, along with the city dairy (yes - Rome has a municipal dairy), over the strident opposition of both the right (the neo-fascist National Alliance) and the left (the Refounded Communists). And on July 16, some 41 percent of the stock in Aeroporti de Roma was offered to investors in a $344 million initial public offering. The offering was heavily oversubscribed, and in subsequent weeks the value of the shares rose by 25 percent. The remainder will be sold by the end of 1998.

Why are the Italians converting these major public enterprises to commercial companies? For three reasons: capital, competition and competence.

Like LAX, Rome's international airport needs major expansion, expected to cost nearly $1 billion. Why use limited public-sector funds, officials reasoned, if this expansion can be financed by investors? Rome's water and electric utility also needs modernization, but that wasn't the primary reason for privatizing it.

As in California, electricity competition is on the horizon in Italy, and across the European Community. To cope with this challenging new environment, Italy's utilities need to reinvent their corporate cultures, breaking free of their bureaucratic, civil-service traditions. They also need to attract the most competent top management talent - and be able to offer compensation packages competitive with private industry.

It isn't just Rome that is facing up to these changing realities. Municipal utilities in Milan and Turin are also being privatized, as are the airports in Naples and Milan. Germany is in the process of selling the Dusseldorf airport and the Berlin electric utility, and is inviting the private sector to finance, develop and operate the new Berlin airport. Elsewhere in Europe, the airports in London, Birmingham, Copenhagen and Vienna have already been privatized, and Amsterdam's Schiphol is likely to be sold next.

Just because Europe's major cities are privatizing their infrastructure does not mean that Los Angeles should blindly follow. But suppose that a serious assessment concluded that LAX and the DWP would be better able to meet the challenges of the 21st century as investor-owned companies than as municipal enterprises. Is privatization doable in Los Angeles?

Current political resistance aside, there are several legal constraints. First, federal law currently would permit only the long-term lease - not outright sale - of LAX (and then only if Los Angeles applied and got accepted as one of five federal pilot projects in airport privatization). But that would not pose a serious barrier to major, commercializing change. Both Australia and Argentina are in the process of privatizing major airports like Sydney and Buenos Aires via long-term leases, which delegate major financial responsibility to the private sector, while retaining government oversight and control.

California law was amended last year to permit the sale of municipal utilities with majority vote of the affected population (rather than the previous two-thirds requirement). Another new state law permits leasing municipal infrastructure for up to 35 years. And the IRS recently issued new regulations that permit existing tax-exempt bonds to retain their tax exemptions after a municipal enterprise is sold to investors, removing what had been a potential obstacle to such sales.

Clearly, privatizing LAX and DWP via either lease or sale is possible. The real question is: Is privatization desirable? That is a subject our two charter reform commissions ought to be seriously addressing. As we move into a new century, the privatized airports of Amsterdam, Berlin, Buenos Aires, London, Rome, Sydney, Vienna and many others will attract the world's best commercial airport management and become far more customer-oriented. Can we afford to develop and operate the new LAX to any lesser standard?

And can the DWP even survive - let alone offer Los Angeles residents and businesses competitive electricity and water prices - in the brave new world of deregulation? It clearly needs both the ability to attract and pay top-notch management talent and the ability to move quickly and flexibly as a business in a competitive marketplace - neither of which is possible under its present status as a city bureaucracy reporting to the City Council.

L.A.'s municipal enterprises have played a major role in this city's development. But their organizational form as civil-service bureaucracies has become obsolete in a world of competing, commercial airports and utilities. For Los Angeles to fulfill its destiny as America's most important city, it needs 21st century institutions - and that means competitive, privatized, commercialized infrastructure.
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Article Details
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Publication:Daily News (Los Angeles, CA)
Article Type:Editorial
Date:Aug 28, 1997

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