Attractive Option For Los Angeles Officials
The 1980s have seen local governments across the country attempt to adjust to a variety of fiscal
challenges, including cutbacks in federal and state aid, rapidly increasing service costs, and limitations on revenue
sources. Many local governments have found that through alternative service-delivery (ASD)/privatization,
they can significantly reduce the cost of providing services, thus enabling them to avoid tax increases or service
cuts. Today, in facing the same difficulties in finding the funds to provide public services, Los Angeles City and
County must learn from the experiences of other local governments.
More than $740 million could be saved if the Los Angeles City and County applied ASD/privatization
across the board. Although the County has been employing ASD/priva-tization methods in recent years,the
1987 Los Angeles County Economy and Efficiency Commission report on contracting policy estimated that by
applying additionalASD/privatization to County services, more than $300 million could be saved.
Even greater savings are possible for the City of Los Angeles. A computerized budget-analysis program
(the same program used in a similar study in Florida) suggests possible savings of more than $440 million if the
City implemented privatization across the board. And these savings can be made without disrupting public
employees. (Note:As a part of the SAVINGS — A.S.A.P. project, the Law and Economics Center is making
the aforementioned computer program available to analysts who wish to apply the program to future City
budgets.)
This report, by the Santa Monica-based Reason Foundation's Local Government Center (LGC) with the
University of Miami's Law & Economics Center (L&EC), gives specific examples on howto accomplish this
task. Funded by the Southern California Tax Research Foundation with support from the American Tax
Reduction Foundation, this report also shows wherethe savings can be made. Through widespread use of
ASD/privatization, Los Angeles City and County can cope with revenue problems and alleviate service cuts.
And, if these savingsare translated into tax cuts (or prevent new tax increases), the economies of both the City
and County can be significantly enhanced.
Why ASD/Privatization is the Answer
Year after year Los Angeles City and County face increased service demands and inadequate revenues.
To continue to provide certain public services, the City and County have three alternatives — increase taxes, cut
services, or use alternative methods of delivering services. All are politically risky, yet, one has proven itself
more effective in communities throughout the country — ASD/privatization.
Both City and County budgets for 1988-89 show significant increases above the current rate of inflation.
The City's general budget increased by nearly 20 percent from the 1987-88 budget ($2.47 billion in 1987-88 vs.
$2.94 billion in 1988-89) and the total City budget increased by over 10 percent ($6.1 billion in 1987-88 vs. $6.8
billion in 1988-89). The total 1988-89 City budget represents a nearly 30 percent increase in just three years, or
a $1.5 billion increase. The County also increased its budget by nearly 20 percent over the 1987-88 budget ($7.6
billion in 1987-88 vs. $9.1 billion in 1988-89). Through ASD/privatization, both the City and County can meet
their respective budgets without asking for increased revenues or cutting services.
To date, the City, and to a lesser extent the County, have coped with fiscal constraints, in part, by
increasing tax revenues or by cutting services. For example, the City raised residential sewer fees in 1988 by 34
percent, continued “temporary” taxes (business, utility, and hotel beds) and surcharges for the fifth consecutive
year, and increased water and power rates in 1988 by an average of 9.6 percent and 4 percent, respectively. The
