Businesses could reap hundreds of millions of dollars worth of contracts from Los Angeles if the City Council privatizes all the services outlined in a recent report from the Controller’s Office.

If that happens, businesses can thank the recession for clearing the way.

Traditionally, unions have opposed privatizing city services. But with Los Angeles facing a projected $432 million budget shortfall by July 1 and the recession making other revenue sources difficult to find, experts said Mayor Antonio Villaraigosa and the council could be more open to privatization than previous administrations.

That in turn could open the gates to businesses. Several companies that specialize in working with the public sector said they would be interested in picking up contracts from Los Angeles if privatization occurs.

City Controller Laura Chick, who leaves office in six months, put the issue of privatization at the forefront when her office issued a report listing services including operation of the city’s animal shelters, part of its water system and even Ontario International Airport that the City Council could contract out.

Typically governments privatize their services and operations to raise or to save money. They can either sell their assets, thereby getting a large, one-time shot of cash. Or, in a less drastic step, they can keep their assets but contract out the labor to or lease their facilities to businesses, thereby getting a smaller but regular flow of income. Chick’s report talked mostly of leasing and contracting, but the City Council could do what it wanted.

The report did not specify how much money Los Angeles could save or make through privatization.

Los Angeles already contracts millions of dollars worth of work to businesses for tasks such as construction and street paving. The controller’s report does not place a total value on potential new contracts, but a spokesman said it could easily range in the hundreds of millions of dollars.

The last time Los Angeles engaged in a sweeping discussion of outsourcing was under Mayor Richard Riordan in the 1990s. Riordan took office partly on the pledge to close a $200 million budget deficit by privatizing Los Angeles International Airport, and the city’s parking and golf courses. But he was stymied by unions and their backers on the City Council who said privatization would cost public workers their jobs.

The unions still oppose privatization, and Villaraigosa and most members of the City Council often ally with the unions, particularly on such issues as the living wage and worker retention. But the city’s dire budget situation and the state of the economy could be twin battering rams that pro-privatization forces use to break down that barrier, said Kevin Klowden, managing economist at the Milken Institute, a think tank in Santa Monica.

“If privatization is going to happen, this is the time it will happen,” Klowden said.

Chick said she is not recommending privatization, only outlining options. But she believes privatization could be healthy for Los Angeles by injecting some business sensibility into operations where expenses outstrip revenues.

“Any business would tell you that you cannot keep operating that way,” she said.

While she acknowledged labor’s power and influence in Los Angeles, she said council members should weigh all the options.

“We’re in a financial crisis,” Chick said. “And one of the advantages of being in a crisis is it opens up people’s minds to new ideas and new ways of doing things. There should be no taboos in terms of what’s on the table to look at.”

A spokesman for the mayor did not return phone calls seeking comment.

Businesses interested

In periods of downturn, businesses can benefit as municipalities try to raise money by contracting out services.

The city of Long Beach, for instance, has been approached by several prominent investment houses, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Capital, interested in managing Long Beach Airport, said City Manager Patrick West. The Long Beach City Council, which is facing an estimated $15.7 million revenue shortfall this year, will take up the issue at an upcoming meeting.

“We’re seeing more businesses coming up to cities and asking, ‘Are you interested in doing a deal with your port, the water department, a golf course, a marina?’ There’s more and more focus on stuff like this from the private (sector),” West said.

The Los Angeles City Council isn’t likely to address privatization until budget discussions begin in March and April. But the possibility that Los Angeles may put more contracts to bid has already piqued the interest of some businesses.

Chick’s report singled out parking lots and structures as “ideal candidates” for privatization. The L.A. Department of Transportation currently has 115 parking facilities, with nine of those managed by private contractors. Parking Concepts Inc. in Irvine runs eight of those lots; L.A.-based Five Star Parking Inc. manages the other.

Robert Hindle, Parking Concepts vice president, estimated that the company’s contracts with the Transportation Department are worth $6 million to $8 million annually. He said the company would be interested in managing additional city lots, noting, “We’ve really geared ourselves toward the public sector.”

About half of Parking Concept’s clients are public entities, including L.A. County, said Hindle, who added that private companies offer the advantage of being able to move quicker on maintenance and personnel issues than most public workers.

Shawn Heffner, director of operations for Cal Water Inc., a publicly traded water company based in San Jose, said Cal Water would be interested in bidding for management of the city’s Hyperion Wastewater Plant in Santa Monica Bay, which Chick’s report said “could be a candidate for a contract management agreement.”

Cal Water partly or fully operates water treatment facilities in many L.A. County-area municipalities, including Commerce, Carson and Torrance. One of its most prominent area clients is Hawthorne, with which Cal Water signed a 15-year, $6.5 million contract to run the water system in 1996.

“Our core business is water and wastewater systems in California,” Heffner said. “It sounds like off the cuff that the city of Los Angeles might be a good fit for us.”

But any push toward privatization will meet steadfast opposition from unions. The labor groups say privatization is an unproven model that costs public employees their jobs without saving money.

Hiring agreements

“We’re not for privatization,” said Bob Schoonover, acting president of SEIU Local 721, which represents about 8,500 city workers and is one of the largest city unions. “We’re for finding ways to save money, working smarter, whatever we have to do.”

Chick said one way the City Council could overcome such opposition would be to reach agreements with contractors to hire city workers, a solution that has precedent.

Heffner said when Cal Water has taken over water treatment work it’s hired the city employees who might otherwise have lost their jobs.

And Hindle said Parking Concepts usually retains 75 percent of the work force when it takes over a public or commercial garage, letting go only those who fail background checks or drug tests.

“We can be flexible,” he said.

But Schoonover said unions would even be opposed to an agreement that guaranteed workers their jobs, a hint at the showdown that the City Council would face if and when it takes up privatization.

Time for Change?

The City Controller’s Office outlined eight areas where Los Angeles could consider privatization by contracting out some services:

AIRPORTS: The city could grant a long-term lease for a business to run Ontario International Airport.

FLEET OPERATIONS: A private contractor could operate and maintain 11,000 city

vehicles and heavy equipment.

GOLF COURSES: The city could call for bids from qualified companies to operate some or all of its 13 golf courses.

JOINT DEVELOPMENT: Los Angeles could contract with developers to build on vacant city-owned land or renovate city-owned buildings.

ANIMAL SHELTERS: The city could form a partnership with a non-profit to run its seven animal shelters.

PARKING LOTS: Contractors could bid to operate the city’s parking facilities.

TRASH AND RECYCLING: Private waste-disposal companies could contract for their services.

WATER: The city could privatize the Hyperion Wastewater Plant in Santa Monica Bay.

Sources:

Office of the Controller, City of Los Angeles